Adjacent to New Riff Distilling in Bellevue, Kentucky sits The Party Source. Originally opened by New Riff founder Ken Lewis, The Party Source has been owned by employees since 2014 through an employee stock ownership plan, or ESOP. Since transitioning to that model, the store has undergone a number of changes; this year, further expansion to the store’s “campus” is underway with the renovation of a formerly defunct bar behind the beverage alcohol megastore. The goal is to open a full bar later this year, complete with space for tastings and educational events. And at the front and sides of the store, new patio covers will enhance and expand the store’s ability to host events.
The changes are being led by president and CEO Jon Stiles. A 30-year company veteran, Stiles was named as head of the operation when the ESOP was completed. Since then, he has continued to grow the company while maintaining the fiscal discipline that allowed it to become debt-free. With pandemic restrictions now mostly in the rear-view mirror, Stiles and his team are looking to enhance the customer experience with a massive selection of beverage alcohol, a focus on quality and value, and more opportunities for engagement. For his leadership in a unique situation and focus on customer service, Jon Stiles has been named a 2022 Market Watch Leader.
Taking Ownership
Stiles started as a specialty food director when the store opened in 1993, and then transitioned to general manager around a decade later. When Lewis opted to sell The Party Source to his employees in an ESOP in 2014, Stiles was named president and CEO. He raves about the benefits of the ESOP approach, noting that long-term employees can reap real financial rewards.
“There are about 85 employees in the ESOP, and that includes retired and terminated employees,” Stiles says, noting that figure includes 57 active employees out of a total current employee count of 120. “They’re doing pretty well. As of 2021’s stock allocation, those 85 employees have allocated to them over 31,000 shares of stock valued at about $4.6 million. It’s life changing money for employees working retail, or working on an hourly basis, and who may have simply retired with potentially nothing more than social security. With the ESOP, there are no requirements that anyone puts any money in. Instead, they’re encouraged to save money on operating expenses, increase sales by being out on the floor to sell as much as possible, and to be good employees.”
Longtime general manager Micah Dennison says the employee ownership mentality was in place even when Lewis owned the company, and now the benefit extends further. “It’s nice to see the younger generation, and people that are in day-to-day floor operations, start to take on some of that feeling of responsibility and ownership as well,” he says.
The formula appears to be working for The Party Source. In 2014 when employees purchased the store in a fully leveraged transaction, they agreed to a payoff term of eight years. The note was paid off 18 months early, Stiles says. Now, the company has instituted a 4% match for its 401k plan and has started a bonus program. The Party Source has also engaged a business consulting firm to help each employee understand the financial intricacies of the “open book management” company. “The idea is to focus on our employees and take great care of them—they’re paid good wages, their benefits are excellent, and they have a bonus program,” Stiles says. “Now that they’re involved, their futures are tied into this. If you take care of your employees to a great degree, then they’ll go out and take great care of your customers.”
Thriving Amid Competition
The focus on taking care of the employees, and ultimately customers, appears to be paying off. The Party Source generated revenue of $56.5 million in 2021, the strongest year on record for the store. Stiles says thus far 2022 numbers are slightly below last year’s peak, which he says is not surprising given the return of on-premise consumption. “No one likes to see a reduction in their sales,” says Stiles. “But when this year is finished, it’s going to finish probably a little bit below 2021 but it’s going to be above 2020. It’s still going to be a great year.”
That $56.5 million in revenue is generated in a single store that measures about 60,000 square feet of selling space. Upstairs is a storage facility that includes a 12,000-square-foot, temperature-controlled wine storage unit. The massive storage area and selling floor has allowed The Party Source to live up to its “Everything But The Guests” tagline. “We’re the largest store in the state of Kentucky, and probably the largest in the states of Ohio and Indiana too,” Stiles says. “We have larger selections in almost every category than any other competitor. And we combine that with deep inventory.”
Currently, The Party Source carries about 7,000 spirits SKUs, including spirits-based ready-to-drink products. Wine SKUs equal roughly 5,500 and beer and hard seltzer SKUs amount to nearly 1,900. The store also carries about 1,700 cigar SKUs. Stiles says The Party Source is always open to new, quality products. “It’s almost like we have a shelf stretcher someplace,” he jokes. “Consumers are so knowledgeable today; they know when [new brands are released]. I tell people that we carry every interesting thing available to us in Kentucky.” Stiles says the store carries enough product for almost any party, planned or impromptu. “It’s very unusual for someone to come in and not be able to get the quantities they want,” he says, touting The Party Source’s deep inventory.
The breadth of selection is a big draw for people both in the Northern Kentucky area and from across the river in Cincinnati. Ohio is a control state but Ohioans can purchase wine and beer in grocery stores, and the state-run liquor stores are becoming much more sophisticated, Stiles says. “We’re a destination, and I never lose track of the fact that when people come here, especially from Ohio, they’ve probably driven past ten or 15 other places where they could buy the same product,” he says. “Part of that is price, but another part of it is selection, and it’s our people, and it’s the service, and the pretty things they can see on display.”
What’s Hot?
Stiles and his colleagues say Bourbon and ultra-premium and luxury Tequilas are thriving, as are spirits-based RTDs. “We have the largest selection of Bourbon that we can possibly have,” Stiles says. “Things aren’t always available so there are some holes on the shelves, but that’s the nature of the Bourbon beast, and the other beasts right now.”
The Party Source’s constant struggle with Bourbon is getting enough supply to satisfy demand. Stiles says his location in Kentucky doesn’t necessarily help—he clamors to get his share of product just like everyone else. When something rare does come in, no formal communication is needed. Instead, unannounced releases are commonplace at The Party Source. Stiles says the Bourbon aficionados who are always searching for hard-to-find products take care of communication. “The first person who walks in and sees half a pallet of Buffalo Trace on the floor, they’ll take a picture of it and immediately put it on Facebook and Instagram.” A few hours later, the store is usually in an out-of-stock situation again.
The “other beasts” are high-end Tequilas, which are on fire. “We really can’t get enough Don Julio, Patrón, Casamigos, and Teramana, and all these other great brands,” Stiles says. “So far, even with inflation being what it is—and we certainly have seen our share of price increases—the push for premium is still staggering.” Spirits RTDs are another strong growth area. “It’s gotten to the point where almost a third of the cases that our buyer orders are RTDs in single serving cans,” he says.
Spirits account for about 53% of sales. Wine’s share of sales runs about 17%, and Stiles says the category has been “a more difficult area for us” in recent years. One thriving sector is sparkling wine. “We can’t get enough sparkling wine, especially any of the higher-end brands,” he says. Beer and seltzers account for about 13% of sales. Seltzers were on fire for a few years but growth has tempered somewhat with the emergence of a vibrant spirits RTD market. For beer specifically, Dennison emphasizes that customers are focused on local offerings, rather than simply looking for craft brews.
Cigars are also an important part of the mix at The Party Source. “We’re told that we’re the largest single-location cigar retailer in the United States,” says Stiles. “We do more than $4 million a year in our humidor, and that amounts to about 8% of total sales.” The efforts underway to enhance the front and side porches of the store will allow for more cigar-centric events at The Party Source. “[Pre-Covid], we used to do a weekly cigar tasting,” Dennison says. “We had 120 people every Tuesday night. That’s been shut down for the past few years. Getting that patio covered and being able to bring it back to the store is a big deal for us.”
The bar being redeveloped behind The Party Source store is also a source of excitement. “We’ve needed some form of event space,” Dennison says. “We’ve always been a big draw regionally because of what we’ve developed over all these years, but to have unique experiences that add to what we’re already doing will add excitement. With that bar space, we should be able to have some early, during-the-week events, such as tastings and maybe some private events.”
Such venues are designed to bring the community onto the campus, but The Party Source also looks to serve the community in which it operates. Charitable giving is part of its DNA. In a somewhat unusual approach, the company takes some of its most sought-after bottles and gives them to local organizations that can then raffle them off. For example, donations of about $2,000 in hard-to-find Bourbon have yielded more than $80,000 for the Kentucky Symphony Orchestra, Stiles says. Other recipients are the Cincinnati Arts Assoc., the local chapter of the Leukemia & Lymphoma Society, and an organization called The Cure Starts Now, which focuses on childhood brain cancer. Other, smaller donations go to a variety of causes. “There’s no budget—we just do it,” Stiles says. “We probably should have a budget, but we’re doing well, and it just works for us.”
The Next Steps
For The Party Source, the most immediate expansion involves the new bar set to open before the end of the year. But that may not be all, according to Stiles. “We’re really lucky right now in that we’re completely debt free,” he says. “And we’re in an acquisition mode. Does that mean that we’re looking to expand and open another store? Not necessarily.” Stiles notes that while another unit is a possibility, so is a complementary business. Right now, the company is early in the exploration stage.
As for Stiles, after three decades at The Party Source he has retirement in his sight, with a plan to step back from full-time work at the end of 2025, but to stay on in a consulting role afterward. “From an ESOP standpoint, we get a valuation every year … and sometimes having a transition in leadership will harm your value. Being able to transition but still maintain some contact will help soothe the minds of the people who value the company.
“This is important not just for my future but for all our employees’ futures,” he continues. “It’s important for the future of people who we’ve never met before, who we haven’t hired yet. We turn 30 next year, and that’s a big accomplishment, but I hope they’re not satisfied with turning 30. I hope they want to become a business that turns 50, and then 75, then 100.”