Liquid Assets
Rebecca Gaffney and Matthew Statz brew up profits with their beer-of-the month club.
Tired of the same old beer? A lot of people are, and their
craving for different, hard-to-find brews is being sated by
beer-of-the-month clubs, like Red, White & Brew. The Great
Falls, Virginia-based company allows you to order microbrew beer
via the mail, telephone, or Internet, and have it delivered to your
house by mail.
Founders Rebecca Gaffney, 25, and Matthew Statz, 27, sent their
first shipment to a mere nineteen members in September of 1994,
their first year of operation. The company's latest shipment
went to roughly 3,500 members, who pay $15.95 per month (plus
shipping and handling) in return for an educational newsletter and
the opportunity to sample two six-packs of American microbrews,
with two new brands offered every month.
Not too bad for a couple of friends who came upon the idea to start
the club rather casually. "I guess it all started in a
restaurant," Gaffney says with a laugh. Gaffney and Statz were
dining with Gaffney's mother, who told the two about an
interview she had seen on television featuring the owner of a
beer-of-the-month club. "A light bulb came on, and it was
like: Beer, wow!" recalls Gaffney.
The two began to explore the possibility of starting their own
club; Gaffney did her research in London, where she was in graduate
school, while Statz researched in the United States. Starting the
club cost Gaffney and Statz roughly $50,000-Gaffney used her
savings, while Statz's share came from profits from his lawn
sprinkler business. They proceeded to spend most of their initial
funding on mailing materials, advertising, telephone expenses and,
most importantly, legal expenses.
Gaffney admits that she and Statz made mistakes in those early
days, but doesn't dwell on them. "I think we could have
spent our start-up money a little more wisely," she says,
"but you learn as you go."
The two have learned quite a bit about the legal issues surrounding
the sale of alcohol. The highest hurdle the two faced in beginning
their operation was determining which, if any, of the myriad of
laws concerning alcohol distribution applied to their operation.
Because blue laws, which restrict when and where alcohol can be
sold, vary from state to state and, in some cases, from county to
county, Gaffney and Statz limited their marketing to the
Mid-Atlantic region.
"There aren't really any laws that are relevant to
beer-of-the-month clubs," says Gaffney. "There is nothing
that says they're legal or they're illegal. Some states,
like Maryland, are more concerned about beer-of-the-month clubs,
while others don't say anything." In the event that there
was government concern, Gaffney and Statz met with officials from
the state's Alcohol Bureau and looked for laws that would
permit them to sell their product.
Another problem was getting the word out about their
beer-of-the-month club. Because the company has virtually no
advertising budget, its toll-free number, 800-670-BREW, has been
central to its success.
"We started using the 800 number because it was just more
convenient for people, and most of our sales come in over the
phone," relates Gaffney. "The toll-free number is really
your storefront in mail order. I think it gives you an identity,
especially if you have a distinctive number, and it gives you
credibility."
In addition to those benefits, the 800 number has also expanded Red
White & Brew's market. "We were primarily marketing in
this one little area: Maryland, Virginia and Washington, DC,"
says Gaffney, "but people told their family members and
friends across the country about it, and they started calling the
800 number."
Gaffney and Statz also bought two other beer-of-the-month clubs and
the rights to their toll-free numbers. Those calls are now
forwarded directly to Red, White & Brew, further increasing the
company's phone sales. Additional orders arrive through the
mail and on the Internet, where Gaffney and Statz have a Web
site.
The phones rang to the tune of an estimated $1.3 million in gross
sales in 1995. During the Christmas season, Gaffney and Statz hired
students from a local college to answer the tidal wave of calls
that flooded their phone lines. Membership more than doubled during
the 1995 holiday season, from 1,500 a month to 3,500.
Other than the toll-free number and word-of-mouth, the club has
used mailing lists to bolster sales. Red, White & Brew has
purchased lists in the past, but is currently developing its own
list from inquiries made both at beer festivals and over the
telephone. "We've had more success developing our own
list," says Gaffney. "It's difficult to find lists of
the type of people we are targeting."
Red, White & Brew has flourished, despite these difficulties,
due to the owners' business philosophy, which is what Gaffney
believes sets their company apart from other clubs. "We're
not the first beer club," Gaffney admits, "but we decided
that we could do some things better than others had done."
Gaffney and Statz arrived at a two-pronged marketing philosophy
ingenious for its simplicity: baby the beer and educate the
customer.
A London beer expert named Michael Jackson helped advise Gaffney.
"He told me to 'emphasize quality and being.' The
beers spoil very easily. Microbrewers nurture and love their beers;
they are like their children. We work to preserve the quality they
achieve."
To that end, Red, White & Brew reaches agreements for the
brewers to make special batches for them and strives to deliver the
beer, through a common courier, like UPS, to customers almost as
soon as they receive it, so "the customers can get the beer in
the same condition it was in when it left the brewers."
The company recently hired an outside firm to package their
product, a task that Gaffney and Statz originally performed
themselves. "It cuts down on profits a little, but it's
worth the time that it saves," comments Gaffney.
This outsourcing allows them to spend more time trying to find
beers that are not readily available. "What's the point of
sending away for a beer that you can buy in your local
supermarket?" Gaffney reasons. "We put a premium on beers
that aren't widely distributed or can't be obtained
elsewhere."
In fact, finding new beers to include in their package is one of
the constant challenges the fledgling company faces. Beer festivals
provide Gaffney and Statz with the opportunity to sample a
multitude of brews, all in one place. Each month's shipment of
microbrews goes through a taste test by professional beer tasters
before it is sent to the club's members.
Before the beer tasters get a crack at the brew, Gaffney and Statz
have to decide which beers to include. A customer does not simply
receive two randomly picked beers; choices are made according to
themes. "We'll either decide on a style of beer, like a
pilsner, or come up with another theme," says Gaffney. For
instance, you might open the package and find suds from two Maine
microbreweries that feature moose on their labels.
In an attempt to educate the club members, a newsletter is inserted
in the box of brew. The newsletter tells the heritage of the
current month's beers and what different qualities to look for
in those brews. It also discusses general information about various
styles of beer.
Though it won't appear in one of the newsletters, the next few
months include plans for business school for Gaffney and possible
expansion for Red, White & Brew. Right now, however, the
entrepreneurs are simply enjoying their company's success.
"We've done it; we've proved to ourselves we can do
it," Gaffney says of building a successful venture.
"I've enjoyed this very much. There's so much to learn
and master: negotiating, marketing, legal issues. I like that
there's so much to do."
Beer's The Scoop
- Thinking of starting your own micro-brewery or
beer-of-the-month mail order club? Let Entrepreneur Media's
business start-up guide #1367: Microbrewery lead you into brewing
success. To order, call (800) 421-2300 or write 2392 Morse Ave.,
Irvine, CA 92714.
- For information regarding current issues in the brewing
industry, such as brewing legislation and production, or for simple
micro-brew advice, contact the Association of Brewers. Host of the
Great American Beer Festival and the National Micro-Brewery
Conference, the AOB also offers several "hopping"
periodicals to its 14,000 members. Write to P.O. Box 1679 Boulder,
CO 80306-1679 or call (303) 447-0816.
- For additional information regarding micro-brewing, try Brewers
Digest at (312) 463-3400 or write in care of Siebel Publishing Co.,
4049 W. Peterson Ave., Chicago, IL 60646.
- For mail order inquiries, contact the Direct Marketing
Association (DMA) which deals with postal regulations and assists
small mail order businesses with marketing and distribution. Write
to DMA, 11 W. 43rd St., New York, NY 10017 or call (212) 768-7277
x155.
- For mail order software, try Omni Mailer/Omni Mailer 3, from Janac Enterprises. This mailing list manager furnishes various search, select and sorting options along with unlimited entries. It also offers an automatic duplicate search. For more information, contact Janac Enterprises, P.O. Box 394, Hebron, IL 60034, or call (815) 648-2492.
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