Paul Groepler of Santo Spirits Talks about his latest venture with Tequila, the trend called Premiumization and Brand Ambassadorship, and the three most important things in consumer products.
In our last startup, we came out with new ‘super-premium’ vodka. On this deal, I’m working on a new tequila. I think it’s even better than the market for vodka. This is not my first startup. This is my eleventh. In my case, I have had one consumer product company prior to the Vodka. Now we have tequila. So this is number three for me. The other was a fashion accessory. Our other team members have built brands much larger than we will this time, so I am confident about that aspect. In addition, our ceo has sold liquor to Mexico, the USA and Canada, so we have the channel as well.
What about getting a restaurant investor to invest in the tequila deal?
You can’t. For example we have spoken to the owners of a local restaurant and also a bar, who both really wanted to invest but the federal liquor laws allow you to be in only one of three of three-tiered systems – manufacturer, distributor, or retailer. I’ve not given up Austin because I haven’t been able to raise money here. But it has been a little challenging.
What is special about your tequila?
Well, a couple of things. First, I always enjoy that question, because I think 2 of the most interesting questions I get are number one - ‘How are you going to beat _ Patron and number two - ‘Why another tequila?’
There are three big market spaces in the liquor industry, whisky is the biggest, tequila is the second, and vodka is the third. We just went from the third to the second. There are more competitors in the vodka space than tequila. You can prove that by going into a liquor store, and seeing how much tequila is there and how much vodka? So I’m happy to play in a space with fewer competitors and bigger margins. So that’s not answering your question, that’s just sort of sizing up why we’re doing this at all.
If you want to buy a really nice tequila as a gift for somebody, what have you got? There aren’t that many, probably about three or four, and those are mostly brand-based, e.g. they don’t taste at the level of their purchase price.
So what we’re doing is we’re taking this ‘value for price’ and packaging it and positioning it as ‘ultra premium’ selling as a ‘super premium’, because there is this trend going on called “trading up” or “premiumization”. The brand guys call it “premiumization”. We are not inventing the wheel, we are just riding it.
The three most important things in consumer products are package, package, and package! You see it before you smell it, taste it, and touch it. For our vodka, we used Icelandic glacier water. I mean that’s positioning, that’s top notch. The bottle was a stand-out and everybody loved it. In addition, we distilled it an extraordinary seven times. No on does that. Ther are no more left-over distillates, so the vodka, along with the super-pure glacier water is very clean, very smooth, very crisp.
What do you call it?
IS Vodka, but ice is spelt I-S because it’s the Icelandic word for ice. So you get some creative confusion in the minde, like ‘is’, ‘ice’, ‘ice’, ‘is’, hmm and your brain works on it and you are going to remember it.
So how do you penetrate the market with a new tequila?
The way that you do this is you don’t put a particular advertisement that says ‘We’ve got a new tequila.’ You go about a multi-pronged approach including brand-ambassadorship and ‘buzz’. You go around to the trendiest clubs, nightclubs and bars in that city where you are launching, and you have events and you do that with what I call brand ambassador.
This product (tequila Ambhar™) is more of your sipping-man’s tequila; this is your late 20’s through mid-forties crowd that wants to be just that little bit nicer a bit better. They don’t want Wal-Mart, they don’t want the Piano Bar on 6th Street, you know that sort of thing, or to do the nasty shots of 4-dollar tequila.
So you get your brand ambassadors, and these are women and men, who are tastefully dressed. They go around to these clubs and bars and take part in the events and are continually putting this in front of the bar manager, waitresses, and customers, and saying here it is. We will be launching in Austin like that, that will be in October.
What are the profit margins on this product?
We made $84.00 a case on Vodka, the case is 12 bottles, and we almost doubled that with tequila. So it’s a much bigger profit.
Why does it cost less?
It’s made in Mexico, and it is logistically centralized. Our markup on the Vodka is about 220%. Not bad, but our market on the tequila is about 312%
It’s also simpler to make from a logistics perspective. For the vodka, we had the bottle made in Spain, it was decorated in Belgium, the cap came out from Canada, the water came from Iceland, and it was distilled in a distillery outside London. It is then packaged in a box and put back on a ship to the US or wherever it is going.. But the tequila has to come from one place in Mexico. It’s got to be from a certain region. The tequila certification board is a Mexican regulatory body, which certifies all the distilleries.
Also, since the product is in Mexico, is just a ‘truck roll’ that’s hours from the border, not weeks. So it’s a lot tighter on the logistical turn time. It costs us $5.81 to make this and we add about a $4.00 marketing and sales cost to it. By the time it gets to the distributor to whom we wholesale for $32 and our mark up is $22, that’s not bad. Remember, in the US we cannot sell directly to the end-customer (e.g. restaurant, bar) due to the federally mandated ‘three-tier’ system.
We’ll break-even at 6000 cases, that’s 12 bottles a case. Our launch is around 5000 and that’s already spoken for, by a single customer.
Who’s buying that first 5000?
Sam’s Club Mexico. Our CEO has a relationship with Sam’s, Mexico. Please note also that Sam’s in Mexico is not Sam’s here. In Mexico they are the main suppliers of restaurants and bars.
So you are launching in Austin but your first customer is actually in Mexico. What’s your expansion plan? Where do you go next? The 80-20 rule applies for tequila, namely that the 80% of tequila consumption is by 20% of the United States, and these states are located in the Southwest: Texas, California, Arizona, Nevada and New Mexico. These are our ‘target market’ states in the US.
There are 3 cities that comprise our initial launch, they are Austin, San Antonio, and Las Vegas. The sales team just got back from a wonderful pre-sales trip to Vegas. We are in the process of getting letters of intent from the casinos there, including: Mandalay Bay, MGM, Mirage, and more. Things are heating up quickly!