Accurate and timely information is a powerful tool in the hands of the right people. Jim Canepa, superintendent of the Ohio Division of Liquor Control, and his team are utilizing a new inventory control and software system to tap into consumer consumption trends, and in 2018 it created a windfall for the Buckeye State. “The new inventory system tracked purchases and sales in Ohio and provided us with a high level of granularity and transparency, which gave us an edge in planning and forecasting,” Canepa says.
The new $19 million system—Microsoft Dynamics AX 2012—replaced a $21 million system introduced in 2015 that didn’t live up to its promises. Launched in mid-2017, the new system’s first full calendar year in 2018 exceeded expectations. “Now all parties have access to data in near-real time, ensuring suppliers can see their inventory in bailment and see how their brands perform at retail, while allowing the liquor authority to make data-driven decisions and use the data to educate our employees,” Canepa says.
In 2017, the Ohio Division of Liquor Control also tapped global shipper DHL as its new distributor. DHL consolidated the state’s warehouses from four to two: one in central Ohio and one farther north. The change worked. Spirits sales in Ohio, where stores allowed to sell spirits are known as liquor agencies, jumped an eye-catching 8.1%, or $94.5 million, to approximately $1.26 billion last year. The state registered the highest incremental dollar sales increase among control states in 2018. Consumers traded up on a 4.6% volume increase to 6.16 million 9-liter cases, according to NABCA/Impact Databank.
Ohio’s 2018 sales and volume figures easily outpace national growth trends in license and nearly all control states. “Across the country, domestic whiskey, Tequila, and Irish whiskey are trending up,” Canepa notes. “But we outpace the general trend.”
Tequila sales in Ohio grew 17.7% to $139 million on a 10.4% volume increase to 512,000 cases as Ohio consumers traded up from shots to sipping Tequilas. Like many spirits, Tequila is premiumizing—Ohio saw a 40% increase in añejo Tequila in 2018, while extra añejo more than doubled. Whisk(e)y and Cognac also led growth trends. Sales of American whiskey, including Bourbon, increased 14.5% to $234.4 million on a 8.9% volume increase to approximately 1.03 million cases. Irish whiskey sales jumped 16.6% to $39.9 million on 14.2% volume growth to 121,000 cases. Cognac sales grew 7.8% to roughly 224,000 cases.
Barrel Releases Surging
The most dynamic development for the spirits retail tier in Ohio last year came with the emergence and rising popularity of single-barrel releases. A total of 27 barrels, including four Bourbon brands, were released and each one quickly sold out. “Ohio had never participated in the barrel concept before,” Canepa says. “It was such a lost opportunity because of the loyalty of the Bourbon-loving community.”
The barrel program initially began in late 2017 when Sazerac Co. CEO Mark Brown suggested it to Canepa as an effective merchandising strategy. Ohio was offered five barrels of Buffalo Trace Bourbon—but Canepa was hesitant and bought only three. “Before the stores opened, we had more people in line than we had bottles in the stores,” Canepa says. “Each store sold out in 20-30 minutes. It exceeded our wildest expectations. We thought the barrel program would be good, but it’s crazy good.”
Ohio offered more single-barrel Bourbons in 2018, including Maker’s Mark 3C Select ($65 a 750-ml.), Maker’s Mark Ohio Select ($65), Russell’s Reserve ($55), Wild Turkey ($50), and New Riff ($50). “I’m telling manufacturers that if you want your brand line to get exposure, sell us barrels,” Canepa says. “We promote it. We put the company history out there. We talk about the process. It creates a buzz.”
So far in 2019, 16 single barrels have been released including Limestone Branch rye ($30 a 375-ml.) and Elijah Craig Bourbon ($28 a 750-ml.). At least 56 more single barrels are scheduled for release this year, including Woodford Reserve ($55), Knob Creek ($30), Maker’s Mark ($66), Old Forester ($45), 1792 Full Proof ($46), Smooth Ambler Old Scout ($47), and W.L. Weller Antique ($30) and Reserve ($23).
Scotch and Tequila brands have also jumped on the bandwagon. “Since the barrel program has been so wildly successful here, manufacturers are upping the ante,” Canepa says. “If demand is high, commissions are good. You get the attention of their company and brand awareness.” Upcoming 2019 barrel releases of Scotch and Tequila include Highland Park 13-year-old ($200 a 750-ml.), Patrón Reposado ($49) and Añejo ($55), Don Julio Reposado ($66), and Casa Noble Reposado ($60) and Añejo ($150). Canepa notes that stores typically sell out of a single barrel offering in just one hour. “These are opportunities that all the agencies want,” he says. “They are clamoring to get events because hundreds of people are shopping while they are there. They are buying wine, beer, and regular spirits.”
Canepa explains that the Ohio Division of Liquor Control was historically run in a passive way, with agencies having near-free rein on decisions such as when and how to display and order products. “There were stores with so many displays you couldn’t walk inside, and stores with not enough Irish whiskey ordered for St. Patrick’s Day or too little Tequila for Cinco de Mayo,” Canepa says. “We don’t leave that to chance anymore. Everybody saw there was money left on the table because planning was seriously lacking.”
Previously, a liquor agency would take at least one of every spirits product offered regardless of the buying trends of consumers in their area. “We made decisions to right-size their inventories,” says Lorraine Terry, senior director of JobsOhio’s Beverage System. “We want to make sure the merchandise they’re selling on our behalf is right for the customers walking into their stores.”
Spirits are delivered to retailers weekly and the new system ensures agencies a minimum number of bottles in their store for two and a half weeks’ worth of sales. “We are making a data-driven decision on how much product agencies should have to meet their customers’ needs,” Terry says.
Terry leads a team to look at ways to maximize a retail opportunity. “We encourage displays in agencies in a more visible manner for what’s moving overall in Ohio and what’s moving in their location specifically,” she says. The team evaluates sales data and linear shelf space, and offers designs and product placement, as well as signage recommendations. “We set our expectations high,” says Lindsey LeBerth, brand manager at the Ohio Division of Liquor Control. “We want it to be an exciting experience for our consumers. We don’t want people to run in and out. We want them to learn about the products.”
In all, there are 479 liquor agency stores in Ohio. From grocery chains like Giant Eagle and Kroger to solitary mom-and-pop shops, all liquor stores in Ohio are privately owned but contract with the state to sell spirits on consignment for commission. The average agency liquor store in Ohio has 750 linear feet of shelf space and 850 SKUs, ranging in price from $4 a 750-ml. of Barton vodka to $1,300 for The Dalmore 25-year-old single malt Scotch to $19,999 for Glenfarclas 60-year-old single malt Scotch, available only by special order.
Each store has to meet performance expectations. “We want to produce integration and excitement around the brands,” Canepa says. “We want an operator who is innovative and inviting. We want to take that overwhelming feeling out of the equation and make the shopping experience educational, inviting, and informative.”
Last year, 27 new liquor agencies opened in Ohio and seven more are slated to open this year, including a 25,000-square-foot store in Toledo. “We took a number of metrics, demographics, and market studies and set a goal of expanding by at least 20 more stores last year,” says Gerry O’Neil, Division of Liquor Control’s director of agency operations.
While the new software system allows for the optimization of product offerings based on sales data, state officials are now taking a more hands-on approach to the retail tier. Liquor control officials visited 135 agencies last year and looked at the past year of sales to see what categories were working well and removed products that weren’t selling. “We put the product in the right distribution center so consumers can buy it,” says JobsOhio’s Terry. “The data works wonders. We set our expectations with our customer experience and product selection, and ultimately how that product selection is merchandised.”
Treasure To Be Found
The Ohio Division of Liquor Control’s 2018 success included a touch of marketing brilliance. While Terry was working to improve the shopping experience for Ohio consumers, Canepa was figuring out what to do with hundreds of thousands of bottles that weren’t selling or were delisted for various reasons, including label changes. “We filled up grocery carts with stuff that wasn’t selling,” Canepa says. His brainchild was to sell the bottles in Columbus at a concept he called “a last-call sale,” which was essentially a glorified garage sale. “Boxes of dusty bottles were brought up and put on the floor and tables,” he says. “People loved it. We sold 2,000 bottles by noon on the first day.”
The last call is a combination of marked-down bottles and products that aren’t discounted because they’re unique. Vodka was the biggest seller by volume. “In terms of luxury, customers were looking for Bourbon, Scotch, and Irish whiskies, and there was a lot of treasure to be found and purchased,” Canepa says. “The basket rings were amazing. People had cartfuls and boxfuls.”
Non-Ohio residents from nearby states such as Kentucky, Michigan, and Pennsylvania have also taken advantage of the last-call agencies. To capitalize on that demand, the Division of Liquor Control plans to open last-call stores in the south near Kentucky, in the west near Michigan, and in the northeast near Pennsylvania to more directly entice non-resident customers. Other successful marketing tools for the Division of Liquor Control include lotteries and raffles to purchase rare spirits such as Pappy Van Winkle 23-year-old ($249 a 750-ml.), the Buffalo Trace Antique Collection ($100), Old Fitzgerald Bottled-in-Bond 9-year-old ($90), and Old Forester Birthday Bourbon ($100).
For Ohio, everything is adding up. The new inventory control and ordering system, strong growth trends, single-barrel releases, last-call initiative, and other factors have positioned the Buckeye State for sensational growth.
In three months, Ohio went from an inventory of 400,000 delisted 750-ml. bottles to 40,000 bottles. “Now that we’ve had this successful concept store, we have to keep it filled, but luckily a number of agencies want to be a last-call store,” Canepa says.