Tuesday, January 26, 2010

"you have to spend money before you make it"

There's an old business adage that says "you have to spend money before you make it" and that's certainly been the case with the Liquor Commissions in Ontario and Nova Scotia who opted to close and relocate a lot of their outlets next door to grocery stores... in Nova Scotia (early in the process) there were a few situations where the Boards even got free "net" rents but only when there were competing grocers in a specific competitive market... that's not the case in Stratford as the only other grocer TRA closed and with that most of the retail traffic has moved up to the Sobey’s location making the old Stratford Liquor store at “risk” of losing sales... for the most part the Nova Scotia Commissions have to pay rents like everyone else and in all cases spent considerably more on their "fit ups" that has been the practice of PEI... the net result in Nova Scotia since they took this strategic approach about 5 years ago has been an annual “profit gain” north of $40,000,000.00 for taxpayers... simply put food, wine and spirits go together and even if a naive Editor at the Guardian tells you otherwise don't believe them as it’s been proven over and over again... the liquor industry may very well be the "only game in Town" but they have proven that "you have to spend money before you make it" and I suspect the same will hold true here... the PEI Liquor Commission is a business just like Transcontinental, the owners of the Guardian, and they both have a responsibility to create the best return for their owners (the public) usually through a business plan.... the Guardian Editor seems to forget that the Cape Breton Post and the Journal Pioneer, owned by Transcontinental, are the "only game in Town" for those Communities... but when Transcontinental make what they believe are legitimate business changes, by closing out a lot of jobs in one Community, and then spending a bunch of money renovating to accommodate those jobs elsewhere, then it would appear they are just doing what the PEI Liquor Commission is doing in “getting the most return out of their business”... I wonder if our local Editor showed up at Transcontinental's annual meeting and questioned "why move the jobs at all?" what the response would be... my guess is she wouldn't have one... I would bet that the recent strategy being taken by the PEI Liquor Commission will prove to be profitable for PEI taxpayers in spite of what all the “naysayers” would like you to believe... in fact it wouldn't surprise me if they are already ahead with some of the progress changes they've already made..
The Guardian
Why do we fuss with our liquor stores? Usually the reason businesses upgrade is to keep ahead of the competition, but what competition is there for our liquor outlets?
There was much discussion last week about what the former minister responsible for the P.E.I. Liquor Control Commission knew or didn't know about the fee taxpayers have to pay to relocate the Stratford liquor store. But one question that's not being asked is: why move the store at all? Islanders learned last week that taxpayers will have to pay $25,000 because of government's decision to break the lease on the current location of the Stratford liquor store and move the operation next to Sobeys. When government originally announced it was breaking the lease, Innovation Minister Allan Campbell, at the time responsible for the Liquor Control Commission, said Sobeys would pay out the remaining years on the lease, and that taxpayers would not be penalized. As it turns out, however, the taxpayer will be on the hook for $25,000 - something the minister was unaware of at the time - and which was made public last week. While this made for much political fodder, the fact is, this penalty is only a part of the overall cost of moving the outlet. The province will pay $70,687 annually in rent at the new location - about the same that it's paying now - but it will also have to pay an estimated $695,000 to renovate the new space and install beer coolers, interior furnishing and a wine-testing centre. No doubt this newest outlet will be a big draw, and officials say the increased sales will easily pay for the additional expenses. But why the urgency to keep moving and upgrading our liquor stores? It's only in recent years that government moved the liquor outlet at the Charlottetown Mall to its current location next to Sears. Usually the motivation for any business to upgrade and expand is to keep ahead of the competition. What competition do our liquor stores face? They're the only game in town. At the end of the day, people will buy their booze no matter where or how it's displayed. And while it's reasonable to occasionally give our outlets a facelift, it shouldn't be a spending priority, particularly when Islanders have every reason to brace themselves for leaner budgets ahead.


Len Currie said...

Totally agree with you Tim. I guess it's like anything else, you always have to have an opposition to any good idea.. just like politics.

Moving the store will be a HUGE draw to get people to that area of Stratford (even though it's becoming more and more popular as it is).

Personally, it means I have to drive a bit further to get the liquor store (I'm on Marion Dr in Stratford - but I'm perfectly ok with that, as it also means I can pick up some groceries at the same time.

Anonymous said...

Totally disagree with this post. Have you ever been to a liquor store in the States? All there is is booze and booze and booze. People do not go to the liquor store to enjoy the ambience or to be impressed by the decor. At one time people may have driven for cold beer but that is not a cosmetic change which this is. The real issue here is that the amount of sales may be going up, but so are the prices. I think to get a true indication of liquor sales you have to look at volume, which I think is probably going down. The Liquor Commission is wasting money on something that doesn't need to be changed. The Stratford liquor store is fine as it is. Now we're paying a whole bunch of money to Sobey's so that sales might go up there and correspondingly drop in other stores across the Island. again, the real question is, are Islanders drinking more booze by volume, because if we're not than this is just another smokescreen.

And as far as cosmetics go, have the wine sales increased because of that fancy wine room at Oak Tree Place which 95% of people walk by on the way to the beer cooler?

Another question is variety. We have whole walls of one type of rum or vodka. I can only suggest that the suppliers are paying to have certain types available. I've heard some people say that Islanders stick to the brands, well, in that case, why are we changing things? I agree that changes needed to be made to get new refrigeration in the liquor stores but this seems like change simply for change's sake, which is not a good use of public money.

Finally, I have yet to see a cohesive argument put together showing that by putting this new store in we're going to get more revenue and we're not just going to have Peter robbing Paul. If the LCC can prove it, then fine, but my guess is that Islanders are drinking less than they did 20 years ago by volume which blows up any of these crap-ass "let's have fancy liquor stores" arguments. Also, if it really was about making money, why aren't there private liquor stores and why can't grocers sell booze?

Tim Banks said...

Through proven results leading US grocers like the Delhaize Group, Kroger, and SuperValu invest heavily in "fit-ups" particularly around their wine and liquor boutiques. It's the same in Canada. The liquor industry associations and the grocery associations in both Canada and the US encourage retailers to invest in store fixtures and decor to improve results but the single most important key to success for any retailer is location, location and location... and that's where the new location for Stratford will win out big time as traffic will triple in their new location. Anonymous who "totally disagree" with my post...I appreciate your comments but there's lots of proof in the retail industry that change works and the majority of Canada's leading retailers renovate their stores at least once every ten years for better results...

Anonymous said...

Tim, you missed the point, in what you have cited in the US these retailers have to "compete" with another retailer. The LCC is not competing with any other retailer. They have the market to themselves. As you are more than aware, the supermarkets in Ch'town have undergone many changes in the last few years to compete with each other, however, this has no bearing on an operation that doesn't have to compete. None whatsoever. I can guarantee you that none of the associations that you state are for promoting change in the industry are in the position that the PEI LCC is in where they have a closed market. That is the point. You can't spend money to compete with yourself. And I'll bet the wine sales haven't gone up a penny at the Oak Tree Liquor store with their new wine room.

All I want to see from the LCC is some numbers that back up that they are increasing the sales volume, not that they are increasing the booze prices and having higher sales. It's like saying Avatar is the most popular film of all time because it had the most amount of tickets sold... I'm sure when you compare the number of tickets sold - there are still a lot of movies ahead of it.

To wrap it up - there has been no evidence that sales increase in a closed market with renovations. If they do - feel free to dance on my grave. But I think you'll find that the volume of sales will increase but will only be transferred from some of the Ch'town and Eastern Kings Liquor stores.

You can't judge this via dollar figures - or you are lost from the beginning.