While extensive experience in the alcohol industry can be advantageous for launching a new brand, some of the most disruptive and game-changing brands have emerged from founders with little to no prior industry experience.
So how have these entrepreneurial newcomers managed to achieve success despite being industry outsiders? The Park Street Insider Podcast has hosted many successful founders, offering insights into how they educated themselves and navigated the complex world of alcohol branding and regulations.
Do Your Research and Hire a Good Attorney
In 2019, the founders of 21 Seeds tequila identified an untapped market opportunity for a premium, female-centric flavored tequila. Capitalizing on flavor innovation, a health-conscious ethos, and aspirational messaging, the brand quickly resonated with its target consumers. Just three years after launch, 21 Seeds was acquired by Diageo in 2022.
The US alcohol industry is highly regulated and complex, so a good alcohol attorney will educate you on the basics you need to know starting out. “We had so many questions and we wrote them all down ahead of time because we did not want to waste one single minute and pay for one extra minute of her time,” said Hantas.
After hiring an attorney, Hantas says the 21 Seeds team spoke to anyone and everyone they knew with some familiarity with the alcohol industry, including retailer, restauranteurs, packaging etc., to ask questions. “We read everything we could read. I mean it was like we did a masterclass in spirits. Like we learned everything we could learn in a very short amount of time. But we were so excited by what we were doing that we were up all night doing it.”
What were they using? “You can learn everything that you need to learn on YouTube and Google, including the very first GSM I ever did. I had no idea how to do that. I was like, what do you even present? And I Googled general sales meeting in spirits and sure enough, up pops a GSM. And so that was how I figured out how to outline my GSMs.”
Buzzballz an early leader in the current ready-to-drink category, provides another example of an outsider-turned-insider success story. Launched in 2009, Buzzballz has since grown into a leader in the RTD category, selling over 1 million cases in 2023. As a result, Sazerac acquired the brand in 2024.
When Buzzballz founder Merrilee Kick, a high-school teacher from Texas, decided to create her brand, she had to build her knowledge base from the ground up. “I got into it by just Googling and researching how to build an alcoholic beverage. I didn’t know what I was doing,” said Kick. “Honestly, I was just fiddling around trying to find a way to make some money.”
Kick’s fact-finding mission eventually led her to the TTB’s Beverage Alcohol Manuel (BAM), where she was able to answer key questions and formulate a plan. The BAM “basically goes through the rules and regulations on eting and advertising alcoholic beverages. So, what are the standards of fill? How much headspace can you have? What kinds of things are required to be on the label? What kinds of things can you put on a formula? How do you get a formula?
Hard work and attention to detail paid off for Kick who was able to navigate the TTB’s initial processes. “I was probably one of the fastest people to get a basic permit with a TTB. I ended up from start to finish taking only six months to get a basic permit, but you have to get your basic permit before you can get your winery permit or your distillery permit or your malt permit. So you have to start with a basic permit and I got my distillery and my winery and my basic permit in six months.”
Listen to the full episode here:
Find Paths to Connect With Industry Members
Ten To One Rum has grown significantly and helped bring new consumers into the rum category. The brand partnered with award-winning singer Ciara who became a co-owner of the brand in 2021. In 2022 the Diageo-backed brand incubator, Pronghorn, bought into the Caribbean-based brand, followed by a $1 million investment through private equity first InvestBev.
Marc Farrell, founder of Ten To One Rum and former Starbucks executive, initially drew upon his experiences as an engaged consumer to formulate his premium Caribbean rum brand’s distinctive flavor profile.
“I spent countless hours at rum bars, sampling products and soliciting feedback from knowledgeable bartenders,” he recalls. “I remember going to Rumba which is in Seattle, very famous rum bar, and spent a lot of time in there trying different products, different SKUs, talking to the bartenders about what they liked and didn’t. Then going through it on our side with some trial and error and the creation of our blends.”
Farrell was keen to distinguish between necessary learning that’s done for product development and the knowledge needed to run the business side of things. He also sought out industry members with deep industry credentials to help inform his decisions.
In the years following the pandemic, the alcohol industry went through a reset period that was felt across several industry verticals, most notably in 2023. Despite an uncertain market landscape for 2024, signs of optimism within the spirits industry are evident, according to Circana’s State of the CPG Beverage Alcohol Industry report.
Between 2019 and 2023, the average inflation rate across all food and beverage departments was 32.2%. However, liquor has experienced a much lower inflation rate than other categories, reaching only 14%.
Average Alcohol Basket Size Up in 2023
On a channel basis, there have been apparent shifts in where, when, and how beverage alcohol categories are purchased. Across all outlets, alcohol has the second-highest average spend ($79.9) for the food & beverage category, behind only Frozen Food ($87.1)
Average Alcohol Basket Sizes by Channel
Club Stores – $165
Grocery Stores – $81
Mass/Supercenters – $73
Drug stores $33
Dollar stores – $31
The average dollar value of each basket increased by about $1 across nearly all off-premise retail channels in 2023. Grocery, drug store, club membership, and dollar store increased their average in-basket value per trip, while Mass/Supercenter was the only channel to decrease average basket size. At an average basket size of $165.2, club stores saw the greatest increase in basket size as consumers looked for bargains in bulk.
However, in-store display counts for alcohol decreased in 2023 compared to other product departments. The average number of alcohol displays per store was 8.1 for the 52 weeks ending in Q3 of 2023, a loss of 0.9 displays compared to the previous year. The reduction occurred most notably in the premixed cocktails, beer, and cider categories. Circana identifies this trend as an opportunity to boost pre-shop engagement on store apps and social channels.
E-Commerce Alcohol Sales Up 8% in 2023
Alcohol e-commerce sales rose by 16% between 2020 and 2023, reaching $977 million in 2023, eleven times greater than its 2018 sum of $85 million. The total share of beverage alcohol sales done through e-commerce is still relatively small, but it has been increasing, reaching 4.3% for the 52 weeks ending January 28th, 2024. Beverage alcohol’s e-commerce contributions to multi-channel sales outpaced every other CPG department, more than doubling the rates offered by general food and beverages.
Ready-to-Drink Reached $10.3 Billion in 2023
The rise of the ready-to-drink segment has been hard to miss, but a deeper look at the 2023 analytics reveals that preferences are shifting within the category.
Between 2018 and 2020, the ready-to-drink category jumped $4.8 billion in value, driven mainly by hard seltzers, which grew by $3.7 billion over the same period. The hard seltzer segment peaked in 2021, reaching a total value of $5 billion. However, consumer preferences have shifted away from hard seltzers since, losing share to crossover product innovation and spirits-based RTDs. In 2023, hard seltzers fell to a value of $4.3 billion.
Despite the shrinking of the hard seltzer segment, the overall RTD category has grown yearly since 2018, reaching $10.3 billion in value in 2023. This growth has, however, softened in the last couple of years. The $1.1 billion in value added to the ready-to-drink category in one year between 2020 and 2021 has turned into just $1 billion in the last two years between 2021 and 2023.
Beverage brands and companies not traditionally linked with beverage alcohol have shaped many consumer sales since 2020, with many new crossover innovation products hitting the market. Coca-Cola and Monster Energy leveraged a number of their brands into crossovers with alcohol companies to introduce new products like Topo Chico Hard Seltzer and Jack Daniels & Coca-Cola. It’s a move that aligns well with current consumer preferences for various flavors and an inclination to drink across product types. The crossover product segment grew 435% between 2021 and 2023 to reach $600 million in value.
RTD cocktails are also finding a niche with LDA Gen-Z members in the current climate. Strong sales for RTD cocktails within this segment are due to their preference for higher ABV offerings and unique packaging formats, which have applications across various occasions.
The Top RTD Cocktail Brands Among Gen-Z Drinkers
BuzzBallz
Beatbox
Liqs
Crown Royal & Whiskey Cola
Monaco Cocktails
Jack Daniel’s & Coca-Cola
As we move through 2024, the landscape of the alcohol industry reflects a period of adaptation and evolution following the disruptions caused by the pandemic. While challenges persist, particularly amidst an uncertain market environment, the latest insights from Circana’s State of the CPG Beverage Alcohol Industry report reveal promising signs of resilience and innovation within the spirits sector. As beverage brands continue to navigate this dynamic landscape, fueled by consumer demand for variety and convenience.
Sazerac has reached a deal to acquire Texas-based ready-to-drink alcohol brand Buzzballz, according to a statement from both companies. Buzzballz was founded by Merilee Kick in 2009 and today is one of the fastest-growing Ready-to-drink brands in the world, operating across all 50 US states and 27 countries.
“Merrilee and the team at BuzzBallz have created incredible brands and we are both honored & excited to partner together to take them to the next level,” said Sazerac CEO and President, Jake Wenz. “Merrilee’s creativity, commitment to quality, and drive is inspiring. BuzzBallz is truly one-of-a-kind and we can’t wait to help spread the products to more consumers all over the world.”
RTDs are one of the hottest categories in the US market going into 2024. The category is approaching $11 billion in off-premise sales and makes up almost 12% of total alcohol dollar sales according to Nielsen IQ.
Buzzballs are an easily portable mixed drink in an innovative ball-shaped package. The BuzzBallz portfolio includes ready-to-drink beverages like BIGGIES, Uptown Cocktails, Sip Sip Hooray, and Texas Craft, along with other brands. Buzzballz flavors include products such as Choc Tease, Strawberry Rita, Watermelon Smash, Cran Blaster, Forbidden Apple, Tequila Rita, Horchata, Lotta Colada, Peachballz, Hazelnut Latte, Chili Mango, Pineapple Colada, Cookie Nookie, Pineapple Jalapeno, Eggnog, Espresso Martini, Peach Chiller, Choco Chiller, among many others.
Merrilee Kick, CEO of BuzzBallz said: “As a trailblazer in the ready-to-drink space, we have received many inquiries to acquire the company, however, Sazerac matched our innovative culture and spirit best. They are a partner we can continue to grow with internationally, as well as expand our existing distribution footprint in the USA. We are excited about our future growth opportunities from the synergies we will create together.”
Financial details of the deal were not disclosed but Kick will stay on as CEO to continue the success of BuzzBallz, according to the release.
Hear more from Merrilee Kick during our recent interview on the Park Street Insider Podcast:
Beverage-alcohol consumption habits for younger consumers are undergoing a rate of change much steeper than what industry members have seen in decades past. As values and priorities for Millennial and Gen-Z consumers shift, drinking habits are taking a new form. The result is a need for industry members, brands, and entrepreneurs to understand these demographics, which are claiming increased purchasing power, and meet them where they are.
Park Street University has compiled the latest data and trends in order to compare the beverage habits, practices, and preferences of the Millennial and Gen-Z consumer sets.
One of the most striking macro shifts we’re seeing is a broad reduction in alcohol consumption among younger consumers, with only 62% under the age of 35 identifying as alcohol imbibers compared to 72% a decade ago, according to a recent Gallup Poll.
Millennials tend to drink more alcohol than Gen-Z in general, reporting higher consumption than Gen-Z in all categories except for non-alcoholic cocktails.
Key Drivers of Purchase Decisions
Flavor-Forward Options
Park Street University has long reported on the importance of flavor innovation for brands. A brief look at the beverage-alcohol M&A sector in Park Street’s 2021, 2022, and 2023 reports will reveal that investments in spirits brands are consistently made in brands that prioritize flavor.
Strategic acquirers are investing in flavor with an eye to the future, with the importance of this principle to Millennial and Gen-Z drinkers reiterated by a recent study conducted by Business of Drinks. Of the 1,300 respondents surveyed across the U.S. flavor was consistently cited among their most desired attributes. 80% of millennials confirmed that flavor was either extremely or very important in deciding which beverages to buy, with 75% of Gen-Z agreeing to the same proposition. Flavor even beat out factors like health and eco-friendliness when it comes to desired drink attributes.
When the Gen-Z demographic was asked about their disillusion with the wine segment, a lack of delivery in the flavor department was cited among the prime examples.
Occasion-Based Purchases
One of the most significant differences between Millennials and Gen-Z is how these segments relate to consumption occasions. Millennials were found to be far more likely to pair certain drink categories to specific occasions. Meanwhile, Gen-Z remains far more flexible with this principle, showing a willingness to abandon such conventions and adopt a free-for-all attitude when it comes to pairing drink categories with certain occasions. Gen-Z tend to be comfortable taking soft drinks to dinner while ordering canned cocktails at restaurants. Millennials take a more traditional approach: ordering craft beers at bars, mainstream beers at sporting events, and pairing wine with dinner.
RTDs and canned cocktails have, by far, the most flexible perception of any beverage-alcohol category when it comes to occasions. Nearly 41% of Gen-Z agreed RTDs/canned cocktails are good for different occasions while almost 33% of Millennials thought the same. Soft drinks were also rated similarly high by both generations as occasion flexible, with 36% of each segment agreeing.
More than any other category Millennials identify spirits as an indulgent treat, with 36% agreeing. Wine was perceived as the group’s next most indulgent category at 31%. This aligns with a well-established willingness for consumers to spend on high-quality cocktails when visiting the on-premise. 47% of Millennials see bars as their favorite occasion for spirits use, while 48% like to drink spirits as a relaxing at home. Even this far removed from the start of the pandemic, spirits brands would still do well to emphasize the category’s at-home applications.
Meanwhile, spirits have a perceived flexibility for Gen-Z when it comes to occasions. For all of the survey’s ten listed occasions, at least 26% of the demographic claimed they would drink spirits there.
Around six in ten survey respondents said that price was either “extremely” or “very important” to them. With Millennials accumulating wealth at a slower rate than older generations and Gen-Z not yet reaching their peak earning years, the importance of this factor can come as no surprise.
On a category basis, beer brands and hard seltzers are perceived as the most value-friendly options for both Millenials and Gen-Z. Around 30% of these two demographics cited beer and hard seltzers as the best value for money. For spirits, 27% of Millennials think the category is good value compared to 22% for Gen-Z. The largest disparity between perceived value for the two segments was in craft beer with only 16% of Gen-Z seeing it as good value compared to almost 25% of Millennials.
Convenience and Availability
The survey also found that the most preferred drinks are the ones that are easiest to find. Ease of purchase came in as the second most important determinant of what drinks people would buy, with 70% of Millennials saying this factor was extremely or very important and 64% of Gen-Z respondents saying the same.
Availability looms large for younger consumers, partially because of their ever-increasing inclinations towards convenience. As a result, big beverage companies with ample shelf space will have the largest influence on shaping drink preferences in the coming years.
By category, RTDs and canned cocktails are the most purchased by modern consumers because of their high availability. 41% of Millennials and 39% of Gen-Z see the category as easy to find and buy.
Recommendations From Friends and Family
There is also a clear social dimension informing how Gen-Z selects products and categories. Both Gen-Z and Millennials are most likely to be influenced based on friend and family recommendations as opposed to apps or social media, especially when it comes to wine. Here, 50% of Millennials look to their friends and family for recommendations while Gen-Z reached 46% for the same metric.
Takeaways from the report can be boiled into a key idea about younger drinkers: they are looking for flavor at value prices and are much more likely to try something if their friends are trying it too.
In 2020 and 2021, there was a flurry of M&A activity in the spirits category, resulting from the category’s consistently increasing market share over the last decade and the low-interest rate environment. Strategic acquirers made up the bulk of these deals with four that crossed the billion-dollar mark in that period.
“People became at-home bartenders and what that really drove was, realizing the markup on cocktails was so significant, them buying higher-end premium liquor. So for a lot of the larger suppliers, if they didn’t have a brand that was in that price category it became pretty attractive for them,” said Kevin O’Brien during a recent Park Street University hosted panel during the American Craft Spirits Association convention.
“If you had a product that was in bottles or cans positioned in retail or off-premise you had a boost when the on-premise shut down. This drove a lot of innovation and new brand launches and subsequently drove investments due to the changing retail landscape,” added Ryan Lake, Managing Director of Arlington Capital Advisors
In 2022, beverage-alcohol M&A kept pace and performed relatively well in a year that saw the broader M&A sectors undergo a decline. It was a period that brought investments from non-traditional beverage players like Coca-Cola and Monster Beverage, as well as a number of private equity firms.
But 2023 saw a clear shift in the M&A environment, with some of the large trend swings brought on by COVID-19 beginning to moderate and the industry entering a difficult inflationary environment with high interest rates; the result of which was that funding was often hard to come by.
“Consumers were cutting back on discretionary spending and [2023] was a perfect storm from a finance perspective. For industry folks, a lot of people were saying ‘Well we have to figure out internally what’s going on.’ If your sales are slowing down as a larger supplier, you’re not going to get the board’s approval for an acquisition unless it’s really necessary,” O’Brien reflected.
The downturn in 2023 was also in part due to the boom from the previous two years. Strategics which made a number of significant acquisitions in 2021 and 2022 needed time to digest and fully integrate them.
A Case Study in Investment/Divestment
Jason Barrett made the case that strategic acquirers are now also evaluating case volumes differently. “The case volume for brands where they (investors) want to do those acquisitions is rising. I think if you go back for five years there was a thought that a 30,000 or 40,000 case brand could be integrated successfully on a nationwide platform and now it’s really starting to sound like that number is above 100,000 cases per year.”
Barrett also shed some insight on Black Button’s minority share acquisition by Constellation Brands and its subsequent divestment. He echoed that the deal was largely relationship-driven, with the brand having had a previous relationship with Constellation in a city where the companies were both headquartered. Black Button produced a product that made up 75% of their overall sales and regionally outsold another product in the same category owned by a major competitor of Constellation, making it an attractive grab for the supplier.
On the divestment side, Barrett explained how shifting executive roles within Constellation and a key realignment with the strategic’s major distributors meant that the supplier’s core strategy ultimately shifted away from Black Button. Jason ended up reacquiring his shares in the company in 2023 as a part of a recent trend of seeing founders buy back their companies from large suppliers.
What does this mean for independent brands positioning for a sale or investment? For founders looking at this landscape, striking the right balance between long-term growth and short-term profitability is critical. “Growth is something that most folks want to see happen, but it’s not growth at all costs,” said O’Brien.
Many brands begin engaging in M&A conversations before they have the KPIs in place to sustain interest from acquirers.
One of the key performance indicators that acquirers want to see a brand have in place is strong velocity. Their focus is often the pull-off-the-shelf. Having a product that is frequently ordered, is a better positive indicator than high placement rates and a presence in multiple markets
“Something we told people even before 2023 was to go deep not wide. In this environment now, boots on the ground, distributors are mostly moving boxes, not really selling for you. So not having the ability to fund salespeople in those markets makes it really challenging,” noted O’Brien.
O’Brien wants brands to take a hyper-specific approach, focusing resources behind a few high-performing SKUs as opposed to casting a wide net of trying to appeal to many demographics with many products. “You should focus on what you do well,” he said.
Lake added that investors are often buying brands based on their potential to leverage geographic whitespace or markets that the brand doesn’t presently exist in, but have a high potential for future traction.
Current Market & Beyond
So what categories are driving M&A investments in 2024? Lake reiterated the importance of RTDs to investors and the weight they carry on the market. “Spirits as a macro category is the place to be right now and there are subcategories within that. In general, people still want whiskey, tequila, and cognac, despite the latter two having their own issues.”
There seems to be a great variety of types of deals coming down the M&A pipeline. Companies that traditionally cater to beer and wine have started to branch out and look for opportunities within spirits. Spirits-based RTDs are bringing beer companies into traditional spirits.
Speaking on the road ahead, O’Brien noted that he thought “when you look to 2024 and beyond you’ll have a diversification of the buyer pool. There are wine companies that we’re very close with that are saying ‘Are we missing the boat here?’ because there are a lot of synergies that we can do (in spirits).”
O’Brien raised the idea that Molson Coors making a play into the spirits category, snapping up Blue Run Spirits in 2023, might not be an isolated incident. “These companies are trying to be proactive and meet consumers where they are. This blurring of the lines, I don’t see that stopping any time soon.”
