The On-Premise Assortment Dilemma: Are You Leaving Money on the Table?

Aimee Haftel, MBA

Thought Leader | Strategy | Driving Commercial Strategy | Execution | Category Development | Commercial Sales Management | Consumer & Shopper Insights

Determining the optimal product assortment for on-premise venues requires balancing customer needs with operational efficiency. Key questions include:

• Assortment Sweet Spot: What is the ideal product range to satisfy diverse customer preferences?

• Back Bar vs. Menu: How should product selection be divided between visible back bar displays and printed menus?

• Product Quantity: What is the right balance between offering sufficient choice and avoiding overwhelming customers with too many options? How does this align with consumer choice and consideration sets?

Currently, 90% of back bars, despite venue-specific themes, occasions, and demographics, display similar categories and brands. To differentiate, bar operators should consider incorporating emerging niche brands that create unique and memorable customer experiences.

Gus' Sip & Dip in River North, Chicago, sparked industry debate by focusing on a highly concise spirits assortment, aiming for consumer cost efficiencies and price-accessible offerings. Limiting each category to a single spirit, with few exceptions, is a missed opportunity. The bar's unique selling proposition (USP) is offering cocktails at $12 plus tax, achieved through a tight spirits list. However, consumers vary; some desire premium spirits, while others prioritize value. This strategy risks alienating high-end consumers seeking premium cocktails and leaves potential revenue on the table. An adequate assortment is crucial to cater to diverse consumer preferences.

Gus's beverage manager, Beary, emphasizes operating without a traditional back bar, challenging the conventional display of Spirits. The back bar, however, is a potent consumer influencer, second only to the cocktail menu. An elegant display of high-end bottles creates a "billboard effect," advertising represented categories and brands. It's a way to evoke visual storytelling and create a visually appealing display, envision an iconic high-end or ultra-premium tequila bottle, standing proudly amidst the back bar's curated collection. Its elegant, almost dapper silhouette evokes thoughts of a perfectly balanced classic margarita or a smooth, aged tequila añejo sipped slowly over ice. This visual alone triggers a powerful marketing sensation, sparking a consumer's desire for a truly exceptional cocktail experience. The sight of that distinctive bottle, coupled with the rich taste profile, paints a picture of luxury and indulgence, instantly elevating the perception of the entire establishment, and boosts revenue through trade-up sale.

Walmart's Project Impact in the 2000s, though dated, remains a relevant case study in retail assortment strategy. The initiative aimed to declutter stores and simplify shopping by reducing SKUs, focusing on top sellers, and optimizing in-store assortments. The goal was to lower costs and streamline the shopping experience.

However, this aggressive SKU reduction had unintended consequences. Within a few years, Walmart experienced sales declines, as consumers sought wider selections offered by online retailers. Data revealed that the narrowed assortments failed to meet the diverse needs of Walmart's customer base particularly in categories like Spirits and Beverage Alcohol. Customers turned to online and other retailers offering more expansive selections and Walmart lost sales. To address these losses, Walmart subsequently redesigned its assortments, expanding product selections and adapting to evolving consumer preferences.

This principle of assortment consolidation impacting sales, as seen with Walmart applies to the on-premise with Gus'. By limiting the back bar and Spirits selection, Gus' risks mirroring Walmart's experience of missing out on crucial sales opportunities. While cost efficiency is a goal, it shouldn't come at the expense of consumer choice. Just as Walmart learned that a too-narrow assortment drove customers to competitors, Gus' may find that its limited selection drives premium-seeking customers to establishments offering a broader range of Spirits or them trading down to lower-priced alternative, negating potential margin gains.

Consumer behavior in on-premise settings is heavily influenced by pre-existing preferences. Research indicates that 75% of consumers decide their drink category before entering a venue, emphasizing the need to cater to established habits. While price remains a factor in final decisions, the initial category selection is often predetermined. This reinforces the importance of a diverse back bar and menu that addresses a broad spectrum of preferences, rather than relying solely on price-driven options.

Furthermore, 67% of bar patrons are undecided upon arrival, relying on menus and back bars for inspiration. By offering a wider assortment, including premium, super-premium, and ultra-premium brands, operators can facilitate trade-up and increase revenue.