The wine and spirits segment of the retail industry is unique in the sense that few other goods available in retail stores are so tightly controlled or legislated. Alcohol distributors and retailers have to contend with a multitude of federal, state, and even local laws that restrict or control the sale of their products.
Essentially, the industry exists as a three-tiered system in which the alcohol producers sell to a distributor, who in turn, sells to a retailer. Generally speaking, besides a few local sales such as a vintner selling a few bottles of wine to people touring its winery, for example, the producers are separated from the consumers in terms of sales by distributors.
Besides tobacco, there really isn’t a more regulated retail product than alcohol, the sales of which are usually mired in a dizzying array of laws and ordinances. While the alcohol industry may evoke mixed feelings in Americans due to the nature of the product that is involved, it is important to note that, as of 2012, the American alcohol-beverage industry was responsible for paying $84 billion in wages annually, as well as sustaining 3.8 million jobs. Since approximately half of the price a consumer pays for an alcohol product is essentially comprised of government taxes and fees, the alcohol-beverage industry represents a cash cow for governments at every level, generating more than $354 billion in economic activity annually. To say alcohol is big business is an understatement.
The wine and spirits industry also faces markedly different challenges depending on what corner of the retail industry that business happens to operate in. For example, retailers will have loss prevention issues that distributors simply don’t have, even though the controls on the alcohol are the same. Breakage in the supply chain, for instance, can lead to significant retail shrink. Inadvertently selling alcohol to minors or to unlicensed establishments can also lead to major problems, such as citations, fines, and even store closures.
Industry professionals note that an alcohol retailer’s inventory is usually at greater risk than the cash in the register since it is much more accessible. Therefore, loss prevention efforts should be focused around deterring product theft. RFID, video surveillance, and EAS systems can help manage inventory as well as deter theft.
A recent report by Ibisworld forecasts more state deregulation of the beer, wine and liquor market in the near future. While this retail trend opens up the market to new competition, it also introduces new loss prevention challenges as grocery stores and gas stations begin stocking alcohol.
This article was excerpted and adapted from “Alcohol Retailing: Loss Prevention Issues in the Wine and Spirits Industry.”