Espresso: How To Wipe Out Aperol Spritz This Winter (2x your revenue with half the volume)

0:00Quick one guys, Espressos have got a brand new sponsor, Unleashed. Unleashed is inventory management software that talks directly to your finance and ecom software. we use Unleashed daily at Ireland I bloody love it we've got our admin time in half saving approximately 30k a year why use it? save money, save headaches, save stress get granular clarity on your margins know where your stock is don't miss availability look, your favourite brands literally use Unleashed as their backbone Candy Kids, Tiny Rebel trip all these religiously look, there's a link in the show notes please feel free to book a call with Josh he's a wonderful sales team at Unleashed they're amazing even nothing comes of it and even better news you'll get your first month free if you reference hungry thank you it's really hard because there's no one thing whereas in like ops is quite specific so i think you know what i would say is you you learn like with anything like you know a lot of sales people go will tell you to be and you used to obviously be in sales right to be a good salesperson you have to be like out in store out in the field like that like that learning at grassroots like a bear we had amazing team sales team a lot of whom started in field sales a lot of whom are now like heads of sales within food and drink and that kind of grassroots learning is important in any function and in ops it's like factories and really understanding how you make something so it is about like being the type of founder who wants to like get their hands dirty and understands how the product's made and isn't just going to like a co-manufacturer and going can you make me a product what's the price because ultimately then when you come to negotiate or you come to do it yourself you don't have the knowledge so it'd be for me it'd be like get like get into the detail particularly if you're a founder and like you need to know everything about your product like yeah and it's it's a bit too easy maybe now to be a founder like you can find a lot of co-manufacturers that will kind of make you a product that you can then brand and then if you really dig into like okay how's that product made or why is it different you need to understand that but it's hard like supply chain and operations is just really simple it's highest possible service, lowest possible cost.

2:01So it's like focusing on those two things. What do you mean by that? So at Nestle, you know, the biggest food company in the world, it's great grounding, a world class supply chain. The two, that statement, highest possible service, lowest possible cost, is how you understand whether you're performing in supply chain. So it's like, if you really boil it down, what being a great operations or supply chain team is, is delivering 100 % or close to 100 % service. So availability, making sure you don't short customers at the lowest possible cost so it's like trying to understand how you make both those things happen is like what you and so so so best service what was the other one lowest possible cost and that so that's you that's that's how does that work so that's like you know understand the way you do that is by understanding i said how you make your products it's like if i want to make a laura and i need to be is that best possible service to the retailers yeah is that is that the manufacturer giving you the best possible service do you see what i'm saying well one one feeds the other right So it's like, yeah, but the measure of success is ultimately you need 100 % service out to your customers, whether they be retailers or D2C customers or whatever, at the lowest possible cost.

3:05So you can have really high service, but it might cost you the world because you're doing tiny runs and you're having to balancing those two and having. And that's what the big guys, why the big guys like Nestle and P &G are so good at what they do, because they have the ability to produce products for a relatively low price and make them available everywhere. And that is basically operations, right? it's um it's fascinating so i was listening to a uh was it a podcast anyway i was listening to something i don't know where i got it from but it's almost this difference between an operator and a founder so i think some founders uh are the the sort of the archetype is the happy-go-lucky kind of create something with a weight behind them but then there's people who I've who and it's just when you you hear people people like a Giles and Mark um Mark Palmer William Kendall yeah when their names are kind of echoed around is the the net the thing that laps onto them they don't know people don't sell he they're a great founder they go he's a serious operator or she's a serious operator and I think what that it's almost that uh Champions League founder if you want to call it that's probably really wanky way of saying it but it's someone who gets both sides because, you know, I'm definitely not one of these people.

4:23Like, I've got the idea of supply chain. I mean, even this just fucking stresses me out. Yeah. I just sit down and record a conversation. I do think big business, like, helps there sometimes. Not as a, but, like, if you take Giles, I think he started his career at United Biscuits and then Coke, then went to Innocent. Yeah. He was actually one of the, you know, he helped, he was my final interviewer there. And I remember him laying down the gauntlet to me a bit. He was like, oh, you're obviously a bit of a hot shot on Nestle. What are you going to do if you tell them you're leaving to join this little startup and they offer you loads more money?

4:57And he was like, you need to make the jump. Like I made the jump from Coke to Innocent. So he, for me, was kind of like, okay, I've seen someone that's gone from Coca-Cola and United Biscuits to Innocent and then obviously Vita Coco Bear and now Sint to all the other stuff he's done. But I think you become, often can become, it's not the only way, but you can become like an operator in your words by experiencing big companies and small companies. And I think that's what makes it easier. It's not the only way. You can definitely be a great one. So we talked about like the fast service and what was the other one?

5:27Lowest possible cost. Yeah, sorry. I think this is kicking in. Fast service, lowest possible cost. Is there anything else that you think are founders listening to this who are kind of on the black side of the yin, if you want to call it that? so it's um far service low as possible cost is there anything else with that operator um mindset that they should be thinking about or becoming like equipping their knowledge become more privy to yeah i mean it's it's broader than i suppose just operations but i think actually giles talked about this on my check that mate i'm listening go for it might have been on your podcast or another one but like and he he drilled this into us at bear and i think you know this makes a lot of sense like gross margin is and like a path to gross margin is like yes so important like so you don't have to be there from day one but there's no point launching a brand if you can never make it for a price for a cost that allows you to make 50 gross margin or 45 gross margin and it's all too common now that i think you see people launching a brand really cool brand in a challenger category but ultimately they're making like 20 % or 25 % gross margin and they're never going to be able to get it to a place where they can be competitive at the right price point at say 40 % plus and if you're not a 40 % plus gross margin you can't invest in marketing people like promotions customer I mean very simply 40 % gross margin if 10 % goes on salaries you're down to 30 if 10 to 15 goes on customer investment and promos you're down from 30 to 15 and then you've got marketing and then you're basically losing money and that's like unless you can get to that point there's almost no point in launching a brand.

7:16Giles talks about uh true gross margin so we did the podcast has gone live with the one the short I did like a 45 minute one with him at Berlin Jam yeah but then we actually came here and we did like a two-hour one which was sick because it was like i like to go long form but he was basically saying that and it's kind of true you can fool fool yourselves by not putting by but kind of being clever with the pnl where you can put like the amazon costs don't go under he's like true margin is this it's like i think his definition wasn't it's like less promotions less media spend less logistics less logistics yeah less all those weird things you could like the the benign well benign but precarious amazon costs yeah all of that goes in and then if you've got 40 % then you've you've got a fighting chance of um of having a brand what um and as you I I'm very scatty with this so we kind of will jump around but um with with with this I want to talk about the margins on this not like you don't have to tell me exact numbers but um how are you like you said the path to 40 % gross margin like how are you going on that path so yeah so you don't have to say no no maybe write down what the margins are yeah it's a good one to dig into because for us this is where i think we've got a big advantage because this product is so it's 100 natural like i said using real lemons from proccedure the leaves from the lemon tree a recycled glass bottle that replicates the texture of a lemon skin like as soon as you explain that to people that know what they're doing in the industry someone i was talking to who's one of our investors like sounds expensive like and like with their eyes going fuck like how are you going to make this a viable commercial product i get so binned on those and so and so on paper we should be way more expensive than say aperol which as much as i admire them let's be honest it's in inverted commas the secret recipe it's basically full of artificial colors flavors cheap bottle cheap label it's like a relatively cheap product to make uh and the reason that we're able to compete on gross margin and on price is because we challenged the norm when we looked at creating the product in the category so we initially started developing it like i said as a limoncello spritz and what we did is we made the mistake everyone else makes which is follow the norm and started playing with recipes that include prosecco so if you take aperol spritz and campari spritz which basically are like 98 of the category if you take like spritzes or aperitivo they're perfect serves both of them are three parts prosecco two parts aperol or campari one part soda so which is a bit mental when you think about it so for every aperol spritz sold they're selling more prosecco than they're selling aperol so for every pound aperol spend on marketing they're selling more prosecco of an unnamed prosecco brand than they're selling of their own liquid for bar staff it means they've got three two one okay it's not that complicated but it's also not that simple how many times have you had a badly made Aperol spritz where there's too much soda or there's not enough Aperol or too much Prosecco who makes Aperol spritz at home other than a party um for me the Prosecco is the biggest barrier to consumption of Aperol spritz at home because on a Friday night you don't open a bottle of Prosecco to have one Aperol spritz.

10:40Like you have to, if you want to have one Aperol spritz on a Friday night on your own as an aperitivo, aperitivo literally means opening of the evening. So if you want to open the evening or the weekend at five o 'clock by having one Aperol spritz, you've got to have a whole bottle of Prosecco in the fridge. You then pour out one-tenth of a bottle. The rest either goes flat or you have to drink 10. So for me, I mean, most people have drunk a lot of Aperol spritzes, but probably 99 % of the Aperol spritzes they've drunk have been in the entree. versus most of the other alcoholic beverages or categories where it's like okay you drink beer wine gin in the entree but also at home so for us we looked at it we were like okay i bet you aperon campari looking at it going damn like the fact that we give basically half our like revenue away to prosecco is a big problem but if we could have our day again and reformulate we would make the apero spritz so that it doesn't need prosecco but you can't do it now because it's too late yeah and so if you take it from a cogs perspective from like a operator cogs so take like a pub yeah say like young's pubs as an example yeah their cost of goods for an Aperol spritz probably anywhere between cost them maybe£1.60 to£1.70 to like make an Aperol spritz 51 % of that is Aperol 2 % is soda and 47 % is Prosecco and so half the revenue for every Aperol spritz sold, Aperol getting half the revenue of that spritz.

12:07So we knew that if we could develop a liquid that had the body, the ABV, like the complexity that meant you can just mix it with soda to create a spritz, A, we could capture 95 % of the revenue of every spritz versus Aperol's 51. B, we can make it much simpler for operators to make our service literally 50-50. So you can eye it, you don't even need to measure it out, much more like making a gin and tonic. c it would be massively conducive like to that at home consumption like for me like i said big opportunity there where at no one drinks aparol spritz at home but with allura spritz it's like you just super easy you saw fucking clever yeah so we just we just challenged the norm we're like okay well why does it have to have prosecco and so one of the things i think that stood us in and allowed us to make a really fast start is that we're producing a product that if we were in another category so if we were like i don't know if you take you mentioned like plant milk so if you take a rude health or uh even oatly versus maybe your like own brand or your outpro like everybody accepts that you have to pay 20 or 30 more for rude health or for oatly or for that brand that is seen as more premium because they use better ingredients or they've got bigger marketing budgets whatever our product is at least twice as expensive to make as as aperol but we're the same price in a bar as an Aperol spritz because of the fact we don't need Prosecco.

13:32So wait, so you're twice as expensive as Aperol in a bar, but you're the same price? No, no, this product, I guess, I don't know what it costs to make Aperol, but I'm telling you, this is probably more than twice as expensive to make at a per unit level, this liquid and this bottle. But because the serve is 95 % of the cost is Allura and 5 % is soda versus Aperol is 51, we're making a huge saving because operators are making a huge saving because they don't have to add Prosecco. So it will still cost a Young's£1.60 to make an Allura Spritz. Therefore, they can sell it at the same price as they sell Aperol without sacrificing margin.

14:10But most of that revenue goes to us, not to Prosecco. Right, OK. So we're closing the gap. So from the pub's perspective, it's still£1.60,£1.60. Yeah, so it will still cost them the same, which means as a consumer, it's not going to cost you any more. so we don't have to make that jump of like we have we'd have to trade consumers up to be like here's the better product that you should pay 20 more than Aperol for yeah and so we're able to produce from the start a much a far superior product but because more's going in your your because sorry because there's no Prosecco going in and there's more going in of yours you're one capturing that margin two you're probably going to get through the liquid faster because what was going into it?

14:52And so we have to sell almost half the number of units to match Aperol's revenue. That's so clever. So if we sell half the number of Allura spritzes as Aperol sold, Aperol spritzes, we'll be at the same brand value. That's wild, yeah. And like you said, we, you know, and it's much better for customers because a bar doesn't want three SKUs going into one. They want Allura and soda from the gun or Allura and tonic. They don't want to have to open a bottle of Prosecco. And it's also way, way better for our wholesalers Because if you think within on trade, wholesalers are often segregated between.

15:25So a lot of pubs will buy their spirits from one wholesaler, their wines from another, for example. And so for a wholesaler selling Aperol, it's like, OK, you might not be the one selling the Prosecco. So you're pushing a brand where actually half the revenue from the Spritz sold is not going to you. So it gives wholesalers an added incentive to sell a Laura versus Aperol, basically.

15:53thank you so so much for listening it honestly means the world to me i hope you enjoyed your morning coffee and go and have an amazing day let's be having ya if you want the full episode it will be in the show notes a link will be in the show notes the full episode thank you so much please leave friends as well it means the world to me