Geerlings & Wade, Inc.

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Geerlings & Wade, Inc.

960 Turnpike St.
Canton, Massachusetts 02021
U.S.A.
Telephone: (781) 821-4152
Fax: (781) 821-4152
Web site: http://www.geerwade.com

Public Company
Incorporated: 1986
Employees: 79
Sales: $37.2 million (2000)
Stock Exchanges: NASDAQ SmallCap
Ticker Symbol: GEER
NAIC: 445310 Beer, Wine, and Liquor Stores; 45439 Other Direct Selling Establishments

For choosy wine connoisseurs and novices alike, Geerlings & Wade, Inc. offers premium wines and accessories through direct mail and on its web site as well as in retail stores. The company is required to obtain liquor licenses in each state in which it operates. Despite being active in only half of the continental United States, Geerlings & Wade is still the nation’s leading direct marketer of wine and wine accessories. It sells premium as well as lower-priced wines in the half case or case and also provides consumers with information on wine choice and storage.

1986-90: A Company Founded by Wine Connoisseurs

Huib Geerlings and Phillip Wade were friends and wine connoisseurs who found themselves frustrated by the lack of information provided to wine buyers by American retailers. They believed that wine should be rated and purchased based on taste; however, they found that most American consumers were making their wine-buying choices based on price or reputation.

Then came the slow-arriving case of Bordeaux Grand Cru that Huib Geerlings ordered for a Thanksgiving dinner. Ordered from France, he received the wine long after Thanksgiving, but in time for New Year’s. That experience, combined with a love of wine, was the spark that began the development of a business plan—for a U.S. direct marketing company to sell and ship wine.

The entrepreneurs joined together to form a new company—Geerlings & Wade, to not only succeed in the business arena of profitability but also to educate the public and take away the intimidating factors that often accompany wine selection. Huib Geerlings, age 33, and Phillip Wade, age 29, were trained accountants, but they left their jobs as auditors at Coopers & Lybrand in Boston to turn their passion for wine into a new venture.

Geerlings and Wade decided that the best way to select the wines they would sell was exactly the same way they had always selected wines themselves—by actually tasting them. Hence, they went to the source, in France, Italy, Australia, Chile, and California, and selected the wines personally based on a combination of quality and price. Through the relationships they developed at hundreds of wineries, the new company obtained wine at lower prices and then marketed those to the consumer.

As their marketing vehicle, Geerlings and Wade selected direct mail as a non-threatening and most affordable way to get both the wine and the consumer information into the hands of its customers. The wine would then arrive on the customer’s doorstep, as promised.

Founded in Canton, Massachusetts, Geerlings & Wade could at first only sell its products in Massachusetts. However, it soon expanded to Connecticut, New York, Illinois, Florida, California, and New Jersey. While some types of direct marketers can expand in regional chunks of customers, liquor laws require that Geerlings & Wade must have a licensed sales facility in each state in which it operates. By 1989, the company had sales of $479,000.

1990-94: Success Highlighted by Initial Public Offering

Seven years of success led Geerlings & Wade to the NASDAQ, with an initial public offering (IPO) in 1994. The previous year, 1993, had been extremely successful for the company—with net income rising 105 percent and sales rising 93 percent to $12.4 million. The company offered 1.4 million shares of stock in its IPO, raising approximately $10 million.

In the first half of 1994, sales growth continued to rise through the company’s direct mail efforts. In August of that year, the company hired Robert L. Cosinuke as director of marketing, a newly created position. “Mr. Cosinuke is our first executive manager with a professional direct marketing background. His experience establishing direct marketing programs for some of the leading companies in the industry will allow us to take advantage of more sophisticated techniques and elevate our direct marketing efforts to an entirely new level,” said company President Phillip Wade.

The company’s philosophy remained the same—quality wines at good prices. The wine list was intentionally short. In direct opposition to the “mega-store” concept, Geerlings & Wade offered a limited selection so as not to overwhelm and intimidate the wine buyer, especially some of those new customers who might not be comfortable with deciding between hundreds of wines.

In October 1994, the company expanded to the state of Washington, bringing the total states served to eight. Washington was the eighth largest market for table wine in 1993, and Geerlings & Wade was then able to market to the state before the holiday shopping season in 1994.

In early 1995, Geerlings & Wade announced record growth of 233 percent in fourth-quarter 1994 earnings. Orders climbed to 1,000 cases a day and brought a 63 percent increase in sales.

Facing New Challenges: 1995-99

Direct marketing had its cost, and in 1995 Geerlings & Wade was caught off-guard with rising packaging and mailing expenses as well as higher wine prices and a weaker U.S. dollar. “We had some unsuccessful wine offerings in 1995,” said Chief Financial Officer Peter McAree in an interview with the Boston Globe in May 1996. “At times we did not have the proper level of planning, and we could not take the time needed to find a quality product and pull together the mailing with the planning and foresight to market it. We also found that, in prospecting for new customers, we did not achieve the rates of repeat business that we had in the past.”

Profits were flat in the first quarter of 1995, causing the stock price to drop from $17.25 in March 1995 to $4 a share in October. By May 1996, the company was struggling with stock price and internal issues, and cofounder and President Phillip Wade announced his resignation, effective as soon as a successor could be named.

Jay Essa, a former Gallo executive, was named president and CEO in September 1996, bringing over 20 years of wine industry experience to the position. “Jay Essa brings to Geerlings & Wade an in-depth understanding of the wine industry and, equally as important, considerable expertise in understanding consumer demand for select, table wines,” said Huib Geerlings, in a company press release. Cofounders Huib Geerlings and Phillip Wade remained as directors of the company with Geerlings serving as chairman of the board.

In 1997, the company made its first entry in Internet e-business with the signing of a marketing agreement with Peapod, Inc., an online grocery and delivery service. Geerlings & Wade’s wines would now be a part of an online ordering service with customers accessing products through the Internet as well as the traditional direct marketing methods.

Also in 1997, Geerlings & Wade announced its intent to acquire Passport Wine Club, an Internet company with sales of $1 million. “We plan to operate Passport Wine as an independent entity and use it as a springboard to further develop our continuity business. Passport Wine will contribute to our growth in several ways. It will strengthen our Internet presence by adding a second web site from which wine buyers can purchase wine online,” said Jay Essa, president and CEO. In May 1998, Geerlings & Wade launched its own web site at www.geerwade.com to market wines as well as provide online information for customers about wine selection. In July, the purchase of Passport Wine Club was finalized.

In 1998, the growth was back for Geerlings & Wade with a 3.2 percent jump in sales and a net income of over $1 million, compared to 1997 income of $823,000. “Customers have responded well to our house mailings and the fall catalog, and we acquired many new accounts from our focused acquisition mailings,” said Jay Essa, president and CEO.

In 1999, the company expanded to Texas, New Hampshire, and Rhode Island. With the new expansion, the company could sell its products, through the mail and the Internet, to more than 81 percent of the wine-consuming American public. That same year, the company announced a series of initiatives to lead it to its next level of growth. Those initiatives included developing a new and better web site, implementing new computer hardware including addressing Y2K compliance issues, expanding the marketing department, and developing a creative advertising campaign.

In March 1999, Geerlings & Wade announced its support of the “Hatch Bill,” legislation which would give states the power to enforce federal laws against illegal direct shipping of alcoholic beverages. “First, we want to let our customers and shareholders know that the Hatch Bill does not pose a threat to our business because we have always operated within those state laws that others have tried so hard to circumvent. The advent of new technologies like the Internet has made illegal cross-border shipping more prevalent. Many of our competitors ship across state lines with little or no regard for the law. There is a right way to operate this kind of business, and states have every right to insist that their laws be obeyed in this way,” said Jay Essa, president and CEO.

Company Perspectives:

We will establish and maintain a personal and lasting relationship with our customers who appreciate fine wine. We will provide unparalleled service and quality, value-oriented products, as well as informative education to enhance our customers’ total wine experience.

By September 1999, it seemed a sellout was imminent. Geerlings & Wade had agreed to be purchased by Liquid Holdings Inc. for $40 million in cash. The company said that the 105 employees would not be affected. However, in February 2000 the agreement automatically terminated due to Liquid Holdings not obtaining financing from sources acceptable to Geerlings & Wade. “This has been a long process for everyone involved in the transaction,” said Essa. “We think it’s appropriate to take some time to assess the direction the company will head from this point on.”

2000 and Beyond: New Strategies for Growth

The failed deal, coupled with a $1.5 million loss for 1999, may have been reasons prompting Jay Essa to resign in April 2000 as CEO and president, in a move characterized by the Boston Globe as “abrupt.” Chief Financial Officer David Pearce was named as Essa’s replacement.

In 2000, the company’s net income was still negative, albeit a gain over 1999 with a loss per share of 12 cents compared to 1999’s 39 cents. Net sales were lower, however. Fourth quarter 2000 sales were encouraging, as was the net income figure of $509,000. Total Internet sales increased 180 percent from 1999 to 2000, although CEO David Pearce cautioned that the growth in Internet sales could not be expected to maintain at that rate each year. Besides the failed merger and CEO Essa’s departure, 2000 was also plagued with an inventory that was too high.

In April 2001, Geerlings & Wade was transferred from the NASDAQ to the NASDAQ SmallCap Market because the company failed to comply with the exchange’s minimum market value requirements. The decision was made after a hearing before the qualifications panel. In response, Pearce said, “We do not believe that being listed on The Nasdaq SmallCap Market will materially affect the Company or our stockholders.”

Embracing the new technology of the Internet and continuing its expansion within the United States, Geerlings & Wade was on the road to further success in the 21st century after some tumultuous changes between 1999 and 2001. Huib Geerlings and Phillip Wade’s original vision, however tenuous, had become a reality—quality wine, lower prices, and timely delivery to a broad population.

Principal Competitors

eVineyard.

Key Dates:

1986:: Company is founded by Huib Geerlings and Phillip Wade.
1989:: Company expands beyond Massachusetts.
1994:: Geerlings & Wade makes initial public offering.
1996:: Phillip Wade resigns as CEO; Jay Essa is named as replacement.
1997:: Geerlings & Wade launches web site and Internet purchasing.
1998:: Geerlings & Wade purchases Passport Wine Club.
1999:: Liquid Holdings, Inc. agrees to purchase Geerlings & Wade.
2000:: Liquid Holdings purchase falls through; Jay Essa resigns as president and CEO, and is replaced by David Pearce.
2001:: Geerlings & Wade is downgraded to the NASDAQ SmallCap Market.