OH: Banking on booze
The liquor business is hardly on the rocks, but Ohio sees room for growth
By Jeremy Nobile
August 12, 2018
When it comes to government, not everything should be run like a business.
But when it comes to the liquor sector in Ohio — where the state owns the spirits supply, charging a 6% commission on retail sales — doing just that could roughly double annual sales growth for an industry that feeds revenue to JobsOhio, the nonprofit economic development organization that leads the state’s business attraction and retention efforts.
And as the state takes this new approach to liquor, it’s opening at least 18 new liquor stores throughout the state. Most are clustered around the key metros of Cleveland, Cincinnati and Columbus. That’s a significant development considering the state has opened virtually no stores in the past five years.
The state-sponsored operation of liquor sales through JobsOhio began in 2013. While sales have gradually increased on their own through the years, the state hasn’t taken any active role in the retail end of the business.
Think of it like a franchisee operating without any guidance by their parent company that, in this case, is the Division of Liquor Control.
“Historically, the state has just sort of deferred to the (liquor) agency. That’s problematic for a number of different reasons,” said Jim Canepa, superintendent of the division of liquor control. “A lot of them don’t have the resources to do merchandising or facelifts. The other issue is consistency.” Canepa was brought on to the liquor division about a year ago with the exclusive purpose of improving it.
A self-described “change agent,” he has revamped processes at other state agencies in the past, including the Ohio EPA and the departments for transportation and public safety.
He was hired to direct an initiative in the liquor division because the state realized it was leaving money on the table.
That initiative began with ramping up a new inventory control database to better account for products and track sales. That spurred the state’s efforts to purge its supply of discontinued and unpopular products.
The next step was to modernize the retail environments.
Canepa convened industry experts, consultants and spirits suppliers on how it could revamp stores to improve customer experience and, ultimately, sales at large retail stores and smaller shops alike.
There was virtually no cost to that program, Canepa said. The improvement ideas mostly centered around clarity with products and on shelves, but even more attention was given to educating staff at liquor stores on how to talk with customers about products, like explaining to someone the differences between whiskey, Irish whiskey and bourbon.
From left, Dan Saltzman, Division of Liquor Superintendent Jim Canepa and Burt Saltzman cut the ribbon to officially mark the opening of the contract liquor agency Aug. 8 at Dave’s Mercado in Cleveland.
It’s far from rocket science. In fact, it’s something most craft beer and wine shops and even marijuana dispensaries already consider a best practice in the retail world. The state simply wasn’t doing anything like that in the liquor sector before Canepa arrived.
After a 90-day pilot period at six stores across Ohio in 2017, Canepa found that simply reorganizing shelves, stocking them with products people actually want and engaging customers with knowledgeable staff led to increased sales between 9%-15% just over the trial period. There were negligible costs for those efforts that focused on organization of existing space and training liquor store staff.
“Historically, I think the big box retailers, and not just them but all retailers, have an agency contract, so they were just used to the state being blasé and not being active, or supportive, in any of this,” Canepa said. “We’re running it like a business now. And we’re seeing the results.”
Well-performing stores have seen annual sales growth of roughly 5%-6%, Canepa said. With the gains achieved during the pilot period in mind, Canepa is hopeful that 9%-15% growth will become the next standard.
By creating a better retail operation, the expectation is the state, which is the customer of spirits suppliers, will snag the most high-demand items that will then trickle into Ohio stores.
“They’re going to ask, where is the best market for those? I’m trying to create a real enticing environment, and that’s how we can compete,” Canepa said. “It’s creating a market that’s enticing to suppliers.”
Another round, please
With an improved retail process hammered out and new methods for tracking the movement of products, the state is capitalizing on its newfound sense of growth potential in the world of booze by opening at least 20-some other liquor agencies. Of those, 18 licenses have been awarded and several new stores have opened at existing retailers, including Dave’s Mercado in Cleveland.
There are currently 465 liquor agencies in the state. Those existing ones are getting “refreshes” of their spaces, Canepa said. Those are being unveiled in an anticipated 125 stores by the end of October.
The sense is there’s a lot of pent up demand for spirits, Canepa said, and the time is ripe to capitalize on that.
And he’s right.
According to the Distilled Spirits Council, total U.S. liquor sales reached $26.2 billion in 2017, growing 4% over 2016. Liquor saw its eighth consecutive year of growth in market share last year as well with it now accounting for 36.6% of the alcohol beverage market.
In Ohio, total liquor sales were $1.14 billion in 2017 versus $1.07 billion in 2016, according to the latest report from JobsOhio. Both those years marked annual growth of 6.4% and 5.6%, respectively.
That growth in retail sales reflecting overall consumer demand for spirits has inspired some of Northeast Ohio’s distillers to pursue their own projects.
That includes Cleveland Whiskey, which is weighing expansion efforts and recently launched its second $1 million equity crowdfunding campaign, and Western Reserve Distillers, which is preparing to open its new distillery, bar and restaurant in Lakewood.
Meanwhile, according to the National Alcohol Beverage Control Association, as of June, total sales of 9-liter cases (an industry standard) is 2.9 million, which is 4.14% growth over the same period in 2017.
Those figures suggest the state’s efforts may already be having an impact on total sales.
Canepa stressed, though, that the goal isn’t to make people drink more, but to simply come across high quality products that they can learn about and come back to.
“We want people to drink better,” he said, “not more.”