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Liquor chain looks online for growth: 21st Amendment to launch e-commerce site

November 7, 2005

Jim James drinks scotch. Just don't pour him a tumbler from the well at the local tavern. Reach for the bottle on the top shelf with the Blue Label. And make it neat. Connoisseurs don't waste a good single-malt on a frozen tongue.

James should know. The tall, broad-shouldered CEO of Indianapolis-based 21st Amendment Inc. has built an 18-store kingdom selling spirits to everyone from lint-pocketed college students to Riedel-toting executives.

The company, which began with a lone location on Michigan Road in 1971, now is one of central Indiana's biggest liquor chains. The national liquor trade publication Market Watch, which recently named 21st Amendment its retailer of the year, estimates each store rings up annual sales between $1.5 million and $4 million.

Yet while James said "location, service, selection and knowledge" used to be enough to guarantee a healthy bottom line, times are changing. Big-box retailers are now offering lengthy aisles of beer and wine and putting increasing pressure on liquor stores.

That's why James and gang are taking the plunge into e-commerce. Around the first of December, customers will be able to browse everything from the company's 25 bourbons to its catalog of boutique wines online at www.21stamendment.com. Perhaps that bottle of 1943 Chateau Margaux will finally find a decanter to call home.

The company already runs a warehouse at 71st Street and Michigan Road that will be used for shipping, but employees have no significant experience at e-tailing. James conceded he has no idea what the market is like or how he will try to tap into it.

"It's just a calculated risk," he said.

James is hardly the first in his industry to see opportunity online. Wine.comand many other sites already compete for customers willing to wait a few days for just the right wines to arrive by mail.

But James doesn't see an option if he wants to keep growing. State law limits the liquor store permits to one for every 1,500 people. That means adding new stores is an untenable strategy. Although James said he is "always looking for new locations," it could be years before a permit is available.

Therefore, selling products online makes sense, he says.

The company's wine selection is sure to get the most attention. Jim James Jr. joined the company five years ago as vice president of marketing and wine and takes frequent trips to France to ensure the company offers some of the best vino in town.

The company operates six 8,000-squarefoot Wine Gallery stores, in addition to a dozen smaller 21st Amendment locations. The Wine Galleries stock everything from top-end California wines to hot sellers from Spain, Portugal and New Zealand.

Nationally, wine consumption is up 43 percent since 1991-from 466 million gallons to 668 million, according to the California trade association the Wine Institute.

Direct sales are also the fastest-growing source of revenue for wineries, according to MKF, a California company that advises winemakers.

The combination of a wine-thirsty public and the company's extensive inventory could cause 21st Amendment's sales to surge. If they do, the company may expand the e-commerce function nationwide, a move that was made much more palatable in May when the U.S. Supreme Court relaxed restrictions on interstate shipments of wine.

For starters, however, the company will limit the online business to Indiana.

The decision to launch into cyberspace comes as a result of what the senior James calls the company's "biggest challenge"- other retailers expanding their inventories of alcoholic beverages.

"It's been a problem in the Indianapolis market ever since Osco won the right to sell spirits" decades ago, said John Livengood, president of the Indiana Association of Beverage Retailers. "Recently, it has exploded. Kroger is getting into the business. Wal-Mart used to only be able to sell beer and wine, but by putting in a pharmacy, they're now a drugstore and can sell spirits."

By state law, liquor store employees must be 21 years old. They also must hold a license similar to a waiter who serves beer. Grocery store employees aren't beholden to the same restrictions. That puts 21st Amendment at a disadvantage, James said.

Worse, some stores are also selling at cost or below to get people in the door, Livengood said. James can't do that if he wants to keep signing paychecks.

That's bogus, said Joseph A. Lackey, president of the Indiana Grocery and Convenience Store Association.

"At some point, people need to understand the free enterprise system," Lackey said, insisting that-if anything-groceries are the ones getting squeezed.

"This is the only state where grocery stores can sell beer, but they can't sell it cold," he said. "It's insane."

That's one of the handicaps that make it difficult for groceries to make money on alcohol, Lackey added. One Indiana chain that also operates in Ohio makes only 2 percent of revenue from alcohol here but makes 4 percent across the border, Lackey said.

The fighting between liquor and grocery stores over who controls the tap has gotten so bad that David Heath, chairman of the Alcohol and Tobacco Commission, is trying to write a new definition of "grocery store."

"Anybody that thinks it's going to be an easy solution is mistaken," he said.

Even the mediator is seeking mediation. He hopes to punt the problem to lawmakers when the Legislature convenes next year.

Whether or not James' Web site becomes Indiana's version of Wine.com, he plans to stick with the strategies that helped his brick-and-mortar chain win retailer of the year honors from Market Watch.

The CVS on the corner carries might suffice for the shopper looking for a fifth of Jim Beam bourbon and a $6.99 bottle of wine.

But 21st Amendment is there for the more discerning customer seeking attentive service. The store at 1154 W. 86th St., for instance, offers a rack of German wines as a result of one customer who likes Grauburgunder with his Thanksgiving turkey.

"We have 3,500 [different wines, spirits and beer]," said Lou Anne Brennan, chief financial officer. "You're not going to find that at Wal-Mart."
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