Direct-to-Consumer Sales, Marketing and Sales

Direct-to-Consumer Spirit Sales: Why so Hard?

June 29, 2020 7 Comments

Making sense out of confusion

Online purchasing of almost everything has been growing for years, including wine. But, spirits have only just begun to enter the direct shipment world with lots of obstacles and constraints. How come?

My partner Rob Warren and I have spent the past year and a half researching and learning about the emerging business of direct sales of spirits to consumers.

(We are partners in a brand building and route to market consultancy called Wisdom & Booze, LLC. He’s the wisdom, which is why I asked his help in writing this article.)

In a nutshell, we learned: 1) the need for Direct to Consumer (DtC) spirits sales is important to both makers and drinkers alike 2) online solutions for spirits will grow (we felt that way even before the coronavirus) 3) there is a patchwork quilt of players and solutions and 4) frankly, the quilt often contains confusion and, at times, land mines.

Our journey began with a quest to enter the business, to either create an enterprise or partner with someone already in it.

Then it struck us… few of the players in the business understand the spirits world, and what it takes to develop and build a brand. They understand the world of e-commerce and the digital gold mine it can provide, but know little about the world of the producer, or consumer, for that matter. With some notable exceptions, DtC providers are strictly transaction focused.

The world of direct, it occurred to us, means control of the presentation and sale of your brand; a closeness to the buyer/consumer previously obscured from view by the layers between the maker and the drinker — also known as the 3-tier system. As an example, Rob and I worked on Crown Royal back in the day, and direct marketing to consumers meant that the brand developed a relationship (some would even say a bond) with its drinkers. Using direct marketing efforts, we made the brand come alive and turned drinkers into fans and influencers.

So, we gave up chasing the players to join them and became “agnostic,” a business entity focused on the maker/producer and a guide to what we see as the important, but not always effective, quagmire known as the current state of DtC.

To sell booze online you need wisdom.

Let’s back up for a moment…

Online purchasing of almost everything has been growing rapidly for years, even prior to the coronavirus. Direct buying of alcohol, in the form of wine, has become a $3+ billion a year business. Over 40 states allow for direct interstate shipments. At the same time, direct delivery of cannabis is already happening in medical and recreational use states.

Ah, but for spirits, it’s catch as catch can — intrastate is generally okay but some in the business will tell you they ship to most places, others say a few, and even one told us: “I ship everywhere. I mark it “Olive Oil” (wink, wink).

Let’s see if we got this straight. Selling cannabis is classified by the Federal government as a Class A felony. But 11 states and DC allow for recreational use and another 31 either allow cannabis for medicinal purposes or have decriminalized its use. In addition, wine can be shipped all over the country — intra and interstate. But I can’t send a bottle of liquor made in New York to Colorado.

Didn’t we decide a long time ago that alcohol is alcohol? Check with the National Institute of Health, a drink is a drink —12 oz of beer = 9 oz of malt = 5 oz wine = 1.5 oz of spirit.

Part of the problem is the misconception that liquor is hard and other forms of alcohol are… what, not hard? Soft?

The growth of DtC for spirits

This emerging method of distribution began way before the virus reared its ugly head. The changing spirits and trade environments were at the core of the impetus. Consider this:

The wine people, particularly small wineries, led the charge with direct shipments from their wineries, sales to consumers who visited, and eventually 3^rd party wine shippers (including the NY Times and WSJ) entered the fray.
Industry consolidation and resulting financial pressures at all tiers created limitations on brand choice and selection. Examples: Which would you rather sell as a distributor sales rep, 6 bottles of a small unknown brand or 6 cases of a winner. A typical retailer question — “which leading brand should I remove from my shelf to make room for your crap?”
Even at the mainstream producer level, small, fledging brands get the hind teat, while the successful ones live high off the hog, so to speak. (Never mind that Tito’s and Bulleit were once startups).
And then there is the consumer him/herself, whereby the new drinking world of cocktails and quality over quantity, has led to a “discovery” mode of the new, unique and desirable.
The term “desirable” has many driving factors — the story behind it; the limited availability; unique and not many others are like it; shows knowledge and good taste; outstanding product; and so on.

Convenience at one end, hard to find and desirable at the other end — all add up to an important 4^th tier, the consumer.

The current DtC landscape

For the most part, there are three main segments:

1) Convenience — local purchases and local delivery.

2) Marketplace — brand aggregators selling a range of brands

3) White label — a “storefront” embedded on a brand’s website.

All of them follow the 3 tier system requirements.

The convenience segment is what is currently driving the DtC efforts. Companies like Drizly, using local retailers, are at the heart of the market. Basically, a delivery service (fast, reliable, and good at what they do), the focus is on mainstream brands that consumers know and are popular.

But, for small brands that consumers want but are hard to find — craft and top shelf alike — Drizly may not be the answer. According to Drizly:

“One of the most important things to remember is that Drizly brings retailers’ shelves online. That means it is important to have a renewed or refreshed focus on their [small brands] distributor relationships in order to work with those partners to ensure that they’re showing up on the actual shelves, and therefore on Drizly’s virtual shelves.”

A Drizly presence means the same route to market as usual but on an ecommerce platform. The key is product availability and distribution.

Fortunately, the presence of LibDib, a web-based distribution platform, can significantly help resolve the distribution problem. Their footprint is growing (currently NY, CA, CO, IL, FL, WI) and their link with Republic National Distributing Company (RNDC) means their distribution role will further be enhanced.

In effect, LibDib provides a virtual national distribution platform for all segments of the direct to consumer approaches. (See other articles I have written about them here, and here.)

The marketplace (an online store) can range from actual stores (e.g., Country Wine and Spirits, Total Wine and More, etc.) to strictly online retailers using a combination of local retailers and interstate shipping where allowed. Think of them as a liquor emporium with a large inventory of brands, both mainstream and hard to find.

Such sites as Caskers, Cask Cartel, Flaviar, and others offer a range of digital services that are comparable to in-store displays, end aisles, features, and the like. The services are not cheap but they can be effective if the producer drives consumers to the site and the site has a strong database for outreach.

The most interesting of these sites is Flaviar, which I have written about before. Here is how they describe themselves:

“Flaviar is a band of spirits enthusiasts, inspired by culture, rich history and the art of distillation. We forage the World of Spirits for the finest, rarest and most unique expressions out there and pack it all into a 21st century Members Club.”

Unlike nearly all, Flaviar develops a relationship with consumers (for a fee) and offers engagement, brand education, trial, and more, in addition to a transaction. Further, they are moving into the product development arena and bringing their own products to the market alone or in conjunction with a producer.

The most interesting segment to us, is the white label or embedded effort on a brand’s own website. Basically, a company builds a “store” on a producer’s website that seamlessly takes a consumer to a transaction site at the click of a button. Think of it as a branded storefront.

There are a number of significant players in this segment, all of whom have seen their business grow dramatically during the coronavirus. The companies we are most familiar with are Cask and Barrel Club, Passion Spirits (new website under construction), Thirstie, and Speakeasy. Each has their own strengths and weakness that producers and brands need to consider with regard to their online needs and expectations.

There are a number of significant advantages to this approach including the absence of brand clutter, and the opportunity to talk directly to a consumer and develop brand loyalty. The fulfillment aspect provides the opportunity to further engage the consumer with a range of efforts — shipping and product discounting with multiple purchases, recipe cards, swag, personalized messages, etc.

On the downside, just because you can go to a “brand owned” store at the click of a mouse doesn’t mean a wide and receptive audience. “Build it and they will come” only works in the movies. To drive traffic to an embedded store means planning, digital and social media support, a database, strong brand PR and more.

What have we learned so far

What does it take to succeed and to avoid pitfalls on the DtC journey?

Do your homework — get to understand the players in the ecommerce world and match your brand plans and consumer insights to the optimal approach and company. There are quite a few out there (with more coming) but there are wide differences among them.

Read the Terms of Service or Terms and Conditions offered to consumers. It’s a great way to understand the ecommerce player and their market and consumer focus.

Consider the economic value of any ecommerce transaction. Will the revenue generated offset the cost, particular when it comes to an embedded ecommerce site? Whether it’s marketplace or white label, there are cost considerations and return on investment decisions to be made.

But, wait a minute, maybe it’s not just about the finances. Perhaps in the world of brand discovery and/or desire, ecommerce offers sampling and trial in addition to availability.

Think about the consumer and the experience of an ecommerce spirits purchase. Are you presenting the brand in the best light? How long will it take for the consumer to receive the product? Who is the shipper?

In that regard, the delivery of the product is a pet peeve of ours. We can’t tell you how many times an anxiously awaited product has arrived wrapped in what looks like a dog’s breakfast. The shipper is trying to assure that there will not be breakage but in so doing, brands come in Styrofoam peanuts, ridiculous and hard to unpack bubble wrap, and outer wrapping more appropriate to packing fish than expensive spirits. Is that how you want to present your brand?

A critical element in the selection of an ecommerce provider is the availability of data and the extent to which that data is robust and insightful. Who is buying and how often? What else are they buying? Where have they come from (online) and where do they go? Do they provide an in-depth understanding of your consumer? Who owns the consumer database?

Lastly, and relatedly, how often do they report the transactions, in what format, and what access do you have?

The future for direct shipments of spirits

Every new enterprise requires a learning curve and even a shakeout period. It’s called evolution. The coronavirus has played a role in the acceptance and use of spirits DtC and we believe it’s here to stay beyond this horrific period. It provides the ability to receive products by delivery and to acquire desirable but hard to find brands. But that’s not all. It gives the producer a direct link to a consumer and the opportunity to develop an ongoing relationship — directly and one to one.

In particular, spirits DtC is an important element, perhaps even the life blood, of a small brand (craft or otherwise) whose route to market is difficult.

So, look for more players entering the market with different approaches, good and bad. Some will succeed and some will fail; some are right for a particular brand but many are not. Above all, look for the players that provide more than just a transaction.

Booze Business Heroes

March 23, 2020 1 Comment

Distillers are Making Hand Sanitizers and More

The current pandemic is not the first time that the nation’s distilleries have answered the call to do their patriotic duty by using their facilities to help fight a war. In World war II, most distilleries were converted to produce industrial strength alcohol to make such products as plastics, ammunition and synthetic rubber for tires.

Most important, a few distilleries and their chemists were recruited to make a crucial medicine — penicillin. Making that lifesaving product by growing spores was very similar to cultivating and growing yeast. Massive amounts were produced and who knows how lives were saved by this development.

So, it’s really no wonder that many distilleries, both large and small, have turned their attention to meeting the hand sanitizer shortage and manufacturing them.

Industry Leadership

The large companies have the most capacity and resources to enter the battle. Mark Brown, President and CEO of Sazerac (Buffalo Trace Distillery) and publisher of the leading industry newsletter, has devoted time and attention (including over the weekend) to inform distillers on a wide range of matters — FDA, TTB, and WHO guidelines and directives.

Pernod (Absolut), Bacardi, Amber Beverage Group, Brew Dog, and others have entered the fray. In addition, it should be noted that, aside from making hand sanitizers, many spirits manufacturers and wholesalers are actively supporting a wide range of resources aimed at helping bars, restaurants and service workers. The list is endless — Buffalo Trace, Michter’s, Diageo, Gallo, Jameson, Beam, Patron, Tito’s, and many more. The list of distributors supporting local hospitality establishments and staff covers the nation.

Craft Distillers

From New York to Illinois to Oregon, craft distillers have begun manufacturing sanitizers and either selling them at what it costs them to produce or just giving them away. In a March 19 NY Times article, Brad Plummer, a spokesperson for the American Distilling Institute (a craft producers association) indicated that this is not “an economic lifeline” for distillers.

Mr. Plummer said that craft producers have received calls from health care workers, police, soup kitchens, homeless shelters, and the general public. He also indicates that as many as three-fourths of craft distillers are involved.

The biggest problem? Finding plastic containers to use. Some are using glass bottles and others are asking people to bring their own containers to be filled.

Let me tell you about a few of them

Brooklyn-based New York Distilling Company is using its straight off the still, undiluted Perry’s Tot Navy Strength Gin, to create bulk hand sanitizers. According to Alan Katz, co-founder and owner, “We have access to off-the-still gin made in our Brooklyn distillery that we can turn into a homemade sanitizer that meets CDC recommendations. We can use our resources to help support friends in the hospitality and trade who are in need right now.”

Koval Distillery in the Ravenswood neighborhood of Chicago is also turning spirits into sanitizers. “This is war, this really is war,” said Koval Distillery co-founder, Sonat Birnecker Hart. “Like in any other war effort, people are asked to step up and right now hand sanitizer is needed a lot more than whiskey.”

The bottles produced will be given to Chicago hospitals, retirement homes and daycares. “Police officers, firefighters, EMTs, these are people on the front lines that are dealing with this and if they’re concerned with not having hand sanitizer and that makes me worried, so I want to help them,” Birnecker Hart said.

The Vale Fox Distillery (Tod & Vixen Gin) in La Grange, NY (Duchess County) is a brand-new startup launched late in 2019. Despite their size, they have turned their attention to this crisis and dropped everything, in order to do what they can to help. As mentioned earlier, the biggest issue has been getting plastic bottles.

According to the founder and owner, Eral Gokgol-Kline, “Making hand sanitizer allowed us to support the health of our community and raise funds to support the bars, restaurants and employees who are struggling during this difficult time. In short, it was a no brainier and we are privileged to be able to help.”

# # #

I have always loved and respected this industry and the men and women in it. This horrific situation also makes me very proud of these heroes.

Together we will get through it.

Hercules Mulligan Rum + Rye

January 22, 2020 12 Comments

Patriot, spy, hero, and the inspiration for a new brand

I have known Steve Luttmann, the creator of Leblon Cachaça, for some time. As a spirit industry veteran, I always felt that Steve had a wonderful capacity to think outside the box and with his most recent effort demonstrates that, and much more.

Not only is the concept and product unique, but the route to market he has developed is extraordinary and may become a benchmark for the future of new brands.

But, I’m getting ahead of myself, so let’s start with the back story.

The inspiration

Steve is a history buff who grew up in Valley Forge, went to Revolutionary War reenactments and even participated in one when he was a kid, dressed in a continental soldier uniform.

The book Alexander Hamilton, by Ron Chernow fascinated him as it did Lin-Manuel Miranda, the creator of the outstanding Broadway musical, Hamilton. He became enthralled by the story of one of Hamilton’s revolutionary war friends, Hercules Mulligan.

Mulligan emigrated from Ireland in 1746 and eventually became a well-known tailor catering to wealthy British merchants and mainly senior military officers. His craftsmanship and personality — together with a few drams of liquor — made him a trusted friend of the British officers and thereby an important spy for General Washington. Mulligan saved Washington’s life twice from plots to kill or capture him. He also revealed important British secrets that significantly helped the Continental Army.

Steve’s fascination with Hercules Mulligan — tailoring uniforms, serving drinks and getting secrets — led him to develop a spirit based on this tailor-spy-hero and with a product reminiscent of the time.

Steve sums it up nicely:

“Operating in the shadows, (Mulligan) was a hero of the American Revolution, brave enough to take a stand against the injustices he saw in the world and risk his life more than once to save our founding fathers. Deploying all the tools at his disposal, including his Irish wit, off-the-cuff style, and secret stash of liquor, Mulligan seamlessly elicited secrets from the British military. He is the unsung hero of the time and this liquid pays homage to his independent spirit…”

The product

Hercules Mulligan Rum + Rye is based on a recipe from the revolutionary war period and is a 50/50 blend of Caribbean aged rum and home-grown American rye whiskey.

If you recall your American history, then you know that the popular libation of the time was Rum from the Caribbean. But the colonists were miffed when the British taxed the ingredients for their booze under the Sugar Act of 1764. Consequently, they began making liquor using the plentiful rye in the colonies and even mixed the rye with the rum. In fact, mixing different types of spirits was very common during that period.

In addition, the product uses fresh, organic, ginger root that is macerated in the rum and rye blend, and a splash of bitters is added. On the one hand, the product tastes like a ready-made Old Fashioned. But, before you think of it as a prepared cocktail, recognize that it is way more than that. It’s best enjoyed just over ice, but also great with a range of mixers and excellent as a shot.

The product currently is available on Flaviar.com (more about this in a moment). It is 86 proof (43% AbV) and sells for $38.00 for a 750ml. And get this — there were only 2,000 bottles available at time of launch.

The obstacles

Back in the late summer of 2017, Steve introduced me to the concept and the brand and I fell in love with it. We talked about which companies to approach to make this happen — from production to sales. After all, it was beyond just an idea, with a formula/recipe, a full-fledged concept and positioning, and even a package.

To maximize the full potential obviously required a company to manufacture and sell the brand.

Ah, but times have changed for new products and especially innovative brands. Companies would rather buy than build, assuming what they buy already has traction. So much for risk taking in the liquor business. That’s why many of the winning new brands come from entrepreneurs not corporate types.

Oh, and let’s not forget the brave middle managers who combine the avoidance of risk with a large dose of not-invented-here fears.

So, the response from the “big boys” was summed up with comments exemplified by this: “I love the idea, come see me when you have some proof of performance.”

And Steve set off to do just that.

The route to market

To produce the liquid, Luttmann turned to Mario Mazza, whose family has been making craft beverages on the shores of Lake Erie for more than 45 years. They produce an array of terrific craft beer, wine and spirits. I know and have visited the Mazza facilities on a number of occasions and they are a highly innovative company with many outstanding people.

Together with Grisa Soba from Flaviar, Steve and Mario spent a great deal of time blending three different rums, with three different ryes (including from NY State) and even produced a proprietary bitter to be used in the product. (You’ll read more about Mazza in a future article.)

The ginger, however, was another matter. Conventional flavor houses could not produce a ginger that met Steve’s expectations. Most were flat and very artificial tasting. Besides, with ginger from a flavor house, the TTB would require the words “natural ginger flavor”, rather than simply “ginger.” In order to have the words, “Rum, Rye, Ginger & Bitters” on the label, he had to use fresh ginger. So, he tried dried ginger but Grisa Soba, Founder of Flaviar, convinced him that the aroma was missing and needed fresh ginger. But, fresh ginger is difficult to work with and needs expertise to overcome the complexity. (By the way, Grisa is an accomplished whiskey and other spirits expert.)

To deal with the problem, he approached his friend Josh Morton, CEO of Barrow’s Intense Ginger Liqueur for help. Josh confirmed the difficulty and offered macerated fresh, organic ginger root in the rum and rye.

With product formulation and production under control, Steve now faced the daunting task of sales and marketing.

Enter Flaviar

Here is how this Direct-to-Consumer DtC membership club describes itself:

Flaviar, is arguably among the most important DtC provider of spirits and the leading members club for enthusiasts. Steve teamed up with them and they are the exclusive online seller and will basically serve as an incubator for the brand. In fact, Flaviar has quite a number of owned brands sold on its platform —cognac, rum, scotch, brandy, among others.

And in case you’re wondering, like most DtC companies, Flaviar is in full compliance with the 3-tier system.

The role Flaviar played as a partner in this venture turned out to be more than just distribution. In addition to advice on the need for aroma from the ginger, Grisa Soba (the founder) had other ideas about the product, including its proof level. Further, Flaviar has a team of designers and social media experts who played an important role.

Flaviar has a very large and growing membership base and the audience for Hercules Mulligan Rum + Rye is far reaching and includes enthusiasts and influencers.

I plan to write more about Flaviar and its role in the DtC market, but for now, here are some of the key benefits of working with them. They provide a fun and entertaining description of all the products they sell; shipping is free; their tasting notes are in depth and use fun graphics; and they go so far as to produce a trademarked “Flavor Spiral.”

“The Flavor Spiral™ shows the most common flavors that you’ll taste in Hercules Mulligan Rum & Rye and gives you a chance to have a taste of it before actually tasting it.”

Here is what they say about the brand.

Above all, Flaviar’s main benefits are, in my opinion, a fast and effective way to gain awareness, build a following, gain invaluable data insights about buyers, and provide the important (and elusive) proof of performance.

Did I say incubator? A better description is ‘incubator on steroids.’

Proof of performance? The brand was launched on Evacuation Day 2019 (November 25 commemorating the departure of the British after the war). By January they had sold out.

What’s next?

All signs so far are that the strategy of an alliance among an innovator, producer, and online sales are working well. And, if I know Steve Luttmann, the Hercules Mulligan brand will become a franchise with endless extension opportunities — perhaps an Irish and Rye whiskies combination, double ryes, and others.

What makes it particularly interesting to me is the role of online sales as a brand launch pad. All new brands start in stores and bars. Remember the expression, “brands are built bar by bar?” Well, Hercules Mulligan is among the first to turn things around with bars and stores the second stop on the brand building trail.

I think it’s the future for new brands and products, particularly those that are highly innovative.