Colorado’s beverage alcohol landscape has shifted significantly since Lakeside-based Molly’s Spirits launched in December 2014. Off-premise licensees can now apply for a second license and grow their businesses to a total of four stores by 2027. And as of this year, grocery and convenience stores previously licensed to sell low-alcohol beer (3.2% alcohol by weight) can now sell full-strength beer, creating stiff competition for traditional off-premise stores. A relative newcomer to the business, Molly’s Spirits CEO Rufus Nagel has expertly navigated these changes.

Nagel’s background in Silicon Valley tech and Denver commercial real estate made him an unlikely candidate to open a large-scale, high-volume store in a crowded market dominated by established players. He studied the industry, talked to local retailers, and hired managers with decades of experience. Molly’s emerged as a wine, spirits, and beer destination, and revenue grew from $10 million in 2015 to $23 million in 2018. For his business acumen and community leadership, Rufus Nagel has been named a 2019 Market Watch Leader.

Since the beginning of this year, the greatest challenge for every Colorado retailer has been beer; its sales determine whether a store will thrive or shutter. Nagel has handled this challenge well. After the law changed on January 1, Molly’s first-quarter beer sales declined 7% compared to first-quarter beer sales in 2018. In contrast, Nagel reports other large-scale destination retailers experienced declines of 15%-20%, while some small stores’ beer sales plummeted 30%-40%. “Molly’s has become even more of a destination store since grocery stores began selling beer, and our average basket size for 2019 is up almost 10% compared to 2018,” Nagel says. “We’re losing the $20 customers, but increasing our $100 customers.” In response to recent changes, the company sharpened its focus on unique beers and in-house expertise—in fact, the beer manager, Tony Doria, is a Cicerone.

After clearing the beer hurdle, Nagel began to plan a second unit 21 miles away in Greenwood Village, which is slated to open in November. Both stores are in suburban shopping centers off interstate highways, with the second location situated near eateries, a natural grocer, office buildings, and an outdoor concert venue. “A store has to have a compelling location,” Nagel says. “There are 18 restaurants in this mall, and the location next to a grocer without a liquor license is key.”

The original and new locations are of similar size—28,000 and 25,000 square feet, respectively. Like the first store, the second will have about 18,000 SKUs and an uncluttered, open feel. Whereas the original store has a steampunk theme and a Victorian-era mural of the Molly character, the new store will have a mid-century modern theme and a Jetsons-esque Molly mural. “It’s a huge challenge to make the new store the same, yet different,” says Nagel, adding that the new location has a more mature demographic. “Branding the new store is tricky, because we want to have a unique brand and create a new community.” Together, the two stores will employ about 100 people, with the company’s key executives moving to the new location. “We want to graft our culture, because getting the culture right is also tricky,” Nagel adds.

Technology powers every aspect of the company’s operations. Nagel leverages his technology background to enhance the shopping experience, reduce labor costs, track trends, and reset the store. The original store features 17 digital screens and MarginMate electronic shelf labels, which track inventory and enable managers to seamlessly update prices for any item. The second store will have a wireless version of the same equipment, as well as screens displaying video content that tells the products’ stories.

Customers can order Molly’s products through delivery service Drizly, with purchases delivered by store-branded hybrid cars. “Both stores will be hubs for Drizly, and the new store will result in increased coverage for the delivery service,” says Nagel. Later this year, customers will also be able to order from the Molly’s website for either delivery or streamlined in-store pickup. And in 2020, the company plans to launch a mobile shopping app.

Technology also saves on labor costs and shapes the store’s layout. “We dynamically reset the store based on our detailed tracking of MarginMate data, including inventory and sales,” Nagel says. “We move entire sections as soon as we see a change in sales data.” When the data indicates an upward or downward trajectory, Molly’s makes changes. Examples include moving rosé and organic wines to prime shelving at the front of the stores, increasing the number of canned and ready-to-drink products, and eliminating the store’s walk-in bomber room.

Nagel describes a visit to Molly’s as a high-touch experience, and says consumers are looking for interaction, combined with technology, delivery, and convenience. “Retail is an ever-evolving entity,” says Nagel. “The future of retail is both experiential and convenient.” He encourages his team to interact with customers, find out what they like, and show them the coded-entry, climate-controlled room for high-end wines and spirits. While the original store’s room feels like a library, the one in the new store will be glass, so customers can peek inside.

Wine Focus

Wine comprises 34% of sales at Molly’s, with 7,000 SKUs ranging from Flipflop Fizzy Rosé ($2 a 187-ml. can) to the 2016 Domaine de la Romanée-Conti La Tâche ($2,080 a 750-ml.). The sweet spot for a 750-ml. bottle of wine is between $10 and $15, with bottles in the $19-$22 range also performing well. The three top-selling wines are House Wine Bubbles rosé ($5 a 375-ml. can), Naonis Brut Prosecco ($13 a 750-ml.), and the 2018 Hay Maker Marlborough Sauvignon Blanc ($11). Domestic red wines dominate as a category, led by the 2016 Josh Cellars Cabernet Sauvignon ($15) and Marietta Cellars Old Vine Red ($11). Imported sparkling wine is a strong second, including the top-selling Naonis, as well as Graham Beck Brut rosé ($19). Rosé, Molly’s third-strongest category, has gained steadily for two years. Strong sellers include the 2018 Les Trois Couronnes Côtes du Rhône ($15 a 750-ml.), the 2018 Pratsch Niederösterreich ($15), and the 2018 Domaine Petroni Corsica ($16).

Organic and sustainable wines are rotated in a large display near the rosé section at the front of the store to generate interest, while also keeping their aisle spots. Strong sellers include the Do Ferreiro Rias Baixas Albariño ($32 a 750-ml.), the 2016 Lunar Apogé Côtes du Rhône ($22), and the 2016 Cooper Mountain Vineyards Cooper Hill Willamette Valley Pinot Noir ($20). Portuguese and Spanish table wines are gaining traction, driven in part by customers’ travel experiences. Top-sellers include the 2017 Anselmo Mendes Muros Antigos Vinho Verde Loureiro ($17)—also the top-selling white import in the store—the 2016 Rubus Proprietary Reserve red ($13), and the 2016 Veedha Douro red ($19). By hiring experienced wine professionals with strong industry relationships, Nagel has created a destination for upscale and allocated wines. Examples include the 1999 Salon Blanc de Blancs Champagne ($525), the 2002 Dom Ruinart Brut Rosé Champagne ($340), the 2012 Château Mouton Rothschild ($690), and the 2013 Penfolds Grange Shiraz ($780).

Spirits Stronghold

Spirits make up 33% of sales at Molly’s, with 3,000 SKUs ranging from Fireball cinnamon-flavored whisky ($2 a 100-ml.) to Louis XIII de Rémy Martin Cognac ($3,300 a 750-ml.). Tito’s Handmade vodka ($31 a 1.75-liter) and Jim Beam Kentucky Straight Bourbon ($34) are the store’s top-selling spirits, while domestic whiskey is the strongest spirits category in both volume and revenue. Vodka is a close second in terms of volume, yet trails significantly in revenue. The store stocks 900 American whiskies, 325 of them Bourbon, and 400 whiskies from Scotland, Ireland, and beyond.

Colorado whiskies, positioned strategically by the door, are strong sellers. The top-selling Colorado whiskey is Breckenridge Bourbon ($40 a 750-ml.). Other offerings include Peach Street Colorado Straight Bourbon ($57) and Stranahan’s Rocky Mountain single malt whiskey ($55). Overall, Molly’s 250 Colorado-made spirits SKUs comprise more than 10% of the store’s spirits sales by volume. Vanjak Colorado vodka ($26 a 1.75-liter) is the top-performing local vodka, and Woody Creek Potato vodka ($30 a 750-ml.) also sells well. Molly’s collaborates with local distillers to procure exclusive versions of local spirits, such as A.D. Laws Four Grain Cask-Strength Straight Bourbon ($66). After the spirits team’s visit to Kentucky this year, the store launched a Four Roses Single Barrel Private Selection ($76) with a Molly’s label.

Agave-based spirits, including Tequila, make up the third-largest and fastest-growing spirits category, led by Espolòn Blanco Tequila ($25 a 750-ml.). Craft Tequilas and mezcals are on an upswing, and Banhez mezcal ($30) stands out as the top craft agave spirit. Molly’s is also a hub for Scotch. Three-quarters of the selections are single malts, including Glenfiddich 18-year-old Small Batch Reserve ($97) and Longrow Peated ($66).

Alternative serves and packaging are doing well for the store. Molly’s added 50 new canned cocktail SKUs to its selection at the start of summer. Nagel says the canned offerings have caught on with Colorado consumers, who prefer eco-friendly packaging they can pack for outdoor adventures. In response, the store launched its own RTD organic soda with vodka and lime called Molly’s Club Soda ($12 a 4-pack of 12-ounce cans).

Beer Bastion

The top-selling beer SKU at Molly’s is Coors Light ($18 a 24-pack of 12-ounce cans), and the second top-seller is the White Claw Hard Seltzer variety pack ($18 a 12-pack of 12-ounce cans). Yet Colorado craft beer is the top overall category by a large margin in both volume and value. Denver Beer Co.’s Princess Yum Yum ($9 a 6-pack of 12-ounce cans) and Station 26 Brewing Co.’s Juicy Banger IPA ($6) are the top-selling local brews.

Molly’s Sip ($6), a proprietary label first launched last year, is the store’s least expensive beer and among its top sellers. Nagel worked with Aspen Brewing Co. in 2018, and this year partnered with Denver-based 14er Brewing Co. to produce the beer. “We expect to collaborate with a different brewing partner every year, and we’re looking for smaller partners,” says Nagel. The store’s most expensive beer SKU is St. Bernardus Abt 12 ($250 a 4-liter bottle). Molly’s also offers about 60 beers by the keg, many of them local offerings such as Tivoli Brewing Co.’s Helles lager ($61 a 5.16-gallon keg).

Nagel predicts bomber bottles will decline as demand for canned beer increases. He also foresees increased demand for beer and other products sold cold. In preparation, he’s updating the original store’s walk-in cooler and replacing the bomber shelves with case stacks and bulk orders. The new store will boast the same features. The original location has 74 cooler doors, with 60 devoted to beer, and the new store will feature almost as many.

Community Connections

Molly’s connects with customers through social media, differentiated email lists, and a loyalty program. The company’s marketing strategy and nonprofit giving are intertwined. “The need to address dozens of fragmented communities and reach them in meaningful ways is marketing’s new normal,” Nagel says. “We collaborate, sponsor festivals, and are involved in the community.” The store makes in-kind donations to the Denver Art Museum totaling more than $50,000 a year, and also has a presence at music festivals and food-truck gatherings.

Nagel isn’t afraid to shake things up. Until recently, Molly’s hosted an annual spirits auction, donating the proceeds to a different charity every year. “The problem with the auction was that very few buyers were our core customers,” says Nagel. This year, in lieu of the auction, Molly’s hosted a tasting event with $20 raffle tickets, wherein the winners gained the right to buy allocated spirits at the retail price. “We raised $9,000 for Street’s Hope, a Denver charity that fights human trafficking and supports victims with counseling and life skills services,” says Nagel.

In addition, Molly’s donates $1 from every case sold of New Image Brewing’s Better Together IPA ($11 a 6-pack of 12-ounce cans) to the Jefferson Center for Mental Health—and the brewer matches that donation. Nagel says the days of traditional advertising are over. “Although collaboration projects take an enormous amount of time and energy, we’re still actively looking for partners,” he adds.

By law, Nagel can launch or acquire another store in five years, but for now, he enjoys his job the way it is. “The industry’s problems are more difficult and interesting than I had predicted,” he says. “I like encouraging customers to try new products and ultimately increasing their joy.”