Liquor Retailers the Toast of the Town
The bar is open for Southern California consumers as beer, wine and liquor promotions drench the Southland and a major new retailer brings more bottles to the party.
The highly fragmented market has become a bit of a brawl as more businesses are boosting beverage sections to appeal to a wider range of customers, even as the sluggish economy is hurting sales.
“Competitors are everywhere,” said Thomas Choo, who opened Hacienda Beverage in Brea in 1983. His store had only two rivals then. Today, it is surrounded by three liquor stores, three supermarkets that sell alcoholic beverages, a pair of specialty beverage stores and a drugstore that also sells liquor. And barely two miles away is the latest entrant threatening to steal market share: Beverages & More Inc.
BevMo, as it calls itself, last month opened a warehouse-like superstore in Brea, the first of what it hopes will be about two dozen in the Southland in five years. The Concord, Calif.-based company, which was almost wiped out three years ago by overly aggressive expansion, now operates 21 outlets, mostly in Northern California.
BevMo wants to attract some of the educated, affluent consumers in the region who shop at stores such as Trader Joe’s.
“We’re a candy store for adults,” said BevMo’s chief executive, Bannus Hudson. BevMo’s advertising boasts a selection of more than 3,000 wines, 1,000 distilled spirits and 500 beers, along with party food from trail mix to caviar.
“Because of the great weather, there’s a real premium on entertaining,” Hudson said. “Plus, there’s a real awareness of wine.”
That awareness is apparent in the way grocery chains--from Ralphs to upscale Gelson’s--warehouse merchants and wine specialists have all been increasing their selections and changing their mix of beverages to grab a larger share of the market.
Costco Wholesale Corp. has increased its stock of fine wine by 50% in the last five years, mostly with higher-priced labels more affluent shoppers demand. Meanwhile, high-end specialty retailer Wine Club Inc. has boosted its inventory of $10-or-less bottles by 10% this year to lure consumers caught in the economic slowdown.
Looking at this crowded field, some analysts wonder whether the world needs an alcoholic beverages superstore like Beverages & More.
“I think . . . something like that could start to look like overkill,” said John Burcham Jr., executive director of the National Assn. of Beverage Retailers in Bethesda, Md. “I don’t think people going out to buy spirits or wine need to look at a thousand different varieties before choosing one.”
The superstore chain isn’t worried. With advertisements promising lower prices on Chardonnays, vodkas and pale ales, it hopes to be solidly ensconced in the Southland by the time the economy turns around.
Per capita consumption of alcoholic beverages has grown modestly nationwide, and sales growth has relied more on higher prices and increased population.
Statewide, sales of beer, wine and liquor grew 7.3% to $1.5 billion for the first nine months of last year, the latest figures available at the state Board of Equalization.
The wine sector has fared best. Baby boomers entering their peak spending years have spurred sales of premium wines costing more than $7 a bottle, driving the entire market. Last year, U.S. wine sales reached $19 billion, up 74% since 1991, according to the Wine Institute.
But Americans’ love affair with wine might be vine deep. Only about one-third of all Americans drink wine, and a paltry 12% of them drink four or more glasses a month, according to an American Demographics report.
“There’s an audience out there for what [BevMo] is doing,” said retailing expert Pete Bucklin, a business professor at UC Berkeley, “but I don’t think it’s a huge one.”
In recent years, the corner liquor store has borne the brunt of the competition. The number of liquor stores in Los Angeles and Orange counties, for instance, has fallen 11% in the last five years.
To keep up, retailers such as Choo, 55, have moved away from low-brow beers and wines to premium beverages such as Grey Goose vodka and $139 bottles of Cabernet Sauvignon. During down time at Hacienda Beverage, he thumbs through copies of Wine Spectator magazine to learn more about wines.
A few miles away at Country Hills Liquor & Deli, manager Mark Johnson has learned the names and preferences of many of his customers during his 21 years at the store. He doesn’t think BevMo can compete on service, especially if it scales back on such promotions as its current $10-off coupons.
“They had a nice, clean store,” he said about a recent visit to the BevMo in Brea. “But I didn’t leave there thinking we’ve got to change what we’re doing.”
Entering BevMo, patrons encounter an enormous selection of wines, spirits and beers neatly stacked in long rows. The walls are adorned with adages such as “Good company, good wine, good welcome, make good people--Shakespeare.” Cards describe many products, such as a Portuguese Charamba Tinto wine that has “smoky notes open to rich aromas of cassis, black cherry and plum.”
But even customers enamored of the superstore won’t necessarily rush back.
Vince Scullin, 44, recently spent $164 on five 12-packs of beer and 11 bottles of wine for a weekend party. “Beverages could be my new favorite store,” said the Anaheim Hills resident. But he added that he probably won’t return more than once a month because he is a light drinker.
Tom Pirko, president of Bevmark, a food and beverage consulting firm in Santa Barbara, says the current economy may be the biggest challenge for BevMo and others.
With layoffs rising and disposable incomes shrinking, many consumers are less likely to splurge on pricey wines, craft beers and vodkas, Pirko said. But he thinks a slow economy also could work to BevMo’s advantage, such as lower rents for its superstores. What’s more, price-sensitive consumers are more likely to buy wine at a retailer such as BevMo than go to a bar or restaurant, he said.
Only 7 years old, BevMo became profitable last year after recovering from a disastrous expansion.
Steve Boone, who started the now-defunct Liquor Barn, co-founded the company in 1994 with the goal of building a nationwide network of 100 stores within five years. In its zeal, BevMo chose poor locations that failed to generate the expected sales, said Bill Hunckler, managing director at venture capital firm Madison Dearborn Partners, BevMo’s largest investor.
By the end of 1997, the business was “burning through cash and very nearly out of business,” Hunckler said.
BevMo turned to Hudson, former chief executive at U.S. Shoe Corp. and Lenscrafters. He closed seven stores, including ones in Torrance and Palm Desert, and cut payroll by 100 to 400. He also installed a software system that tracks sales and automatically reorders big sellers, he said, so inventory now moves 25% faster than before.
BevMo posted its first net profit last year on sales of $130 million, and projects revenue to grow more than 15% this year.
Bucklin, the Berkeley professor, said there’s clearly a market for BevMo’s offerings. But given the cutthroat competition, he questioned the viability of the liquor warehouse business model.
“You don’t see the world populated with large-scale superstores in beer and wine,” he said, “and there’s a reason for that.”
