Uncorking a Market

Uncorking a Market

companies by Dave Szymanski | Tampa Bay Editor

Michael Probst is not impressed by people who think they know a lot about wine. Most of the time, they are trying to impress, not help their dinner companions.

"Those people who say they are experts are idiots for the most part," says Probst, CEO of Tampa-based Cork & Olive, an emerging 14-store retail wine chain that's expanding throughout Florida. "They want you to know about their bank account and show you they have culture."

That's why Cork & Olive takes the opposite, unstuffy approach: Its staff knows about wine but it reaches out to customers who may know less. For example, it has eight to 10 wines open for tasting every day on a table in its stores. If a customer wants to try a wine, it will take it off the shelf, open it and allow the patron to take a sip. About 68% to 72% of customers are return visitors.

"I want them to go home happy," says Probst, 61, a German-born entrepreneur. "You really shouldn't buy a bottle of wine without tasting it.

"A bottle might have cork in it, or a funny smell," he adds. "It's important you come back to us."

The privately held company has 14 stores in Florida, mostly in the Tampa bay area, and has sold more than 20 franchises. It is expanding outward, planning to open a Sarasota store in September, riding annual revenue increases of 300% to 400%.

It just opened a store in Carrollwood, northwest of Tampa, and another in Trinity, in Pasco County. It is preparing to open in East Lake. Lease negotiations are under way in Bradenton and Orlando. Franchises cost from $200,000 to $300,000, depending on the location.

Next year, Cork & Olive plans to open more mall locations, to help with branding and marketing to franchisees. It plans to have 150 to 200 stores in Florida by the end of 2008. Then it will expand into Texas, Illinois and other states. Texas is next, in late-2008, because of its large metro markets and ease in establishing a corporate infrastructure. Before it goes into a market, the company needs to secure warehouses, licenses and wholesalers and begin training employees.

The key to its expansion will be supporting franchisees and replicating the service and atmosphere in the company-owned stores. Business-support managers meet with franchisees regularly. Ongoing training is offered.

"Many people take the money and run," Probst says. "We need to train people and offer them resources and support. The franchise locations are run like our corporate stores. They are with our people all the time.

"Our business is really a communications business," he adds. "You need to know your product."

Cork & Olive faces many independent stores as competition, plus chains like ABC and Total Wine & More. Total Wine, based in Maryland, takes a different approach: Large stores and high-volume sales. It has 49 stores, nine of them in Florida, including locations in Tampa, Clearwater and Fort Myers. Each store has 8,000 kinds of wine, 2,000 spirits and 1,000 beers.

"Our advantage is selection," says David Trone, president and co-owner of Total Wine. "Our stores are clean, customer-friendly and we have very low prices."

Trone believes Cork & Olive cannot directly compete with Total Wine.

"The Cork & Olive store size is the same size as our cash register area," Trone says. "They are very small stores with limited selections. And they have high prices. They are not high-end. They are low- to mid-end. And they don't do the volume we do.

"The Florida market has been great," Trone adds. "Consumers are looking for great selection and low prices."

Probst counters that consumers cannot compare the two companies. The smaller neighborhood Cork & Olive stores, with available staff, in-store wine tastings, on-site wine parties and international olive oils, are what wine-loving customers want, he says. It not only sells wine in stores, it sells it at home and corporate parties, which have drawn up to 500 people.

The personal touch

Store workers wrap wine bottles in tissue paper. Computers keep track of past purchases, so stores can remind repeat shoppers. Special promotions are available for preferred customers.

"We are not a service-oriented nation," Probst says. "There are still some customer-oriented companies, but you hardly get to talk to people. Call a lot of people and try to get someone on the phone."

Communication and service are key to Cork & Olive because more than 80% of the shoppers are women, who make many of the food decisions in American homes and who host many of the company's wine parties, so the stores are decorated and designed and employees are trained with that demographic in mind.

Store floors are oak. Wine sits on polished wood shelves. Stores offer free delivery of a case of wine within five miles, gift-wrapping and a preferred-customer program that keeps track of purchases. Preferred customers, which number about 40,000, are invited to monthly wine parties the last Thursday of the month in the store and get a newsletter with wine-pairing ideas and recipes. In-store wine guides answer questions and offer stories on vineyards and vintners. Customers can bottle their own wines from oak barrels in the store.

Stores also offer additional products such as imported extra virgin olive oils, specially blended spices, natural sea salts, hand-blown glassware and other wine-related gifts.

Probst also disputes the high-price claim, saying that Cork & Olive wines average under $15 a bottle. Supermarkets sell wine for double that price.

"Wine doesn't have to be expensive to be good," Probst says. "There are customers going to supermarkets and customers going to smaller shops, like Cork & Olive.

"We have totally different appearances," he says. "We don't intimidate people. We're not wine, wine, wine. We have a more interesting design and approach."

And the big selection advantage is overblown, he adds. Cork & Olive stores have about 3,000 bottles of wine and 300 different labels from small family vineyards from all over the world.

"How many bottles of wine do you need to see to buy a bottle of wine? Eight-thousand?" Probst asks. "Don't be ridiculous."

Driving the wine war is history and the changing American alcoholic beverage market.

A growth industry

Unlike in Europe, the wine business in the U.S. is relatively young. Prohibition was in place 70 years ago. Some states continued to restrict alcohol sales.

Tastes are changing. In 2005, for the first time, sales of wine outpaced sales of hard liquor. That's why many liquor companies are buying up wineries, isolating small growers.

Plus, despite a 5% sales increase in wine in America in 2005, only half of American adults drink wine regularly. The average American drinks three gallons, or 16 bottles of wine a year, compared to 80 bottles for the French and Italians. Wine sales in the United States sit at more than $25 billion.

"America is a humongous market," Probst says.

"It is being promoted in our culture and by the media," he says. "It's a lifestyle today. Less people are drinking hard liquor."

Cork & Olive in Probst's head, an idea from when he visited the United States two to three times year on business or vacation. He found it difficult to find good, reasonably priced wines in stores. He noticed few people drinking wine in restaurants. Forty years ago, it was hard for him to find American restaurants that even served wine, even in places like New York, Chicago and Los Angeles.

In Germany, he bought and sold businesses. After moving to America in 2003, he and business partners opened an office, two warehouses and the corporate-owned Cork & Olive stores to brand the company and make it attractive for franchisees. Probst still owns 42% of the privately held company.

Besides franchises, the company also sold limited secured shares of corporate stores to investors. They were sold in units of $10,000 five-year notes. Cork & Olive used the capital for store operations. Investors get quarterly interest. The company also sells a similar security of $100,000 notes that create capital for the franchise operation.

He picked Florida as a place to launch for strategic reasons.

The main one, which other Tampa Bay area chains like Outback Steakhouse, Hooters, Checkers, Carrabba's and Bonefish Grill have followed: Many people visit from other places. If they go to a Cork & Olive, when they go back home, they'll be wanting one there.

"If it works in Florida, it works in other places," Probst says.

Florida is also the second-biggest wine consuming state behind California. "Floridians also like to try new things," Probst says. "They are open-minded people."

Probst, who lives in Palm Harbor, will likely hand the CEO reins to someone else in the next two to five years, if the chain is healthy, he says.

"There are going to be 2,000 to 3,000 Cork & Olives in America," Probst predicts. "In a little over three years, we not only developed the corporate structure, but the franchise system."

In the long-term, Probst hopes Cork & Olives will be within five to seven miles of every neighborhood.

"The key to being successful in business is to run a business as a people business," he adds. "Take care of employees and understand what the consumer expects of you. Don't go into a business and say you want to make a lot of money. Do a good job and you'll make money. Be focused and do better than the competition."

REVIEW SUMMARY

Company: Cork & Olive

Industry: Retail wine chain

Key: Sell and support new franchisees to grow in Florida and then nationally, emphasize customer service, atmosphere.