Typical liquor store profit margins
On average, liquor stores tend to have an overall profit margin of between 20% and 30% annually. You can aim for a 50% profit margin if you choose (and are allowed to by your state).
There are pros and cons to aiming for higher profit margins since you'll need to charge customers higher prices for your products, which might not make your store as appealing as a lower-priced competitor.
Of course, the profit margins your store has are going to vary greatly depending on the types of alcohol you choose to sell, the type of business you have, and your location. We take a closer look at each below.
Types of businesses
Grocery stores and gas stations that sell alcohol may be able to handle smaller profit margins from alcohol sales than liquor stores because they're not relying solely on alcohol for their profits.
Restaurants and bars can get away with a much higher profit margin for alcoholic beverages since they're selling by the drink/glass and not typically selling an entire bottle or 12-pack to the consumer.
Normally, restaurants have profit margins of around 80% for each drink they sell because they're looking at “pour cost,” not wholesale cost. Pour cost refers to the cost incurred by a restaurant or bar to pour or serve a single drink. It takes into account not only the wholesale cost of the ingredients used in making the drink but also other expenses such as labor, overhead, and wastage. For example, if a co*cktail costs $1.50 in ingredients (wholesale cost) and $0.50 in other expenses (labor, overhead, wastage, etc.), then the pour cost would be $2.00.
And bars tend to have the highest margins of all, sometimes marking up alcohol by 200% or more.
So, a simple liquor store (no groceries, gas, sit-in bar areas, or cooked food) will tend to have lower profit margins than restaurants and bars but may have higher margins than grocery stores and gas stations that are involved in the sale of alcohol.
Types of alcohol
Beer, wine, and hard liquor are generally marked up at different rates. It's typical to charge a 20-30% markup on beer. If you're working with craft brewers or hard-to-come-by products, you could have profit margins as high as 40-50%.
If you're selling a national brand, for example, you might pay $16 for a 24-pack of beer. You could sell that 24-pack for $19.20 at 20% markup, or $20.80 at 30% markup.
For wines, you can typically get away with 50% markup (or higher, depending on the brand/rarity of the wine).For example, if a bottle of wine costs you $15, you could sell that bottle for $30 at 50% markup.
Be aware that some states determine the wholesale cost and/or limit the amount you're allowed to charge customers, and it may not be up to you as the owner to determine how much of a markup you'd like to place on each product you sell. These states may also have strict regulations regarding the distribution and sale of alcohol that you must follow.
Market saturation
As with any business, location makes a difference. If you're competing with several other liquor stores within a short distance of yours, you may have to accept smaller profit margins in order to stay competitive.
If you're a small business located near a warehouse-type seller that can offer discount pricing because they have such high volume, you may have to drop your prices just to remain competitive, which means smaller profit margins, as well.
However, if you're the only liquor store in town (or in your area), you can probably get away with higher profit margins without losing customers.
Even if you're surrounded by other liquor stores, if your store offers something unique that your competitors don't, you should be able to maintain average to above-average profit margins since you're providing something your customers can't find anywhere else.
For example, you could offer wine-pairing classes, or specialized selections of alcoholic beverages that aren't sold in nearby stores. You may even want to think about alcohol delivery to your customers if you live in a state that allows this.
Again, if you live in one of the states that control alcohol pricing in some way, you may be limited on how much you can charge customers, or have other pricing limitations placed on your liquor store.
The bottom line is that a liquor store in the right location, with a business owner who knows their market and can properly price their beverages, is a great business opportunity. Just don't forget one key ingredient for your liquor store business—a powerful point of sale (POS) system.
Effective cost management
In the pursuit of sustainable profit margins, effective cost management is key for liquor store owners. By diligently controlling expenses and optimizing resource allocation, businesses can reduce operating costs, mitigate financial risks and enhance profitability.
One key aspect of cost management is identifying areas where expenses can be reduced or eliminated without compromising operational efficiency or customer satisfaction. This may involve renegotiating supplier contracts, implementing energy-saving measures to reduce utility bills, or exploring cost-effective staffing solutions.
Moreover, leveraging technology, such as a robust POS system, can streamline operations and reduce administrative overhead (we'll get on to this in our next section).
Furthermore, investing in employee training and development can improve productivity and customer service quality, ultimately driving sales and enhancing the overall customer experience. By empowering staff members with the knowledge and skills they need to excel in their roles, liquor retailers can cultivate a motivated workforce that contributes to business success.
