Advice Line with Peter Rahal of RXBAR

25:31We've been growing a ton over the last three years. So it's been great to see that. Nice. So last year we just had our best year to date. We did 700 ,000 in revenue. Years before that we did around 345. And then the year before that we did about 37 ,000. what's your margin on 700 ,000 so blended it ends up probably being around like probably 33 percent um that's my part of my question is today is the you know 400 ,000 that was from amazon where our margins around like 21 percent 18 to 22 percent and then the rest of that was on shopify which is after um advertising efforts that goes down to around like 35 to 45 percent just you know based on returns and website costs and affiliates and all that stuff.

26:21All right. So not, not bad. Pretty good. Actually. Tell me what you're, before we bring Peter in, what's your question for us? So my question here is we've grown substantially through Amazon. I don't love Amazon because I feel like it's limiting me in a way when it comes to talking to my customer and being able to potentially upsell them to our other good products and get them on my YouTube channel to see our free workout programs. But I love Amazon for the ability to drive a ton of revenue, drive growth for the company, and obviously cheaper advertising costs compared to Instagram and Facebook.

26:53So my question is, at a certain point as a growing company, can you step away from Amazon and just focus on your own website so you don't have to compete with others on Amazon with their lower cost options? Awesome. Okay, let me bring Peter Rahal in. Peter, something right up your alley. I know you like to go to the gym. So he's got, you know, he's got Amazon, he's got Shopify. He's trying to figure out, right? Amazon, obviously great channel because it's Amazon, but the margins are lower. What are your thoughts, Peter? Yeah. So this is a common issue. We have it at David of how do these channels coexist?

27:32How do we optimize them? And Amazon's like a force of nature you can't avoid. So it should never be a question. Are we on Amazon or not? I think it should be, how do we optimize it? And I think you're right. You do want to have a direct website with relationships with your customers and offer different things. So, so one way to think about it is, all right, Amazon is like for volume, like, right. It's like your, your hero skews there. It's gotta be priced right. But like, how do you differentiate and how do you create value on your own website to bring customers there? So that could be through bundling.

28:07It could be through promotion. It could be through education. But I would look at it as like a product strategy across the different channels. But I just don't – Amazon's everything. It's such a powerful, powerful e-commerce platform. You want to lean into it, and you don't want to run away from it. Yeah, I guess my question for you, Eric, is why is it one or the other? I mean Amazon – yeah, I get it. They're squeezing you, and listen, it's a business, but it's also a great channel. On the other hand, I mean, I'm looking at your website here. You've got YouTube channel. You've got all these free exercise routines that you're offering.

28:43You know, you've got other products here that you're selling. So I guess my question is, can't you do both? Yeah, we've been doing both for the last three years. Part of it's come down to being able to keep up with the inventory. Like, you know, on Prime Day, we kind of just ran out of inventory. And one of the things has just been like trying to keep up inventory from a financing perspective, because I'm paying for everything up front before it we do build in China before it leaves China. And as of right now, we can only order around like 1000 to 2000 units at a time. And the lead time on that is about three to four months from like building it to getting it here.

29:24And the issue with Amazon is if you don't have enough inventory, you get charged fees. If you have too much inventory, you get charged fees. And then the return issue as well. And as of right now, I don't have enough, I think, inventory to potentially do both. Got it. Yeah. If you have inventory constraints, then you'd want to keep it on the more profitable channel. And yeah, and just you have to accept that people are going to be searching for your product on Amazon and just going to buy. You're not going to capture those sales. But it sounds like it's more of a cash flow working capital issue.

30:01I would focus on the profitable channel and building your platform. I would spend more of my resources and energy in building Eric as an influential person in fitness. And yeah, then you can create all the demand. Eric, this is a little bit, I mean, going back to this idea of what you are giving your customers or your fans, your potential customers for free. And I know that you're doing these videos. I want to see more of that. coming from you? Because I think that's when people see you as somebody who's a trusted voice, they're going to want to support your products. I just say this as a focus group one here, but I do spend money on some of these influencers who I feel are giving me really great free advice.

30:51And I have gone and purchased their courses or their products, and they've been really helpful. I agree with Guy. Okay. I really appreciate that. And also, Peter, I just want to say, I listened to the episode again and hearing about the dyslexia stuff and some of the speech issues. Myself, I went to speech therapy for about six to seven years as a kid. So it's pretty cool to see someone struggle with that as a kid to be so successful as you are now. So I appreciate the inspiration and talking about that. Thank you. Of course. Awesome. Eric, thanks so much for calling in. Squat Wedgies is the brand.

31:27Good luck, man. Great to meet you, Eric. Yeah. Squats are so healthy. It's such a great compound exercise. Yeah. Especially the full range of motion ones. Yeah. I love to squat. Yeah. And super important. Peter, you will start to discover this as you get closer to 50. That mobility is so key, man. It is like, it opens everything up. If you're stuck, if you're tight, I've spent the last year and a half just focusing on stretching in addition to the other exercises. And it just completely, it just opens all these doors. It's the best. I'm not there yet. Not there yet. You still have some grease in your joints and stuff.

32:08Okay. We're going to take another quick break, but we'll be right back with another caller. Stay with us. I'm Guy Raz, and you're listening to The Advice Line right here on How I Built This Lab.

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34:37Welcome back to the advice line on how I built this lab. I'm Guy Raz, and today I'm taking your calls with Peter Rahal, the co-founder of RxBar and founder of David Bars. Peter, let's get back into it and bring in another caller. Please tell us your name, where you're calling from, and a little bit about your business. Hello, I'm April Wachtel, and I am calling in from Brooklyn, New York. and I'm the founder of Cheeky Cocktails. It's a line of badass cocktail mixers for the home and bar that make labor-intensive cocktails a breeze. Welcome to the show. Thanks for calling in. Okay, so Cheeky, these are mixers, basically, like you add this to spirits and then you've got your drink.

35:17Exactly. These are professional-grade, so they're shelf-stable versions of what the pros use behind bars. And they're non-alcoholic, so they can be mixed with spirits, non-elk spirits, seltzer tea, water, et cetera. And I'm on your website now. Love the branding. Yeah. And so I see espresso syrup. So presumably for like an espresso martini. Exactly. You've got some agave syrup, simple syrup, cranberry, lemon juice. So basically, I mean, are you covering the whole gamut of sort of like 50 to 70 % of what people order at a bar? Yeah. So that's part of the problem. Got it. It's part of the opportunity and it's part of the problem and part of the question that I have for you, actually.

36:00Okay, we'll get your question in a sec. Tell me a little bit about how this started. How did you start this brand? Yeah. So my background, I basically grew up in bars and restaurants. And then I worked my way up over many years, came up through bartending, craft cocktail. And then I became a brand ambassador for Bacardi, consultant for Diageo, and a cocktail instructor. So I've taught over 12 ,000 students how to make cocktails. Wow. So you come to this with like deep experience. Yes. And you decided, when did you decide to start a business? Yeah. So I started tinkering with the first version in 2014.

36:34Ran a business for about four years, which I would consider to be a worse version of what we do now. So pulled that apart in 2019, put it back together in 2020, and then launched into March of 2020 into the first wave of COVID. Got it. And now you sell Cheeky Cocktails entirely direct to consumer online? No, it's about 25 % direct-to-consumer. We're in 1 ,300 accounts, primarily brick and mortar, across the country. But we're in four - and five-star hotels as well. Nice. And are you mainly in smaller stores or any larger chains? About half are small independent boutiques, independent liquor, specialty grocers.

37:11And then we're in Anthropologie, Nordstrom, HomeGoods on the chain side. Got it. All right. So tell us what your question is for us. Yeah. So there's a lot of ways that Cheeky is distinct from the competitors. But I struggle to encapsulate all of those ways. Because we are speaking to trade, we're speaking to consumers, and different people use us for different things. And I don't know if I just need to nail my messaging better, or if this is something that adds complexity and will prevent us from scaling as we try to hit the gas. What's your messaging now? Badass cocktail mixers for the home and bar.

37:48Bad-ass cocktail mixers for the home of bar. Yeah. I mean, it doesn't tell me anything. Right. So what is it that differentiates it from competitors? I mean, there are other brands out there that are mixer brands. So how do you, when you say it takes so long to explain it, what is it that's different? So there's many things. For the professional bartender, there are very specific ratios and recipes that are used when they make ingredients from scratch behind the bar. And commercial options that are shelf-stable on, you know, sold in retail, don't ever say that. We make our syrups to those specs so the professionals know what is in them and how sweet they are.

38:25And then the consumer is able to replicate those cocktails with certainty because we make the exact same products as the scratch ingredients. Got it. All right, Peter, I want to bring you in here. Messaging is a challenge. I don't know if that's the main challenge here, but what do you think? Like, I mean, again, badass cocktail mixtures doesn't tell me anything. It's fun, but it doesn't tell me anything. So, like, your positioning and communication is a reaction to the competitive landscape. It can never be done in isolation. Yeah, like, I think badass cocktails is, like, a fun thing, but it's not very telegraphic.

39:03It doesn't, like, really communicate. it. And at one, one of my, um, sort of design principles, it's a bit crude, but I think it's a very good approach to packaging design is like the consumers are stupid and lazy, uh, stupid in the sense that they don't really care that much. The brand is supposed to make it easy for them. And then lazy in the sense, they're not going to like look at your package and like read the third point and then flip it over and read the story. So, so question for you, if you're to boil down the value in a one statement? What is it? So this is part of where I'm getting hung up.

39:39So the packaging itself is really attractive. It's minimalist and it's premium. And so thank you. It looks like New York, Art Deco-ish, really cool. Love it. Thank you. So that, I think for the consumer, that is the first thing that catches their attention. It's relative to a very crowded, cluttered marketplace and competitive set. It pops out because there's a lot of white space. Like it's more relaxing to look at our packaging on shelf or if it's in your home bar or in a professional bar. So that's the first thing. The second thing is the ingredients quality is incredibly high and we don't use preservatives.

40:13We don't use natural or artificial flavorings. So it's really shelf stable versions of the ingredients that pros use. Where do you have the most success, like on premise or at home? So our focus this year is the on premise. So food service for sure. Yeah. Yeah. And is that because you're providing, you're making the bartender's job so much easier? Is that the value? I think it's a couple of things. One of which is if it's in a cocktail, yes, but if it's in a cocktail on a cocktail menu and it eliminates multiple steps, it improves consistency, you know, all of that fun stuff. Yeah. Then it's, of course, easy for them to use.

40:51Yeah. I always say like strategy is choosing what not to do. Yeah. So it sounds like your product's kind of working everywhere a little bit. Yeah. But it's probably one of those things where if you really were to focus on where the highest demand is, where people are like, oh my God, finally a product like this. Where they're not price sensitive, where they forgive you if there's a quality issue because the early adopters are there. No, you've identified the issue, which is I have been conflicted because it is working everywhere. And so choosing up until this year has been difficult. You know, I'm looking at, I keep thinking about this, you know, badass cocktail mixers.

41:29And I mean, I'm looking at your coffee mixer for the espresso martinis. And I noticed in the back, I'm looking at the label here on your site, you're using a very specific kind of premium coffee. You know, you're using really high quality ingredients. I mean, you even name the coffee. It reminds me a lot of the story we did on La Cologne a few years ago. And when they launched back in the day, you know, they were making a very, very premium coffee. And they started by working with really the best restaurants in Philadelphia and New York because when people tried it, it was just – it was different.

42:04It tasted better. But I feel like there's a way for you to convey that. You know, people use words like artisanal, which is overused or, you know, premium. But there's something around that idea that I think can really pop because the fact that you have sourced the coffee that you're using in your syrup mix is really interesting to me. And I think that would be interesting to a certain set of cocktail enthusiasts. Yeah, because that's not communicated. Yeah. So there's two things. The trade gets it immediately. Like we do zero explanation with the trade and immediately they're like, oh my God, I cannot, like this is amazing.

42:45With consumers, we used to call it bar quality syrups and juices. Then we said professional grade syrups and juices. So that was why we adapted it because the consumer reaction was like, like another premium product. And when we started saying badass, everyone just laughs. and that is more in the spirit of what of the reaction we want to get from people because it opens people up and then it's more of a fun conversation um versus just kind of groaning and saying oh yes yet another of these cheeky is like english humor right yes so yeah but so then badass is like american yeah so i find those two things that's that's our odds like yeah good brands have great tension but i don't think those tensions really work they're more confusing Mm hmm.

43:31It's a really, really interesting insight. I think that, you know, I mean, again, it's not the answer, but something like, you know, a mixers for for cocktail nerds, you know, some way to kind of convey that it's like you cannot get anything better than this. You know, like if you are if you're into like watches or you're into pens, right, there are people who are and there are a lot of people like that. They want the absolute best. And the good news is a lot of people who are really into making the absolute best cocktails. Yeah, I mean, it's a lot of food for thought, I think, because there's a lot of sort of exclusionary behavior associated with the highest quality craft cocktails.

44:17I'm trying to share a like a more approachable version and so that's the thing that we've been batting around for a number of years at this point is like how can you be super approachable and fun and light and also be very serious about what you do but but I I think the one of the other puzzles that's making this difficult is that you're talking to the bartender like on premise is a very different communication than to the consumer. And you're trying to do both. Right. And so like one strategy would be like, we're just going to dominate on premise. They get it. We can just align our communication to prioritize them.

44:55And then guess what? When you, if you do that really, really well, the word of mouth, they'll see it on premise. Like, oh my God, that cocktail was great. What was it? It's cheeky. So I kind of think you're just diluting yourself across those two different channels. And you know, it sounds like your DNA is on premise, you know it and they get it. So it's like Cholula is a good example. Like Cholula just popped up in every cafe all over America. And then next thing you know, you start to see them in grocery stores. Next thing you know. And so there has been a history of that sort of strategy. So I think this is a strategic question and then your positioning and messaging should align with that strategy.

45:35And then as you scale, it's a growth area. I think this is so interesting how like that was not my question, but you got to the actual question behind the question. April, good luck. The brand is called Cheeky Cocktails. Awesome. Congrats on what you built and we'll be cheering you on. Thank you. And thank you so much to both of you. This is such an honor and I'm such a huge fan of the show. So thanks so much. Cheers. Thank you. See you. Yeah, I mean, a product like this is particularly positioned well because obviously still lots of people drink alcohol, but a lot of people are moving away from it.

46:11As you know, Peter, right, in your space, I mean, a lot of people are just not drinking anymore, but they still want to have something. They want to have some kind of cocktail-like drink. Well, and the thing is you're seeing on-premise people prioritize non-alcoholic menus because it's a huge revenue grab basically because they can sell without the alcohol and charge$20,$15. Yeah, mocktails are super expensive or a lot of fancy restaurants are doing non-alcoholic pairings where they're making these concoctions. And they're just as – it's still$120 in some of these super high-end restaurants to get a non-alcoholic pairing.

46:46Peter, before I let you go, I want to ask you one question that I've been asking people to come on the show, which is, you know, now that you've got a new brand that you're building and you've got a chance to kind of do things in a different way, right, and not make the same mistakes you made in the first go around. But if you could go back to where you were in the early days of RX Bar now and say, hey, this is a piece of advice I'm going to give you, what do you think would have been helpful for you to hear? Yeah. Yeah. I was full of pride when I first started, meaning I was sensitive to criticisms.

47:20I was defensive. I was very proud of my baby. This product is my life. My product's not the problem. You're the problem. And so I would tell myself, removing yourself of pride is super important. And instead of being defensive on criticism, you should actually seek criticism. It's about finding what's wrong and fixing it. And so you just being super objective, pragmatic, and not emotional about your product and its position and is really, really prudent to be successful. It's great advice. That's our ex-bar co-founder and David Barr founder, Peter Rahal. Peter, thanks so much for coming on the show.

47:59Thank you, guys. That was amazing. And by the way, if you haven't heard Peter's original How I Built This episode, you've got to go back and check it out. We'll put a link to it in the podcast description. And here's one of my favorite moments from that interview. You got this idea. You have a plan. Did you think, yeah, let's go raise money? So that was actually our initial plan. And I remember Jared and I was talking about, who are we going to raise money from? I remember asking my dad, do you know any rich people I can connect me with who'd give us some money? And my dad was like, he's old school, It was like super traditional.

48:37And he's like, you need to shut the f*** up and sell a thousand bars. Thanks so much for listening to the show this week. Please make sure to check out my newsletter. You can sign up for it for free at GuyRoz.com. Each week, it's packed with tons of insights from entrepreneurs and my own observations and experiences interviewing some of the greatest entrepreneurs ever. And if you're working on a business and you'd like to be on this show, Send us a one-minute message that tells us about your business, the issues or questions you'd like help with, and hopefully we can help you with them. And make sure to tell us how to reach you.

49:15You can send us a voice memo at hibt at id.wondery.com or call us at 1-800-433-1298 and leave a message there. And we'll put all this in the podcast description as well. This episode was produced by Chris Messini with music composed by Ramtin Ereblui. It was edited by John Isabella and our audio engineer was Sina Lafredo. Our production team also includes Alex Chung, Casey Herman, Iman Ma 'ani, Elaine Coates, JC Howard, Catherine Seifer, Carrie Thompson, Sam Paulson, and Neva Grant. I'm Guy Raz, and you've been listening to The Advice Line right here on How I Built This Lab.

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