The 1980s was an era of downmarket competition in the retail sector. The earliest warehouse clubs proliferated, Walmart and Kmart embarked on national expansion campaigns, and at least a few grocery stores experimented with cement floors and bring-your-own-bag policies. At that time, retail veteran Steven Bialek teamed up with Tom Kowalski, who’d been operating conventional beverage alcohol shops around Los Angeles and hit on the idea of taking wines down the discount path.
In 1982, the two partners opened Los Angeles Wine Co. in a 2,000-square-foot space with concrete floors and steel roll-up doors in an industrial neighborhood near Marina del Rey, California. The store had no employees, featured handmade signs and carried just a couple hundred wine labels, all displayed in their original shipping cartons. The stripped-down business model allowed the fledgling owners to offer the lowest prices around.
Fast forward more than three decades, and retailing has moved upmarket. While modern-day shoppers have grown accustomed to comforts like carpeting and track lighting, Los Angeles Wine Co. still holds fast to its no-frills merchandising approach. Kowalski left the business in 1991, but Bialek continues to oversee the store in the same space that’s still notable for its handmade signs, slim product assortment and powerful discounts. The concept hasn’t been diluted or altered to meet changing tastes and remains one of the few survivors of the warehouse era, despite today’s trend toward superstores with enormous selections.
In fact, if Total Wine & More is the paragon of modern beverage retailing, Los Angeles Wine Co. stands as its polar opposite—a characteristic that Bialek proudly touts. “We’re the antithesis of Total Wine and other big box stores,” he says. “I don’t believe that a wide selection sells wine. We make a point of narrowing the selection to the best labels. That approach has been our philosophy all along.”
Early Start
Born in Los Angeles and raised in the San Fernando Valley, Bialek spent his formative years in more conventional beverage alcohol retailing. His father, Eugene, owned a number of California wine and spirits stores, including Monterey Plaza Liquors and a franchised unit of the Chicago-based Foremost Liquors chain. Bialek got his start as a delivery boy at the age of 16, and his father started sneaking him into trade tastings shortly thereafter.
One merchandising practice that Bialek took from his father—who owns Topline Wine & Spirits in nearby Glendale—is prominently displaying the tasting notes of wine critics throughout the store. In fact, he’s fanatical about it, typically promoting a wine with three or four independent reviews if possible. “I don’t leave out the bad ratings,” Bialek explains. “If three reviews give a wine 92 or more and a fourth gives it an 89, I’ll include the low score at the point of sale.”
While working with his father in the ’70s, Bialek observed plenty of excess at other stores in the area. “Places like The Beverly Hills Wine Merchant and the Duke of Bourbon had fancy stores with chandeliers and catered to wealthier patrons. Those customers were never our audience,” he says.
Yet he could see changes in retailing on the horizon. In the late ’70s, the Supreme Court struck down fair trade laws, which had kept wine markups to a minimum of 33¹⁄³ percent. At the same time, deep discounters like Fedco in Los Angeles and Price Club in San Diego starting launching members-only warehouse formats and attracting large volumes of shoppers.
Amid this fertile price-cutting backdrop, Kowalski moved from Chicago to oversee the licensed Foremost stores in California, but grew frustrated when working with West Coast merchants who wouldn’t follow his directives or stock the wines he wanted. So he enlisted Bialek as a minority stakeholder in the Los Angeles Wine Co.
“At the time, everybody told us that shoppers would never come to an isolated industrial neighborhood to buy wine,” Bialek recalls. “But Tom had an excellent palate for wine and knew how to pick labels people would like. I knew all the distributors.” When the store opened in September 1982, nobody came. “I began leafleting cars in nearby shopping centers, and we started running ads in the Los Angeles Times,” Bialek says. “That Christmas, people began to show up, and we soon knew we had a viable business.”
Minimum Overhead
In an era when the 1978 Jordan Cabernet Sauvignon was priced at $12 and the 1979 Château Margaux Bordeaux sold for $37, the fledgling company grossed $1 million in its first year. While competitors priced Silver Oak Cabernet Sauvignon at $18 to $20, Los Angeles Wine Co. sold it for less than $12. The store didn’t have wooden bins or refrigeration, and the company didn’t hire its first employee until 1984. The owners initially took no salary, plowing any extra money back into newspaper ads. Margins ran at 10 percent or less, and with just 200 SKUs on the sales floor, the company qualified for deep wholesale discounts.
Margins were so tight that Bialek and Kowalski dropped their plans to open a chain of stores. Instead, a second unit of Los Angeles Wine Co. debuted in 1986 in Palm Desert, California, in a 1,000-square-foot space with the same bare-bones layout as the original location. It’s still open today in the same place and remains the company’s sole expansion. In 1991, Bialek bought Kowalski’s share of the business.
Annual sales for Los Angeles Wine Co. peaked at $7.5 million in 2008 before the recession took hold. In 2014, revenues came in at $5 million—about the same as the previous year. But margins are better: At 20-percent gross, Bialek believes he outflanks rival retailers who likely get closer to 28 percent to 30 percent.
In recent years, Bialek has been forced to boost prices. With just three big wholesalers in the Southern California wine market now, pricing is under strict control, and the big box stores vie fiercely to beat each other on key labels like Veuve Clicquot and Dom Pérignon Champagnes. Los Angeles Wine Co. steers clear of such infighting. “If they want to slug it out over Veuve Clicquot, I simply won’t carry that brand all the time,” Bialek says. “That situation gives me an opportunity to sell Laurent Perrier Champagne.” While not completely avoiding mass-produced offerings, he tries to keep the overlap to a minimum. “I might order a half-pallet of Kendall-Jackson Vintner’s Reserve Chardonnay just once a year and price it at $8.99 a bottle,” he explains.
The top line has been hurt by a decrease in consumer confidence since the recession. In past years, Los Angeles Wine Co. could count on big corporate customers ordering cases of wine to give to employees and clients as holiday gifts. Those sales have fallen off severely. “The expense account business has changed,” Bialek says. “We once had a local bank that ordered 100 cases of Dom Pérignon every Christmas and wrote us a check for $110,000. Then it stopped.” He attributes the decline to changing attitudes toward health, noting that offering wine to one’s employees is now akin to giving them cigarettes.
Another shift in Los Angeles Wine Co.’s business is the disappearance of high-end labels like Stag’s Leap, Silver Oak and Trefethen from the store’s shelves. These wineries eschewed the deep discounting that’s now so widespread in the age of Internet retailing. Bialek has embraced the Web with enthusiasm since 2004, and 40 percent of his sales currently occur online, with shipping to some 45 states. His average sales ticket in the store is less than $200, but on the Web, it’s about $300. “Our website works for us 24 hours a day,” Bialek says, noting that his shop closes at 6 p.m. each evening. But pricing is critical. “We wouldn’t be any good on the Internet if our prices were $5 a bottle higher,” he adds. “We can’t be the lowest price on everything, but we try to be the lowest on many items.”
The Internet has helped fill the marketing gap where advertising was once critical. The store hasn’t purchased ads in local newspapers for a decade. There have been some sporadic cable television spots, usually starring Bialek, but they’ve become more infrequent of late. The company once reinvested 3 percent of its sales back into marketing, but the share today is less than 1 percent. An e-newsletter goes out to 10,000 customers almost daily and often touts just a single product.
In addition to Bialek, Los Angeles Wine Co. has just three employees at its home base and another two in Palm Desert. There is no separate shipping department; staff members fill e-commerce orders whenever they can. Everybody is trained to take on any task, made easier by the limit of just 400 SKUs on the sales floor—something that Bialek believes helps ensure superior service.
“For the customer in Total Wine trying to choose among 1,000 Chardonnay labels and in search of a clerk for help, think how impossible it is for anybody on the staff to know how even half those wines taste,” Bialek says. “Here, my employees and I taste all our wines and can talk about them with great confidence. People come here for low prices, but they’re surprised by how good the service is too.”
Inventory Turnover
In order to keep up with the fast-changing assortments, Los Angeles Wine Co. turns its inventory once a month. The store professes no continuity of merchandise, though American wines usually comprise about half of the selection, followed by French offerings at 15 percent and Italian labels at just over 10 percent. There are no back vintages, cult wines or collectibles bound to gather dust. Bialek studiously avoids suppliers’ pleas for tie-ins—taking on a lesser wine along with an allocation of something more highly sought-after.
There is also no gamesmanship in pricing. Bialek will sacrifice margin on more competitive labels, but once the price is set, it remains at that level. The only exception is a sale that’s held every year for five hours on a July morning when the company offers 10 percent off its entire stock. The event is so popular that the line of waiting customers often stretches down the street.
Prices range from $5 a 750-ml. bottle for the 2012 Round Hill Chardonnay to $6,500 for the 2011 Domaine de la Romanée-Conti. Other upmarket labels include the 2011 Pétrus from Bordeaux at $2,000 and the Krug Grande Cuvée Champagne at the bargain price of $150, carrying a slim 7-percent gross margin. The store also stocks the Barnaut Champagne for $40 with a 22-percent margin, but Bialek knows he has to have the Krug. “It’s a compelling label that helps us make a statement,” he explains.
Over the decades, celebrities like Richard Pryor, Jodie Foster, Elizabeth Montgomery and former California Governor Pete Wilson have shopped at Los Angeles Wine Co., but the business model has never changed. Bialek has no intention of retiring anytime soon. “There are times I feel burned out, but I still relish waiting on customers and battling with wholesalers,” he says. Bialek doesn’t care that his no-frills style of selling wine hasn’t become more widespread and likely won’t in the future, thanks to modern zoning laws that prohibit mixing retail and industrial spaces. He remains secure in his position. “This setup works for us, and that’s good enough for me,” Bialek says.