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May 8, 2009 02:00 PM

Economics of the liquor trade

I am trying to understand the economics of the liquor trade.

I know that prices vary from state to state because of different tax structures and other legalities. Then of course there are the normal laws of economics like supply and demand, varying overhead costs, and so on.

Nevertheless certain things are baffling. I posted a couple of weeks ago that the BJ's store in Waterford, CT, just opened a liquor department (because of CT laws it is in the same building but physically separate, you don't have to be a BJ's member to shop there, and you can't take the liquor into the main store). The only bourbon they were carrying when I visited was Knob Creek which they were selling for $18 a 750 ml bottle, far cheaper than I had seen it anywhere else.

Today I went into two different liquor stores here in Norwich (about 10 miles from Waterford) in search of a cheaper bourbon for everyday drinking, mixing, and cooking. (My wife is from Kentucky and we use a lot of bourbon in cooking and I am too cheap to pour even $18 bourbon into a marinade or crock pot.) Out of curiosity I checked the prices on Knob Creek. One store had it for $38.99 and the other had it "on sale" for $35.99.

I am utterly baffled at the difference in prices. Can the local liquor store really be making $20 more a bottle than BJ's? Is BJ's paying the Beam company a lot less per bottle than the local independent liquor store? IS BJ's losing money on the Knob Creek just to lure people in the store? I took four semesters of econ. in college but this is just beyond me.

I wound up, by the way, with a 1.75 l bottle of Evan Williams Black for $24.99, which was quite satisfactory.

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  1. My guess- and this is just a guess- is that BJs has a company under its umbrella that's a distributor, so their actual cost would be significantly lower just based on that. I don't know the laws in CT, but I know that the tiny restaurant I where I worked in high school paid more per bottle than the retail price at the local Osco- but we legally had to go through a distributor (this was in Indiana, and I'm assuming that the manager actually looked into it, but who knows). So that's a huge savings right off the bat, plus the quantity discounts- they probably go through more in a day across their stores than the independents do in a year.

    And since they just opened, they may very well be losing money on it- once you get used to buying your bourbon there, you'll probably keep buying it there as the price inches up, so long as it stays a few bucks cheaper or at the same price.