Alcohol Retailers Vulnerable
The Battle for the Liquor Industry
Data as a Core Driver of Commerce
Nowadays people can do pretty incredible stuff with just the touch of a button. One can call a friend, check a social profile, take and share pictures and stories, record content, recommend and purchase digital and physical items over the internet and have them shipped or delivered to you in less then a day. In real life each one of those activities leaves behind signs - in the digital domain these are known as digital breadcrumbs.
The Wine and Spirits industry is an incredibly unique space as the market for e-commerce is still in its infancy. Retailers in the Wine and Spirits Industry including the biggest ones are still exploring the opportunity in the digital domain at a very basic level. Concepts like remarketing, retargeting and consumer journey that have been widely adopted in other industries have only lately been introduced to this unique market. Part of it is a result of regulatory oversight that has prevented vertical integrations on one hand, and the creation of super chains (and super data players) on the other hand. Another reason, tightly related is the absence of customer ownership. In other words the mutual ownership of the customer often entails an actual lack of ownership of the customer and its journey.
The need for better digital solutions for retailers, distributors and suppliers has been evident for a few years now. For the retailer, capitalizing on the opportunity data may have to offer, entails having good access to its Point of Sales (POS) and consumer data. Many retailers, understand that and seek to replace their POS only to end up in more or less the exact same place. The POS market is extremely competitive and fragmented and very few (if any) companies would bother to do anything with the particular retailer’s data to the extent that retailers are stuck with a flashy dashboard and the backend of a 40 year old database not allowing any real automation or even the most basic data-driven decisions to take place. The truth is that squeezing value out of data is very hard. And while I have been hearing more and more executives praising the value of data and increasingly willing to pay an obscene amount of money for a sexy sample of a random data set, many from the small retailers to the top brands of the country do not have an appropriate data strategy.
The 3 Options: Do Nothing, Do Something, Do the Right Thing
Own everything
Most Beer, Wine, and Spirits merchants do not have a digital strategy. I mean some of them might be under the impression that they do, but a quick look at their website will reveal the hard truth: they are not in the competition. There’s a good reason for that; building a sustainable and scalable digital strategy all on your own is expensive twice: Firstly, the upfront cost is prohibitively expensive with prices for a basic website ranging from $2500 to several tens of thousands. Secondly, and even more importantly, maintaining a good digital channel in this rapidly changing world will require significant and ongoing time, effort, and ultimately money, making it a non sustainable solution. The DIY set of solutions is an interesting approach that takes away the upfront cost but has not been proven to be a good enough solution at this stage. It also requires significant investment to serve as an actual ongoing alternative.
Outsource everything
Having this bad experience maintaining their own digital assets has some stores deciding to say no to e-commerce. Worse yet, others have taken outsourcing a few steps too far and are entrusting their sales with third party sites and platforms. Customers go to the 3rd party sites and order their alcohol there, as opposed to on retailers own, brand-labeled website. The result? This ultimately destroys their independence, as they no longer have control over their customers and sales. Retailers lose out on driving business to their own web page, their own Mobile App, and finally their store. They lose out on utilizing data to help their business grow. And most importantly, they lose out on creating a long-term customer base that will serve as their very own customer base and community for years to come.
e-Commerce People?
So why are retailers doing this when they are clearly losing in the long run? The easy explanation is that the world of e-commerce is an extremely tough environment, and it could be hard to get people to your website, let alone build your own. So when someone comes along and says that they will integrate with your POS system and drive sales via a delivery network for you, and all it will take is for you to give up brand recognition (and your e-commerce customers), you take it. That is indeed true but captures only a very small part of the story. Many merchants have repeatedly insisted that these are “new customers”, “different customers”, and in fact “new money” as if there’s a hidden world of e-commerce people accessible only from platform 9 ¾. While this is a very appealing narrative, the truth is that there are no e-commerce customers, there are just customers. People that shop digitally are more often than not the same people that shop offline and so by giving up your e-commerce customers you are in fact giving up your customers. We have the numbers to show for it: more than 9 out of 10 people shopping online for wine and liquor make an occasional visit to a store. If you still insist taking that short sighted route - one advice summarizes the situation, insist on getting full customer information from your new 3rd party provider - Literally none of the marketplaces will agree to give you that. And then sit down and ask yourself - “why?”, and immediately after “what are the consequences?”
Own your customers
The right solution starts with defining the right goals. As simple as it sounds we have seen business owners and operators get lost already at this very early stage and we do not blame them. It is very easy (and often facilitated by all kinds of helpers) to fall for “fake” measures like impressions, awareness, clicks, foot traffic, reviews and even top line sales and revenues. For retailers, at the end of the day, the goal should boil down to increasing the bottom line. To get there all those soft measures mentioned above may be good proxies but they should not interfere with the main goal of increasing the bottom line. After establishing that, we can strategize what could be the approach to get there but we need to at least agree on that.
Next, we can begin to think about how to reach this goal of increasing the bottom line. I believe there are two channels for this: optimize current customer output and reach new customers. Retaining customers is extremely important. From my experience it is 5-8 times easier to retain a customer than it is to acquire a new one. Nevertheless, both are important for any business to succeed in the long run. There are many techniques being used today to engage customers and prevent them from going to other sources for their purchases. Perhaps the most important is that consumers are provided a seamless omnichannel experience. That is because it takes about 3 seconds for people to decide if they will keep a product. This means focusing on things like design which could be done using wireframes, A/B testing or hiring a UX specialist. Assuming your site is flawlessly arranged, and consumers coming to shop are having an amazing experience, it is time to focus on offline engagement. Directly this can be done by sending coupons, notifications of promotions, and special deals to loyal customers. Indirectly this takes on the form of social media engagement and Search Engine Optimization (SEO), which are really measures taken to drive traffic to ones site in order to acquire new customers.
The more important part of owning everything is having the ability to oversee everything. While this can be done with a notepad or spreadsheet, it would be a primitive way of going about it. Machine learning and artificial intelligence provide incredibly powerful ways to automate and improve operations. And finally, as we saw with the Facebook-Cambridge Analytica data scandal, data security should be taken extremely serious these days. By having your own ecommerce presence you retain full control over all the data you create, mitigating the chances something horrible like that happens in the future.
Two Lessons Learned: The Print Book and the Publishing Industry
Most people do not know this, but the Amazon revolution for the print book industry had two major casualties. The obvious one was with major brick and mortar retailers like Borders and Barnes and Nobles. Their demise was far from being unstoppable; it was facilitated by the celebrated and later described as catastrophic partnership that Borders has made with Amazon in 2001. This is what led to Borders losing its customers, its brand-recognition and ultimately to its going out of business (funny enough the model of the deal was similar to the one Amazon struck with the late Toys R Us). While retailers in the Wine and Spirits industry are in some sense protected by regulators, they are still at significant risk of falling into the same trap. Some of them are not only playing this dangerous game, they are playing this game with none other than that same Amazon.
The second and unfortunate casualty, which was for some reason less obvious although it is textbook material...that market concentration at one level can adversely impact the position of other levels in the market. In short, that smooth $9.99 price tag you pay for your books today, publishers did not actually agree to that rate, they had no choice. What was later known by some as the Hachette dispute was a direct result of a very poor strategy and significant short sight by the Book Publishing industry. By monetizing on orders from their “new” partner at the time, the publishers lost grip of their dominant position in the industry. Today they no longer call the shots and doubtfully will ever regain any control over their own faith.
Conclusion
In the last two years I have spoken to over a 1000 business owners and operators and cannot overemphasize how much I appreciate the hard work they are doing and the challenges they are facing, growing and maintaining a business in what is not always a welcoming environment. As we have seen time and again technology can definitely disrupt existing businesses and business models, but it also creates opportunities for new businesses and for existing businesses to improve themselves and come out stronger and better on the other side. With the exception of the battle of Stalingrad, a battle has never been won by focusing strictly on defense. In the Battle for the Liquor Industry the Retailers that prove to be the most successful will be the ones that are willing to adopt new technologies, take chances, establish the right partnerships, and aim to win. This is an exciting time for the industry as a whole, and it presents Retailers both big and small with the chance to meet these challenges with creativity, wisdom and grit. Those that seize this tremendous opportunity have significant upsides waiting for them on the other side.
