Cutting Through The Noise: Using Data to Guide Product Selection and Merchandising

November 8, 2018 In Retailer Insights

The stock and organization of your store are crucial to your success as a liquor retailer. Which products should you buy from your distributor? And in what quantities? Where in your store will they live?

Without the right strategy or the right toolkit, there is a lot of guesswork involved in answering these questions. That’s because simple depletion data is limited in its ability to deliver time-relevant insights. And it doesn’t help you assess the potential of new or untested products, creating the challenge of finding ‘signal’ among the ‘noise’ of hundreds of sales pitches from brands & distributors.

Finally, let’s not forget about the added issue of deciding how to shelf the goods in your store to maximize sales.

So, to help you cut through the noise and make the most of your inventory, check out our advice for using analytics to guide product selection and merchandising.

Selecting the Right Products.

How do you choose the best categories and brands to stock your shelves?

You need to take stock of what happened in the past, and then direct your focus to what is happening right now. Merging this data creates a holistic understanding that will help you predict trends in the near future, which is the ultimate goal — to stay ahead, or at least on top, of market movements.

To get started, look at previous transactions.

Study what was popular last summer, last quarter, last month to help you develop a foundational understanding of your store. How do your sales shift per season? Do certain categories or items become more popular around specific holidays?

As you dig deeper, transactional data can open up new details about your store’s demographic of customers. You know, for example, that Tito’s is one of the most popular items in your store — but who is buying it? What hour and time of day do they come in to your store to buy it? What other items do they commonly purchase? What are their usual price points? Their average basket rings?

Creating customer personas reveals connections between products, which can lead to upselling opportunities and larger basket sizes. Discovering these customer behaviors — and being willing to experiment with them — can also help guide your selection of new products to stock and where to stock them.

When you run promotions with new items, use your personas as a sanity check. If you know that your Tito’s customer, for example, only purchases items in the $20-$30 range, then it doesn’t make sense to promote a $50 item to them.

More importantly, keep an eye on current market trends.

While studying previous transactions is helpful for developing a foundational understanding of your store, avoid the temptation to rely solely on this sort of information. Our industry is a fast-moving one, so you need to have an eye on what’s currently moving in the market to remain agile and anticipate emerging trends.

Both national and local market trends are important indicators for your sales. Adjusting your orders, even slightly, to reflect current trends can make thousands of dollars of difference to your bottom line.

As you’re well aware, there are mainstay trends that reflect brand and product popularity on a national level. Be aware of these, but spend more of your time looking at how larger trends trickle down to your local market. How do they play out on the ground floor of your business?

Here are a few examples:

  • You read that single-malt scotch has become increasingly popular with millennial male consumers, a demographic that is important to your store. But looking at your local market, as well as your specific sales data, you don’t see the subcategory resonating in your area — in fact, scotch sales have been decelerating month over month, while Bourbon purchases are trending upward. So you ditch the top-down Scotch advice and opt for an expanded Bourbon inventory.
  • Craft beer is trending nationally, but you see that it isn’t as popular in your local market as you expected. Within your store, you see that beer buyers tend to stick with brands they are familiar with, like Budweiser and Coors Light. Having a wide selection of craft beers probably won’t be very effective at increasing sales. Instead, you should ensure your domestic and light beers are competitively priced.
  • You’ve been skeptical of the craft spirits movement for a while. Your premium products do not move as often as your standard brands. But when you look at the data, you observe that craft products drive far more valuable baskets for your store. Even though these customers are fewer and farther between than your average shopper, their high-basket-ring business more than compensates for your craft inventory. In fact, you decide to throw a few additional high-end whiskeys in the mix to test your new discovery.

Don’t blindly pursue market trends. Instead, put them to the test, and hone in on the trends that satisfy your customers’ wants and needs.

Merchandising your inventory effectively.

Even after you’ve used customer data to stock your store, analytics plays an important role in making sure those products sell effectively. You know that your inventory is catered to the preferences of your local market; now you have to dig into the relationships between products. Which items sell together? How can you leverage these “adjacencies” to drive more valuable purchases?

Begin at the basket level.

You could start your research by looking at important, high-volume products. What other bottles commonly share the same basket as Fireball, or more broadly, with your popular whiskeys?

Once you have an idea of which products are purchased together, you can better plan individual product displays and organize your store’s overall layout. For example, use one display to showcase items that you’ve found are frequently bought together. Sometimes these are obvious: the margarita mixer that often sells with your most popular tequila.

Other times, they are embedded in less obvious consumer tastes and behaviors. For example, if your data shows that customers who purchase Tito’s also tend to purchase specific high-margin wines like Whispering Angel Rosé, then build your display around this correlation.

Similarly, if you notice that people who buy bourbon also tend to buy Mexican lager, you can stack beer cases near the bourbon to make their shopping experience more seamless.

Looking at basket adjacencies and purchasing patterns can also show you how to reorganize your shelves for better returns.

Usually, store owners will arrange wines and liquors by color: red vs. white, dark vs. clear. But what if you notice that people who buy rye whiskey are also buying craft gin? Or that those who opt for rum and vodka tend to only buy mixers?

Take a chance on a data-driven, customer preference-based layout that situates these items close to one another. It could help spur more spontaneous, incremental purchases, as well as purchases of multiple items in different categories.

Key Takeaway: Listen to your customers’ data.

Depletion data can show you a few basic points about what is moving (and what isn’t) in your store. But it won’t help you figure out how to spur significant growth.

Instead, look at your customer data. Using analytics, you can navigate product selection and in-store merchandising with a much deeper understanding of how items move in your store. Listen to what your customers are telling you with the items they buy and the patterns that dictate those purchases. Then use that information to build a more intelligent store, and watch as customer loyalty and sales increase.