How Liquor Stores Can Handle Supplier Price Increases Without Losing Customers

With inflation pushing up costs across the board, liquor stores are getting squeezed between rising supplier prices and customers who won’t accept constant price hikes. And while you can’t control the broader economy, you feel the impact every time a distributor sends over a new price sheet.

Supplier price increases are becoming recurring and unpredictable, and every increase forces a decision that impacts both your margins and your customer relationships.

There are a few fundamentals to understand that make dealing with this much more straightforward. Let’s break down how to actually do that.

Understand What’s Really Driving Supplier Price Increases

Before reacting to a price increase, you need to understand what’s behind it, because not all increases should be treated the same way.

In alcohol retail, supplier pricing is influenced by several layers:

• Distributor markups and tiered pricing structures
• Freight and logistics costs, especially for imported products
• Excise taxes built into wholesale pricing
• Supplier-side cost increases (glass, packaging, production inputs)
• Allocation dynamics for high-demand products

Some increases are structural and long-term, while others are temporary or negotiable.

For example, a cost increase tied to freight volatility might stabilize in a few months, but a price hike on a heavily allocated bourbon is more about demand leverage than cost. 

If you treat every increase as fixed and unavoidable, you end up reacting the same way every time instead of adjusting based on what’s actually driving it.

Use Your Sales Data to Negotiate Better Supplier Terms

Most liquor store owners accept supplier pricing too passively. The reality is that distributors expect negotiation, especially from stores that can move volume or influence sell-through.

But negotiation only works if you walk in with leverage. In this context, leverage comes from what you bring to the distributor beyond just placing orders. It’s your ability to move product, your consistency as a buyer, and the role your store plays in getting their products off the shelf. 

This is what you need to bring into conversations when you’re negotiating with a distributor:

Anchor conversations in volume and velocity

If you can show that you consistently move 20 cases per month of a SKU, you can prove that you are a reliable sales channel. That gives you room to ask for better pricing, rebates, or priority access.

Use portfolio leverage instead of single-SKU negotiation

Distributors care about total account performance. Instead of negotiating one product at a time, tie multiple SKUs together. For example, committing to a broader portfolio can unlock better pricing tiers or promotional support.

Ask for depletion-based incentives

If you know you can sell through a product, you should negotiate for back-end rebates or credits based on performance. In alcohol, many of these programs are tied to depletion, meaning you earn them after the product sells, not when you buy it.

These credits directly impact your true cost, even if they don’t show up on the initial invoice. That’s why they matter. They can turn what looks like a marginal deal into a profitable one once everything is accounted for.

The key is to track them properly and factor them into how you evaluate pricing and margin.

Time your buys around deal cycles

Many distributors run monthly or quarterly incentives. If you align your purchasing with those windows, you can offset price increases without changing retail pricing at all.

Challenge unclear line items

Not every cost on an invoice is as straightforward as it looks. In alcohol, your “unit cost” can include embedded taxes, deposits, freight, and surcharges that aren’t always broken out clearly. 

On top of that, some discounts or credits only show up later, which means your real cost isn’t always what it looks like at first glance.

If you don’t account for these, you can easily misread what’s happening. A supplier price increase might look like +4%, but once you factor in missing credits or added fees, the real change could be much higher, or much lower.

Before accepting a price increase or changing your retail pricing, make sure you understand your true unit cost. If something doesn’t add up, ask for a breakdown.

When to Absorb Cost Increases and When to Pass Them Along

There’s no universal rule for absorbing vs. passing through. The right question is:

Where does this SKU sit in your store’s economics and in your customer’s price memory?

Before you make that decision, you need to understand what the supplier increase is actually doing to the item’s margin. That matters because even a small cost increase can have a bigger impact on profitability than it seems at first glance.

This is where it helps to separate margin from markup. Gross margin is your gross profit divided by sales revenue, while markup is based on cost. They are related, but they are not the same thing, and confusing the two can lead to bad pricing decisions.

That distinction matters because wholesale increases do not flow through cleanly. A supplier’s cost increase might look small on paper, but depending on how the item is priced, it can take a bigger bite out of your margin than expected.

A simple way to frame the decision is a two-axis test:

Axis A: Price sensitivity / price memory - Is this a “mental price” item customers compare frequently?

Axis B: Profit importance - Does this SKU generate margin dollars and/or drive profitable baskets?

Here’s how that translates into actions:

• High price-memory + low profit importance: Prefer to absorb or partially absorb (or find another way to recover margin), because raising this price damages store-wide perception more than it helps.
• High price-memory + high profit importance: Use surgical moves: partial pass-through, smaller promo depth, mix-and-match bundles that preserve perceived value, or shifting shoppers to adjacent SKUs.
• Low price-memory + high profit importance: Pass through faster, because customers are less likely to anchor on a precise shelf price—especially in premium and discovery segments.
• Low price-memory + low profit importance: Consider delisting, substituting, or letting price float, because it’s not a core economic driver.

Academic research reinforces that alcohol demand responds to price changes, and sensitivity can vary by beverage type and by setting (off-premise vs. on-premise).  

You don’t need to estimate perfect elasticities to benefit from this insight, you just need to recognize that some items are inherently more fragile to price changes, especially when customers can substitute easily.

And here’s an example of this in a real-world scenario:

• You sell a 750ml spirit for $24.99. Your true unit cost is $18.75.
  Your gross margin is roughly 25%. 
• Supplier raises cost 8% to $20.25. If you keep price at $24.99, your margin drops materially—meaning you sell the same item but fund less of your rent and payroll. 
• If you pass through fully to preserve margin percent, you may need to move price to roughly $26.99 (depending on your pricing conventions). At that point, the question isn’t “is this mathematically correct?”—it’s “is this a price-memory SKU where $26.99 breaks trust?”

Your decision should be guided by: margin dollars at stake, substitution risk, and brand role in your shelf strategy, not simply by matching supplier’s percent increase.

Use POS Data to Make Pricing Decisions

“Use your data” is a vague cliché until you define exactly which data and how it drives decisions.

A liquor-specific POS gives you a major edge because it can connect invoicing, costs, sales velocity, promotions, and customer behavior all in one place. The goal is to turn that into a pricing operating system with clear priorities.

With a system like Santé POS, you can break this down clearly:

Margin and performance by SKU: See how each product performs over time, including sales and profit. When costs change, you can quickly identify which products are being affected and where margins are tightening.

Category-level performance: Not all categories behave the same. Beer might drive volume with thinner margins, while spirits carry higher margins but lower turnover. Clearly seeing this can help you rebalance pricing across the store.

Sales velocity and inventory movement: By tracking how quickly products sell and how often you reorder, you get a clear signal of which items have pricing flexibility and which don’t.

Impact of pricing changes over time: Instead of guessing how customers will react, you can observe how sales shift after price adjustments and use that to guide your next move.

Promotions and bundles as pricing tools: With features like mix-and-match discounts and product bundles, you can structure pricing in a way that protects margin across the overall purchase, not just on individual items.

Santé POS is built to give you real-time visibility into margins, product performance, and pricing outcomes, so every decision you make is grounded in actual data. Schedule a demo today!