Fighting for Independents

Over the past 25 years, Paul Santelle built a select location in Perth Amboy, N.J., through steady expansion, astute purchasing and aggressive pricing into one of the top beverage alcohol destinations in the state. Today, Garden State Discount Liquors’€™ selling space spans some 6,000 square feet, and offers 7,800 skus of beer, wine and spirits, with a staff of 20. But he’€™s not just a retailer: An early and close encounter with a competitive big box store wielding unfair advantage got the retailer involved with industry politics.

‘€œI’€™m a strong advocate of people getting involved in this industry and giving a little back, to join in with trade associations, local politics, the community and charities,’€ advocates Santelle. He owes much of his success to a willingness to get involved during his long career. The outspoken Santelle is a long-standing member of the State Division of Alcohol Beverage Control Advisory Committee and the current President of the New Jersey Liquor Store Alliance, as well as a board member of the New Jersey Alcohol Industry Council, and a State Director for the American Beverage Licensees.

‘€œRetailers need to step up,’€ states Santelle. ‘€œThere is a genuine need for retailers to get more involved with the politics of the industry, to defend their livelihoods. There are a lot of forces today that are threatening the independent model.’€ The threats independent retailers are fighting today are not just the competitors down the street, he says, but out-of-state companies and global entities, the big box chains, warehouse clubs and supermarket giants trying to subvert the regulatory system for their own gain. ‘€œCarpetbaggers,’€ Santelle calls them.

On- to Off-Premise Switch

Born and raised on the Jersey Shore, Santelle get his start in the beverage alcohol business even before he graduated in 1981 from Monmouth University with a Bachelor of Science degree in Business Administration as well as a minor in Business Finance. At the time, the legal drinking age was 18, and the Jersey Shore music scene was booming. Santelle was employed in a number of positions, as a band manager, where he met luminaries such as Bon Jovi and Bruce Springsteen, as well as working at nightclubs, restaurants and banquet and catering. But in 1984, the drinking age was raised, putting a damper on the Shore scene. Santelle also married wife Wendy, and realized he had to start thinking long term. He had gotten tired of the late hours and other aspects of on-premise. ‘€œWith a wife and kids, I wanted work more compatible to a family lifestyle, and the off-premise business is more tolerable in that respect,’€ he says. ‘€œThe hours are better, but,’€ he amends, ‘€œyou still have to work weekends and holidays.’€

One trait that carried over from on- to off-premise was Santelle’€™s concern about customer service and satisfaction. ‘€œWhatever the business, you need repeat customers, you have to make that connection, and reconnection, keep them coming back. I tell my employees, ‘€˜without those customers, we are out of business.’€™’€ That applies to the entire chain of the three-tier system, he adds. He maintains good relationships with all his wholesalers and key suppliers. ‘€œWe all have customers, suppliers to wholesalers, wholesalers to retailers, retailers to customers ‘€” what I call the fourth tier.’€

Savvy Site Selection

In the mid-80s, Santelle spent several years searching for the right location for his future business. A story in an industry trade magazine caught his attention; it profiled a liquor retailer doing millions of dollars of business thanks to serving the dual markets of New Jersey and nearby New York. Santelle decided to pursue a similar strategy.

‘€œThere was a lot of transient business from Staten Island coming over to New Jersey,’€ he explains. Customers liked the one-stop shopping; in New Jersey, liquor stores are allowed to sell beer, wine and spirits under one roof, which is prohibited in New York. So he perused maps, studied highway configurations and scouted possible localities. In 1988, Santelle bought an established business in Perth Amboy within a mile of the Outerbridge Crossing to Staten Island.

Twenty five years later, Garden State Discount Liquors is still in the same location, albeit the store has been expanded three times. Santelle took over the store, a former Buy-Rite, and purchased the real estate, which included a deli under the same roof. The first incarnation was about 1,500 square feet, with fewer than 1,000 skus. In the early ‘€™90s, the liquor store expanded into the former deli, doubling the space. Then about 10 years ago, he extended out the back of the store, added a basement for storage and a second level, all of which more than doubled the size of the store again. Santelle noted that the operation’€™s sales product breakdown is 30% each for beer, wine and spirits, while the remaining 10% consists of sales of tobacco, sundries and snacks. The layout is designed so that the beer cold box with its 16 doors is right at the entrance for easy access; the middle area and the bulk of floor space is dedicated to wine (several thousand skus worth), while spirits are arrayed on the outside perimeter walls.

Battling Big Boxes

Success was far from smooth at the outset, however. Within six months of buying the store, the first warehouse club came to New Jersey. Price Club, which is now Costco, opened in Edison, just five and half miles from the fledgling Garden State Discount Liquors. ‘€œThey probably read the same article I did,’€ quips Santelle, but the impact was serious. His business suffered immediately; a dozen other local businesses were also affected and some closed their doors. ‘€œThey sold the mass brands, typical of the store I had bought, my meat and potatoes,’€ recalls Santelle, ‘€œmy sales were literally cut in half.’€ Undaunted, he adjusted, changing the product mix, creating a more warehouse-like atmosphere in the store and adding shopping carriages. ‘€œI wasn’€™t about to lay down and roll over. I rolled up my sleeves, tightened my belt and worked seven days a week, without a day off, my first seven years.’€

Santelle battled on the political front as well. He didn’€™t think it was right that Price Club could use a public liquor license for a private membership club. ‘€œThat got me asking questions and eventually getting involved with the state Alcoholic Beverage Control, which led me to contact state legislators.’€ Under pressure, Price Club had to open its liquor store to the public, a victory of sorts. That action led to the creation of an Advisory Council to the Alcoholic Beverage Control, in 1992, to which Santelle was appointed. The ABC advisory committee was wide-ranging, with members from the various wholesaler, package goods, restaurant and tavern associations. ‘€œIt was a great step in the right direction,’€ notes Santelle.

The Hedge Fund

Santelle’€™s business model relies upon a strategy of selective purchasing, inventory warehousing and an everyday low pricing guarantee.

He does all of the purchasing for Garden State Discount Liquors himself. ‘€œI enjoy doing the purchasing, and it’€™s the key for any retailer that does volume and has a high cost of goods. If 90% of sales is represented by cost of goods and you’€™re only making 10%, it’€™s not hard to figure out that if you don’€™t buy correctly with those kinds of margins, you could be in trouble very quickly,’€ he explains. Prudent purchasing requires being on top of current trends and the latest product introductions. He explains: ‘€œEach year about one item in five that I sell are products I wasn’€™t selling the year before. You have to be ahead of the curve with all the new products that are constantly coming out, in every category.’€

Inventory is a key component. ‘€œI manage my inventory similar to a hedge fund where I am investing a lot of money, seven figures, into my inventory.’€ That investment means Santelle can buy at a good price, sell the product three to six months later, and still make decent margins, even with his aggressive everyday low price strategy.

The retailer takes extensive advantage of the public warehousing available in New Jersey through the key wholesalers, gaining the benefit of bulk discounts for products that he knows he can move with his customers. He also takes advantage of Retail Incentive Programs, in which suppliers and wholesalers supply display materials and additional discounts. ‘€œIt works if those are items I feel I can do well with, that my customers will buy. That goes to that ‘€˜hedge fund,’€™ and how I invest my money and get a return on that investment. You need a combination of factors, the right price, the right RIP and selling product through in a certain time frame.’€

The everyday low pricing technique was developed through hard experience. ‘€œBack in the day when a lot of us were starting out in discounting, you had customers programmed: they would stock up on sale products, then you wouldn’€™t see them again for a few weeks until their bottle was on sale again,’€ Santelle explains. Now he prices virtually all products just a dollar or two above the sale price, and thus experiences more consistent business week in and week out.

The reward is that customers will come in to buy several different items: not just a case of beer, but a case of beer with a couple bottles of wine and a bottle or two of spirits, not just what’€™s on sale. ‘€œI like to see customers with full shopping carriages, not shoppers that are doing the one-dimensional cherry picking.’€

One big advantage that Santelle counts upon is that he owns the real estate on which his store sits. That has allowed him to expand over the years, and appreciate its value. ‘€œAt the end of the day, I am my own landlord, I don’€™t have any partners, that makes it a lot easier. Because the margins I work on today are half what they were 20-plus years ago.

‘€œIf it wasn’€™t for being my own landlord I don’€™t know if I could make sense out of this business, when you look at its competitive nature,’€ Santelle continues. ‘€œIf all you’€™re making is the revenue from selling alcohol, that’€™s only a dime on the dollar. But when you factor in collecting rent, the real estate, that brings the other dime on the dollar. Maybe it’€™s the same 20 cents I was making 25 years ago. It’€™s an interesting dynamic that I’€™ve been able to make sense of and hopefully I’€™ll continue to down the road.’€

Continuing Vigilance

Another formidable opponent arrived in the form of Wegmans Food Markets, one of which recently opened just three miles from Garden State Discount Liquors. ‘€œIt’€™s tough to compete against a supermarket with a large liquor store that’€™s selling very aggressively,’€ he says. Santelle saw some of his business walk away immediately. He is in the process of once more making adjustments to counteract the new competition.

Santelle saw a larger threat from the supermarket chain when it first entered the state in 2001. New Jersey has a two liquor license limitation law, and it appeared that Wegmans had an aggressive plan to open more mega-stores in the state with liquor licenses, and intended to subvert the limitation law. ‘€œIt seemed they were going to push the envelope,’€ recalls the retailer. ‘€œWe are a regulated industry, but Wegmans didn’€™t acknowledge a difference between alcohol and milk, bread and butter. They had a different agenda.’€

At that time, New Jersey had three different package store associations; Santelle was a member of two of those. He saw the sense in consolidation, one association to speak with one voice, representing the off-premise sector, and was instrumental in bringing about that change. The new association took the anagram of longest-standing organization, the New Jersey Liquor Store Association, which had been around since the repeal of Prohibition, but changed the name to the New Jersey Liquor Store Alliance. Santelle was its first Vice President, and four years later was elected President and became a Trustee. ‘€œNew Jersey has an exemplary beverage alcohol model; things are working well. Do we want to turn an exemplary model upside down to please the likes of Wegmans?’€ asks Santelle rhetorically. ‘€œI don’€™t think it’€™s in the public interest, or anyone’€™s interest.’€

For the tireless Santelle, that situation led to him getting involved with the Alcoholic Beverage Control as a State Director. ‘€œI realized the problems we were having weren’€™t just happening here in New Jersey, they were happening all over the country.’€ The national beer, wine and spirits retailers association initiates, promotes, and supports laws, regulations and rules pertaining to on- and off-premise beverage alcohol, as well as educating the public. Santelle will soon take the position of Vice President, Off Premise, for the Alcoholic Beverage Control.

‘€œIt’€™s a big commitment,’€ he says of his pro bono involvement with the various industry organizations. Daily, he receives scores of phone calls, hundreds of emails and other correspondence relating to his political activity.

Changing Perceptions

One thing he is striving against with all this industry advocacy is the poor public perception of the beverage alcohol industry. ‘€œWhen people ask you what you do, and you say, I work in retail, I own a liquor store, there’€™s this negative reaction you get, like you’€™re a second-class citizen. People look down on you because you are selling alcohol. But they all like to drink the products.’€

Santelle hopes that someday his twin daughters Jacqueline and Jessica, will consider the option of following in his footsteps, or perhaps a career in one of the industry’€™s other two tiers. ‘€œOne thing I’€™d like to see for my kid’€™s generation, the one that’€™s coming up right now, is to gain more respect, to improve the perception of our industry.’€

For the future, Santelle is planning for yet another expansion of his store, to be completed in 2014. He is also busy working out the details for a foray into the lucrative internet sales market.

And, Santelle plans to keep on working at Garden State Discount Liquors. ‘€œI don’€™t consider what I do work, it’€™s just what I do,’€ he proclaims simply. ‘€œI enjoy what I do. I enjoy the challenge.’€

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