Beverage retailing in the state of Indiana requires maneuvering around a thicket of regulations and laws apt to drive free-traders crazy. You can’t ship products out of state—and you can’t ship products in-state either, unless you use a third-party service like Drizly. You can use your own vehicles to ship to nearby communities, but you can’t use FedEx or UPS at all. An application for a liquor license requires a long in-state residency, keeping big chains like Binny’s Beverage Depot and Total Wine & More out of the market. And many municipalities have tight caps on the number of retail alcohol permits they issue, which has led to some permits being sold for $400,000 or more on the open market. Sunday sales weren’t allowed in Indiana until early 2017, and grocery stores can only sell their beer warm.
Indiana merchants have long since adapted to this litany of restrictions and endorse the status quo. But one retailer, Cap n’ Cork in Fort Wayne, is working by itself to undo at least some of the rules. The 15-unit chain has lodged lawsuits in both Michigan and Illinois to earn the right to ship freely into those jurisdictions, and is considering challenges to more anti-shipping laws in other states.
Cap n’ Cork is co-owned and managed by brothers-in-law Andy Lebamoff and Joe Doust, Jr., with Lebamoff serving as president and Doust as vice president and secretary. Both became Market Watch Leaders back in 2001 and received the Best Merchandising award in 2015. For years, Cap n’ Cork had a reputation for acquiring mom-and-pop rivals around Fort Wayne—and building its revenue stream in the process. But expansion has come to a virtual halt since 2015, as permit-trading has waned. Today Lebamoff and Doust have decided that if they’re to continue growing, they’ll have to cross state borders through e-commerce.
“Wineries in California and elsewhere can ship into Indiana via FedEx and compete against us,” says Doust. “But by state law we can’t use FedEx at all, and so we’re at a disadvantage. We favor laws that are fair and equitable for everybody. We aren’t scared of competition.”
But they do favor some restrictions on competition. The groundbreaking U.S. Supreme Court decision in the case of Tennessee Wine and Spirits Retailers Association v. Russell F. Thomas last June struck down a Tennessee state law requiring any retail applicants to prove two years of residency before gaining license approval. Indiana’s law is actually much more restrictive, requiring a full five years of residence for alcohol retail license applicants. The Cap n’ Cork owners say they don’t necessarily oppose that restriction. It was that rule, after all, that kept Binny’s from invading Indiana with plans to open a store in the town of Schererville in 2016. Total Wine has tried to enter Indianapolis, but was also stymied by the same residency requirements.
“We like the residency rules,” Lebamoff says. “If much bigger companies like Binny’s or Total were to come into Indiana, they could be prepared to lose millions a year in selling below their costs and make it tough on little guys like us, who’ve spent generations building up our business.”
Grocery Store Roots
It certainly has been generations at Cap n’ Cork, which is owned under the corporate umbrella Lebamoff Enterprises Inc. The business was founded as a grocery store in Fort Wayne in 1911 by Argire Vasil Lebamoff, a Macedonian immigrant. He added liquor to the mix in the mid-1930s and, along with his son George, began expanding to multiple locations in the late 1950s. In 1974 the Cap n’ Cork name was adopted and expansion heated up after that; four locations were added in the 1980s, four in the 1990s, and another four in the 2000s. Joe and Andy bought out George Lebamoff—Andy’s father and Joe’s father-in-law—in 1993.
Business has been good in Fort Wayne, which is located in the northeast corner of Indiana and has a population of 268,000. Cap n’ Cork’s sales rose 4% in 2018 to $28 million, with gross margins running 33% for wine, 23% for beer, and 27% for spirits. Beer accounts for 40% of sales, spirits for 42%, and wine for 15%, while tobacco represents most of the remainder. While the stores are all less than 10,000 square feet in size, the densely packed assortments are impressive, with 4,700 SKUs of beer, 3,500 SKUs of spirits, and 2,500 wines in inventory.
The problem for Cap n’ Cork is that there’s a cap of 39 free-standing alcohol retail permits for Fort Wayne, and its longstanding rivals, Belmont Beverage and S&V Liquors, control everything that Cap n’ Cork doesn’t own. There’s little chance of expanding to the suburbs because the municipality of Fort Wayne annexes any outlying subdivision that’s proposed before new towns can be built. And no new permits have been allowed in many years.
In its search for growth, Cap n’ Cork has been widening the footprint of its stores. One branch was expanded from 5,000 to 7,000 square feet, another was doubled to 7,500 feet, and a current project on Maysville Road involves a leap from 3,500 to 6,800 square feet. “Five years ago, we were comfortable with 5,000-square-foot stores,” says Doust, who oversees finances and marketing while Lebamoff is charged with product ordering. “But the proliferation of craft beers and whiskies has made selection, and additional stock, all-important to our customers.”
Indeed, at the headquarters store on Coldwater Road, north of downtown, wine tasting rooms have been added and beer cooler doors have doubled to 30 in the past three years. “That’s what craft beer requires around here these days,” says beer buyer Brent Parker.
Still, the realization is sinking in for Lebamoff and Doust that expanding a store footprint can only do so much to gain new customers. Cap n’ Cork already gets more than 5% of its sales via its own delivery vans. If they were allowed, the partners would invest in a bigger fleet and send trucks over the Michigan line, just 40 miles away. “We have customers who’ve moved away to Michigan and other places who are still requesting product from us,” says Doust. “We need to open up shipping laws so that we can reach them.”
One essential lesson in last year’s Tennessee ruling from the Supreme Court is that practically all laws restricting access to beverage alcohol are destined for the trash heap. How fast that happens is anybody’s guess. Cap n’ Cork filed its first lawsuit in 2016 and has already prevailed in courts in both Michigan and Illinois, but the decisions have been appealed and are stuck in legal limbo. “We have a judgment in Michigan allowing us to ship, but the defendants continue to appeal,” says Robert Epstein, an Indianapolis attorney representing the retailer. “Real relief could come in the form of legislation permitting free shipping. Connecticut has passed a law allowing out-of-state retailers to ship into the state. New York is considering such a law, and more are likely to follow.”
A Bigger Fleet
If change comes to Indiana, Cap n’ Cork has told Epstein that the company could use its own trucks to ship as far as 250 miles—reaching cities like Chicago, Detroit, and Grand Rapids, Michigan with ease. But there’s another roadblock: Even if Cap n’ Cork persuades Michigan to allow it to ship within the state, there’s still a law on the books in Indiana that doesn’t allow retailers to ship out of the state. Doust is hiring lobbyists to try and get that law overturned in the statehouse.
“Eventually we’ll challenge the Indiana law that forbids shipping,” says Epstein. “We have to take one step at a time.” Those steps require investment in legal fees by the owners of Cap n’ Cork, of course, but the owners vow that they’re willing to go the distance. “If we go all the way to the U.S. Supreme Court, I’ll look forward to meeting Chief Justice John Roberts,” Lebamoff says.
In Cap n’ Cork’s beer department, the vast assortment runs the gamut from the cheapest SKU, Natty Daddy ($2 a 2-pack of 25-ounce cans), to the most expensive, Boulevard Brett saison ($14 a 750-ml.). The top-selling import is Corona Extra, at $15 a 12-pack of 12-ounce bottles, while the leading domestic beer is Bud Light at $16 an 18-pack of 16-ounce cans—just $1.50 above wholesale.
Margins are better for local craft products like Mad Anthony Brewing Co.’s Good Karma IPA ($9 a 6-pack of 12-ounce bottles). Parker says craft beer sales are still growing at a 5% annual clip, though he notices more customer overlap. “People will come in and buy a 24-pack of Coors cans for $20 and then grab a 6-pack of Bell’s Oberon ale at $10,” he explains. “They’re crossing back and forth from craft to the big domestic brands.”
As for spirits, Lebamoff says that $20 has become a key price point in categories like whiskey. He’ll order 500 cases of Jack Daniel’s and qualify for a wholesale price of $18 a 750-ml. Then he’ll price it at $20, down from the everyday price of $25, and watch it fly out the front door. For Jim Beam, if he’s willing to commit to 1,000 cases per order, he can lower his retail pricing from $34 to $26 a 1.75-liter. Volume soars as a result.
Lebamoff notices that he gets good movement in single malt Scotches priced under $40, including Glenfiddich 12-year-old at $35. There’s some demand for local products as well, like Starlight Distillery’s 1794 gin, priced at $28 a 750-ml. The company isn’t afraid to stock a wide pricing spectrum, with Redbreast 21-year-old Irish whiskey priced at $312 a 750-ml. and Rich & Rare Canadian whisky priced at $15 a 1.75-liter. Cap n’ Cork offered more than two dozen exclusive single barrels from a variety of Kentucky-based Bourbon distilleries in 2019.
As the grandson of the founder of the business, Lebamoff claims he got his start at the age of four sweeping floors; by age 12, he was helping drivers unload semi-trailers full of products in searing summer heat. Since then, he’s developed a serious palate, which accounts for a well-chosen wine department that ranges in price from the 2017 Kendall-Jackson Vintner’s Reserve Chardonnay ($14 a 750-ml.) to the 2015 Opus One, regularly priced at $315, although it was on special recently at a bargain of $215. A summertime flyer promoted the 2017 Man Vintners Sauvignon Blanc from South Africa at $9 and the 2017 Caymus Conundrum White blend from California at $17. A perennial bestseller is the Joel Gott 815 Cabernet Sauvignon at $16.
If Cap n’ Cork is someday going to expand its selling territory, it will need crackerjack marketing. Management hired advertising veteran Rachel Burkholder, who has steadily shifted communications beyond weekly newspaper ads to television and three-minute video spots that run on YouTube, with a presence on Twitter and Instagram as well. “We have to diversify here beyond newspapers,” Burkholder says. “People get their information from so many channels now. We have to try to reach them everywhere.”
As Cap n’ Cork expands its reach, Lebamoff and Doust have no plans to retire despite grueling seven-day workweeks. Lebamoff’s three grown children haven’t shown interest in running the business, which may leave the store’s future in the hands of Joe’s son Joseph Doust III, who’s working at the company as an accountant, I.T. specialist, and store supervisor. If and when he ever inherits the operations of the business, the two current co-owners hope that they’ll be selling far beyond Indiana. Meanwhile, they’re each spending much of their spare time in courtrooms, trying to break down old beverage alcohol laws.