Since the spring of 2015, a new BCLDB wholesale pricing program has put BC private liquor stores on a “level playing field” with other private liquor licencees, grocers, and government liquor stores.
Liquor retailers regularly make large-scale purchases of SKUs when LTOs are offered as a strategy to remain competitive and maximize profits. Here are some considerations when implementing an LTO purchasing strategy.
What are LTOs/WPPs?
In the BCLDB (British Columbia Liquor Distribution Branch) pricing programs, “LTO” refers to a “limited time offer.” A method of discount pricing for selling wholesale to retailers, LTOs are now officially referred to as WPPs (Wholesale Price Promotion Programs) in government websites and correspondence. Because many in the industry still refer to LTOs, this article will use that term.
According to the BCLDB, LTOs occur once per month when suppliers decide to reduce the wholesale price for their products. Find the details of when LTOs are offered and how they apply to your particular situation as manufacturer, wholesaler, or retailer in this BCLDB publication “Doing Business with the LDB,” and for more vendor information, read our summary about British Columbia Liquor Distribution Branch services.
What is Bridge Buying?
To safeguard against over-purchasing, which can tie up retail space with unsold inventory, most BC liquor retailers use a strategy called “bridge buying,” where products are purchased at a discounted rate based on sales forecasting for future periods. This also ensures that retailers’ cash flow is not tied up in inventory for long periods of time.
The products purchased on LTO are then sold in future months at regular or partly reduced pricing, during a period when those items are in high demand, thereby generating a higher than normal profit margin during the sale.
How Does Strategic Bridge Buying Work?
For example, a holiday related liqueur is offered wholesale on LTO for two dollars off per bottle. Most retailers are aware that this is a top-selling item during the holiday season, so purchasers look at the prior year’s sales for the month of December and order all the cases they sold in December plus perhaps some additional cases, based on their sales forecasting.
The retailer then turns over this stock within a 30-45 day period during the high-demand season, achieving maximum profit per item and “bridging” their inventory from one month to the next.
By the Numbers
Here’s a comparison of an LTO and non-LTO buy:
- One case purchased non-LTO: $252.96 Wholesale Retail (GLS) $323.88
- Profit per case: $70.92
- One case purchased on $2.00 LTO: 228.96 Wholesale Retail (GLS) $323.88
- Profit per case: $94.92
- Difference in cost per case: $24.00 less
Selling 100 cases during the holiday season, would add $2,400 to your bottom line on just one LTO purchase!
A word of caution: Some retailers buy stock on credit, which works if the borrowed amount is paid back before interest accrues. But when LTO purchasing is done without bridge buying analysis, much of the profit could go directly to lenders as interest payments.
Quick tip: Be sure to calculate the loan payback costs when planning to buy on credit!
Strategic Buying Steps
Follow these steps to make the most of your buying dollars:
- Plan purchases in advance (purchase in October/November for sales in December).
- Compare your top-selling SKUs in each category (for example, beer, wine, spirits, coolers/ ciders) with what is on LTO. Bridge buy your top-selling SKUs.
- Review the prior year’s sales history for the time frame you are planning to have the inventory in your store.
- When the product arrives, ensure till systems and labels reflect the correct pricing strategy.
(List from “The Publican” article, “Maximize Purchasing on the LTO“)
Who Can Help We Can Help You Understand LTOs and the BCLDB Wholesale Price Promotion Program
A strategic purchasing method maximizes the return on each item and ensures that your inventory turns over quickly. To make this process quick, painless, and cost-effective toward your bottom line, contact the experts at Rising Tide Consultants.
You may wonder which pricing changes apply to your unique situation. Our consultants can guide you through the steps and forms required by the BCLDB to save you time and money!