Bob Selby is pondering the idea of cutting back a bit on the job. But for the longtime beverage alcohol retailer, “cutting back” means switching from six working days a week to five. But even with that modest idea, he backpedals a bit. “Maybe I’ll just take a day off every once in a while,” he says.
Selby, CEO of Everett, Massachusetts-based Kappy’s Fine Wine & Spirits and co-owner of Kappy’s Importing & Distributing Co., has been active in the family business for more than half a century, having started part-time in 1968. Despite law school and a pathway that could have taken him in a completely different direction, he joined Kappy’s full time when he graduated in 1974. At that time, the group of stores was run by Ralph and Bernard Kaplan, the former his father-in-law.
“My father-in-law asked me to come into the business and it seemed like the right thing to do,” he says. “I never really questioned that. I like the hospitality industry probably a little more than I’d like the detail work of practicing law.”
When Selby was named a Market Watch Leader in 2013, he owned three stores, the maximum allowed under Massachusetts laws at the time. But those laws have changed in subsequent years, and the Kappy’s group has evolved alongside the changes.
Today, Selby still leads the business but doesn’t own any stores himself. “We took advantage of some of the [estate planning strategies] to move the property into the ownership of the next generation,” he says.
The nine stores in the Kappy’s group are owned by Selby’s sons Joe and Steve and nephew Scott Moore. They do business as a group, but that group strategy limits them to a total of nine stores.
Selby’s masterful management of the retail offerings under the Kappy’s name over decades has prompted Market Watch to name him Retailer of the Year for 2021.
A Family Business
Kappy’s Fine Wine & Spirits group has always been a family endeavor. Shortly after Prohibition ended, when Harry Kaplan, grandfather of Selby’s wife, Anne, eschewed his 24-hour restaurant in favor of retail. Kaplan’s sons, Bernard and Ralph, followed, opening the first Kappy’s Liquors and setting the stage for the modern group of stores that exists today. Bernard and Ralph Kaplan were honored as Market Watch Leaders in 1997.
Selby says Bernard and Ralph Kaplan pioneered the more modern, self-service approach that one sees today in Massachusetts and throughout the country. He’s seen myriad other changes as well. “When I first got into the business there were many, many suppliers with few brands, and there were many wholesalers with not a lot of brands,” he says. “Most of the business was based on personal relationships. I knew the heads of all the companies.”
Consolidation at the wholesale and supplier tiers changed that dynamic. Now, few major suppliers and wholesalers offer an extraordinary number of brands. “The proliferation of brands is staggering,” Selby says. “My first 10-15 years in the business, a new brand was rare. Prices never went up back then either.”
Consolidation wasn’t limited to the first two tiers. Retail has gone the same way. In Massachusetts, the ownership limit has increased from three to nine over the past decade, with supermarkets and convenience stores making significant inroads into the market, Selby notes.
It’s daunting for a family business, but it’s also a differentiator. “We push the locally owned and operated. People can come in and see us and we donate to almost every [local cause],” he says. “I’d like to see it not progress any further into the general realm of big business. We’re still local, we’re still part of the community.”
The Massachusetts Package Store Association, of which Selby has been a vice president and board member for more than four decades, works to stave off some of the inroads made by national chains, keeping at least some control in the hands of those who are professionals in the specific business of beverage alcohol.
“We work together to try to keep the industry sort of controlled,” Selby says. “Over the course of the last decade, Total Wine has come to the market. And supermarkets, Targets, BJs, and Costcos have taken the licenses away from the mom-and-pop stores. There’s much, much more chain activity in the marketplace than there was.”
No matter the size of the entity, Massachusetts law requires each individual store to purchase independently so groups can’t take advantage of economies of scale. But the group of Kappy’s stores does find benefit in working together in other areas. “It helps our image a bit as far as dealing with the wholesalers,” Selby says. “We have a wholesale company as well, so it makes it easy for us carry direct brands, which are becoming more and more important for us. There are better margins to be had than with national brands because of the competition.”
The stores also collaborate on things like merchandising, advertising and social media, and special events. For example, Joe Selby says the group recently launched the 1940 Barrel Society, a loyalty club that “makes sure that the allocated and hard-to-get whiskies and other barreled items are ending up in the hands of good, long-time customers,” he says.
Joe stresses that new customers are also taken into account. “We’re still able to use our name and our coordinated display activity to make sure that we get the whiskey, which we can then use to build a new customer base, and not have everything go to our existing customers,” he says. “There is one club across all of the stores, but each store still has the flexibility to make sure they’re taking care of their existing important customers.”
The State Of Play
Despite the inroads made by regional and national stores, Kappy’s has more than held its own in recent years. The group of nine stores registers annual revenue of around $100 million, according to Selby. And like many retailers around the country, Kappy’s stores experienced a sales increase during the pandemic, but Selby says margins were thinner than before. “Margins were affected because a lot of the business we were doing—at least at the beginning of the pandemic—was curbside delivery,” he recalls. “People didn’t want to spend a long time in the store, so it was the national brands that were getting all the play.”
Kappy’s CFO Larry Burak says delivery and curbside pick-up made up about 5% of group sales in January and February of 2020, spiking to roughly 17% during the height of the pandemic before settling back in at around 5%, where it stands today. “You read all about this traction in delivery but we don’t really have it,” he says. “Our customers have all come back.” He says delivery strips some of the profitability out of the business, so while Kappy’s will continue to offer the service, the focus is on in-store sales.
Online ordering also makes impulse purchases more difficult to capture. “When customers come in they get a chance to browse, shop our beautiful displays and grab some other items,” Selby says.
Welcoming customers back into the stores has also meant a slow return to in-person events that drive experimentation and sales. The stores began trying in-store events around Memorial Day. “I was really afraid we’re going to get a lot of complaints and uncomfortable customers, but the reception has been universally great,” says Joe Selby, who notes that Kappy’s is taking precautions with increased table spacings, plexiglass barriers between the presenters and customers and, thus far, smaller events. “People are excited to get back out and discover new things, taste new items, and interact with people.”
Selection Strategies
Kappy’s strategy has long been about selection. The group of stores has hung its hat on offering the most expansive selection in the state of Massachusetts. It’s a way to differentiate the Kappy’s brand from the growing number of national chains, supermarkets, and convenience stores competing for the beverage alcohol dollar.
And it’s not just other Massachusetts retailers. Several stores in the Kappy’s group are close to New Hampshire. Joe Selby says the control state next door does a “great job” and New Hampshire is a “much more pro-business, consumer-friendly market.” He notes the bottle deposit in place in his home state and the lack of a sales tax in New Hampshire often drive people to shop across the border.
A mission to carry everything is more difficult these days with the proliferation of brands and limited shelf space, but the group nevertheless boasts a broad range of offerings to consumers. Each store carries about 3,500 spirit SKUs, 3,300 wine SKUs, and 8,200 beer SKUs. RTD cocktails, seltzers and other single-serve products are counted based on their base alcohol type. Kappy’s also carries an array of sodas, mixers, snacks, and barware.
Beer is the smallest category in the group, but new products have added vibrancy. “The beer category is tough one to talk about because beer isn’t doing as well, but the seltzers and the prepared cocktails have taken over a lot of that beer business,” says Selby. “Even during the off season, the seltzers and RTDs in cans are really getting to be quite a factor in that category.”
Joe Selby says the products’ popularity has both positive and negative impacts. “The good thing about the proliferation … is that it’s helping us drive some extra margin,” he says, adding that the margin on a spirits-based RTD is typically higher than the margin on the bottle of vodka or other spirit used to make the cocktails. “The negative aspect has been a space issue in the stores. There are so many more hand items now, whether it’s seltzers, cocktails, RTDs, the whole gamut. You want to offer them cold and you want to have a wide offering to your customers. The stores don’t get any bigger and cold space certainly doesn’t get any bigger. Managing that has been a challenge.”
Among the nine Kappy’s stores, the smallest is about 9,300 square feet of selling space. Most stores range from 10,000-15,000 square feet, but the largest, in the Cape Cod town of Hyannis, is 23,000 square feet. Those measurements don’t include office and storage space, which is expansive in all stores so owners can take advantage of quantity deals and store product for future use.
Burak says the number of new items in all categories can be overwhelming, and even with relatively expansive storage space, store owners are loath to “be caught with the wrong item.” Technology helps— Kappy’s uses a state-of-the-art p-o-s system that tracks each item. “We’re much more in tune now with what’s going to sell in the next 30 days,” he says. “We want to still have the greatest selection in the state but we don’t want all our capital to be tied up in inventory. It’s a fine balance.”
The balance can get more precarious when dealing with luxury wines and spirits that carry price tags into the thousands of dollars. Selby notes that Kappy’s luxury business is thriving due to a penchant among certain customers to view wine and spirits as investments as well as a pleasurable diversion.
To cater to that audience, the Kappy’s stores have hosted events such as trips to wine regions for select customers. Last year, with travel on hold, a series of online events connected winery executives with a small number of top customers for a twist on private client sales.
Similar trends are evident in whisk(e)y. Joe Selby notes that relationships with key suppliers and distributors are crucial as stores seek to balance supply and demand of hard-to-get products. “We can always do better, but we’ve done a good job of developing both the clientele to make sure that we’re selling that stuff and the relationship with the suppliers and the wholesalers,” he says.
Assessing The Future
Under current Massachusetts law, the Kappy’s organization can’t expand beyond the nine stores it now has in operation. “We’re limited by the rules of regulations that the state has,” Selby says. “We’re always looking for opportunities to upgrade, but as far as the number of stores, we have to wait and see how the laws work out.”
Meanwhile, the Kappy’s group continues to carve its space as a local alternative to the major players that infiltrate the market. “We really value becoming a part of the fabric of each community,” says Burak. “It’s safe to say we are involved in hundreds of local charities. We find that it gives us a great connection with our customers in the community.” Selby says he will continue to devote time and effort to both the Wine & Spirits Guild and the Massachusetts Package Store Association, two groups he’s been involved with for more than four decades. And he’ll continue riding his bike, sometimes just for pleasure and sometimes for charity. For more than 30 years, Selby has participated in the Pan-Mass Challenge, a bike ride benefitting the Dana-Farber Cancer Institute, and has personally raised more than $2 million in the process.
And even with the fourth generation solidly in place within the organization, Selby isn’t ready to back away yet. “I can only ride my bike so much,” he says. “And I enjoy the business. I’m still involved with a lot of the politicians and the Wine & Spirits Guild and the Package Store Association. I’m involved in the day-to-day operations. It’s a good industry that keeps me on my toes.”