He Convinced A CPG Giant To Invest… Pre-Launch. Here's How.

0:10Hey folks, I'm Ray Latif and you're listening to the number one podcast for the food and beverage industry Taste Radio. This episode features an interview with Marcus Seiki, the co-founder of leading non-alcoholic spirit brand, Ritual Zero Proof. What compelled Diageo, one of the largest CPG companies in the world, to invest in Ritual Zero Proof, which at the time of the funding deal was a pre-launch brand operating in a nascent category. The short answer is that it gave them, and more importantly their consumers, options. Launched in 2019, Ritual Zero Proof is a brand of non-alcoholic spirits crafted from natural botanicals and designed to mimic the flavor and burn of a classic spirit.

0:59The brand markets gin, whiskey, tequila, ramen, aperitifs, and is available nationally at retailers including Total Wine and Binney's Beverage Depot, as well as select Kroger banners and Hy-Vee locations. Shortly before the debut of Ritual Zero Proof, the brand received a minority investment from global beverage alcohol company Diageo via its partnership with Distill Ventures, a venture capital firm and accelerator that invests in disruptive distilled spirit companies and non-alcoholic beverage brands. In a press release about the deal, Ritual Zero Proof co-founder Marcus Sakey noted that, quote, Americans want more choice and that non-alcoholic spirits represent an endurable shift in consumers' ability to choose what and when they want to drink, a statement echoed by executives at Diageo and Distill Ventures.

1:49In this interview, I spoke with Marcus about the impact of Ritual Zero Proof's business strategy, liquid and branding, and how Distill Ventures evaluated the company. He also spoke about how the brand became an anchor in an increasingly crowded category, the evolution in how it markets to retail customers and end consumers, and how he assesses challenges from and advantages over new and existing brands.

2:17Hey folks, it's Ray with Taste Radio. Right now, I'm honored to be sitting down with Marcus Sakey, who is the co-founder of Ritual Zero Proof. Marcus, great to see you. It's great to see you. Thanks for having me, Ray. I got to ask you right off the bat, I saw that you're a Michigan alum. I don't know if you're a big fan of their football program, but they're doing pretty well. Doing pretty well. Doing pretty well. Yeah, it was fun going to undergrad there every game day. The entire town changed tenor. Yeah, I've been to Ann Arbor once and it's a beautiful town. I haven't been there during a football game, but I've seen the stadium and it is breathtaking.

2:52It is so big. I think they can fit like 100 ,000 people in there. I think it's 106, if I recall. They were really proud of the last six at the Madhouse. It was always fun as an undergrad. The streets all closed down. Everybody's walking down the middle of the freeway. It was good. I don't know if they still ban alcohol in the stands at college football games. I think they allow it during bowl games and other places, like some places. But I think for most cases, you can't drink alcohol in the stands. But I was wondering, could you drink a Ritual Zero in the stands, perhaps? I'm not sure. Have you been able to get your product in the stadium there?

3:28We are in process on that now. The great thing with Ritual Zero Proof is you can drink it anywhere. It is completely non-alcoholic. We're actually launching in Dallas right now at Cowboy Stadium and intending to expand quite a lot from there. You're also in a new restaurant chain or you're new to a restaurant chain that's based here in the Northeast. It's called Pizzeria Uno. Yes. Pizzeria Uno really was kind of visionaries in the space and that's a national chain of about 100 locations that is going to be serving Ritual Zero Proof, not only behind the bar, but on the menu in three separate cocktails in every restaurant.

4:04We are in several thousand restaurants, but Uno is one of the first national chains to recognize the importance of serving customers that may just not want a cocktail that evening. Is it the largest restaurant chain you're in right now? It is the largest restaurant chain that we're in right now. And most of the restaurant chains are still a little, are moving a little slowly into the space, but they're also seeing the absolute necessity of it. What we find is that zero-proof options are a positive. They're an and. Our thing has never been anti-alcohol. I love a cocktail. Sometimes I want it to have alcohol in it.

4:36Sometimes I don't. What Nielsen recently discovered is that people who buy non-alcoholic spirits actually spend far more in the total alcohol category than those who only buy alcohol. So it's a net positive. Restaurants are starting to see that. Well, it's certainly timely. This announcement came out this week and we are right at the start of dry January, which before we hopped in the mics, we refer to as the Super Bowl for your category. Are you participating in dry January this month? I am not participating in dry January for the whole of the month, but I always take it as a moment to kind of reset and balance out the consumption.

5:12Can you talk about the origins of going from, hey, I like the idea of having a drink when I want one and not having when I don't to I'm going to create a brand of non-alcoholic spirit alternatives. Yeah, it's not the most obvious movement, is it? Ritual came from my decision to check my own consumption. No dramatic horror stories. I just I love a good cocktail. But when I started this, I was in my mid 40s. I had a daughter who at the time was six years old and had boundless energy, my energy, a little less than boundless. And I realized that an awful lot of what I wanted when I was making a drink was really the ceremony of the thing.

5:54It was cutting and mixing and matching, pairing with food. And then it was the way that it marks a moment that you mix up a cocktail and you sit down with a book and a drink. Far more than I actually wanted the alcohol. I wanted that celebration. I wanted that ritual. So I'm a passionate chef, amateur, but passionate. And I went into my kitchen just to see if I could find something that would serve as that backbone of a cocktail. And that was me playing with peppers and teas and extracts. And I got to tell you, Ray, it was awful. What I made was truly awful. But it also proved concept. Within that, I could tell that someone who was more skilled at it could do it.

6:37So that kicked off my best friend and co-founder, kicked off a year's worth of development for us working with master distillers and chefs and flavoring chemists and going through literally more than 500 iterations of each recipe. because our goal was to get as close as possible to a traditional spirit. It needed to have the tasting notes. It needed the nose. It needed that bite. And it needed to be able to convince you in a cocktail that you were having an alcoholic drink. Well, I have three of your bottles in front of me right now. And on the back of each, it describes the product as the liquor replacement.

7:19Is it intended to be a one-to-one replacement? Yep. It is intended to be a one-to-one replacement because we don't think that consumers want to change their cocktail. They want to change their ingredient. So you can use the same recipe, whatever is your preferred drink, the same proportions. And in a mixed drink, especially, and they really are designed for mixed drinks, it will fool you. It's been quite exciting to watch people try it and not realize that they're having a non-alcoholic until we reveal it afterwards. I mean, that's a pretty bold statement for some folks who are listening and saying, okay, well, you know, I know what a Manhattan tastes like, or I know what a gin and tonic tastes like.

7:56And if I could have a Ritual Zero Proof instead of my traditional alcohol, my traditional liquor, and not know the difference, I mean, that's groundbreaking and game-changing. Ray, I will take the Pepsi challenge with any of your listeners in a mixed drink, especially like you highlighted a gin and tonic. That is a perfect example. You mix a gin and tonic and you squeeze a lime in there. It is very close to indistinguishable, especially if you're not focusing on it. Now, am I going to tell you, I'm a bourbon drinker myself. Bourbon drinkers are snobs. Am I going to tell you that poured neat is going to compare to your favorite, to a mixer's?

8:33No, it's not. But if you mix it in a cocktail, you'll be startled. And our whole thing is that we aren't anti-alcohol at all. We just think that people should have the choice to be able to have it however they want. Have a margarita at lunch, have three, have a margarita with traditional tequila, and then three with ritual. It's a way to keep the party going and stay out and remain part of things while moderating your own consumption, your calorie intake, making sure that you're feeling your best and strong for the next day. It's really, it's very much a win all the way across the board. Obviously, you thought enough of the opportunity to create a brand and strategic companies are also getting into the game.

9:13In fact, a strategic company that you're aligned with got into the game even before you guys launched with you as a partner. Diageo is your strategic partner through their incubation arm Distill Ventures. How did that relationship come about? When we started developing Ritual Zero Proof, there were no direct spirit alternatives on the market. Nothing. There were non-alcoholic beers, and they were starting to get pretty good. And there were non-alcoholic wines. Some of them are there, the sparkling ones especially. But there was nothing that was a direct replacement for Spirit. So the opportunity seemed pretty obvious, but we also knew that it would be a very complex process.

9:52We knew that once the game started, once people started selling options, that it would be an explosive category. And it has been. It is the fastest growing category in beverage per Nielsen. So our thinking was that probably some of the players in the spirits industry were as aware of that as we were. You start at the top. Diageo is the world's largest liquor distiller. And we approached them with this sort of mentality of you should date who you want to marry. We knew that we would want to end up in Diageo's portfolio. So we started exploring them. We found Distill Ventures, which is a tremendous organization that focuses on drinks innovation in a broad space, not specifically to non-alcohol.

10:34And what we did bring is probably best described as stalking. we we stopped them we saw a conference that several of the heads of distilled were going to be seeking it my business partner put on a suit and flew down and charged the stage pretty much as soon as they were done with their panel and pitched the idea and they said we're all over it we've heard this idea we get 30 of these a month and we said well you haven't gotten ours yet. So they agreed. They tried the liquid. They saw how good it was. And we entered into an arrangement with them. Took another year of development to finalize the flavors and get them all the way to where they are.

11:14And then we sold our first bottles in 2019. This is not common to get a strategic company, whether it's through their incubation arm or otherwise, to invest in a pre-launch brand, pre-launch concept. What were some of the keys besides stalking them, besides bum-rushing them, besides the great liquid? How did you agree upon terms and conditions of the partnership and in making sure that whatever the deal was, you were being taken care of as founders? Because the last thing you want to do is give up too much equity, give up too much control of your brand before you even have a chance to sell a bottle.

11:50Diageo have been tremendous, tremendous partners. So the way that it worked without getting too deep into the details is that their incubation arm, Distill, exists as a guidance and as a pipeline for products that will eventually join the Diageo family. So the initial investment from Diageo was really not a lot more than operating capital. It was to truly prove concept, to manufacture early vault quantity to sell. And then the metrics were business metrics. I think one of the reasons that our relationship with them has been so strong is that we always treated this as a business and we always treated it seriously.

12:29And the first time in 2019, the first time we were talking about this, everyone's first question was, why would you do that? Why would I want tequila without the alcohol in it? We had to answer that question every time for about three years. That was the first question, but it was never a question that we took lightly. We believed in the category. We had faith in people's desire to have things how they wanted them. And I think that was a big part of what Diageo saw, that we weren't anti-alcohol. We were pro-options. As you noted, there are so many brands coming into this space. What was it about the brand itself?

13:09I mean, how much of the brand identity and the packaging, was that already established and how much of that impacted Diageo's interest in Ritual Zero Proof? That's a great question, Ray, and a thing that I would say to anyone who's an entrepreneur in this space, but really in any space, you have to believe in what you're creating. It can't simply be that you think it's something that will make you lots of money. It has to have a personal stake, and then you have to kind of be able to see it. You have to be able to envision it. It starts there, and then you have to make sure that other people can see it.

13:42So an awful lot of the identity was well-established. The name, the basic tagline, the approach that we were going to take, who we would and wouldn't be marketing to, how we saw the serve strategy. Those things were all planned out. And I think that was very important to Diageo seeing that we were playing at a higher level. You talked about the marketing and communication. How has that evolved since 2019? I know you've talked quite a bit about what you try to market to consumers, what you try to communicate them and the consumers you're trying to reach and those that you're not. But how much have you learned about the category and your brand and how consumers perceive both?

14:19It's interesting to be on the evolution of a new category, which is what this is. It's truly new. So it's not a space where it's a zero-sum game and one brand's success comes at the other's failure. That has been very liberating on the marketing and the outreach, because what we're really trying to do is tell people that this exists and help them connect how it might apply to their lives. The responses have changed so much in the last four years that it's hard even to communicate it. In the beginning, it was basically face first into the Internet buzzsaw, everyone hating the very notion of what we would do.

15:01like we were there to take their guns. And the whole point was this is voluntary. This is optional. This is a piece of your life. Over the last couple of years, we've seen that change completely. And especially over the last year, what's been great is we don't ever have to answer those questions anymore. First of all, people understand. But if anyone does raise them, our fans and our community and the large community of people who recognize that non-alcoholic options have a place in their lives, they explain it so that it becomes this sort of genuine grassroots movement, which I think is one of the reasons that this category has grown so fast.

15:39As I mentioned, Nielsen lists non-alcoholic as the fastest growing category in all of beverage. That's exciting. But then you think, what does that mean? How big can that be? Well, right now, it's a pretty small portion of total alcohol, right? It's 0.6 % of total alcohol. But in the United States, total alcohol is$260 billion. And by 2027, it's expected to be 4%. So 4 % of$260 billion, that's not small to me. And in fact, at that point, when it reaches 4%, that's going to be bigger than the entire gin market. This category is here to play. And it's kind of a joy to create the outreach that puts it in front of people.

16:18As fast as the category is growing, are you running just as fast. And I ask that because I spoke with the CEO of a competing brand who talked about the importance of speed, speed to market, speed to new markets, and being an anchor for the set at as many places as can be, whether it be a grocery retailer, a liquor store, a hospitality, a bar, restaurant. And, you know, I think, and just from having seen Ritual Proof Zero in so many places, it does feel like an anchor brand for the nascent set. But there's so many people coming at you right now and so many new entrants coming and other established players.

16:57Are you feeling the pressure to be really, really fast in getting the product and the brand distributed in as many places as possible? I think I know who you're talking about. And I would say that we have a different business strategy for he and I. Of course, there's importance to being the anchor. I'm proud to say Ritual is the number one in the United States by a wide margin. One in four dollars spent in the category is spent on us. The nearest competitor that is a direct spirit is one in 10. So when I say that I have a different approach, it's working. And for me, yes, speed is important, but not reckless speed, not just getting out there no matter what, not always launching new products, not always launching new countries.

17:39We're building a category here, and it's going to be here for decades. I think it's important to treat that with care to make sure that the partners we work with benefit from it, that when chain, whether it's Pizzeria Uno or wine or Walmart, takes a gamble on a new category and launches a non-alcoholic set, all of which have, that they see the profit in it. They aren't the only ones taking the gamble. So we move fast because we recognize the category is incredibly important, but we move much more carefully than some of our competitors because we think supporting those who are building this and the retailers and the restaurants that are building this category is the most important thing we can do.

18:19What's an example of that? Let's talk about Pisserie Uno as an example. I mean, what are you doing to support the brand in those restaurants? Uno is a great example. And it's interesting, like Walmart is another. These are places where you might not have guessed. it would jump out. People hear non-alcoholic spirits, they think, oh, California, you know, it's going to launch in vegetarian restaurants first. Isn't it funny there? But Uno, which is a fairly traditional family-owned brand, had, you know, heard about us at one of the events that we attend, opened a dialogue just to start the conversation.

18:52Within that, our CEO, my business partner, and one of our head of sales flew out to sit down with them when it wasn't even a pitch, walked through what it might work, demonstrated how we support. So for a restaurant group, for example, we will help them build the custom cocktails. We'll help them adapt the ones they already have. We tell them the best ways to put it on the menu and we show them how that is a direct driver of revenue so that by the time they're done with that, they don't feel like they're taking a risk because they're not. So with Uno, when we are launching actually, it launched on yesterday with 200 and 100 restaurants.

19:29We're putting out a press release covering it. We're helping them with all of the menus and we are doing our best to drive our pretty significant social media following to visit and to order it. And to me, these are just things that a brand should do. The whole move fast and break things has always irritated me. Move fast enough and build something. I think about comparisons between the non-alcoholic spirit category and say, plant-based meat. And it feels like there's quite a few parallels between the two. I think the danger in those parallels is that skepticism is often addressed by taste, number one, and ingredients, number two.

20:09In the case of plant-based meat, there's a heavy dose of skepticism about the ingredients. So the taste, I think most people agree, is pretty good. But when it comes to the taste of your products, how do you talk to someone who can't serve a cocktail, like a person at Walmart. How do you talk to their category buyers and help them, you know, get consumers to make that decision? Because it is a relatively high price point, you know, for most people. I mean, what is the price point for a bottle? It's an MSRP of$30 a bottle. $30. So at a Walmart, how are you helping the retailer convince their customers to shop for your product and give it a try, give it a shot?

20:48That's a trick, but I also think it's our responsibility. The product is priced at not only a spirits price point, but a fairly premium spirits price point. And the reason is that it is a premium product. It's made with natural botanical flavors. It's very complicated to make. It has the bite of a spirit. It is meant to be used one-to-one. There's no price gouging on it. It's a premium product. But you have to maintain that mentality all the way across. It's in your outwards communications. It's in how you talk about it in the press. It's in your marketing, it's in your social, it's on your website.

21:25It's in real transparency with your audience about how this works and in respecting them. So what happens is by the time that you're talking to a Walmart, I don't think it's as much about discovery. I think people in Walmart have already discovered it. They've recognized that there's a need for this in their lives. They're just thrilled they can find it at Walmart now. The recipes themselves took an enormous amount of work, right? Something like 500 iterations, and they use extremely premium ingredients. But what we are trying to do is replicate something that is very fundamentally different. The plant based meats comparison is an interesting one.

22:03The one I like more is dairy alternatives, because no one thinks oat milk or almond milk tastes exactly like milk, like classic dairy milk, but they're pretty delicious. And I'll tell you what, they're never leaving Starbucks. and that's the way, that's the truth of these things. Our spirits are meant to be used in a cocktail. That's where they shine best, but that's also where most spirits do. I always find it funny in the early days, we'd have people grab a bottle and open it and glug from it warm. And it's like, when was the last time you did that with a bottle of gin? Well, I think there would be, because of the alcohol, there'd be a little bit tougher for sure.

22:43It would be a little bit tougher, but that's the point. You know, it is made to be really designed to work in a cocktail. I obviously enjoy them. I think a couple of them, the rum and our aperitif alternative, are both such strong contenders that they actually work great on the rocks. But it's a matter of comparing what it is you're actually comparing. A glug of warm gin straight from the bottle isn't all that pleasing either. Mix the thing with care, you'll be blown away. As far as the recipes, like every company, we're always trying to improve. But these aren't works in progress in that way.

23:15massive award winners. We just took a double gold from the San Francisco World Spirits Competition. We've got gold and platinum medals from every ratings agency. And that's with the fact that there's kind of a snobbery around NaNo versus Alk. So I think for me, long answer to your question, I want to hear what works. I want to hear what people's thoughts are. And we definitely do work on revising the flavors to get them to improve them if we feel like there's a need. By and large, the community seems to feel like they're great. And I do too. So for me, it's more about maintaining that quality, never getting cheap with it, never trying to save pennies, never trying to shave off anything of the experience because we're still growing category.

23:59There's responsibility there. I'm trying to think of a consumer, a specific type of consumer that would be chugging a bottle of gin, non-alcoholic gin that is. And I think, okay, it feels like someone who's probably in their 20s. But who is your average consumer and how are you attempting to take that or broaden the interest from that target consumer or that primary consumer to many more people? That's an enormously fun question to answer, right? So I'll start with the most obvious, which is everybody talks about, of course, Gen Z and their consumption habits. And it's true. Gen Z has, according to Gallup, the lowest interest in drinking recorded in history.

24:43That's just a thing. And it's worth pointing out that Gen Z, only a third of Gen Z is even of drinking age. And yet the industry is seeing the impact. However, it's really not just Gen Z or the millennials or Gen X, me or the boomers. The truth is that every age demographic has a need for this in their lives. And that's not me speaking as a founder. That's me looking at the data of our sales data. We don't have a single ideal demographic. We perform well in every age group for different reasons. So Gen Z, it is a cultural shift in that generation away from alcohol. That's simply a fact. And I don't know that I see that ever changing.

25:24With millennials, you're also talking about people who are, and to be very fit, they're trying to have a baby or they're parents of young children, same as you get into Gen X. And as you go onwards, it's medication or overall lifestyle or just recognizing there's a need to slow down. But we have the happy place of thinking about something where we're not against anything. We're saying, here's an option. You can have it. You can find its place in your life. And I'll bet you it has a place in your life. It's quite exciting to not have to say, don't drink that. Don't feel bad about yourself. No, it's good.