The Future of the Booze Business

RNDC and LibDib join forces

It was announced recently that Republic National Distributing Co (RNDC), and Liberation Distribution (LibDib) have formed a strategic alliance and will be working together.

I consider this a huge development for the wine and spirits industries and I was anxious to learn what it means for the future. I very much admire Tom Cole of RNDC and Cheryl Murphy Durzy of LibDib and was thrilled to have an exclusive interview with both of them. The three of us talked about how this development came about and what it means for the distribution of both large and small brands.

RNDC is the second largest distributor in the US, operating in 22 markets with a long history dating back to before Prohibition. It is an organization built on the strong foundations of three family-owned companies. What I’ve always admired about RNDC is their values, marketplace effectiveness, and people you enjoy working with.

LibDib is the first technology company to offer a 3-tier compliant model that provides an option for the growing number of makers (suppliers/manufacturers) that are entering the market. Launched in June, 2016 and they describe themselves as: “A wholesale distributor of alcoholic beverages enabled through a web and mobile platform.” (An earlier article I wrote about LibDib is here.)

As reported by Wine and Spirits Daily, LibDib suppliers will be able to use RNDC’s logistics and expand throughout their footprint, while RNDC will have access to LibDib’s technology and data. To me, it is also a union of the traditional and new routes to market.

So, what does this mean?

Tom Cole, CEO RNDC

 

 

According to Tom Cole:

“When I first learned about LibDib, I was fascinated by the commitment to the 3-tier system…I believe in and am a passionate protector of that system, so the LibDib approach offering effective online ordering, satisfies the need for small makers that are having difficulty getting to market…”

Cheryl Durzy, CEO LibDib

Cheryl added:

“We use the term evolve — How are we going to evolve the 3-tier system to meet the needs of the modern consumer and what they are looking for in spirits and wine.”

In effect, LibDib will have the opportunity to expand from its current operations in New York and California and ultimately operate in RNDC’s 22 markets. They’ll be able to tap into RNDC’s advanced logistics to deliver craft products to buyers in all available markets.

In turn, RNDC will have access to LibDib’s technology and data collection, thereby enabling them to further expand their value and services. In effect, they will be offering their large supplier organizations access to the rapidly changing market place by offering insights and actions into the new and evolving consumer.

What I think is particularly appealing, is that RNDC, which doesn’t currently operate in NY and CA, will have access to those markets in a new and unique way.

The problem being solved

Let’s start with craft spirits products and small brands.

IWSR has produced the Craft Sprits Report 2018, which looks at the current and future growth of craft spirits in the US.

They report that in 2017, the craft spirit volume share of all spirits sales was 3.3% which is 7.5 million 9-liter cases and up 25% from the previous year. They forecast that by 2022, craft spirit brands will account for close to 20% of all spirits and more than double its share at 7.9%.

In terms of value, craft brands accounted for 4.6% share of all spirits and, by 2022, they forecast it to be 10.4%.

What really caught my eye was this statement: “To put the current size of craft spirits into perspective, the 7.5m case total is roughly equal to the entire U.S. brandy category in 2017.”

 So, what’s the problem?

The route to market available to large brands is not generally available to small brands, particularly start up ventures or fledgling brands from small craft or other distilleries. The result is a hodgepodge of distribution solutions. Some large distributors will take on these brands but more as an exception than a rule. Come on… you would do the same if you ran a spirits and wine distributorship. It’s a volume driven business that largely depends on mass and mainstream brands. As a distributor put it to me once, “hey, you want my sales folks to stop focusing on a proven winner to sell your maybe-it-will-make-it brand?”

As a result, small spirits companies often rely on wine and beer distributors. Both wine and spirits companies will aim for importers with a distribution network or companies like MHW LTD or Park Street Imports (both with distributor licenses in a few key markets). All in the hope for an effective route to market and in compliance with the 3-tier mandatory system.

The large company conundrum

Developing new products/brands and getting them to market is difficult for the large makers as well.

Imagine you’re a major player in a leading spirits and wine company. You look around and, while your mass brands are doing okay, the craft/small batch brands are eating away at your volume. The cocktail focus has won the attention of bartenders and consumers alike and your mainstream brand is in danger of becoming yesterday’s newspaper.

Your options are to stick your head in the sand and ignore the changing market place and consumer behavior. That won’t work because your kid needs braces so your bonus might be in jeopardy. So, you figure out that you need to enter the fray and either start acquiring some of those fledgling brands or build your own through your innovations group.

Now you have another problem. The distribution and business models are based on large volume and you don’t want your people, or your distributor’s people, focusing on your new “baby” while ignoring the brands that need the attention. You can either launch a small brand-focused business unit or find a better, more cost-effective solution.

As many of you know, at Seagram I ran new products at one point and this venture of combining the clout of RNDC and the LibDib model would be just what I needed to succeed. In short, this strategic alliance between a top distributor and a company focused on small brands would have made my mouth water by allowing me to get into the small producer game, while still keeping my eye on the (big brand) ball.

How this came about

My hats off to Tom Cole who has the vision and smarts to see where the industry is going and to move his business in an advantageous direction. And to Cheryl, whose tenacity and foresight will reap benefits to her innovation.

I’ve known Tom a long time and he’s a visionary, always attuned to the changing marketplace, and willing to explore new opportunities and directions. It’s no surprise, therefore, that when he learned about LibDib, he looked into it.

Cheryl and her family ran a small winery in northern California and learned firsthand what a nightmare it is for a small company to get to the shelves of restaurants, bars, and stores. She created LibDib as a solution. In a relatively short period of time the company has attracted large numbers of makers and retail (bar and store) accounts in New York and Los Angeles. LibDib has become a viable and growing go to market resource.

After a number of exploratory phone calls, they met at the WSWA and learned that they had a great deal in common — the yearning to find a solution for new brands, a shared vision of the future, the support for the 3-tier system, entrepreneurial focus, and approaches to business management. Back and forth conversations and due diligence followed and a year later RNDC invested in LibDib and they are now partners.

What’s next?

There is much work to be done to maximize the potential of this venture and 2019 will involve some beta testing in NY and LA. Beyond that they will be exploring efforts on a state by state basis. There’s a lot to learn and this is a work-in-progress, undoubtedly with a slow and steady pace, making sure all the kinks are worked out. As Tom put it, “We will do things thoughtfully and correctly and increase our likelihood success.”

So far as I’m concerned, this development changes everything.

RNDC markets
Continue Reading

A National Drink is Born

Mahua, The Traditional Tribal Drink from India, Enters the Mainstream

The US has Bourbon, Mexico has Tequila and Mezcal, Scotland has Scotch, Brazil has Cachaça, and the list goes on and on. But what about India? It’s among the top five alcohol consuming countries in the world and there is a robust spirits/whisky manufacturing industry. Colonial India invented the gin and tonic, but has had no serious candidate for national liquor, until now.

This is the story of the emergence of a national drink, led by one man’s innovativeness and tenacity. An alcohol product with a long history and exclusively Indian heritage, surrounded by legends, and spanning centuries. A historic product from the many tribes in the Central Indian Forest belt.

The products (there are two) are called DJ Mahua and DJ Mahua Liqueur. The man is Desmond Nazareth and we have met him before in this blog. (You will find them here, here, and here.)

Desmond Nazareth, Founder and Managing Director, Agave India.

The Product

Mahua (pr. Ma-hu-a) is a flower that Indian tribes have been fermenting, distilling, and drinking. The Mahua tree has been considered sacred for centuries. Desmond and his Agave India Company have begun marketing the product under the DJ (DesmondJi) brand in liquor and liqueur formats and selling these products as Indian Made Liquor (IML) since June of this year. But his real challenge is to get the widespread liquor authorities to recognize Mahua as an official, potentially national drink.

Here’s how he describes Mahua:

“Mahua is a nectar rich flower of the Madhuca longifolia tree, which grows in the Central Indian Forest belt, historically inhabited by indigenous people of India, so called ‘Adivasis’, or ‘Tribals’. The nectar rich flowers mature and drop for a month or so in the Mar-April-May timeframe. These edible sundried flowers retain a significant part of their sugars, with a pleasant, complex taste akin to a hybrid of sun-dried raisin, fig and date… For centuries, Central Indian tribes have been collecting and storing Mahua flowers, and consuming single distilled Mahua spirit made from the flowers in traditional clay, wood-fired potstills.”

He depicts the products as “forest-to-bottle” and both are 40% Alcohol by Volume (AbV). The DJ Mahua liqueur is blended with honey and spices and there are plans for a DJ sparkling product. I’ve tried both the liquor and liqueur and found them to be very enjoyable products, with unique and pleasant tastes. The DJ Mahua Liqueur product in particular, was most enjoyable both straight and in cocktails.

Desmond describes Mahua as “the only spirit in the world that is fermented and distilled from naturally sweet flowers.” ‘What about St Germain?” I asked. According to Desmond, St Germain is made by macerating and steeping Elder Flower in alcohol; DJ Mahua is naturally fermented and distilled directly.

The Mahua Mystique

Mahua Tree

What fascinates me about Mahua is its colorful history. Spend a few minutes here and you’ll see what I mean.

As legend has it, Mahua is “An indigenous drink rumored to be the elixir of the Gods and the weakness of deities, the tribals tell tales of how it is coveted by deer, birds, and humans alike.”

According to Desmond, Mahua is more than a drink, it’s a reflection of India’s colorful tribal history. The legends and stories abound with tales of hard-working villagers saved from the messengers of death by Mahua; of animals cavorting while tipsy on the flowers. Desmond writes:

“From bark to fruit, leaf to root, every part of the Madhuca Longifolia (botanical name) earmarks our heritage in a way few other elements of our long cultural history do.”

A well-respected English anthropologist working with tribes in Central India named Felix Padel, a descendent of Charles Darwin, tasted Mahua and was surprised that the government did not develop it as an industry. He is quoted as saying, “I wonder why people in India would prefer French wine and English scotch when something fresh and rejuvenating like Mahua is available.”

And that leads us to Desmond Nazareth’s journey to make Mahua the Indian national drink.

The Challenges and Obstacles

Mahua is currently made in over a third of India’s 29 states and getting Mahua recognized all over India is a daunting task, particularly when you’re a niche, craft distiller with limited resources.

The Indian alcohol market is very complex and, to me at least, somewhat confusing. As I mentioned, its alcohol volume consumption is among the highest in the world but its per capita consumption is low. There is a love-hate relationship with alcohol, dating back to Gandhi’s aversion to it and at least four states and one territory practice prohibition. Yet, Indians love to drink and the worldwide cocktail enthusiasm is alive and well in the major cities.

Indian Made Liquor (IML) consists of two types. One is Indian Made Foreign Liquor (IMFL) and is the official term used by governments, businesses and media in India to refer to all types of liquor manufactured in the country other than indigenous alcoholic beverages. The other type is Country products such as Feni and Mahua.

Desmond is trying to get a new Excise category established countrywide. It would be known as Heritage alcohol products and strictly governed by international standards. It would be taxed lower than ‘IMFL/IML’ and higher than ‘Country’. He feels that this would encourage entrepreneurs to explore and exploit the huge treasure trove of Indian alcoholic beverages.

To get Mahua recognized as a national drink means a state by state campaign since there is no central national regulatory body equivalent to the USA’s TTB. “It is a crying shame that there currently is no simple Excise/ Revenue/ Customs mechanism for proudly made in India alcoholic beverages to be placed in Travel Retail (Duty Free) outlets in India,” says Desmond.

Nevertheless, an important step forward has emerged, thanks to Desmond’s efforts so far. The Food Safety and Standards Authority of India (FSSAI) is roughly equivalent to the USA’s FDA and is working to standardized the manufacture of Mahua and the use of its ingredients.

What’s Next?

As you read this, know that Desmond is hard at work on a number of levels. The manufacture and sale of DJ Mahua and DJ Mahua Liqueur in his home state of Goa and elsewhere in India; working on a sparkling Mahua product; and pushing for recognition as a national drink.

My own view of this situation is that it represents a unique and powerful opportunity for a global player to enter the fray. The “size of prize” of the Indian market and overcoming the obstacles for global brands, suggests that the Diageos, Pernods, and others might want to take a close look at Mahua. I think it represents a real opportunity to participate in the development of a new national brand with Indian and global potential. (If I were still at Seagram, I’d be doing just that.)

For a brand to succeed on the global stage, it needs to be good tasting, backed by an entrepreneurial effort, and a have compelling story. DJ Mahua and its variants has all that and more.

It’s time for the product to come out of the woods and reflect its heritage the same way as bourbon, scotch, tequila, and all the other national drinks. I hope that the Indian authorities would grant a type of AOC (protected designation of origin) or Geographic Indication (GI) for Mahua along the same lines as those for cognac, tequila, champagne, and others.

DJ Mahua Liqueur
DJ Mahua
Continue Reading

Alcohol vs. Cannabis Marketing

Seth Godin on the Differences Between the Two

I have followed Seth Godin for many years and have found him to be among the most insightful marketers I know. Here’s a bit about him — he’s an author (18 bestselling books), an entrepreneur (founded two companies, one of which was sold to Yahoo), a speaker/teacher, and a member of both the Direct Marketing Hall of Fame and the Marketing Hall of Fame (probably the only person to be in both). Above all, his views and ideas on effective marketing have inspired, motivated, and changed people and ways of looking at things.

One of his blog posts last week dealt with the differences between marijuana and alcohol marketing. Considering the close scrutiny of the pot business by the booze industry, I asked and received his permission to share most of his blog post with you.

Let’s look at Seth’s views followed by my comments.

(By the way, as I write this, it was just announced that Constellation Brands has increased its investment in a Canadian cannabis company by $4 billion.) 

US prohibition ended in 1933. After that, there was a gold rush that led to the creation of dozens of billion dollar brands.

80 years later, the prohibition against pot is ending in various places throughout North America and then, probably, worldwide.

The question some professional marketers are asking is: Will there be worldwide profitable brands for pot that are similar to Bacardi, Johnnie Walker and Smirnoff for alcohol?

Both industries are regulated. Both have products that are sold in specialty stores. Both use non-proprietary manufacturing techniques.

Here’s the big difference:

When alcohol marketing became legal, it coincided with the glory days of magazines, radio and then TV. The mass marketing phenomenon happened at exactly the same time as these brands were being rolled out—and along with cigarettes, alcohol brands were major advertisers, particularly in magazines (liquor) and TV (beer). The ads supported the media in a fundamental way (and vice versa–Rick’s Cafe anyone?).

But when cannabis marketing arrives, it’s the internet that’s dominant. And the internet isn’t a mass medium.

It seems like one. It’s used by billions of people.

But it’s a micro medium. A direct marketing medium. There are 3 billion people online, but they’re busy looking at 3,000,000 web pages (that’s only a thousand a page).

The other difference is that there’s a thousand-year tradition of the pub and the bar. And those facilities offer status games, word of mouth and significant margins that created another marketing engine for alcohol that won’t exist for cannabis.

Sure, it’s possible that the huge demand and profit margins will fund a winner-take-all advertising movement for pot. But it’s more likely to be more like local espresso or high-end chocolate or whiskey (word of mouth) and less like vodka.

*          *          *

My Comments and Observations

  1. Seth is obviously on target; the overall world of marketing has steadily been moving from macro to micro — away from mass media toward direct to consumer media. To a large extent this is happening in the booze business today. Brand building and communication has left mass approaches (print as well as broadcast) in favor of word-of-mouth, bartender influence, publicity and event marketing.
  2. Let’s not forget that currently, the cannabis industry is totally on a state by state basis. There are no national brands and there will not be until such time as the federal government approves its sale. Marketing, therefore, is regional, at best.
  3. The notion that the absence of bars and restaurants for cannabis will inhibit marketing is true now but will it be in the future? In many of the legal recreation use states, weed cafes are springing up and it’s a topic that will grow in the future. Think Bulldog Café in Amsterdam.
  4. As to branding, that too is emerging. Consider this:
  • For many cannabis consumers, the content and type are surrogates for brands. They talk about Indica vs. Sativa. For others, it’s the amount of CBD vs THC that becomes the brand.
  • For those introduced to weed medicinally, they think of the brand the same way as branding in prescription drugs — by function.
  • In this regard, recreational users have the function/purpose of the cannabis as an identifier, such as “sleep,” “arouse,” “harmony,” “awake,” etc. These are clearly labeled and provide a kind of branding function.
  • There are brands like Dompen, LuxLyte and others. But the function/purpose is the main factor.
  1. At this stage, it’s the retailer that becomes the brand. Check out the list of retailers in Colorado. A company I wrote about recently, MedMen, has stores all over the country, both dispensing medicinal cannabis as well as recreational. The dispensary is the source of quality and other reassurances.
  2. Interestingly, the beer folks are getting into alcohol infused cannabis, partly leveraging their own brand’s influence. There’s even a brand of wine made with THC.

#          #          #

As of June, of this year, 30 states have legalized medical marijuana and 9 have approved recreational use. New Jersey and New York are expected to legalize recreational use soon. So, clearly, legalization of cannabis is here to stay and will grow in acceptance.

The key marketing issue will be, as Seth points out, the difficulty in mimicking branding (and reach) of the alcohol world. Perhaps that means that no one brand will predominate; perhaps the function/purpose will be the brand; or the retailer. But, it’s still earlier days for the fledgling legal business.

He’s also correct that the marketing of cannabis, despite other similarities with booze, will have its own model and pattern.

Like the man says, more like whisk(e)y and less like vodka.

Continue Reading
1 2 3 32