Why a Retail-First Approach Worked for this Booze-Free Brand

0:00With Spirited Away, my focus was solving a problem that I knew I could solve before scaling and taking on bigger problems. Hey, what's going on? I'm Benjamin Gottlieb, and you are listening to Shopify Masters, your companion for starting and building a business. Ah, yes, it's the new year, a time for change, for reflection, and of course, those cliche New Year's resolutions. I'm going to the gym this year, I promise, five days a week, or I'm not eating sweets. Does that sound familiar? For Douglas Waters, that has turned into a pretty common business idea, taking alcohol out of your daily routine.

0:44Back in 2020, he opened a booze-free bottle shop in New York City. It's called Spirited Away. You can think of it like a wine store, but for non-alcoholic beer, wine, and spirits. And he's here today to tell you why he went brick and mortar first before e-commerce and what to look for when setting up a physical space. Douglas, how's it going? Great, Ben. Thanks for having me on the program. Well, it's really a pleasure to have you. Thank you so much for doing this. Douglas is joining us from Taipei today, so thank you for making the time. You know, a lot of the Shopify founders that we speak to actually start online first, right?

1:20And then they move into a retail location. Why was it important to you to sign a lease first? The problem I was solving with Spirited Away was one of access to non-alcoholic drinks. So to give you a little bit of background, I've always enjoyed making drinks for family and friends. I've always enjoyed the role that drinks play in facilitating conversation and camaraderie. And I've always enjoyed being that person who can make drinks for a group of people to have that effect. How do we have the camaraderie and the revelry and the fun without the alcohol? And I began to explore this new emerging space of second wave non-alc drinks, the Seedlips and Ken Euphorix of the world.

2:09And I found that I simply couldn't buy them where I lived. In 2020, if you wanted to buy non-alc drinks in New York, you had to either make them yourself, which I'm not someone who has the experience to make my own drinks. Or you could order them directly from the manufacturer. And the experience that I wanted was that of going to a neighborhood bottle shop and browsing a curated selection like we do with so many other things when we live in cities and enjoy neighborhood shops. And I just felt that beverage, like grocery, is a category that lends itself to in-person shopping. It's not a category that lends itself to direct-to-consumer, despite the fact that you can purchase these beverages online.

3:03That's interesting, and it makes sense, right? You go to maybe your local liquor store. You're going to the supermarket. You kind of cruise through the wine aisle. It's like, oh, this is the yellow tag on sale. This is so-and-so Trader Joe's's recommendation. there is this element of kind of not knowing exactly what you want when you go into a space. But I am curious in this space in particular, how did you know there was a large enough clientele for something like this? I really didn't. There was no, I did, I did no market research, no surveying, nothing like that. I had a conviction that I probably was not alone in wanting to have this type of shop that could curate great non-alcoholic drinks.

3:48And that conviction was based on the fact that so many new brands in this category were coming into existence. So if Seedlip was launching a non-alcoholic spirit, if Kinuforix and Athletic and these other brands were launching nationwide, that was a pretty good indication for me that there was indeed robust consumer demand and that that could be applied to a brick-and-mortar retail store. The store itself, correct me if I'm wrong, but the store itself is in the Manhattan area near the Bowery, kind of near our New York office for Shopify. And since 2020, of course, things have changed a lot, not just in society, but in business as well.

4:34How has the store been doing and when did you decide, hey, you know what, this is not just a physical space, it's also something that I can sell online? Yeah, it's evolved over time. We started on Ludlow Street on the Lower East Side. And part of that was I was looking for the least expensive, smallest storefront I could possibly find. I was bootstrapping the business and just trying to get a space and test the idea and see if I can make it work. And then we've upgraded to a bigger, longer term space since then. But the original space was just the cheapest thing I could find. And the business has really grown and developed to support that larger space over time.

5:16There's a cycle throughout the year. We're in dry January right now. And dry January is a part of the year when a lot of people, I think, get permission from society to try going dry for a month. And they feel great during that month. And a lot of the people who try not drinking for the month of January become regular customers thereafter. It seems like we bring new people into the fold every year during these holiday periods like dry January, sober October, et cetera. But it's very much a year-round phenomenon with our regulars. You mentioned that when you were looking for a retail space, you wanted the cheapest, smallest spot that you could afford in New York City, right?

6:03In Manhattan. And it's not easy to do. Can you walk us through how you actually found the place and when you knew it was the right spot for you to open your first store? This was a very different time than it was in 2020. A couple of things were going on. Obviously, it was the start of the COVID pandemic. And that was beneficial for me in a couple of ways, just in that it kind of flipped everything open a little bit. it put a lot of retail stores out of business and there was a lot of, of course, vacant space on the market. So I had a lot of spaces from which to choose. I see. And I also had the benefit of finding a space where the owner was willing to take a chance on someone with no experience and no proven plan for making it a profitable business because he had no better option.

6:58So No better option. So kind of right place, right time then. The early days of the COVID pandemic were a very inexpensive time to incubate a new brick and mortar business. I would imagine it becomes very ritualistic to go to the shop as well, like it is for many folks who go booze shopping at the end of the week, for example. Let's talk a little bit about your physical space. You're using the Shopify POS. This is our point of sale system. But you're also using Shopify on your website to handle local deliveries and in-store pickups. How does that work? How do you kind of marriage the two of them?

7:35It works pretty well. So we're brick and mortar first. And that's probably where about 90 % of our orders come from is in-store shopping because people want to shop for beverage in person. We also have about 10 % of our customers who like to place orders online and then have them either delivered to them in Manhattan or they come to the store and pick it up. So those are our options. We don't ship anything. And it works pretty seamlessly. My associates get notifications on the store point of sale whenever a new online order comes in. And then they dispatch a bike delivery messenger. And we get bottles to people at their homes, often within an hour.

8:16It's a very well-integrated system. I think it's fascinating that you've decided to focus on the local customer base in this day and age of connectivity and globalization. Why did you make that choice? The category is so new, Ben, that it really requires so much consumer education. It's a remarkably different experience. I very rarely buy booze these days, but when I do go to a liquor store, I know exactly what I want. I'm making penicillin cocktails, for instance, and I know exactly which Isla malt scotch whiskey I like in my penicillins. I go straight to that shelf. I buy it. I don't need to talk to anybody.

9:01People who come to Spirited Away often, the category is becoming more mature now so that this is maybe less true than it used to be. But a lot of people come to Spirited Away and have no idea what's going on. They don't know what they can buy. They don't know what's the best thing for them. They don't know what the flavor profiles are. We get to do a lot of education for consumers who come to the store. And my sales associates are terrific at asking questions, kind of peeling back that onion and getting to the heart of what will be a good choice for people who are looking to drink less. It's a very different space.

9:40It looks like a bottle shop, but it's a very different behavior within the store. We're much more about education and discovery than a traditional bottle shop is.

9:57And it brings up this idea, so to speak, of why it's important to have folks come into a physical space, right? I mean, you have this incredible opportunity from not just a customer service perspective, but from a marketing perspective of FaceTime one-on-one with an interested customer, which dare I say is probably much more effective than any sort of email or social media marketing campaign you can put together. I think so. It's very much a neighborhood shop and we have great relationships with our regular customers who come and we know them and they know us and we know what they tried last time and we can make a recommendation for what they might want to try this time.

10:39I think for what I want to do in the world of alcohol alternatives, starting with a retail store has been the best way for me to get grounded in the industry and become, in many ways, an expert on consumer preferences and desires in this industry that I can now expand in the future as this business grows and as other businesses in this space grow and apply to bigger and bigger learnings, starting with a very small retail bottle shop has been a part of the journey that has been invaluable to me. Part of the journey, also part of the education process, which you mentioned a few moments ago. What have you learned through that process of educating people as they come into the store?

11:29What have you learned from your customers about what they actually want and why they're there? I think that what we're learning every day at Spirited Away is how many different types of people there are who want better alternatives. It's really across such a wide range of ages and backgrounds and everything else. There's no one archetype of the modern adult, non-alte consumer. And as we've been traveling, it's been interesting to see that it's so much more than just a Manhattan phenomenon. It's worldwide, globally, people are looking for better options and options that are more in line with their health and wellness goals.

12:17We're going to talk a little bit more in a few moments about why you're traveling and some of your other ventures. My guest today, Douglas Waters, the founder of Spirited Away and co-founder of Dry Atlas, which you're going to hear more about in a moment. Before we get to the next part of the program, I want to say thank you to you for listening. Take a moment if you can and subscribe to Shopify Masters wherever you listen to podcasts and check out our catalog of episodes. There is so much great information there about how to start and grow your own business. And hey, while you're there, tell a friend about us too.

12:50Thanks. Douglas, we've been talking a lot about why you set up a retail space. First, we haven't got into the sourcing of these products. I would imagine it's difficult to find some of the components for these non-alcoholic drinks, for example. Talk to us about some of the challenges of figuring out what to do in this relatively new product space. It's really evolved over time, Ben. When I first started Spirited Away, there were no distributors for non-alcoholic drinks or those that were very young. So in traditional wine and spirits, you have a three-tier distribution system, which means that the brands, the distributors, and the retailers have to, by law, be three distinct parties.

13:36and non-alc is not governed by that system. And there was really no distribution infrastructure for this industry back then. So I was ordering product directly from the brands themselves, which is great from a perspective of saving costs, but it also adds a lot of headache and a lot of operational and financial confusion when you're having invoices with each separate brand, you're having orders with each separate brand, one off. ordering beers from London that are being shipped across the ocean and things are freezing in route and bottles are getting broken in route. And it was really individual orders to write from specific places, all individual orders.

14:24So it was like six bottles of this 12 bottles of that like tiny little, tiny little orders. And it was really quite challenging. But it was also part of the the moat to doing what we did with spirited away. And it's a lot easier to do what we do now that there is good distribution and infrastructure in place. But it was really just contacting each brand individually and saying, Hey, can I buy your product wholesale? And I think a lot of them didn't even really have a wholesale pricing strategy at that point. They were primarily direct to consumers. So they were like, uh, sure. They were like, sure.

14:56Well, you want to buy how many? Yeah. Until I had an address, they were like, um, yeah, you know, talk to us later. And as soon as I had a brick and mortar address, they were like, yeah, we'll take you seriously. It's really interesting. I mean, you're basically forging ahead in this space that's relatively new. And here we are a few years later. And I can say with much certainty, it's a space that's taken off. Now that you've had a few years and you're looking back, what would you say other folks who are listening who want to emulate what you've done? What are some little pieces of advice you might have for them?

15:29with Spirited Away, my focus was solving a problem that I knew I could solve before scaling and taking on bigger problems. So I was really solving a problem of one person myself. I was the one looking for a curated selection of non-alcoholic drinks in Manhattan. And I had a hypothesis that other people would be interested in that as well. So to me, it was a bias for action in just doing something to begin solving this problem. And in the world of non-alcoholic drinks, alcohol alternatives, there were a lot of brands already being created in the space. There were a lot of great products. I didn't really see a way for me personally to make an impact there, but I did see a way to have an impact in terms of curating a selection and bringing them all together under one roof.

16:21And I feel that solving that problem and starting there was a good, for me personally, it was a great way to get started in this industry because I had no previous experience in retail or beverage or anything like that. So it was a great way for me to get educated very quickly. And then we've grown from there and we'll continue to. You have all this interest and it's not just interest here in the US or in New York City, where your store is located, but also globally, which is something that you've tried to capture with another venture called Dry Atlas. Tell me a little bit about Dry Atlas and how it coincides with what you started with your brick and mortar store.

17:01With Spirits at Away, we do a great job of, I think, customer education and new product discovery. And we do that on a very localized, very micro basis. As I've developed in the industry over the past three years, I've seen a much bigger and more global need for that education, demystification, et cetera. And Dry Atlas is my attempt to do that globally. Obviously, it doesn't scale as well as having one of our expert sales staff guide you in person, but we're creating a lot of content and creating a directory on Dry Atlas that we hope will normalize, demystify this space for consumers worldwide.

17:48So the site is a directory of about 1 ,100 non-alcoholic liquids. So it's most of the world's non-alcoholic spirits, wines, beers, cocktails, etc. and a lot of content, articles, interviews, research, etc. to a company that we hope will educate consumers. And can you buy directly from that site or is it more like a database or a news source, so to speak? It's purely a content platform. We drive traffic to every brand so that they can fulfill those orders directly. How about that? I would imagine if you're in the non-alcoholic space, you want to get on that list, right? How do you go about discovering these things?

18:30Over the last three years, I've had the opportunity to build so many great relationships with brand founders and operators in the space that being such a new industry, it's a pretty small world and we kind of all know one another. And I was fortunate to be able to contact a lot of them directly and get their product details so we can add them to the directory. But yeah, Yeah, it's a pretty small world. It's a small world in your space, but of course the world of alcohol and drinking culture is very, very large. You're probably experiencing that during your travels right now. I mentioned earlier you're in Taipei.

19:04What have you noticed traveling and exploring different alcohol and drinking cultures that might lend itself to what you're doing here with Spirited Away? It's a great question. Every different culture has its own beverage traditions, right? We just left Hong Kong and tried some really amazing sparkling teas that are created for social occasions. And obviously they have a strong tea culture there. And we met with two companies, Sideshow and Mindful Sparks, who make these really beautiful, elevated, fine, sparkling tea kind of wine alternatives for social occasions for adult drinkers. So it was really interesting to see how the tea culture in those places had crept into cocktail culture as well.

19:57So Douglas, just to wrap up here, what do you think is next for this space, right? In non-alcoholic beverages, there's been a lot of growth, as you mentioned, in the last three, four years. And there's more competition now, I would imagine, than there was when you first started. So what do you see as being the next step here? The space has gotten very competitive. It's been fun to watch it develop over the last few years. We have, on Dry Atlas, you can sort by category. And if you go to just the non-alcoholic gins, there are over 60, I believe, non-alcoholic gins available worldwide, which is really pretty incredible considering where we were three years ago.

20:38I think we're going to see continued growth in consumer demand. It's just going to become more and more normalized in the years to come.

20:49I think about first wave non-alc as kind of being the O'Doul's Chateau Diana, kind of the mass market. St. Pauli's girl, right? Yeah, like not terrible products, but not exactly anything to get too excited about. And then second wave being kind of where we are now with a lot of great alternatives, craft products that are much higher quality. I think looking into a third wave, we will see more products that have less and less influence from the traditional wine and spirit space. I think the alcohol content will become more of an incidental rather than a fundamental piece of the positioning. I think you're going to see great products in the future that are just, this is a delicious product and it happens to contain no alcohol.

21:41or it happens to be low ABV, but you're drinking this because it's a delicious drink. And we saw that with, we spent some time with the team from Murray in Copenhagen who are making just really beautiful gastronomic beverages that they're not wine, they're not tea, they're their own unique creation. And I think a lot of the interesting things that are going to come in the future are going to be that third wave that has no representation, no corollary in the traditional wine and spirit space. I think we're moving beyond being defined by the incumbent space. So instead of us sitting here and laboring over non-alcoholic beverages or calling it booze-free, we'll have some other way to talk and market this because I'm so accepted in our nomenclature.

22:30Yeah, we'll stop defining it by what it's not and we'll start defining it by what it is. Well, Douglas, this has been really fantastic. I hope if you've been listening, you've been enjoying it as well. Douglas Waters, founder of Spirited Away and co-founder of Dry Atlas. Douglas, thank you. Thank you so much, Ben. I've enjoyed talking with you. Enjoyed talking with you as well. Shopify Masters is produced by Megan Coyle and Gogo Zoger. Our engineers are Matthew Schwartz and Miku Betlam. Schweng Esther Shan is our host, and I am Benjamin Gottlieb. Come hang out with us next time on Shopify Masters.

23:08Thank you.