The Theory of Evolution

F. Scott Fitzgerald was famous for a lot more than his prose, but perhaps his most enduring remark was that there are no second acts in American lives.

Perhaps that was on Brian Rosen’€™s mind when the idea for creating a more welcoming and contemporary style of beverage alcohol retailing occurred to him. Or maybe the time spent in a career in management at accountancy firm Price Waterhouse Coopers never quite provided the satisfaction that he had found as the chief operating officer of Sam’€™s Wine and Spirits, the iconic retailer owned by his family but sold to an investment banking company in 2007. Or maybe it’€™s just that he loves selling wines and spirits.

Whatever the stimulus, Rosen didn’€™t stay away long, teaming up with partner Richard Salberg a little over two years ago with a well-devised plan for a chain of specialty wine-focused shops that might be considered the antidote to the plethora of Big Box stores that are defining 21st century retailing. At the very least, the team behind Evolution Wines & Spirits are trying hard to craft a sustainable model that is far different from the giant retailers of the world.

The route Rosen selected, starting with the opening in 2011 of the first of what are now three Evolution stores in the Chicago area, was to focus on a tightly curated product mix with a selling atmosphere that focused on service and knowledge. The three current Chicago neighborhood locations ‘€“ Lakeview, Bucktown and Northbrook – were developed with the intent of providing a local shopping experience with each store given some leeway to tailor items to its customer base. The ultimate plan ‘€“ in the short term with expectations of three more store openings in Chicago this calendar year (locations selected, but still under wraps) and a total of 10 stores opened by 2015 ‘€“ is on track, and while Rosen and company take a systematic approach to each new unit informed by the way Big Box retailers select their locations, Evolution is decidedly different.

‘€œWhen we sold Sam’€™s in 2007, I had some time to think about coming back into the business and one of the things I saw that was incredibly interesting was that in every major market there were two kinds of stores ‘€“ the Big Box and everyone else,’€ says Rosen. With Binny’€™s in Chicago, ABC in Florida, Spec’€™s in Texas and others well established as the major retailers in their areas, Rosen observed that there were fewer second-tier operators who had done a similar job of establishing smaller brand name stores with a retailing philosophy or concept that caught on with consumers. Bill’€™s Chicken and Wine, he calls wine and spirits stores with an indifferent approach to merchandising and product selection, where wines might linger on shelves no matter what condition or age, generic stores indistinguishable one from another.

(The Rosen family sold control of Sam’€™s to the private equity firm Arbor Investments in May 2007. Father Fred and brother Darryl Rosen left the business, but Brian stayed on as president under Arbor, retaining a 20 percent stake. He departed in December 2008. Sam’€™s was acquired by Chicago retailer Binny’€™s Beverage Depot in late 2009, and its two stores were rebranded as Binny’€™s units.)

Evolution’€™s Grand Design

Evolution, which Rosen developed with partner, best friend and long time Sam’€™s customer Richard Salberg, is designed to erase the flaws he sees in retailing at both ends of the spectrum. It’€™s not that Rosen eschews Big Box retailers, either, given his personal history and their skill at creating themselves as one-stop destination wine and spirits retailers. But he says there exists in most cities a wide-open market for other sorts of shops, especially for those people who don’€™t buy wine in large volume or who would prefer a shopping experience with more opportunity for interaction with store staff, a quieter, even ‘€œCheers’€-like atmosphere, where everybody knows your name. Combining the personal touch of smaller specialty stores and the efficiencies and buying power of giant retailers is the idea. Stores routinely have many wines open for tasting, have event space for classes and establish the largest craft beer department in each area.

‘€œThere are great opportunities once you get below the big boxes to create a small box niche business,’€ he says. ‘€œIf you can really prove out a philosophy of service, selection and knowledge, then people will come to you out of convenience, but they will purchase more because of those attributes. Customers who come in regularly for three bottles a week, or maybe to talk with an on-site sommelier, like we have in every store, you don’€™t have to hit a home run with them every day but the crumbs put together build a big revenue stream.’€

He’€™s proven the idea in just those terms; as a privately held operation he’€™s not sharing many details but the three stores already constitute a multi-million dollar enterprise in just over two years, with more than 500,000 customers per year and a satisfyingly high average ring and transaction count, he says. Easy to open and operate, the Evolution model requires more investment in inventory than the average store but far less than the larger retailers, and it’€™s designed to be easy to manage, staff and shop. Perhaps part of the attraction is an offshoot of the locavorian dining and drinking fad ‘€“ ‘€œPeople are starting to shop local and connect with their retailers, people who know their customers and their kids,’€ he says. ‘€œIt’€™s about knowing what people want. It’€™s like the old butcher shops when people would call and place an order to pick up later. It’€™s the same, but instead of selling meat, we’€™re selling wine.’€

Investing in Smart Inventory

In terms of inventory, that means not many older Burgundies or Bordeaux on the shelves, preferring to deal in current goods. He recalls how his grandfather and father thought keeping 100 cases of Veuve Cliquot Champagne on the store floor just in case someone wanted to splurge. ‘€œThe fact is the guy never comes in for it and if he does want to buy that much he calls ahead.’€ Instead of taking that large of a position in costly goods, the Evolution model calls for investing cash flow in satisfying actual customer needs.

So instead, he’€™s stocking up on pinot noir, cabernets, malbecs, syrahs and other familiar varietals that are easier to engage with customers about. The products are promoted with hand-written shelf talkers supplied by their own staff rather than those downloaded from periodicals or suppliers.

Rosen is on a steady search for places he calls ‘€œwine deserts’€ ‘€“ areas without any specialty wine store or even a good mixed retailer, with steady traffic and perhaps some urban congestion, making shopping for staples like wine on a regular basis easier when close to home. Rather than a destination, Evolution’€™s concept and footprint ‘€“ between 5,000 and 7,000 square feet and 3,000 skus with an emphasis on hand-picked wines, craft brews and premium spirits ‘€“ makes good sense for those retailers willing to keep buying decisions tight. And the product mix ‘€“ about 70 percent wine and the remainder craft beer and spirits ‘€“ shows that Rosen and company are betting on the continuing interest and increase in volume and dollars of the American wine consumer.

A Better Shopping Experience

Making the wine experience better means staffing each store with someone well trained in wine ‘€“ preferably at least a level one sommelier, or someone with long experience in wine service and selection. There’€™s also a craft beer expert at each store to help with the ever-changing selection of brews a store that specializes in that segment of the beer business must carry, as seasonal and limited time offerings are routine and well-anticipated by aficionados these days. Craft beer consumers are as interested in talking about yeast and hops with beer specialists as wine drinkers are about terroir and vintages, so building a craft-friendly reputation requires staff knowledge, Rosen says. Rosen believes that staffing with too much emphasis on keeping labor expenses low would be a mistake in any store that aims to specialize in service and product knowledge. With sommeliers working each store, a ten-minute conversation about a vineyard or a varietal often transforms a one bottle buy into a half case purchase. ‘€œI’€™d rather pay a little more in labor dollars to get that ring up than to work on the transaction count.’€ But knowledge alone isn’€™t enough. ‘€œYou can’€™t teach passion but you can teach knowledge ‘€“ we can always send a guy to beer class or wine school, but you’€™re either passionate or not about the product. Customers respond more to passion and will give you some latitude if you’€™re passionate about something, but they won’€™t if you’€™re apathetic,’€ he says. Many staffers are former Sam’€™s employees with long experience. ‘€œWhen you see how the game is played and understand how the supplier-retailer relationship works and how the customer-retailer interaction is supposed to happen, you are at a competitive advantage to those who open a wine shop because they love wine,’€ he says.

Using Social Media

As a 21st century retailer, Evolution is taking full advantage of many of today’€™s social media tools to promote and connect with customers. As businesses intensify their search for followers on various sites and applications, Rosen after just two years in business is confident in the new sorts of numbers stores like Evolution measure their popularity with ‘€“ 4,000 Facebook followers and 1,500 Twitter followers, with marketing done using sites like Pinterest, Tumblr, Instagram and others. ‘€œIt’€™s really interesting how you can drive sales and customer brand awareness through free media. In the old days, Sam’€™s had a $5M marketing budget and spent $15,000 a week on Chicago Tribune ads. But that’€™s how we market today and customers come to us.’€

All employees participate in the social media program. Rosen mentions the casual approach that social media allows. ‘€œIf I’€™m out to dinner and have a wonderful meal, I put it on Twitter and ask people what would they match this course with, and I get 50 answers. If I get a delivery of Pappy Van Winkle or some other tightly allocated brand or a new product comes in, we’€™ll tweet about it and even though it’€™s priced at say $300 per bottle, it sells out in 20 minutes without spending a dime ‘€“ It’€™s gone before it hits the shelf.’€

Of course, this marketing style won’€™t work for promoting the top fifty best-selling mass market products, but for stores trying to craft a personality and brand presence, social media hold the key, he says.

Selection and Pricing Crucial

Like service, product selection and price point mix is crucial to the success of Evolution, though Rosen admits some tweaks have been required. When the first store opened, Evolution for instance carried a lot of cabernet sauvignons at both the high and low end of the price spectrum – $30 and up and $9.99 and down. Instead, they discovered the sweet spot for many of their customers to be in-between ‘€“ responding to the market, Evolution now stocks about 50 skus of cabernets priced between $11.99 and 19.99, a range he calls between grocery and boutique, maintaining the low end and trimming the higher ring items.

But he’€™s also sensitive in building the brand of Evolutiuon ‘€“ for example, even though innovative wine packaging like single-serve tetra packs and bag-in-box sometimes offer good value and quality wines, he believes the general public opinion of such packages are low and so while he carries some jugs and such other lower-priced wines, he doesn’€™t push them much. ‘€œYou don’€™t get that many opportunities to engage a customer, to make them want to come to you, and if I ruin the opportunity to engage with them by putting the wrong product in front of them, I may never get them back.’€

Other innovations make sense: Evolution offers customers a chance to mix craft beer six-packs so they can sample high-priced brews as they emerge without being forced to buy more than they want. ‘€œIt’€™s a partnership between consumers and retailers, rather than making them buy the whole six pack, let’€™s learn together and if we both like it, let’€™s keep going,’€ he says. Similarly, taking part in the sudden surge of interest in local and craft spirits, undiscovered as well as rare and limited time products, helps build the brand of Evolution as a place where the wine, beer and spirits brands carried are those the store stands behind. It’€™s all part of the Evolution partners’€™ design – build a brand through service, selection and knowledge, creating strong customer relationships while opening new stores. If things go right, it may be a model for the future.

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