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Lunch With: Two liquor vendors talk about private tastings, new locations and joint ventures

Irv Kipnes, the president of Delcon Development Group, meets with Marc and Megan LeBlanc

Michael Ganley is the editor of Alberta Venture. BizBeat takes a big-picture view of the provincial, national and international news affecting Alberta's business community. He can be reached at mganley@albertaventure.com and @MikeatVenture

Aug 2, 2013

by Michael Ganley

THE DINERS

YOUNG EXECS
Marc and Megan LeBlanc own the Liquor Lodge in Jasper. Marc was up for the 2013 BDC Young Entrepreneur award (which comes with $100,000) this year, but didn’t win

HISTORY
Marc, formerly a rep for Coca-Cola, founded Liquor Lodge in 2008. Megan, previously with Tourism Jasper, joined him in the business just a few weeks before Lunch With …

NUMBER OF EMPLOYEES
Two full-time and four part-time

LUNCH
Megan: Large smoked salmon salad. Water
Marc: Birdie sized Caesar salad (this is a golf course, after all), steak sandwich (medium). Water and coffee

SENIOR EXEC
Irv Kipnes is the president of Delcon Development Group, which he founded in 1962, and the co-founder of Liquor Stores NA, which owns some 250 outlets in Alberta. It’s best known for the Liquor Depot brand

LUNCH
Birdie sized melon and lobster salad, double lobster. Water and black coffee

Irv Kipnes, Megan LeBlanc, Marc LeBlancLeft: Irv Kipnes, Center: Megan LeBlanc, Right: Marc LeBlanc
Photograph Jason Everitt

Marc and Megan LeBlanc own and operate Liquor Lodge, one of five retail liquor stores in Jasper. It’s not big, coming in at around 1,500 square feet, but margins are pretty good and annual revenues are growing. Marc says Liquor Lodge charges a little more than its competitors, but is trying to differentiate itself through service and selection.

Jasper, of course, sees a lot of tourist traffic. To try and capture more of that market the LeBlancs installed an eight-bottle Enomatic wine dispenser, which keeps wine fresh for up to a month. They fill it with B.C. wines and allow potential customers to sample the product. “It takes a little magic to get a person to go from a $20 Malbec to a $45 Burrowing Owl,” says Marc.

But the LeBlancs have bigger plans. They’re wondering about turning the basement under their store into a private tasting room, and they’re also thinking about entering the Hinton market.

They ask to have lunch with Irv Kipnes, a legend in the Alberta liquor retail market because of his work building Liquor Stores  N.A. into a 250-outlet behemoth. The company also owns a dozen stores in Kentucky and 20 in Alaska, and it’s getting into the mega-stores in Alberta with 50,000-square-foot outlets under the Wine and Beyond label.

For lunch, Kipnes (who’s the company’s former CEO and board chair and who continues to serve as a director on its board) picks the Royal Mayfair Golf Club, where he’s a social member. He confesses that he’s never actually played a round of golf. “From the time I was your age,” he says to Marc and Megan, “a bunch of my friends – lawyers and accountants and other businesspeople – were out golfing and I never could figure out where they found the time when there were things to do.”

Marc says the Liquor Stores’ director of real estate development and acquisitions, Spencer Mueller, came through his store a week ago.  “He said the Liquor Depot business model doesn’t equal Jasper. It’s a small town with lots of small stores and the Parks Canada regulations are part of the problem.”

Kipnes agrees. “Small towns should have owner-operators, not corporations like us,” he says. “We have too much overhead.”

Marc says he’s been reading about Kipnes online, but couldn’t find much about the development company. “Tell us about Delcon,” he asks.

“It was a result of trial and error,” Kipnes says. He had grown up in Calgary and studied chemical engineering at the University of Alberta. While working for Imperial Oil he and a partner started building warehouses “to supplement our income,” he says, “but it became a full time business very quickly.”

“I was raised around entrepreneurs,” he continues. “My parents were immigrants and they and all their friends had small businesses of some kind, so it never occurred to me that I would not be in my own business.”

Delcon grew steadily, but in 1993 when liquor retailing was privatized in Alberta there wasn’t much going on in the development industry, so Kipnes got into the liquor business. “The real estate experience put us in good stead in that we understood leases and restrictive covenants and what was a good retail location.”

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“Do you prefer taking over a new store or developing your own?”

“It’s all about location,” Kipnes says. “We like to buy at a multiple of earnings of four or less, plus inventory. We’ve paid as high as eight and regretted it almost every time.”

“I’d like to own one or two more stores someday,” Marc says, “but the ego that goes along with the price people are asking for their businesses is ridiculous. I can open a store on criminally high interest rates of debt or build the same goodwill you’re trying to sell me in a month and a half just by picking a better location. Goodwill is not worth the paper it’s printed on.”

“Well, that depends,” Kipnes says. “It depends on location and how much competition you have and what you think you can do with the store. If you can buy a store at six or eight times a low volume but think you can get the volume to double, it will pay for itself.”

Marc says his location in Jasper has an empty basement, and he’s wondering about developing it so it can host private tastings. It would give him another angle that no other store in Jasper has. Wines and Beyond’s flagship store in south Edmonton has built such a room, but Kipnes is hesitant about encouraging Marc to do so. “As soon as you say ‘basement,’ I worry,” he says. “You’re not going to get people to go down there easily and you’ll need extra staff.”

“So you would advise against it?”

“You can try it, but be prepared to lose the money. You’ll get people to go there, but is it going to be enough of a profit centre?”

Marc says if he had won the BDC Young Entrepreneur Award and the $100,000 that comes with it, he would have developed the basement. Now, he’s not so sure. “Once you start dipping into your own pocket, you look more critically at these ideas,” he says.

The other idea the LeBlancs would like to bounce off Kipnes is a move into the Hinton market, where Liquor Stores used to have an outlet.  Hinton’s a town of 10,000 about 80 kilometres east of Jasper. “There are eight stores in that town,” Marc says, “but if you drove through you would think there’s only one, and it’s the one you sold. Obviously you sold it for a reason.”

Kipnes describes the problem by referencing another Liquor Store location in Edmonton’s Riverbend neighbourhood. It’s in a mall anchored by a Safeway. The company did a customer count and found that 50 per cent of its customers came just to the liquor store, 25 per cent went to the liquor store and then Safeway, and 25 per cent did the reverse. “What that really meant was that the anchor was contributing 50 per cent of our business,” Kipnes says. “When we got to Hinton, we went in the best location in town and we did 50 per cent of the business we expected because there were no rooftops there. There wasn’t the local business coming out there for convenience shopping. If we’d been in the same location with residential surrounding it, that store would have gone gangbusters.”

Marc points out that more residential is going up at that end of Hinton.

“That would be a big help,” Kipnes says. “You have to understand that most of the liquor business is a convenience business, not a destination business. ”

Kipnes glances at his watch and says he has to go. “Is there anything else you’d like to ask me?”

“Down the road,” Marc says, hesitantly, “do you have any plans in my neck of the woods?”Marc is wondering on a possible joint venture, maybe on the Hinton project.

“We’ve done joint ventures,” Kipnes says, “but right now most of our money is going to be geared toward doing large stores like Wine and Beyond in the States or in Calgary.”

“But if I was to put forth an idea for a 5,000- square-foot highway store in Hinton with a well-documented plan of execution …”

“It’s not me you have to speak to,” Kipnes says, “but you phone Spence [Spencer Mueller, the company’s director of real estate development and acquisitions in Canada]. Just say, ‘I see an opportunity that I’d like to venture with you on,’ and see what he says.”

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