The 15-store Cap n’ Cork chain feels the pinch from rivals in and around Fort Wayne, Indiana. There are a couple of aggressive independent outlets—Belmont Beverage and S&V Liquors—along with the usual roster of big box players, grocers and drug stores, including Costco, Kroger and CVS. Despite this competition, Cap n’ Cork has found great success the old-fashioned way: by running advertisements in the local newspapers and touting some of the lowest prices in town.
Founded in 1949, Cap n’ Cork has a sizable list of email customers and a broad social media imprint. It buys occasional television ads as well. But co-owner and president Andrew Lebamoff believes price is important in this business. “Over the years, we’ve never found a better means of conveying price than in a newspaper ad,” he says. “No reasonable alternative exists for us.”
Newspaper ads don’t reach as broad an audience as they once did, but Cap n’ Cork co-owner and secretary Joseph Doust Jr. points out a flip side to that trend. Nearly every Monday, the chain runs two-thirds–page four-color ads in both local dailies, the Fort Wayne Journal Gazette and the News-Sentinel. The ads only cost $1,500 a week—a price that has remained steady for 14 years, even as the sizes and details have grown.
“Newspapers have come to realize that the advertising market is now very competitive,” says Doust, who is Lebamoff’s brother-in-law. “As a result, they keep cutting their prices and giving us better positioning and better service. Newspaper advertising has become a real bargain for retailers like ourselves.”
Originally named Market Watch Leaders in 2001, Lebamoff and Doust operate the corporate entity Lebamoff Enterprises Inc., which invested a modest 1 percent or so of 2014 revenues in advertising and marketing. Cap n’ Cork grossed more than $25 million last year and would have spent more than the 1 percent, or roughly $250,000, if local media costs weren’t so cheap. The partners believe that boosting their weekly ads to a full newspaper page or running spots on radio again after a recent absence would bring few additional returns. For their marketing savvy, Joseph Doust Jr. and Andrew Lebamoff are being honored with the 2015 Market Watch Leaders Alumni Award for “Best Advertising.”
Media Strategies
Doust and Lebamoff recognize that Fort Wayne is a nearly perfect laboratory for advertising. Media exposure in bigger heartland cities like Chicago and Cleveland has gotten much more expensive. With a city population of 256,000 and a regional population of less than 400,000, Fort Wayne is small enough that newspapers remain a major means of getting local news to residents.
Cap n’ Cork sends email blasts to 11,000 customers each week and reaches out to younger customers with an extensive social media presence on Facebook, Twitter and Instagram. But the owners have noticed a growing dichotomy in their customer base. “Social media is about information and brand building,” Doust says. “People don’t respond to pricing there. It’s a platform for exciting and important things.” Lebamoff also notes the shift. “Social media is about younger people, and for them, it’s not about price, but about selection. They want to know if we have 3 Floyds Brewing’s Zombie Dust or Samuel Adams’ Utopias. We price Utopias at $300 a 22-ounce bottle and we actually have a waiting list. People follow all these brands on social media with great dedication.”
Despite younger consumers’ thirst for exclusive products, Cap n’ Cork’s best-sellers reflect Fort Wayne’s blue collar demographic. Recent ads promoted Budweiser and Bud Light for $14.99 a 20-pack of 12-ounce bottles, along with Absolut vodka at $15.99 a 750-ml. bottle and Jim Beam Bourbon at $23.99 a 1.75-liter bottle. “Those ads are key to bringing in the older customers in particular,” says longtime manager Tom Lalevich, adding that he sees one difference from years past. “Customers used to come into the stores with the ads in hand. Now they rarely do. We post copies of the ads in the stores and on the Internet in case they missed them in the newspaper.”
Dave Wollman, president and owner of Fort Wayne ad agency Total Concepts, handles Cap n’ Cork’s radio and TV buys and cites the retail chain’s “old school” approach. “The company has been advertising a long time, and the owners obviously have a pretty good grip on what’s going on. In this marketplace, the older demographics still read the papers, and so the ads need to be there constantly.”
Indeed, Cap n’ Cork’s retail roots go back more than 80 years. Lebamoff’s grandfather, Argire, emigrated from Macedonia and opened his first beer and wine store in Fort Wayne immediately after the repeal of Prohibition. Argire’s son, George—Lebamoff’s father—launched Liberty Liquors in 1949 with first-year sales of $50,000. The business expanded steadily over time by purchasing liquor licenses held by competitors. The stores were renamed Cap n’ Cork in the late 1960s. Doust began working at the company in 1976 after earning a business degree from Indiana University and eventually married George’s daughter, Debbie. With a degree in economics from Wabash College, Lebamoff joined his father and brother-in-law in the family business in 1984. Eleven years later, he and Doust bought the chain—which had 10 stores at the time—from George, who’s now retired.
Doust and Lebamoff have complemented each other smoothly as co-owners over the past two decades. It helps that their responsibilities rarely intersect. Doust handles finances, real estate and store leases, while Lebamoff does the ordering for all products other than beer, a category that’s managed by 30-year veteran employee Brent Parker. Lebamoff also decides which products are featured in each weekly ad. Another employee, Rosemary Hoff, oversees ongoing relations with the newspapers, which provide layout services for free. The two partners rarely discuss the day-to-day business. Their conversations typically run to larger issues, such as store expansion or charity sponsorship.
In fact, expansion is a challenge. Fort Wayne caps the total number of permits for independent beverage alcohol stores at 38. Cap n’ Cork, S&V and Belmont control nearly all of them and hardly ever yield their permits to each other. To increase revenues, Cap n’ Cork must drive more customers to its existing stores each year. “Advertising is the best way to accomplish that goal,” Lebamoff says. The other alternative is to stock more products, a process that has also engaged the owners. To accommodate the explosion of craft beers, Lebamoff has ordered more shelving in recent years and also stacked wines higher and higher—up to nearly 8 feet against the back wall in some instances.
Cap n’ Cork stores range from 2,000 to 5,500 square feet in size, with the owners targeting around 4,000 square feet. They say that bigger stores are too hard for customers to negotiate conveniently and cost too much to staff. The company employs 115 people and has found that two workers can staff a single store at most times of the day without problems. “The system here works smoothly,” Lalevich says, noting that while one person operates the register, the other is on the sales floor helping people find the products they want.
Even if the stores seem small in this big box age, the company stocks an impressive array of inventory. There are 2,500 wine SKUs—75 percent of which are American wines—along with 2,500 spirits SKUs and 2,000 beer SKUs. Spirits comprise 43 percent of sales, beer accounts for around 40 percent of sales, wine represents 13 percent, and the remaining 4 percent includes cigars, glassware and accessories. Beer turns every other week, spirits turn 14 times a year and wine turns just three times a year.
Promotional Push
Gross margins in wine run 30 percent, while spirits average around 25 percent and beer does roughly 23 percent, though national premium brands run at 10 percent and less. The goal is a storewide profit margin of 24 percent. But for advertised brands, the numbers run much lower: Featured wine and spirits have gross margins of 19 percent or less, while beer is 10 percent. The blended average is about 13 percent. Profits are somewhat complicated by the fact that Cap n’ Cork matches all prices advertised by competitors. “We don’t like anybody leaving our stores empty-handed,” Lebamoff says.
For many years, Cap n’ Cork ran its newspaper promotions on Wednesdays, when grocery stores traditionally advertise. However, because the company was resetting its prices and store displays every week on Monday, it occurred to the owners that they were missing two days of promotion by waiting until Wednesday to advertise. “We were the first to switch to Monday and soon all the other stores switched too,” Doust says. “Now Monday has become the traditional day for beverage alcohol ads in this market.”
Twenty years ago, the company advertised in newspapers religiously every week. Now it’s around 45 weeks a year, with breaks taken during slow periods. But the ads today are bigger and more colorful, and Doust says they carry an increased impact compared to a generation ago. In addition to newspapers, Cap n’ Cork advertises in local magazines like Business People and Home Living: Indoor and Outdoor.
Lebamoff notes that super-low prices are a key to any ad’s impact. He’s constantly negotiating with wholesalers for special buys, often willing to put in large-volume orders to gain the lowest quotes. Earlier this year, the company touted The Glenlivet 12-year-old single malt Scotch whisky for $29.99 a 750-ml. bottle, compared to $31.99 at S&V that same week. Lebamoff negotiated a wholesale cost of $25 a bottle, giving Cap n’ Cork a decent 18-percent margin.
Since many distributors are intent on protecting the prices of their brands, such discounts can be problematic. But wholesalers respect Cap n’ Cork, known as much for its service as its promotions. “We love the advertising that Cap n’ Cork does,” says Stan Ziherl, president of Five Star Distributing in Columbia City, Indiana. “It drives business to our brands. Both their advertising and their charity work in the community have combined to give them a very high profile.”
A typical Cap n’ Cork ad comes close to featuring 50 items in any single week. Ziherl thinks that wide assortment is nearly as important as prices in drawing customer traffic. “Consumers have become very fragmented in their tastes today,” he says. “The successful retailer has to play to all those tastes, and its ads have to cover a broad spectrum. As we take on more new products ourselves, brand-building has become important to us. Cap n’ Cork is willing to help us in that department.”
Marketing Alternatives
Cap n’ Cork hasn’t done any radio advertising for the past three years. The company once ran 15-second spots around the holidays, but gave up when it stopped seeing results. To test the reach of its favorite radio program, the company ran an ad promoting a below-cost beer price with the proviso that listeners had to mention the ad by name in the store to qualify for the price. Hardly anybody bothered to do so. “Radio was cheap, but we weren’t getting any real return,” Lebamoff says.
Television is another matter. The company buys time in July, November and December on such cable venues as ESPN, NBC Sports, CNN and the Family Channel. A local 30-second spot typically goes for less than $100 during certain time slots. Both co-owners and many of their store managers are featured. “The managers love it,” Doust says. “But TV is limited to mostly image promotion. At the end, we might have the space for a five-second spin on the pricing of one or two items.”
Cap n’ Cork is one of the biggest charity supporters in Fort Wayne. The beneficiaries include the Fort Wayne Children’s Zoo, the Fort Wayne Ballet and a cystic fibrosis fundraiser. The company donates wine for fundraising events, and both Doust and Lebamoff serve as board directors for nonprofit organizations. The partners have noticed that local business leaders who are also philanthropists tend to shop for high-end products, so they’ve stocked Cap n’ Cork stores accordingly with such labels as Joseph Phelps Insignia ($220 a 750-ml. bottle) and the 2009 Inglenook Rubicon ($200). “Supporting charities is important for its own sake,” Doust says. “At the same time, we’re making friends with people who will spend $100 or more on a wine or whisk(e)y. We’re creating a point of difference between us and our competitors.”
The company’s advertising budget could be expanding in the future. Doust and Lebamoff are considering the acquisition of several stores outside the Fort Wayne market for the first time. “Most of the locations we’re interested in don’t do any advertising now,” Doust says. “So we think there is real upside potential once we begin promotions.”