Rocky Mountain Liquor Company Is Reaping The Benefits of Efficiency

Rocky Mountain Liquor Company (TSX-V: RUM) is an Edmonton based company that operates Andersons Liquor Incorporated, an entity with 44 liquor stores located throughout Alberta, which is the only Canadian province with a fully privatized adult beverage distribution system.  Their site allocation is roughly 25 percent in the northernmost and southernmost thirds with half of the locations situated in the central portion of the province.

The product selection consists of beer, spirits, wine and ready to drink items, along with associated fare like mix, gifts and ice.

Rocky Mountain`s rapid growth was recognized both locally and nationally, as they have been named one of the 50 fastest growing companies in Alberta for 2011 and 2012 as well as one of Profit 200’s “Canada’s fastest growing companies” for sales growth of 250% over five years.

Rocky Mountain’s focus is twofold.  They work to maximize efficiencies at existing locations while also pursuing additional properties in centers excluding the major Alberta cities such as Edmonton, Calgary and Lethbridge.

Leadership

Peter Byrne is Rocky Mountain’s President and CEO.  A co-founder of Anderson’s, Byrne previously was CEO and Chairman of the board of Channel Drugs Limited, the owner and operator of PharmaCare stores.  They were sold in 2004.

COO Allison Byrne is also a Director of Rocky Mountain Liquor Corporation.  Prior to joining Rocky Mountain in 2007, Byrne spent four and a half years at Deloitte & Touche, during which time she received her Chartered Accountant designation.  She is Past Chair of the Alberta Liquor Store Association.

CFO Sarah Stelmack has been with Rocky Mountain since 2010.  Like Allison Byrne, Stelmack is also a Chartered Accountant, receiving her designation in 2008.  Stelmack was previously with Atco Gas.

Operational Philosophy

Rocky Mountain operates under the assumption that the biggest influences on liquor sales are location, convenience and product range.  So when considering a site purchase, Rocky Mountain closely analyzes not only its location, but also the location of all competitors within a specific radius.  Another premium consideration they cite is traffic flow in the area.  This philosophy has resulted in an annual store expansion rate of between 23 and 37 percent since 2008.  Things have not slowed down so far in 2013, as Rocky Mountain added four more locations in the first quarter.  Rocky Mountain has been carefully analyzing an expansion into neighboring British Columbia.  Investors should watch for any news on this in 2013.

In 2012 Rocky Mountain underwent a subtle shift in philosophy by lessening their focus on commercial sales.  While they still have a presence in this area, they have downsized their client base and centralized all commercial operations in Edmonton.  This Enterprise Fulfillment Center allows Rocky Mountain to break down the larger quantities preferred by suppliers into individual units that are required by smaller locations.

Another area of focus for Rocky Mountain is increasing their product offerings while also streamlining storage and delivery systems.  The aim is to accomplish this by coordinating warehouse systems and improving ordering and deliveries with their suppliers.  By using Enterprise Resource Planning (EPC), Rocky Mountain can maximize distribution efficiency through the accurate forecasting of inventory replenishment.  Since the program`s adoption they have reported a drop in wasted time throughout the distribution chain.

The results of using EPC have been significant.  Rocky Mountain reports the best gross margin return on inventory investment in the field, which is based on gross profit divided by average inventory.  They are also now better capable of capitalizing on Limited Time Offers, which are discounts which occur one to four times per year.  Through the lower prices seen during these discount periods and the savings realized by being able to lease smaller spaces, Rocky Mountain has slashed not only their distribution expenses, but their building costs as well.

Rocky Mountain is also looking to technology to improve their bottom line.  They utilize a mix of mass market and custom designed software for point of sale, reconciliation, accounting, business intelligence and reporting.  One feature is a focus on web based programs, which lessen the need for servers and in house resources.  One area where this has had a dramatic affect is in payroll services.  Employees receive all payroll information on a secure website in a much more timely fashion.

The Future

Rocky Mountain Liquor`s history shows they are prepared to act when a proposed acquisition meets their organizational criteria.  With a roughly three percent share of liquor vendors in Alberta, a province with plenty of purchasing power, Rocky Mountain Liquor has plenty of room to grow should they choose to.