As a specialist in real estate deal making, Jon Halper has focused on finding the right street corners in the right zip codes over the last nine years while building his Top Ten Liquors chain in the Twin Cities of Minnesota to 14 stores. “Location means a lot,” the Top Ten founder and CEO says. “We’ve been careful in making our choices for new store sites.”
The quick growth and expansion have been nice, but the Minneapolis-based company’s revenue unexpectedly fell off modestly last year. That’s led to a reassessment of priorities. Today, the subject of real estate has been pushed into the background as Halper has turned his focus to technology.
Halper’s stores weren’t reaching their full potential, and he decided a new computerized inventory management system was desperately needed. Early this year the company installed Oracle’s NetSuite software, which has the capability of analyzing everything from sales history to trends to seasonality, as well as a host of other variables including marketplace demographics in automating much of the company’s product ordering and shelf placement. New staff has been trained to run the system.
“This is having a huge impact on getting the right products into the right stores at the right time,” Halper says. “The system already is driving decisions and making us more efficient. People will still have a significant role here in product placement, but we’ve moved beyond the time when one person could punch out inventories by himself at a terminal. A business gets more complicated as it grows, and we now recognize that.”
In the past nine years Halper has been willing to adjust his outlook as business conditions changed. For instance, as rival Surdyk’s and other local establishments demonstrated that consumers wanted wine bars attached to retail spaces, Top Ten a year ago opened up its first hybrid store and lounge in the suburb of Minnetonka, Minnesota. Meanwhile, the company has become more aggressive in its marketing, highlighting so-called Sunday Specials each week featuring in-store pricing so sharp that “people have to get up off their couches to come in on Sundays,” Halper says.
There are few business owners anywhere able to learn all facets of a business so quickly, and then adapt to new realities as they crop up, to keep their companies growing. So far, Halper isn’t nearly satisfied: “We have to grow even more aggressively in the future,” he declares.
For this willingness to try new systems and techniques and his success in growing adroitly in a hotly competitive marketplace, Jon Halper has been named as a member of the 2023 Market Watch Leaders class.
Lawyer Turned Retailer
The switch to inventory automation probably was no surprise considering Halper’s background. His career as a practicing lawyer was curtailed when he went to work for his stepfather, Joel Waller, to oversee real estate issues at Minneapolis-based Wilson Leather, a mall-oriented chain that sold jackets and handbags that, at its peak, had 763 stores in 46 states. Later he went to work for Target, heading up the video game division. It was there that he got a deep education in the sophistication of big box buying systems.
Searching for a retail sector to invest in a decade ago, Halper jumped when a group of four beverage alcohol stores came on the market. He sealed the deal without having to take on outside partners, though his timing may have been less than ideal—Total Wine & More and Hy-Vee were entering the Twin Cities at the same time he was starting up, and Amazon had begun making home deliveries of alcohol in the area. Still, when Halper saw that many entrenched names such as Surdyk’s and Haskell’s were selling at or close to full-margin retail prices he saw a promotional opening where he could discount and win customers.
He’s done that, and now he figures that the company has reached a tipping point where it must adopt some of the automation that comes with scale. Jim Battocletti, Top Ten’s director of stores, worked at Caribou Coffee and Levy Restaurants and then spent nearly five years at Total Wine as a manager at the Roseville branch in suburban Minneapolis, which produced close to $45 million in annual sales by itself. He moved to Top Ten in search of a more entrepreneurial culture, though he was in for some surprises.
“At Total Wine we had abundant and robust software systems, and with their volume you need that,” Battocletti says. “Top Ten was antiquated by comparison. Jon realized we had to get better inventory control. It was overdue—we went from filling out spread sheets by hand to an automated system that does a lot of the work for us. That left more time for store managers to focus on their customers rather than administrative chores.”
Let computers do too much, of course, and a retailer’s shelves can become predictable, generic, and boring. As Battocletti explains it, the Top Ten network is programmed to allow computers to choose some 85% of inventory based on analyses by NetSuite. “The last 15 percent falls into the boutique, community-needs category, where decisions are made individually,” Battocletti says.
It’s specialists like Andy Hall, who’s been with Top Ten for a year as wine and liquor buyer, who fill in the gaps. Hall tastes dozens of wines each week along with craft spirits, and also meets with winery and distillery principals. On the strength of his palate and his interviews with suppliers, “I get to find the fun and cool and different products that seem right for us and bring them on board,” Hall says. “Our clientele at each store is not the same, and that means we need a diverse inventory that goes beyond what a computer itself can program. NetSuite is a huge step into the modern world, but the business still needs that human touch, too.”
Expansion Opportunities
Top Ten has its official headquarters in Minneapolis, but had not opened a store in the city until it was due to move into a 12,000-square-foot leased space—which falls roughly in the middle of the 7,000-20,000-square-foot range of most Top Ten units—around press time in August this year. The company still doesn’t have a location in St. Paul, Minnesota’s capital, but is searching for one. In all, Halper believes the Twin Cities metro market could ultimately support about 20 Top Ten stores (state law limits one store per town), meaning perhaps another six added to the current total of 14, with another half-dozen stores spread around the rest of the state in cities like St. Cloud, Rochester, and Duluth, Minnesota. Halper is an expert in finding locations, but has slowed the pace of expansion for now as he’s watched big chains like Bed, Bath & Beyond fall into bankruptcy. “Retail gets in trouble because it expands too quickly or expands in the wrong spots,” he says. “We’re going to be cautious. Real estate involves long-term commitments, and if you put up an unsuccessful store it can take all the energy and attention away from the rest of the company.”
Top Ten employs 250 people, about the same as a year ago, and management reports that workers are getting easier to find and hire compared with the mid-pandemic period when labor was short. Now the company is hoping to reverse a surprise downturn in sales—total revenue in 2022 edged down to about $52 million from $53 million in 2021. Some of the decline is blamed on rising prices.
“Last year we had tremendous cost increases from our suppliers,” Halper observes. “The increases were coming faster than inflation. But we saw some profit margin improvement in the fourth quarter last year and now we’re looking forward to taking advantage of more promotional opportunities to bring customers back.”
From outside the company, Top Ten’s margins look relatively healthy, running around 33% on wine, 25% on spirits, and 22% on beer. The company stocks roughly 3,300 wine SKUs, 2,200 spirits SKUs, and 2,000 beer SKUs. But despite the SKU difference, the company’s sales breakdown is 35% spirits, 35% beer, and just 30% wine. Halper has a longstanding aversion to building big superstores. The hybrid store that opened last October in Minnetonka features a 7,000-square-foot retail space adjacent to a 4,000-foot wine bar called Wineside, which includes a gourmet shop heavy in cheese and charcuterie and, most importantly, seating for 70. The bar features 100 wines by the glass poured from an automated Enomatic serving system that can dispense pours in as small as 1-ounce servings.
“Too many restaurants have expansive wine lists but not much that customers can try by the glass,” Halper notes. “We offer 16 Cabernets alone by the glass. If you love a wine you’re trying, you can walk 50 feet to the other side of the store and bring a bottle home with you. The convenience can’t be beat.”
Like Total Wine and other rivals, Top Ten is working to beef up its private label program under in-house labels such as Buyer’s Select and 90+ Cellars. Hall explains that he currently has 200 labels in the Buyer’s Select program, sourced from vineyards in France, Italy, and California. In the process, he’s noticing a new trend taking hold—a move to sweeter wines. An example is the Papi label from Chile with multiple offerings that are identified as demi-sec on the front label (the line is promoted at two 750-ml. bottles for $15 on sale).
“Minnesota drinkers used to talk dry, but recently we’ve seen them embracing explicitly the idea that the wines they want are not fully dry,” Hall says. He adds that “New Zealand Sauvignon Blanc has been a monster at retail for us, while rosé is doing very well, too.” Examples include the 2021 La Plage rosé from Provence ($25 for two 750-ml. bottles) and the 2019 Kim Crawford Sauvignon Blanc from New Zealand ($13).
Elsewhere, the margins are kept short on perennial top sellers such as Svedka vodka ($25 for two 1.75-liter bottles) and Moosehead beer ($12 a 12 pack of 12-ounce cans). The pricing has to be sharp, for Total Wine is in the process of planning its eighth store in the Twin Cities area and has all its rivals watching every move it makes. “In terms of size, our stores are the Ace Hardware to Total Wine’s Home Depot-sized format,” store director Battocletti says.
But new possibilities have Halper excited. In late spring this year THC cannabis products became legal to sell in retail stores like Top Ten, in both liquid form and edibles. The staff is busy carving out space for the products. “We are treating this as a new category launch. Our goal is to get it to 10% of overall sales,” Halper says. “Coming here you’ll be able to grab a 12-pack of beer and a 12-pack of THC beverages. The entry level will be very easy for our customers.”
Future Goals
It’s been a longstanding goal for Top Ten to be a family business, and now it’s becoming just that. Halper’s son Joshua, who is 23, graduated from the University of Miami in the spring of 2022 with a degree in business. He was accepted into the Gallo Leadership Development program and began work there after school. But suddenly a marketing role opened up at Top Ten and Jon put in a call to his son to return home and go to work for the company as a marketing specialist.
More might be coming. Daughter Jamie is finishing up her second year of law school at Stanford, while the youngest, son Jonah, is still an undergraduate at the University of Denver. “Nothing would make me happier than to establish Top Ten as a multi-generational family business.” Halper says. “I’d love to see one of my children eventually take over the company.”
In the meantime, Halper has ordered a sort of brand refresh for all his stores. “I want to make sure we’re communicating well and advertising right to support our plans for growth,” he says. “Retail is an ultra-competitive adventure. You can never be complacent, but instead must be looking for ways to grow and evolve. If you don’t, the competition will come along with a better mousetrap and pass you by.”