Creating value across the retail spectrum

Creating value across the retail spectrum

Features - Cover Feature: Outside Industry Views

A look at how record stores, craft breweries and coffee shops create value for their customers, and what IGCs can learn.

July 11, 2018

Criminal Records in Atlanta, Ga., carries a wide range of multimedia entertainment in addition to records and regularly hosts events to create a valuable consumer experience.
Courtesy of Criminal Records

Staying in the groove

By Conner Howard

The human condition itself practically guarantees that there will always be a music industry. People of all walks of life have expressed themselves by creating and listening to music for millennia. However, the music industry is no more immune to change than any other.

From the earliest days of orally passed-down folk songs and rudimentary gramophone recordings to cassette tapes, compact discs, MP3 files and modern streaming services, recording and playback technology has been on a constant march forward. Most forms of physical musical media are largely abandoned once replaced. One of few exceptions is the vinyl record.

In use since the 1800s and made from various materials over the centuries, records have had an interesting trajectory, losing market share in the 1980s and ‘90s, then enjoying a niche resurgence in the late 2000s. In 2017, vinyl record sales hit a Nielsen Music-era record high of 14.32 million, according to Billboard.

Eric Levin, founder of Criminal Records — an independent record store in Atlanta, Ga. — says the hobbyist appeal of vinyl can be compared to the garden retail sector.

“Record stores have been in a nice value bubble for many years, from their inception as the solitary purveyors of music, to the hey day of [the] ‘90s and the compact disc revolution to the current vinyl boom,” Levin says. “Record stores have had to change and shift with the preferences of the music consumer. The average music listener has shifted online, but the average record store customer is a completely different person. There’s a strong parallel between the gardening hobbyist and the music collector.”

Courtesy of Criminal Records

Though vinyl no longer dominates the music landscape like it did in the 1960s, it commands a loyal audience of music enthusiasts, DJs and collectors, Levin says.

“There’s a true value proposition in owning your music in a collectible format,” he says. “There’s a sonic fidelity component along with the social experience. Streaming music lacks a certain depth found in playing a record.”

A customer base interested in collecting music can only take a business so far. Like IGCs, many independent record stores have also had to diversify their offerings and services to remain relevant and create value for their consumers.

“Record stores have to be diverse to gain a wide audience, though many record stores perform very well concentrating solely on vinyl,” Levin says. “Criminal Records has always served multi-disciplines like comic books, DVD’s and Blu Rays, t-shirts and local art. We’ve also been able to abandon different genres as the times change.”

In an age dominated by online retail and web-based music streaming, Levin is still confident there is a place for physical media and the in-store shopping experience — for both entertainment and garden goods — as long as businesses stay nimble and offer a valuable environment for customers to visit.

“The social aspect of physical retail will continue to prop up the industry, but there will be fierce competition for consumer attention,” Levin says. “Rising rents will drive a lot of stores out of business, but this will be cyclical. Dozens of record stores and like-minded small businesses will be able to rebuild Main Street as online retailing plateaus. I’d have more confidence in these types of mom-and-pop retailers over mall-based businesses.”

Lagunitas Chicago Taproom overlooks its production facilities, giving visitors an inside look at operations.
Courtesy of Lagunitas Brewing

How Lagunitas stands out in the craft beer crowd

By Michelle Simakis

As of this writing, there are more than 6,000 breweries operating in the U.S. In 2017 alone, nearly 1,000 new breweries opened, according to the Brewers Association, a not-for-profit trade group representing small and independent craft brewers. That accounted for a 16 percent rise when compared to the previous year in an industry that has experienced exponential growth for the past decade. In 2013, there were 2,898 U.S. breweries, by comparison.

Craft beer competition has increased in the years since Lagunitas Brewing was founded in 1993, when the now international brand survived a “craft beer bust,” says Karen Hamilton, communications director for Lagunitas. But the challenges today are different than 25 years ago.

Brewing technology was not as good as it is today, Hamilton says, and many people opening breweries were hobbyists without business expertise or people making beer that just didn’t taste very good. Because of inconsistent quality, consumers were hesitant to experiment with more expensive brews, and sales declined.

Today, technology has improved, and at the same time, there is a greater appreciation for locally owned companies. But there are so many tap rooms and options when it comes to specialized beer that there’s confusion among consumers and not enough dollars to sustain the market.

“It is again another challenging time; there are breweries going out of business and selling and consolidating for a completely different reason than they were in the ‘90s,” Hamilton says. (Heineken bought a 50 percent Stake in Lagunitas in 2015, during a surge of craft beer acquisitions by larger corporations, and purchased the remaining stake in May 2017.)

Despite a rapid company expansion — its products can now be found in all 50 states and in 20 countries — Lagunitas has maintained its core values. Hamilton shares lessons about how the company communicates the value of its products and stands out in an increasingly saturated industry while retaining its roots.

Lesson 1: Give back and do good

When Lagunitas was first founded in Petaluma, Calif., local companies asked for donations for various fundraisers. Instead of offering money, which they didn’t have much of at the time, Lagunitas donated beer. Proceeds from beer sales went directly to the organization, and attendees became familiar with the brand.

“It made us different, and we were just trying to do the right thing,” Hamilton says. “You can invent a marketing program to try to make yourself look good, or you can just be good. People know when it’s real and when it’s not.”

Lagunitas opened a taproom within its massive brewing facility in Chicago in 2014, and the surrounding neighborhood, which is near a major highway, was often littered with trash, Hamilton says. As part of their first anniversary celebration, staff went out and picked up garbage, and afterwards enjoyed a pizza party with live music. The next day, three residents stopped by to thank them.

“Find the sliver of differentiation to make yourself stand out in awesomeness. Not some cool marketing program or some super hot logo. Just go help people,” she says. “Everybody can afford to do it, and you really can’t afford not to.”

Lesson 2: Offer something different

The fact that craft beer companies allow customers to tour their brewing operations is nothing new. But when the Chicago facility and taproom opened, Lagunitas decided, instead of having people walk around the tanks on the ground level, they would install catwalks so that visitors could get a bird’s eye view of the bottling and other brewery processes, offering visitors a different perspective, Hamilton says.

Lesson 3: Give people a great experience that goes beyond the product

In order to get to the taproom at Lagunitas’ Chicago facility, visitors first have to venture through a dark tunnel, which is painted with murals, including one of the solar system, and illuminated with colorful lights. Visitors can peer into windows to get glimpses of the brewing operations, while the song “Pure Imagination” from the movie “Willy Wonka & the Chocolate Factory” plays in the background.

“You walk in and you leave the outside world behind,” Hamilton says. “[We] wanted people to suspend reality and step into something unknown, and have an experience versus just, ‘come drink some beer.’ Because people don’t forget it.”

Lesson 4: Price competitively but fairly

People are willing to pay a premium for craft beer, but Hamilton says it’s important to have good pricing. “Our goal was always to be the low end of the high-end beer,” she says. “We always wanted to make our products affordable to as many people as we possibly could.”

Lesson 5: “Have a passion and a mission, and enroll people into that”

“When you’re with someone who is excited about something, and they start telling you, you get excited, right? It’s just that easy,” Hamilton says. “People want to be around people who are excited about stuff.”

Coffee: the drink, the ritual and the habit

Experts claim that many consumers view a visit to a coffee shop as a “reward” to get them through the day.

By Conner Howard

How many among us feel that we can’t start our day without a cup of joe? Whether it’s a basic mug of the hot stuff, a refreshing, iced cold brew or an indulgent caramel macchiato, serving coffee has become a big business fed into by multiple millions of Americans.

But that wasn’t always the case. Some of us may remember a time when a cup of standard brew coffee was only a dollar (some establishments still offer $1 coffee) but for the most part, coffee drinkers are accustomed to handing over anywhere from $3 to $5 for their fix, depending on what they order. According to a U.S. News report, the average American paid $2.70 for a standard cup of coffee without milk in 2015, while a café mocha ran an average price of $3.94.

Although Starbucks isn’t alone in the modern coffee shop industry, it’s hard to deny that the Seattle-based conglomerate revolutionized the café business model in the late 1990s. Some worried that the 2008 recession would put a dent in the profit margins of Starbucks and businesses like it, but the American consumer’s thirst for caffeine proved too strong.

“We adore coffee, and we’ll pay more than we need to for it, even after a devastating recession that left permanent scars on our memories,” writes Rob Ashgar in a 2015 column for Forbes. “That says something about our odd human nature, but also about where entrepreneurial opportunities lie ahead.”

Most economists and personal finance gurus will agree that spending $4 daily on a latte isn’t exactly a frugal behavior — so how is it that coffee chains are able to communicate that value proposition to their customers? Bill Dyment, a workplace psychologist quoted in Ashgar’s column, suggests that buying coffee is a more emotional habit than a practical one.

“There is something emotionally or physically powerful going on for those who wouldn’t miss their daily $4 coffee,” Dyment is quoted as saying. “So what drives us? Is it simply the caffeine? No, you can satisfy that craving for much less money at home. I think there’s more to the story: The $4 coffee is a pleasing brew of social ritual, self-reward, feeling valued by attentive servers and a welcome pause in a busy day.”

Marketing strategist Gerardo A. Dada, writing on his website The Adaptive Marketer, claims that the “coffee-buying experience” is central to the success of the Starbucks model.

“[Starbucks founder] Howard Shultz spent a lot of effort not only in the beverage itself but in the entire coffee buying experience,” Dada writes. “This is why Starbucks locations around the world consistently have a good atmosphere, indirect lighting, relaxing music in the background, great aromas, and friendly ‘baristas.’ This is also why their coffee has unique names. At Starbucks you don’t order a simple black coffee, you order a ‘Pike Place blend venti.’ Rites, names and processes are important parts of customer experience.”

There is also the dimension of the “personal reward.” Many consumers consider a quality latte bought from a trained barista to be something they can treat themselves with, Dada suggests.

“Psychologists believe a big part of Starbucks’ success comes from the desire to reward yourself,” he writes. “Before a long day of work, you deserve to treat yourself to a nice grande cappucino. It’s a little daily splurge that most people can afford.”

When contacted for comment, Starbucks corporate representatives provided a statement on what makes the brand so attractive and consistently popular among consumers.

"At Starbucks, coffee is at our core — the heart of what we do every day,” the statement reads. “We guarantee an unrivaled cup of coffee because of the care we put into ensuring quality from farm to cup. It’s why we take care in the roasting, blending, sourcing and growing of Starbucks Coffee. In fact, every container of coffee shipped from around the world to Starbucks is taste-tested to ensure quality and consistency, and 99% of our coffee is ethically sourced. It has always been, and always will be, about delicious, quality coffee.”

The success of the Starbucks model and comparable businesses signify that in some instances, the experience of buying something is equally important as, if not more than, the product itself. Garden center retailers would do well to continue to focus on their in-store experience and the idea of plants as a positive expense for customers.”