In my email box this week I opened an email from a wine retailer who expressed apprehension about a Big Box retailer entering her geographic market. She owns a small wine retail business and from what I can tell, is quite successful in operating in a very competitive business where both gross and net margins are tight.
As a storefront retailer, she has overhead such as a lease, employees, utilities, liquor licences (both local and State) and has to sell what she buys or take a loss through her discount area.
No consignment here. For a small operator, a 50% profit margin is not only standard but necessary to stay in business. Small business owners by definition cannot compete through volume based on razor thin margins. Overhead is too high.
This retailer lamented that the Big Box competitor, set to open in her area, would draw away customers because of lower prices since they operate on a business model based on low prices and high inventory turns. That's how Goliaths operate. They use their market power to bully smaller players and intimate them into giving up or moving to another playground. But does David have to do that?
As Malcolm Gladwell captured so well in his book by the title of David vs. Goliath, giving up or moving on is not the only alternative. The Little Guy Small Business Operator has several advantages over the market power of Goliath. Let's look at some of these advantages:
> Customer service. A small business owner working out of his own store has the ability to create the ultimate customer interaction. His or her livelihood depends on it and when it comes to putting bread on the table, it's quite motivating to make sure you have a happy customer who will come back for more.
> Curated selections that justify the reason for charging a larger margin. David can create a customer base that views him as an expert and trusts his judgement to provide the best value at the best price. No more wine roulette. Customers come because they know that every time they have purchased they have not been disappointed and they appreciate the personalized touch David brings to their wine experience.
> Classes and knowledge. David can make customers more knowledgeable consumers and help them in learning more about the subject of wine as a teacher. This crosses the boundary of wine being strictly a product and enters the area of lifelong learning and education. Those with disposable income who are approaching their retirement life are looking for these types of opportunities.
> Avoid slotting the same items as Goliath. It's tempting to sell what the consumers seem to want such as Sutter Home White Zinfandel or Barefoot Pinot Grigio. But that won't pay the bills for David. As Yogi Berra said, "hit 'em where they ain't". Come up with offerings and selections that does not overlap with the discounter down the street. Make Goliath play on your home court which he won't be able to do since your suppliers are also little guys who do not want to be beat up on price when they sell their limited production to a retailer.
> Offer the unusual. Explore unknown regions of the wine world and learn along with the customers. Wine making classes and winery tours can add to your customer's knowledge base and increase their appreciation for what you are offering to them when they make their weekly wine purchase. It enhances their relationship with you and the product and Mr Big cannot compete at this micro level since he is too worried about his narrow margin to offer anything beyond a cheap price for fast moving items.
> Mr Big is not nimble. You are. Be like Muhammed Ali and do your own Rope a Dope. Pour wine by the glass (if local liquor laws allow it), serve some upscale food and create a community that comes for the company of others as much for the wine. Mr Big has no desire to do this and he can't. It would cost too much. But this is exactly how David can create the premium that allows him to capture the higher margin to make a decent profit and living.
So all is not lost. Goliath looks intimidating, but has many weaknesses and flaws that David can focus on.
Exploit those flaws and David can not only compete successfully versus Goliath but even thrive since a rising tide will lift all boats and more wine buyers means more opportunity to capture market share in the small area of operation. The more people in the area that enjoy wine, the more they will buy and those that do are potential customers.
So go get your sling shot and compete with Goliath. You actually have some huge advantages!