Liquid Assets Rebecca Gaffney and Matthew Statz brew up profits with their beer-of-the month club.
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Tired of the same old beer? A lot of people are, and theircraving for different, hard-to-find brews is being sated bybeer-of-the-month clubs, like Red, White & Brew. The GreatFalls, Virginia-based company allows you to order microbrew beervia the mail, telephone, or Internet, and have it delivered to yourhouse by mail.
Founders Rebecca Gaffney, 25, and Matthew Statz, 27, sent theirfirst shipment to a mere nineteen members in September of 1994,their first year of operation. The company's latest shipmentwent to roughly 3,500 members, who pay $15.95 per month (plusshipping and handling) in return for an educational newsletter andthe 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 startthe club rather casually. "I guess it all started in arestaurant," Gaffney says with a laugh. Gaffney and Statz weredining with Gaffney's mother, who told the two about aninterview she had seen on television featuring the owner of abeer-of-the-month club. "A light bulb came on, and it waslike: Beer, wow!" recalls Gaffney.
The two began to explore the possibility of starting their ownclub; Gaffney did her research in London, where she was in graduateschool, while Statz researched in the United States. Starting theclub cost Gaffney and Statz roughly $50,000-Gaffney used hersavings, while Statz's share came from profits from his lawnsprinkler business. They proceeded to spend most of their initialfunding on mailing materials, advertising, telephone expenses and,most importantly, legal expenses.
Gaffney admits that she and Statz made mistakes in those earlydays, but doesn't dwell on them. "I think we could havespent 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 surroundingthe sale of alcohol. The highest hurdle the two faced in beginningtheir operation was determining which, if any, of the myriad oflaws concerning alcohol distribution applied to their operation.Because blue laws, which restrict when and where alcohol can besold, vary from state to state and, in some cases, from county tocounty, Gaffney and Statz limited their marketing to theMid-Atlantic region.
"There aren't really any laws that are relevant tobeer-of-the-month clubs," says Gaffney. "There is nothingthat 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 therewas government concern, Gaffney and Statz met with officials fromthe state's Alcohol Bureau and looked for laws that wouldpermit them to sell their product.
Another problem was getting the word out about theirbeer-of-the-month club. Because the company has virtually noadvertising budget, its toll-free number, 800-670-BREW, has beencentral to its success.
"We started using the 800 number because it was just moreconvenient for people, and most of our sales come in over thephone," relates Gaffney. "The toll-free number is reallyyour storefront in mail order. I think it gives you an identity,especially if you have a distinctive number, and it gives youcredibility."
In addition to those benefits, the 800 number has also expanded RedWhite & Brew's market. "We were primarily marketing inthis one little area: Maryland, Virginia and Washington, DC,"says Gaffney, "but people told their family members andfriends across the country about it, and they started calling the800 number."
Gaffney and Statz also bought two other beer-of-the-month clubs andthe rights to their toll-free numbers. Those calls are nowforwarded directly to Red, White & Brew, further increasing thecompany's phone sales. Additional orders arrive through themail and on the Internet, where Gaffney and Statz have a Website.
The phones rang to the tune of an estimated $1.3 million in grosssales in 1995. During the Christmas season, Gaffney and Statz hiredstudents from a local college to answer the tidal wave of callsthat flooded their phone lines. Membership more than doubled duringthe 1995 holiday season, from 1,500 a month to 3,500.
Other than the toll-free number and word-of-mouth, the club hasused mailing lists to bolster sales. Red, White & Brew haspurchased lists in the past, but is currently developing its ownlist from inquiries made both at beer festivals and over thetelephone. "We've had more success developing our ownlist," says Gaffney. "It's difficult to find lists ofthe type of people we are targeting."
Red, White & Brew has flourished, despite these difficulties,due to the owners' business philosophy, which is what Gaffneybelieves sets their company apart from other clubs. "We'renot the first beer club," Gaffney admits, "but we decidedthat we could do some things better than others had done."Gaffney and Statz arrived at a two-pronged marketing philosophyingenious for its simplicity: baby the beer and educate thecustomer.
A London beer expert named Michael Jackson helped advise Gaffney."He told me to 'emphasize quality and being.' Thebeers spoil very easily. Microbrewers nurture and love their beers;they are like their children. We work to preserve the quality theyachieve."
To that end, Red, White & Brew reaches agreements for thebrewers to make special batches for them and strives to deliver thebeer, through a common courier, like UPS, to customers almost assoon as they receive it, so "the customers can get the beer inthe same condition it was in when it left the brewers."
The company recently hired an outside firm to package theirproduct, a task that Gaffney and Statz originally performedthemselves. "It cuts down on profits a little, but it'sworth the time that it saves," comments Gaffney.
This outsourcing allows them to spend more time trying to findbeers that are not readily available. "What's the point ofsending away for a beer that you can buy in your localsupermarket?" Gaffney reasons. "We put a premium on beersthat aren't widely distributed or can't be obtainedelsewhere."
In fact, finding new beers to include in their package is one ofthe constant challenges the fledgling company faces. Beer festivalsprovide Gaffney and Statz with the opportunity to sample amultitude of brews, all in one place. Each month's shipment ofmicrobrews goes through a taste test by professional beer tastersbefore it is sent to the club's members.
Before the beer tasters get a crack at the brew, Gaffney and Statzhave to decide which beers to include. A customer does not simplyreceive two randomly picked beers; choices are made according tothemes. "We'll either decide on a style of beer, like apilsner, or come up with another theme," says Gaffney. Forinstance, you might open the package and find suds from two Mainemicrobreweries that feature moose on their labels.
In an attempt to educate the club members, a newsletter is insertedin the box of brew. The newsletter tells the heritage of thecurrent month's beers and what different qualities to look forin those brews. It also discusses general information about variousstyles of beer.
Though it won't appear in one of the newsletters, the next fewmonths include plans for business school for Gaffney and possibleexpansion for Red, White & Brew. Right now, however, theentrepreneurs are simply enjoying their company's success."We've done it; we've proved to ourselves we can doit," Gaffney says of building a successful venture."I've enjoyed this very much. There's so much to learnand master: negotiating, marketing, legal issues. I like thatthere's so much to do."
Beer's The Scoop
- Thinking of starting your own micro-brewery orbeer-of-the-month mail order club? Let Entrepreneur Media'sbusiness start-up guide #1367: Microbrewery lead you into brewingsuccess. To order, call (800) 421-2300 or write 2392 Morse Ave.,Irvine, CA 92714.
- For information regarding current issues in the brewingindustry, such as brewing legislation and production, or for simplemicro-brew advice, contact the Association of Brewers. Host of theGreat American Beer Festival and the National Micro-BreweryConference, 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 BrewersDigest 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 MarketingAssociation (DMA) which deals with postal regulations and assistssmall mail order businesses with marketing and distribution. Writeto DMA, 11 W. 43rd St., New York, NY 10017 or call (212) 768-7277x155.
- For mail order software, try Omni Mailer/Omni Mailer 3, fromJanac Enterprises. This mailing list manager furnishes varioussearch, select and sorting options along with unlimited entries. Italso offers an automatic duplicate search. For more information,contact Janac Enterprises, P.O. Box 394, Hebron, IL 60034, or call(815) 648-2492.