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Liquid Assets

Rebecca Gaffney and Matthew Statz brew up profits with their beer-of-the month club.

This story appears in the May 1996 issue of Business Start-Ups magazine.

Tired of the same old ? 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, -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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