When Rufus Nagel, CEO of Lakeside, Colorado-based Molly’s Spirits, scouted a second location for his store in 2019, he chose a building in Greenwood Village, 22 miles away from his home base. Like the flagship store, the newer location is in a suburban shopping center near an interstate highway exit, with a grocery anchor and abundant parking. Yet while the flagship is in a modest shopping center, the second Molly’s is near office towers, upmarket stores and restaurants, and upscale housing. “We built the second store with the intention of delivery comprising 50% of sales,” Nagel says. It opened in December 2019, three months before Covid-19 upended everything.
Nagel, who launched Molly’s Spirits in 2014 and was named a Market Watch Leader in 2019, entered Denver’s competitive market as a disruptor. His background in Silicon Valley tech and Denver commercial real estate gave him an edge in software, selecting store locations, and negotiating leases. As an industry outsider, he wasn’t bound by tradition, but he did predict technology would simplify tasks and create savings on labor costs.
That prediction has rung true. Today, technology partner CityHive powers the Molly’s website and app; mPower point-of-sale software streamlines purchase orders; and MarginMate software facilitates 500 price updates a week and supports electronic shelf labels. Although software from CityHive and e-commerce player Drizly are compatible, Nagel improved their functionality and lowered fulfillment costs by creating a delivery-optimizing software called Enroute in 2019. For all of his tech-savvy work, Nagel wins the 2022 Market Watch Leaders “Best Website Award.”
Embedded With Tech
Molly’s Spirits was high-tech from the get-go, so when Covid-19 hit, the company was equipped to handle the flood of in-store and e-commerce business. “The pandemic exploded delivery, but we handled the enormous increase,” Nagel says. Delivery jumped from 10% to 40% of sales overnight, and now accounts for 25% of sales. “Our e-commerce is like another store, with its own business model and different demographics,” Nagel says. “Covid gave us insight into the need for delivery and pick-up to be a strong component of any liquor store.”
Annual revenue hit $36 million in 2020, due in part to pantry loading in March and April. In 2021, revenue stabilized at $34 million, and e-commerce is a profitable piece of the puzzle. Nagel points out the contrast in average basket prices: In-store sales average $52 and Drizly delivery is $71, while delivery from the Molly’s app is $105 and curbside pickup from orders placed on the Molly’s app average $119. Some 60% of delivery and curbside orders are placed via cell phone, and Nagel predicts mobile engagement will increase.
Duke Of Delivery
“Delivery has changed from a novelty to a necessity,” Nagel says. “The customer profile is different from in-store, necessitating a whole different approach.” At the original store, where Nagel has cultivated an established customer base, 40% of delivery orders are placed through the Molly’s app, and 60% through Drizly. At the newer store, only 20% of delivery orders are placed through the Molly’s app. When the second store opened, Drizly had already made inroads in Denver’s south suburbs through other participating stores. The overlap between customers who order through the native app and the Drizly app is only 3%. “Drizly allows retailers to serve their customers, and they own the relationship,” Nagel says. “Drizly isn’t our competition, and it doesn’t cannibalize our business.”
Speed is of the essence. Drizly aims for delivery within an hour, but Nagel shoots for 45 minutes. He controls delivery costs with locations near interstate entrances and a fleet of 22 electric cars that make multiple deliveries on every trip. Furthermore, the second Molly’s location is in a densely populated area where demand for delivery is high. “Both CityHive and Drizly think of each delivery as a roundtrip, but to profit, you have to complete multiple deliveries on every loop,” Nagel says. “You want a density of orders, because it’s worth driving 15 miles for a several orders at a time.”
To this end, Nagel developed Enroute, a map-optimizer application utilizing GoogleMaps that facilitates dispatch, routing, and delivery, and integrates with existing software. Staffers see deliveries in progress on computer monitors, while drivers see the app on their phones. “Without Enroute, a driver would require three apps at once: Google Maps, CityHive, and Drizly,” Nagel says. The software saves on delivery costs, increasing both deliveries per mile and deliveries per hour. Molly’s deployed Enroute days after the Covid-19 shutdown, when demand for delivery skyrocketed. Delivery orders at the new location jumped to half of sales, and the company was ready.
Nagel knew his software could give independent retailers an edge to compete with national chains. So, he joined forces with venture capitalist Brannan Johnson to launch Alchemy113 last April. The company offers Enroute, now in its second version, and is testing a purchasing software called Prost. In addition, they’ll soon offer a variety of marketing and consulting services. Enroute is utilized by stores in eight states, including 15 stores in Colorado. The software expedites 500,000 delivery transactions annually. Nagel and Johnson just closed on a $3 million round of financing to grow the company.
As implied by the store’s name, spirits dominate at Molly’s Spirits, making up 39% of sales with 3,640 SKUs. The strongest categories are American whiskey and Tequila, accounting for 31% and 17% of spirits sales, respectively. Top-sellers include Casamigos Blanco Tequila ($46 a 750-ml.), Espolòn Blanco Tequila ($23), Four Roses Bourbon ($38 a 1.75-liter), and Jim Beam Bourbon ($24). When customers join the store’s spirits club, their purchases accrue points toward a semiannual raffle, which allows winners to purchase allocated whiskeys at retail. Recent winners bought Pappy Van Winkle 23-year-old ($350 a 750-ml.), Yamazaki single-malt 18-year-old Japanese whisky ($360), and an exclusive-barrel of W.L. Weller Bourbon ($55). All proceeds benefit a nonprofit chosen by Molly’s employees.
Wine accounts for 37% of sales at Molly’s, with 4,400 SKUs. The four top-selling wines are La Marca Prosecco ($16 a 750-ml.), Matua Sauvignon Blanc ($12), Kim Crawford Sauvignon Blanc ($18), and Molly’s Spirits Rosé Bubbles ($4 a 375-ml. can). Nagel says most wine is consumed within hours of purchase, so he allots 16 cooler doors to wine at the new store and ten at the first. Imported sparkling wines priced at or above $25 a 750-ml. grew 13% in 2021. Best-sellers include the 2015 Graham Beck Blanc de Blanc ($29 a 750-ml.) and Bisol Cartizze Prosecco ($53).
The MarginMate software tracks even small increases in sales, allowing Molly’s to spot upcoming trends. Sales of skin-contact or orange wines have doubled in the last year, led by popular offerings like the 2020 Gulp Hablo Verdejo Sauvignon Blanc ($20 a 1-liter). In addition, wines marketed as natural and organic are growing, including the 2020 Le Marmot de la Brande Côtes de Castillon ($17 a 750-ml.). Nagel doesn’t sell allocated wines on the website, preferring to hand sell them to core customers at the stores. Recent picks include the 2019 Domaine de la Romanée-Conti la Tâche ($2,800) and the 2018 Cayuse Walla Walla Valley Cailloux Vineyard Syrah ($119).
Colorado grocery and convenience stores began carrying full-strength beer in 2019, ratcheting up competition and causing some smaller stores to shutter. Beer sales comprise 17% of sales at Molly’s, a drop from 28% in 2018. Yet the store remains a beer destination with 2,138 SKUs. The ability to offer cold beer gives beverage alcohol retailers an edge over grocers, Nagel says. The flagship Molly’s store devotes 55 cooler doors to beer, while the second location has 40 doors. Both have additional walk-in cold storage for beer deliveries.
Nagel focuses on Colorado beer in cans, and notes that bottled beer sales are falling. He eliminated the walk-in bomber cooler at the first store. Two strong sellers are Weldwerks Brewing Juicy Bits IPA ($15 a 4-pack of 16-ounce cans) and Station 26 Brewing Co. Juicy Banger IPA ($13 a 6-pack of 12-ounce cans). Overall, the company’s top beer sellers are Coors Light ($20 a 24-pack of 12-ounce cans) and Modelo Especial ($30).
When MarginMate data indicated a small uptick in canned RTDs, Nagel expanded his selection and created space in the cooler. RTDs and hard seltzers each account for 2% of sales at Molly’s, with 310 and 163 SKUs, respectively. Mainstream brands Cutwater ($14 a 4-pack of 12-ounce cans) and High Noon ($10 a 4-pack of 300-ml. cans) dominate, in part due to competitive pricing, Nagel says. “Customers request a greater selection of still, rather than bubbly, cocktails, but there are still few producers,” he adds.
Nagel resets his stores often based on sales data, even moving entire sections overnight. He’s focused on younger customers, which make up most of the demographic at the original store. “The under-30 market loves the same but different,” he says. “They like a hazy IPA, so they want a different hazy IPA next time they shop. A huge challenge is that they constantly change what they want.” The native Molly’s app is geared towards these shoppers. “Consumers 30 and under live on their cell phones,” Nagel says. “The phone is their point of contact with the world.”
Nagel will continue to fine tune his website and app. “The future is targeting core customers in a direct way, and making the app or site appear different for each person,” Nagel says. “An algorithm based on consumer habits will allow core customers to see tailored content. The adult beverage industry will catch up to Amazon.”
Nagel thinks about technology on a near constant basis, but he’s still grounded in his brick-and-mortar stores. The original store measures 28,000 square feet, with the second store coming in at 25,000 square feet. Whereas the original store has a steampunk theme and a Victorian-era mural of the Molly character, the new store has a mid-century modern theme and a 1950s-era mural of Molly in the retro-futurism style. Both stores feel open and clean, with bars for tastings. At the new store, Nagel installed indoor and outdoor seating areas. “In the future, we’re going to see new and unexpected methods of sales, new types of subscriptions, event-based sales, and many others, yet undreamed,” Nagel predicts.