jsburbidge | Entries tagged with retailing

It is slightly over a year since I posted about the LCBO and Brewers Retail.

In that intervening time, the landscape has changed somewhat in a number of ways:

The Government of Ontario has started a limited programme of selling beer in grocery stores. This is is available mainly to larger chain retailers (no running down to the corner to the dépanneur in this province), but is planned to cover 450 stores eventually (equal to the number of BR stores). What was originally a bizarre hard cap on quantities sold has been replaced by profit-sharing above a certain limit.

Molson has bought out Mill Street Brewery in Toronto, one of Ontario's larger independent brewers. They claim that it will operate at arm's length and maintain quality, but at the very least they are likely to focus on growth with the line of beers they have rather than experimenting much or extending their range. (They weren't very edgy in the first place: their Tankhouse Ale is a reliable full-bodied ale, but their Organic Lager is tasteless; their most interesting beer is probably their coffee porter, which is not for everyone.)

The secret agreement between the LCBO and BR has been replaced by an explicit and public "master framework agreement" which puts far more control on Brewers Retail, and ensures greater representation of craft brewers in all venues.

On that front, some LCBO locations are being outfitted with in-store boutiques to highlight craft brewers. These include tasting areas which draw from casks. I've seen one of these, at the Summerhill LCBO, but it wasn't functional at the time.

Another really good brewpub has opened in downtown Toronto: the Folly, on College Street near Dovercourt. It tends towards farmhouse-style beers with a sour edge, and also has a large Scotch list and good food.

Two new good IPAs from local brewers are now available in cans: GLB's Lake Effect IPA (which is not entirely new, but used to be available only occasionally in large bottles) and Collective Arts' Ransack the Universe, available up to now mainly on tap.

Boycotting Brewers Retail is not as compelling as it used to be, although it's still true that buying there will send profits out of the country which would otherwise remain in Ontario (or at least Canada, if you buy at a grocery store).

Next up: the Government is now moving towards liberalizing wine sales...

And now for another couple of lessons in how to lose sales, if you are a bricks and mortar superstore chain.

1) If you carry a series, carry all of the series.

In particular, don't leave gaps.

About a week ago, I finished the second volume of Kadrey's Sandman Slim novels, which my daughter had given me for Father's Day. (I had already read the first one a year or two ago.) It's a nice, competent, somewhat blackly humorous series which is a cut above mind candy but not likely to be on my Hugo Nominations lists, and I'm not running out and buying everything in it at once. Still, the second volume set up an obvious sequel, in the way that second volumes do, and I went into the local (to work, five minutes' walk away or so) Chaptigo willing to pick up the next volume, Aloha From Hell, and possibly it plus its successor.

No luck.

Oh, they had other volumes, relatively heavily weighted towards the later volumes, but also including the first two. Just no third one. Because it was a fairly casual, mild interest, no immediate need, I didn't bother hunting down possible other copies, and (again, no great need) I'm not going to buy later volumes until I've read or at least have the earlier ones. So no sale, either of it or its successors.

A couple of weeks pass.

2) Get in books when they come out.

Tuesday was the release date for Jo Walton's The Philosopher Kings, which I am willing to go out of my way for, but even more willing to pick up as soon as possible (in paper, not electronic format -- I have people to lend it to after I finish it).

Chaptigo indicated, on Tuesday, that although it was available for order online, it was available at no stores in Toronto at all. (A Canadian author, at that, and the predecessor has been selling well enough that there are three copies in hardcover of The Just City at my closest IndigoSpirit (which has stock control policies which are, let us say, not very midlist-friendly).)

In conjunction with the fact that Bakka's weekly update on their weblog indicated that they had it as of Tuesday, this indicated a trip to Bakka, after the Dominion Day holiday was over. So I went up at lunch and picked it up, along with (as it was on my mind) Aloha From Hell.

So Chaptigo lost two, possibly three, sales right there.

If you have no competition, you can afford to be sloppy, but if you run a bricks-and-mortar store in a location with competition, if you aren't on the ball, it's easy to lose sales like that.

This is heightened by the fact that purchasers who will pay the premium for a hardcover over a digital copy or a later paperback copy are probably willing to go out of their way to get it.

I could have pre-ordered the Walton from Amazon or Indigo, but I would still have been unlikely to get it any faster than I actually did; and I ended up supporting a local independent bookstore. And a customer who's focussed on getting an online discount isn't a potential customer for a bricks-and-mortar store in any case.

In the first case, assume that I had been dedicatedly looking for the Kadrey the first opportunity I could get. There's a copy at another, smaller IndigoSpirit store downtown, so I could have gone there, which is fine for the chain as a whole, but it still represents a lost sale for the manager of the more major store; and calling to reserve the copy at the other store and sending the customer there is at least as inconvenient. So even in that case it's almost a wash for Indigo as a whole (slight hit taken from my irritation at their stocking policies) but a loss for the site itself -- and Indigo has been closing down sites in Toronto; you can be sure that headquarters pays attention to each site's sales figures.

Driving me to e-book purchases doesn't work either; if I had wanted an e-book of the Walton, I could have downloaded it from Google onto my phone, which is easier than getting it via the Kobo store -- a lot of people have Android phones and tablets -- and a subsequent download of an epub (no DRM, as it's from Tor) could be managed at any desktop PC where I was signed in. And I won't buy the Kadrey in digital form, as it has DRM and I can't read it in my preferred e-reader.

I honestly don't think that this is, as such, the result of having bean-counters run the chain; I suspect that it's the result of a "just good enough" stock software system that doesn't make connections, doesn't anticipate, doesn't have the flexibility that a human checking up on stock does.

I could make a guess at the scale of the cost side of that cost / benefit equation -- assuming that they already have a tailored stock-control system; if they don't, the cost is much, much higher. You'd need a ton of flags regarding authors, series, anticipated popularity as derived from media as well as sales of other works by the author, typical time between re-ordering and stocking by publisher, pattern tracking sensitive to individual stores, so you can assume both programming time and ongoing manual input costs. Call it a half a good developer for a year added to existing costs plus management overhead plus ongoing data-input (mainly centralized) of a fifth of a clerical person a month ... that's, um, somewhere between fifty and a hundred thousand dollars in the first year and a ongoing cost of between ten and twenty thousand dollars a year to feed the beast enough information for it to make a difference, plus occasional software tweaking.

If an average HC is $30 CAD and an average trade paperback is 15$ CAD (MMPBs have a different sales model, typically, and the considerations I've listed are mainly at a higher end), and the typical cut of the bookseller is 40% for non-bestsellers, then each sale gained gets about $6 to $12 in additional revenue. Amortise the software cost over, say, three years and expect to be in balance after five, and you need ... about 3,500 to 6,000 extra sales a year to justify the costs involved (and the costs are still less than hiring one full-time staff person each year, including benefits). If they have on the order of a hundred stores (6500+ employees, some of whom will be head office, so I'm guessing at on the order of a hundred locations averaging between small stores with four to five staff and superstores) that means an extra 35 to 60 sales per year per location. However, that has to come from a particular subset of dedicated readers who don't do e-books, don't order (much) online, and come in frequently, and I wonder whether even that number of gained sales is realistic.

A small specialty store can manage this sort of stock management inside the head of its manager. If a large store gives its local floor managers rein to order effectively it can make up some of the gap... but factors of scale and control (local people can slip up badly, too) are likely to keep that sort of freedom in check.

Even if the approach passed a cost-benefit test on its own, it would increase their gross revenue by about .0004% (revenue is about a billion dollars, according to Wikipedia). Chapters Indigo has announced that their strategy to increase profitability involves emphasizing non-book merchandise to a much greater degree. From an opportunity cost perspective, I doubt that this sort of attention to detail, as a business strategy, is going to make a lot of sense.

In the wake of the Clark recommendations regarding the handling of what used to be "Brewers Retail", and then the subsequent publication of the details of the 2000 agreement between the Brewers and the LCBO, there's been a push to boycott the Beer Store, and beers brewed by the 3 international breweries who run it.

The fundamental argument is that profits made by the LCBO go to the province and feed back into services, whereas profits at the Beer Store go to the foreign-owned breweries. On its own, this isn't compelling; preferring public over private sales outlets where there is no compelling public interest in the government being in the business is pretty well a non-starter; and there's no push not to buy beer directly from local breweries such as Mill St. or Bellwoods.

The major problems that have been listed are specific to the way the Beer Store is run.

First, it's not a private enterprise engaging in level-playing-field competition. It's very nearly a monopoly. As Clark pointed out, the government is licensing a monopoly for which the BR is paying nothing (he recommends that they should be charged a reasonable sum for it by the province, and be prevented from passing on the cost to the consumer (easy to do because the LCBO sets the prices the breweries sell by for any beers also listed with the LCBO)).

That monopoly is run to avoid it looking as though it is profitable by funnelling revenues back to the owners by mechanisms other than declaring a profit.

Secondly, it engages in discriminatory pricing against smaller breweries, charging listing fees which act as barriers to access. (It used simply to refuse to carry any beers not made by the owners: they had to change that after a successful challenge under the Free Trade Agreement with the US by an American brewer.)

Thirdly, the agreement between the LCBO and the BR is clearly in restraint of competition (and so against public policy) and has in fact been challenged in court on that basis under the Competition Act. That agreement also seems to involve no consideration flowing to the LCBO and is therefore not an enforceable contract -- it could be voided at any time. (Clark recommends changes to it such as allowing the LCBO to sell twelve-packs.)

Fourth, with a very few exceptions, the beers produced by the three owners are, to put it mildly, not good beer. The obvious exception in Canada is beers by Uinibroue (owned by Sleeman, which is owned in turn by Sapporo). There are also some small breweries owned abroad by InBev which have retained quality after acquisition, such as Goose Island, acquired by Anheuser-Busch InBev in 2011, and Leffe (an "abbey" beer actually brewed under licence to the abbey at the Stella Artois brewing facilities). Note that Bass, which is Anheuser-Busch InBev's flagship brand in the UK, is not what it used to be. There is really nothing redeeming to be said for Molson and Labatt products.

In fact, there are a limited number of good beers carried by the Beer Store at all (more of the effect of those barriers to entry). I'm partial to IPAs: the only really good ones carried at the Beer Store are Boneshaker (produced by Amsterdam) and Mad Tom IPA / Twice As Mad Tom IIPA (Muskoka Brewery). The LCBO also carries (at present) Great Lakes Brewery's Lake Effect IPA and Central City Brewers' (BC) Red Racer IPA, and carries many more during the summer from foreign and local craft brewers. (At present, it's more heavily invested in stouts, porters, and a few winter ales and barley wines -- none of which you will find at the Beer Store; the pricing barriers make seasonal brews uneconomical.)

Finally, the Brewers' Retail group is dishonest in its self-presentation -- note the campaign against selling beer in alternate locations suggesting that corner store operators were more likely than Beer Store operators to flout the laws restricting the sale of alcoholic beverages to minors.

So I'd support the general boycott. Note that aside from the obvious major labels (Sapporo. Sleeman, Molson, Labatt, Coors) there are a number of subsidiary labels which should be avoided: Unibroue, Alexander Keith's, Lakeport, Kokanee, Creemore Springs, Shock Top, Stella Artois, Leffe, Bass, Charrington, Hoegaarden, Beck's, Budweiser, Löwenbräu, Rolling Rock, Spaten, and St. Pauli Girl. In addition Corona, Miller and Heineken are marketed by Molson in Canada.

Two independent points experienced on Saturday:

1) I went to the New Balance shoe store on Yonge Street in Toronto. New Balance makes walking shoes in my size (well, more-or-less my size: I'm actually 14A but I can wear lace-ups that are 14B if I tie them tightly; 14A is basically impossible to get these days at any affordable price point). I currently wear a pair which I picked up there several years ago.

The clerk whom I spoke to and specified size first said "you mean regular width" and had to be corrected (and shown that the shoes were, indeed, documented to be made in my size). He then informed me, after several minutes at the terminal, that anything in my size would be a special order and would take up to four weeks (21 working days = 3 1/2 weeks, but for all practical purposes four weeks for a store I'm unlikely to have the leisure to get to during the week).

Now there are two problems with this.

Part of what is built into the price of a pair of shoes at a shoe store is the service one gets typically from the staff -- trying on several models, testing fit, etc. Offering shoes with no service beyond placing a special order and not offering a significant discount is not a good idea.

Four weeks on a special order might have been acceptable two decades ago. Today I can go onto the internet and order the same shoes at the same price or better, to be delivered straight to my house (saving the inconvenience of going to the store again), and probably in less time. Sure I don't get personal service but (see 1, above) I'm not going to get that anyway. This is negative utility provided by the store.

There are only a limited number of styles in outsizes, and only a limited number of outsizes. By my calculations they could keep on hand a couple of instances of each in a space no bigger than a refrigerator. The ability to advertise being able to support outsizes, in a market the size of Toronto, would encourage turnover at a reasonable rate, even if not that of more common sizes. (Harry Young does it.)

Alternatively, supporting special orders in, say, 48 hours would at least show some attention to the retail context.

My reaction was simply to consider this unacceptable. Lost purchase. I'll either order from Winnipeg or go to Harry Young (which has different makes).

2) Later on the same day, I was in a Vintages section at the LCBO. They had one of their little tags up citing a Wine Spectator "Outstanding Value" comment regarding Porcupine Ridge 2012 Syrah (South Aftrica).

I picked up a bottle. It was 2013. Most of the bottles were 2013.

I did find a 2012 bottle, which I purchased.

Now, 2012 is considered a really good vintage in South Africa. 2013 looks promising, but has not received the same reviews. In addition, it's a year younger, and with a Syrah, even a year makes a big difference. (And a 2012, to be drinkable, should be decanted or laid down). Put bluntly, the 2012 and 2013 vintages are not the same product.

Normally, this might not be a big issue: if the label on the rack just says "Porcupine Ridge Syrah" then you take what you get. But if you choose to post a promotional flag specifically related to the 2012 vintage above a rack which is almost entirely the 2013 vintage, that's not only sloppy, it's dishonest. (And I do mean dishonest, even if there's no intent: this is analogous to "passing off", which is strict liability offence. (It isn't legal passing off, since that applies to selling one producer's product under another producer's name -- the equivalent of filling Chateau Petrus bottles with cheap Bordeaux; but it's still representing one thing as something it's not.)

There was no point in complaining to the clerk at the register. If I go in again and find the same flag still there, with the wrong vintage underneath, I may draw it to someone's attention.