The Ultimate Guide to Formulation, Distribution, and Pricing in Beverages

Shit, I missed the countdown. Are we live?

Yeah, count. We are live. Adam, we are live. Good morning, Vietnam. You're Robin Williams. We are.

That's fucking good.

I'm gonna, I'm gonna watch that movie. Have you seen that movie, Good Morning, Vietnam?

Absolutely.

That's a great movie. I love that movie.

I might actually, I might, I might, I might, I might watch that. That might be the theme today. Good morning, Vietnam. Good morning. There's a war out there and there's fighting one battle at a time that we can get into. But I guess before we get started, we should. Why don't you name all our sponsors, Adam? Take everybody through the group.

Yeah.

Yeah. I'm actually going to start with, uh, with Jay Williams because as a fan of standup comedy, I was particularly excited when I saw his post with Bert Kreischer the other day. So Jay Williams and Freebird, as always, what up Jay and team and, uh, congrats on your continued fucking crazy-ass growth. That's wild. So A, that, uh, B, Sam and Alicia and Paul now, cause now I know Paul. Uh, so that's—

You guys are my next best friends now. Right?

Yeah.

Right.

Yeah.

No, we have super good conversations. So good morning to you fine folks. Uh, and then Ryan and On the Rocks Advisors. Ryan and I have, fuck, I don't know, 5 or 6 irons in the fire contracts out right now, which is super exciting, uh, that we work on together. And then, uh, myself, Alias Advising. So good morning.

What does Alias Advising do? I mean, we never really get into it. I mean, like, what do you do?

The short answer, supply chain and Operations, right? S&OP type shit, help with forecasting, production planning. You know, it's a lot of concept to launch type stuff for formulators because that's the realm I like to work in. So like, for example, I just sent out an invoice before we started this morning for a woman who's looking to do a line of kava products and she's not, she doesn't work in beverage, but she wants to get into it. She's like, I want to do a 3 SKU line of kava products. Okay. Well, let's get started, right? Like we'll help you find a formulator. We'll get You know, can supply, we'll figure out MOQs and first production volumes and tell her all the shit she doesn't want to hear about how difficult it's going to be. So that's what I do.

That's interesting. I talked to a formulator yesterday, a young woman that's, I think she's working, I can't remember. I should get the name to share with you, but they basically, all the costs of the formulation, she's like, yeah, we don't have like the backend IP. Once we make it, you can take it anywhere and produce it. By the way, which I think's, I think that's important. In other words, if you pay the formulator to create it, you can move it around. I think it's better for the client. So I know any client I'm going to recommend, I'm like, hey, make sure you look at the fine print on that piece. Probably something we could get into, but hey, so we, we had to make a pivot this morning, you know? So unfortunately, and we hope that our guest that was going to join us is okay. But, uh, we had, uh, she had to cancel at the last minute. So we'll certainly reschedule that. But Adam and I decided to go forward. And, uh, what are our topics today that we're going to talk about, Adam? What are we going to get into?

Fuck. I think, I think we just touched on a few of them. So I think we should talk about formulations and IP and that conversation, because I've got a woman that Ryan and I are actively talking to right now who's dealing with that. I think we should talk about what you've mentioned in the past, but that you're experiencing again right now with kind of that, you know, your first fractional sales partner versus your third fractional sales partner and how people experience that life cycle differently. Right. And how they should be cognizant of certain things. And then I think just the, the, you know, I know you and I both have a couple of examples and Ryan's going to laugh at this if he's watching, but of people's complaints, valid or not as they may be about, you know, the lack of communication, but by a partner or the lack of detail. And then the person who's doing the complaining, you know, it's a pot kettle situation, right? They will, they will, they'll make it known that their communication themselves is Quite frankly, dog shit. Right. And it just makes me giggle. So it's a little bit of a vent sesh, a little bit of a clearing of the air because Sam and I need one from time to time. So I think that's what we get into.

I love it. I love it. Well, you, I'll tell you what, you take the helm. Let's just get into it. Go into each one of your topics.

Well, so the formula piece is interesting. So there's a woman Ryan and I are talking to who she's based abroad. Um, I want to say I don't remember exactly where, but Western Europe somewhere. And she worked with a formulator and she wants to move these SKUs to the US, but the formulator owns the IP. And we were going back and forth the other day and she said, hey, I paid the formulator for the IP on one of the SKUs and it's a distilled spirit. And then there's a non-alch SKU and a cider that I, you know, also have with them that I would need to pay them additional for, for the IP. We're talking like, you know, 10 grand per Product vertical, whatever you want to call it, right? So not nothing. And I don't know if she paid them upfront. I don't know if there was a small amount upfront or if they did the work for free. But the problem we ran into was, and I'm not saying that this formulator is a piece of shit. That's not what I'm getting at. What I am getting at is clarity is important because even with this distilled spirits formula, there's, I'm not, you know, there's nothing in here. I didn't see an ABV listed. I didn't see like a target ABV. I didn't see a pH listed. Didn't see a Brix listed. Didn't see a Preservation system listed, you know, whether it's natural or artificial. Don't get me wrong, there was useful information in it, but it was not what I would consider as somebody who does what I do for a living, a fully developed formula. And if I was reading it right, it cost her 10 grand to get not a fully developed formula, which is less than ideal. So yeah.

Right. That's probably why they should bring you in before they sign any of these agreements to kind of look through it, to make sure they keep them Out of harm's way, right?

Dude, this is the same goes for you. I tell people all the time, whether it's me or you or Ryan or really anybody in the fractional space, at least the folks I work with, right? Like we're not the, I won't get out of bed for less than X type.

Right.

And so everybody always asks me like, well, I'm not ready to start now. I'll be ready in like 2 months. And I was telling somebody this the other day. I was like, 2 months is 20 seconds in this industry. Like it will go by like that. So if you don't educate yourself now on the conversations you think you're going to have in 2 months, you're fucked. You're already behind the 8 ball. So like, don't get me wrong, like I'll have that conversation right now for free because I don't want to see you light your money on fire.

Yeah.

I mean, I have a client, Alicia and I have a client in Australia, a great guy, Alex. And anyway, Alex is, he, he, he, he's a distiller, co-packer, distributor. They have some of the biggest brands in Australia, quite frankly. They do really well. Right. But he's smart. He hired us because he doesn't know North America. And he put us on a 60-day deal. And for 60 days, we've been meeting with him every week and he's probably gotten more than 60 days now. So smart guy too. So he's like, you know, he can, he can push it because he already has us. Right. But, uh, and we've connected him up with importers like MHW, Park Street, ASC. We've connected him up with experts that know on the CNBA, you know, that where you basically can get like a refund back.

Mm-hmm.

Like if you're less than 100,000 gallons or something, there's like this ref— this credit you can get back to help your brand. connect them up with distillers like Earl Giles, Divine Distillers, Griffo Distillers. And, but all that work, we're, we're, we're identifying, like you're talking about, like, like identifying where the gaps are, where it is we want to go. And then that'll help kind of determine what our strategy will be. It actually determines if we're going to go forward or not. And I think of like, you're talking about formulators. I'm like, before you go talk to a formulator, talk to Adam because he deals with a lot of formulators. Look at what they're telling you. Because I had a client and you know about the client, I'll rename unnamed, but You know, he paid this money, got his formula developed, and all of a sudden they sent him this agreement saying that he, he has to stay with them or he has to pay them this price. I'm not saying that the person who did the formula is wrong either, but we gotta, you just gotta like make sure everybody understands what you're getting into. Mm-hmm.

I mean, you're spot on. It's my personal preference would always be to pay the money upfront and know that I own the IP if I put myself in the shoes of a brand owner. However, I'm not, I'm going to be abundantly clear, not saying that formulators who do the work for And then expect an IP payment later if, if that's the arrangement are bad people. That's not what I'm getting at. What I am getting at is you as the brand owner need to understand going into it that that's the arrangement because maybe it behooves you to get the formula done for free and to stay with a certain group until such time as you've proved the concept and have the money. That's a perfectly logical thought process if you know that's what you're fucking agreeing to, right? If you don't and you get caught by it on the back end and you're surprised, That's clearly going to be a smack in the face, right?

Yeah.

So yeah, it's just, uh, it's tough, right? It's tough.

I think it's read, read, read the fine print. Ask a lot of questions. I do love clients that we get that we talk to founders that ask a lot of questions. You know, I think that's, that's a good thing. Understand, you know, what the relationship is and understand what you're going to get. I do very much appreciate that.

For sure.

You know, we were talking before we started today, you know, about, you know, how is it going? Right. And, uh, I love every brand that, um, we talk to. We're here, we're, you know, it's, I, I kind of equate it to being like a bus or a train. They get on our train for a while and they're there for, you know, a certain amount of time. And then at some point they exit the train and we hope when they exit the train or the bus that they had a good experience.

Sure.

You know, that is, that is ultimately our goal. You know, we give them enough information or in the case of Frontline, we seed that market, we water those seeds and we help them grow and they grow just enough where they can go to the next spot. But where we get frustrated is there's kind of 5 different types of brands that we work with. Foundation brands, those are new to market. When I say foundation, they haven't even laid the rebar down or the gravel to make the concrete. It's the hardest brands to deal with. And I mean, no disrespect of any foundation brand out there. We love you. That's our lifeblood, but you have to learn patience. You really do. Brands in the beverage business, if you don't have 24 to 36 months of runway to build your business, don't get in this business. I'm just gonna say it live right now.

I want to jump in. I know you're going through the 5 types, but, but, and I was talking to Chris, um, Takanofi about this the other day, like I think as consultants, we think we have to sell ourselves to the brands in terms of like, here's why you would pay me to do the work, which don't get me wrong, we do and we should, right? We should, you know, provide validation for why we expect a check.

Yeah.

But also I'm curious, what are some of the questions you and Alicia and Paul and whoever it is, ask the brands you work with to vet them to make sure like, oh, we accept you as the brand. Like we are willing to work with you.

Like how do you validate Well, one is I was getting, so from a foundation, we ask them how much runway do they have? Like how much cash is in the bank? Are you well financed? Are you currently in distribution? What are you currently selling? That's the one that we always ask is how many accounts are you in right now? Because a lot of times we'll get in probably a little bit past foundation. It's probably like, hey, I'm, I've built my brand. I'm in a can or a bottle and I need distribution. So we're like, where are you selling now? And because what we, from there, we basically were able to index the markets.

Uh, what's your FOB?

Who's your competitors? Where's your product made? You know, things like that.

So when you ask those questions, give me a percentage. How many brands that you talk to have answers to those questions and how many don't?

Most people know where they're selling. They just don't know if there's reorders. So we go deeper on that. I'm like, okay, so you've sold in 100 accounts. How many of those accounts are reordered? A lot of them don't know that answer. And I call that ghost distribution. So we start to vet out also, uh, like They'll know their price, but I'm like, well, how did you develop that price? Well, I mean, I just, I just, you know, cause my cost of goods is this price and I have to make this much. Yeah. And I'm like, well, who's your competitor?

Right. Right.

Because that's going to determine your price. And it's a tough discussion, especially on RTDs right now.

Yeah.

And you probably relate to this, but when I'm talking to a brand and their can cost for cost of goods is $2.50, yet they need to be at a 4-pack at $14.99 and they don't want to hear it. And I'm like, I didn't make the market up. That's where the market's at.

Yeah. Yeah.

Dude.

Yeah, no, it's, it's, uh, I'll let you keep going, but you're, I was telling somebody the other day, it was a vendor actually. It's a fun story. It was a, uh, what up, Chris? Hi, Alicia. Good morning, folks.

Thanks for coming out, brother. I'm right on top of it.

I was talking to a guy the other day. He was a vendor, is a friend of mine and all. He'll remain nameless because I'm not sure if he'd want me, you know, naming names, but, uh, His name's, well, the veteran name will remain nameless. Name's Steve. I've known Steve for years, super solid dude. And he called me and he goes, hey, I got a random question for you. I said, okay. He's like, how much do you know about mushrooms? I was like, enough to be dangerous, but not a ton. Why? He goes, well, we're offering, you know, mushroom-type ingredients, right? Lion's mane, reishi, beta-glucans, shit like that. Right. Okay, cool. What's up? And he goes, well, we want to get a better understanding of, of the sweet spot for the cost per can, like how many pennies per can would an effective dose be of a certain mushroom extract, right? So like from a formula, from a cost of goods perspective, you know, is it 10 cents a can? Is it 50 cents a can? And then how does that tie out to the shelf price, right? And so I said, right, like, all right, I don't know top of my head from a mushroom perspective. What I do know is If you want to sit on the shelf at, let's call it $3.50, because that's an attractive price for something non-alc depending on the functionals, right? You want to sit on shelf at $3.50 and you want to make 30, low 30s margin backwards from the retailer through the distributor to the brand, right? And you figure the, you know, the tolling is going to be this much and the can's going to be this much and so on. You start to do the process of elimination, right? I said, your liquid cost, all in everything, flavors, sweeteners, acids, functionals, all of it can't be any more than like 25 cents. So your functionals can't be any more than maybe 10 or 15 tops, ideally closer to like 5 to 8 cents a can. And he goes, holy shit. I said, what? And he goes, that math really sucks. And I was like, yeah, man, welcome to being a brand owner. Like, this is, this is the way it works.

Well, let's speak out about that. I think that's in the beginning of the conversation, because when I remember the question I asked is how much runway do you have? To, and it's 24 to 36 months because your costs and goods, your costs, as you start to build volume, your costs of goods should improve, right? So, but as you go out the gate, yeah, you're probably losing money. I mean, I did an analysis yesterday, uh, for a mezcal out of Mexico, love her to death. And I basically did it by month for 36 months.

Mm-hmm.

And I, I, I can, I took all these factors in. What you're going to pay the distributor, their margin, what you're going to pay the retailer, their margin, what you're going to pay me, your fractional sales rep on the ground representing you, what it's going to cost you to do sampling events and marketing, right? And so after we baked all that in, uh, and I had what they were selling that, you know, so what you, what you, your cost of goods are, what your FOB is. So the difference between the FOB and the cost of goods is what they're making.

$44.

And that $44 needs to start being spent, right? So you start looking at your income statement, like, okay, I'm going to put this over here and a whole bit. How much is left in the pie? Well, the first 12 months there was a minus in there every month. And then I said, so then at some point there's a, there's a tipping point where your volume, right? And maybe Chris, you're paying attention so you can chime in. You can dial in, Chris, because I know you're like this expert data guy. But there's, there's, there's a point where there is a tipping point where all of a sudden you've gotten in enough accounts. So the number for this one is we got to get in 134 accounts. We have to average one case a month in those accounts. And if we average one case a month in 134 accounts, they start to break even. That's just the break-even. And then you start to build. Hence why I'm talking about 24 to 36 months. If you think you're going to arrive here and you're going to make money out of the gate, I don't think you are. Tell me if I'm wrong. Now you could. And we tell brands this all the time. I think you told me this or someone said this. Let's say you just want to bootstrap it. That is perfectly fine. You want to come up with your own formula and you want to start in your community, i.e., Carvelous. And you want to do that and you want to go hit accounts. You probably can make a little bit of money, make a lifestyle business. And you can do, you know, you can lay down your foundation, build 100 stores, 50 to 100 stores. And after you do that, you have some velocity, some proof of concept, as Mike Levison says, or I don't know who said that, uh, uh, but anyway, Dave Martin. But my point is, if you've proven your demand, you've proven your velocity, then you're ready to hire someone like me.

Yep.

Because, or you're ready to hire a sales rep. You have to pay someone to do something and they have to bring back the value, but that takes time is my point. I don't know if you're following me.

No, I totally am. It's funny. I mean, again, I know we mentioned, we were the, we're the Carbless fanboys. We mentioned Adam and Amanda all the time, but But Amanda, I think it was, maybe it was Adam, one of the two of them posted something recently where they were like, for the first, God, I want to say it was 4 or 5 years. Amanda was the, the, you know, breadwinner as it were in terms of she was still working the day job, whatever that was. I forget what she was doing before that, before Carbless, but she was still working her day job and, and paying the bills. Right. And Adam was feet on the street for 5 years. That's a fucking eternity. Right. That's a long-ass time, but everybody loves to be like, well, look at them now and blah, blah, blah. And don't get me wrong, fucking God bless. They've had amazing success and they deserve every ounce of it. They're wonderful people.

Yeah.

But 5 years is a long-ass time. Right. And yeah, I mean, I think I talked to, and I know this will resonate with you, Sam. I talked to so many brands who are like, you know, I'm like, well, what's your goal for distribution? And they think, they always think more is better. Like more doors, more doors, more doors. I'm like, that's not a plan.

Right.

Like, Even as the—

That's ghost distribution. If you're getting distribution and you're not activating it or doing anything with it, it's ghost distribution. It means absolutely zero.

Yeah.

Chris, if you're paying attention or Alicia or someone out there, or Ryan, man, I gotta tell you, if you don't activate the brand, and again, being a fanboy of Adam, he'll tell you if they're not gonna put you on the menu, if they're not gonna put some type of point of sale in the account to tell you about where you are. Don't go there. There's no reason to.

Yeah.

We used to do that, like, as a distributor, a person would arrive at my desk and I'd have my boss, Brad Rodenas, and Lauren would be there, myself and the brand manager. And they'd come in and say, okay, how many accounts is Tito's in? We're like, 1,000. Well, I want to be in 80% of Tito's business. You know what I would say?

Lay it on me.

Why?

Do you have the money to be in 80% of Tito's business. Do you know what Tito's spends in each one of those accounts to activate them? So what's your budget? Because I can get you distribution. I can't create pool. I can push it in. Well, I'll put an incentive together for the sales team and I'll pay $5 for a pod and $10 for a reorder. Okay. Are you at— so what are you going to do to support? Are you going to pay for the menu? You can do some waitstaff education. Are you going to do a sampling event? Here's my point. I was on with a client. I think I told you yesterday and they got into 10 PLCBs. That's the Pennsylvania Liquor Control Board stores. They got into 10 of them.

Okay.

I was like, I don't know that acronym, but yes, that makes sense. Yeah. I asked them the question. I said, what have you done in those 10 accounts? They're like, what do you mean? I said, are you activating them? Have you gone in there? Are you doing tastings every week? They're like, no. And I said, well, the first thing we need to do is do tastings. He goes, well, our rep Aaron actually Got approval to go do that. And I said, well, let's get on the phone next week. Let's lay out a plan to go on those 10 accounts, because those are the golden eggs, and do tastings on those accounts to create orders, which will create reorders. Then over time, the state's going to look, oh my gosh, that brand's moving really good. Let's expand them from 10 to 20 stores and do this rinse and repeat and do the exact same thing.

Yeah.

Then I'm hogging this and we got to go into more stuff with you, but the next thing I asked them, I said, how many on-premise accounts are you in? They said like 10. I said, what are you doing over there? Well, they kind of order occasionally. I say, are you in those accounts? Are you talking to the waitstaff? Are you talking to the bartenders? Are you working those accounts? Now, um, we're going to have them on the show eventually, but, uh, uh, but anyway, um, people are challenged at some point. You're going to get to a point where you can't do that yourself. It's not humanly possible. You got to multiply yourself through others. You're going to use, you know, systems. Ben Salisbury. It would be interesting to have Ben Salisbury on here. He's going to come on at some point and he'll talk about some of the new ways to market, which I'm very interested in. He has a lot of really innovative ways how people can build brands. But anyway, I went deep.

Sure. No, dude, this is, so as you were talking, it reminded me there's a woman, you may know her. I wouldn't be surprised. Ella Parlor. Do you know Ella?

No.

So, so I found Ella, I don't know. months ago, it doesn't matter, on LinkedIn. And, uh, she's got a book out that's been on my Amazon wishlist for a while. I need to just buy it. Uh, but I, I bring her up because I, you know, the, as you were talking, the, the smartass in me was like, every brand I talk to, and I'm sure you do this too, right? Every brand I talk to, especially if it's like an energy drink or a cocktail, you know, there's a certain type of product that'll be like, yeah, and we're gonna get the attractive women out there and we're gonna have 'em sample product and we're gonna do this and that. Like, Okay.

Right.

Ella's been in this industry for, let's see, I'm on her LinkedIn page, at least, at least since 2008, because she was on the Red Bull team then, then she went to work for Diageo, then she was with AB, then Pinot Ricard. Now she does her own thing with her own consulting business. Right. But my point is she's been the, the attractive female going out and sampling product all the way now to, you know, more of what you're doing, you know, the kind of fractional sales and distribution strategy, that kind of thing.

Yeah.

I would love to get her on here and ask Like, hey, when you were in that world doing samplings and being kind of the pretty face of the brand, what were you getting paid? Right? Because I think every brand owner thinks like, oh, I'll throw $20 at a college, you know, female and they'll go, you know, sell this for me. Fucking shit, my dude. Right? That's not the way it's going to work. You're going to have to pay them a decent sum because they're doing real work for you.

Yeah. Sampling too, I think is starting to, Um, it had like kind of a lull for a minute, but it's coming back. I've read some posts the other day. Uh, someone said they sold like 10 cases at a sampling event, which is freaking amazing, by the way. Sure. Because that's conversion. That's, that's cans in hands, man. That's bottles in hands. That's, that's, that's, that's liquid to lips. Um, and those are, you know, people that they like the product, they're coming back to find you. And there's people who you can communicate with. I mean, I think Costco, right? I got to make a Costco road trip today. You know why I go to Costco? The sampling.

I mean, I'm assuming.

I walk the— on Saturday I go, I go hit everyone. I get the chips, I get the sausage, I load up my cart. I have, I don't, I go there for lunch.

Well, so, so you know why I go to Costco?

Why do you go to Costco?

So in the food court area, right? They've got this machine and it's, I call it the turntable. I don't know what the name is for it, but they, they make a big pizza dough. Right? Like they, they stretch out the dough and then they put it on this thing and they hit a button and it spins the dough while the sauce drips down. And it does this really cool, like rotary sauce application. And Bree and I will just stand there and watch it happen. It's the most satisfying shit, right? It's just this spiral sauce applicator. And it's funny because the employees now know that people will stand at this big glass window and just watch them put sauce on a pizza.

I'm gonna go do, I'm gonna videotape that today and text it to you. I'm gonna go—

Look for it. Yeah. It's funny shit to watch. Yeah. But noted, I mean, you're again, like you're the, I've said it so many times this week already, like both to, like when I was talking to Paul, talking to brands like, you know, Yuengling, Spotted Cow. I mean, there's a lot of examples in the beer world, but like, there's so many brands that make a solid living, good, bad, or otherwise, right. Just selling in their state or in their city or in their region. And so this whole, like, you know, I've got a couple right now and don't get me wrong, they're early stage founders. They're not familiar with this industry and they're taking the advice in stride, right? They don't like to hear it, but they're taking it. But I tell people all the time, like, guys, pick 3 stores and just hammer the shit out of them. Right. You know, I've got one that's, uh, she's like, yeah, there's this restaurant that's kind of aligned culturally with our product. I'm like, great. Make them your best fucking friends. Focus on nobody else. Right. And I'm like, well, why? I'm like, because it's proven velocity. Like you, you, you're underestimating how valuable that is. Right. Yeah. Anyway.

100%. I mean, I think about the Bible Tea guy we had on, right? And about, he talked about where he got his first distribution and he goes in there every week and he never leaves the store until he sells a bottle. And it's just, I find that great for people.

I went back and listened to that episode and the shit he was talking about, about that, or when like his first distributor in New York just fucking disappeared.

Right.

Just all of a sudden he showed up one day and people weren't there anymore. I was like, Jesus Christ.

Yeah. And that happens in this industry. I, you know, you know, we tell our clients, we're going to introduce you, you know, to a distributor. That's your relationship with that distributor. Right. You have to maintain that and communicate with them. Yeah. And it's, you know, the industry is really interesting right now. We love, we love distributors, right? But it's tough out there for people. You know, there's, there's massive shifts in terms of what people are consuming and people are trying to figure out, you know, where they, where, you know, where they're going to, you know, put the, you know, put the brand and what brands they're going to carry. And, you know, brands are saying, well, what do I need to come out with? What distributor do I need to go to? What's my market? And that's the work we do. Yeah, we do a whole route to market, you know, and commercial strategy, which informs a go-to-market plan all the way down to the store level. But you're right. You don't have to boil the ocean. I always think of Michael Levinson and he said, go play rivers and streams. Remember that episode?

Oh yeah, absolutely.

Consulting. I mean, he is, he plays in food service and so many people are going chasing Hy-Vee and Albertsons and all Walmart. And he's like, hey, I'm over here. No one comes over here and talks to me. I can go get you in, like, if you have a price, you're ready to go. He has a, he has a program called TOM, I think, uh, which people should absolutely go check out. I was asking him about it, but I mean, I love that fact is in your backyard, you can make a living. I know this is totally unrelated, but I have to say it. I was telling you about the robotics earlier. I got a guy that lives in New York. He's just going to focus in Jersey, in the New York metro area. That's it. He thinks he can sell 1,000 robots.

1,000.

Quickly.

Yeah. I have no doubt that that's true. I mean, again, it's the, the, for years and it's, it's nobody's been mean about it. Nobody's been presumptive. Like everybody's been super respectful, but I mean, I, you know, I do RTD beverage, high acid, shelf-stable, mostly cans.

Right.

And everybody will ask me like, well, you, do you do anything else? And they ask just so they know what business to send my way. So it's a perfectly respectful question. But it is interesting in that, you know, they're like, well, do you do other stuff? And I'm like, I would like to. I've never needed to though. Right? Like it's the same logic just in reverse. Like I don't need to go work on 50 different verticals, at least so far. Like I can stay in canned shelf-stable beverage. There's plenty of business to be had right here. Right?

Well, that's where the market's at right now. RTDs is what's growing the adult beverage business, by the way. It is. I mean, cancer.

I want to ask you a question.

We talked to, yeah.

I want to ask you a question quick, because I did. This is, we don't connect outside of this as often as we should, and I need to pick your brain. Everybody and their mother that I talk to is like, oh, I gotta, I gotta launch, you know, 2 more SKUs or 3 more SKUs, or I have to have an energy line in addition to my hydration product. Like, do distributors really give a fuck? Thank you. That was my assumption, but—

You know what a distributor cares about? Yes.

Support. In short, support. Like, can the brand support the product regardless of how many SKUs or what it is?

They, they're, they're, they want to know movement out of the bat. What are you currently selling?

Sure.

What is your current velocity? Where have you been sold right now? Are you well financed?

Sure.

Where's pickup? What's my price? Who's your competitive set? And then before I forget, Chris just came in. He said, I start with the shelf price and work backwards to get the cost of goods. an FOB needed to hit the SRP. Now, Chris, I mean, no offense I'm about to say, I don't know how you can shape the cost of goods. So please dial in here, by the way, and come in and join us and walk us through how you can shape the cost of goods. Because I'm very interested in hearing that. And I would like to have Adam kind of talk about that because I think the cost of goods are going to come before the FOB. It's just what it is, right? Am I wrong or not? But Chris, please dial in. Call in if you want. Use the same link, by the way, that I gave you last week.

You're not wrong, but Chris and I had this conversation or a version of it. Uh, it's a little chicken or the egg, right? Because you can approach it from both ways. But like, for example, with the vendor I said, the gentleman Steve that called me, and this was what Chris and I were talking about. If somebody knows, hey, to your point earlier, Sam, if somebody knows, hey, I have to be at this shelf price in order to be competitive. I think where people get spun up is, and I see this all the time in functionals, but you see the same thing in ALC. Is people think they have to have like 16 different reasons for someone to buy their product. Right. So it can't just be tequila or, you know, real tequila or real bourbon. It's got to also have—

Here, I'm going to give, I'm going to give Chris to dial in. Hold on a second. Yeah. Keep on going.

You know, it's, it's got to also have like agave as a sweetener and it's got to also have, God, I'm trying to think of what other expensive shit you could throw in there. But like, it's just got to have, you know, one thing after another, a laundry list of reasons for people to buy the product, which don't get me wrong, like can be useful, but A, it's a confusing story to tell and B, it adds to your costs. And so from the ops guy's perspective and where it blends with sales is like, hey, if you know you need to be at this price and the primary reason people are going to buy your product is because it has real rum, real bourbon, real tequila. It's got a certain functional, whether that's a mushroom or a THC or whatever. Great.

Yeah.

Pay the money for that. Market the shit out of that and fucking ignore everything else. Use the most cost-effective sweetener profile. Use the most cost-effective flavor profile. Use the most cost-effective juice profile. All the other shit you can make simple to the goal of getting to the cogs that you need to get to. But the problem is everybody looks at juice as a good example. Everybody looks at, you know, well, I'm going to make something with real bourbon, but then I'm also going to use named fruit juices. And I'm also going to use the most expensive sweetener I can. I'm like, you know, you, that's just not an option, right? You've got to tailor something to your primary target.

Yeah. It's, uh, that's interesting though. So like Chris said, you know, your competitive set, which will somewhat determine your SRP. You work that backwards to the distributor, to the retailer, what they need to make. Right. And you land on this FOB and now you're like, hey, this is the FOB I need to be. So Now you can start looking at, do I need 16 variations of this product? Can I go with 4, which takes 5 cents out of this? Do I need the— you've talked about cans before, but can I go with the standard can versus the digital can? And can I save price? Who's my co-packer? What are the MOQs? So you can basically work it. So maybe they should start with the, uh, which is true. You probably should. I should know that answer. You should start like, who's your competitor? What is the marketplace?

Yeah.

Work it backwards and say, hey, is this doable or not doable?

Well, 'cause it, I mean, so spot on, right? The other piece of that is, and it sounds like Chris is going to try and join us, is you may go through everything I just said and realize, for example, like, okay, I'm going to use real tequila, but then everything else is going to be as cost-effective as possible. Natural flavors, simple sweeteners, blah, blah, blah, right? Grape juice instead of named fruit juices, shit like that. You may still realize that in order to hit the cost of goods you need to hit, You have to produce 3,000 gallons per SKU instead of 1,000 because you need your tolling fee to be lower.

Right.

That leaves you at this, right? That leaves you at a decision point of, all right, well, you can either go find the money to produce at 3,000 gallons per SKU to get that lower COGS, or to the carbless example, you can produce at lower volumes, but you can know that you're going to have to self-distribute in your own state and do all the feet on the street yourself. If your state's, you know, amenable to that, right? So on and so forth. And, and save money in other ways, but it paints you going back to your point on having a distributor, having a plan. We need to hit this many stores to make, you know, break even and so on. It just gives you that very clear roadmap. It's not fun, but it's there. Also, good morning, Chris. Can you hear us? Yeah, guys.

Can you, can you hear me putting on my seatbelt?

We can. Yeah.

Hey, I love it when people come in hot, man. I called you out. You're always welcome to do this, by the way. You can always come, Chris, and join us.

You're always welcome here, brother. No, but Sam, actually a couple minutes ago, you kind of made my point for me. The example that Adam and I talked about a few weeks ago was when, well, Sam, you and I are give or take the same generation. So we learned math a certain way, right? My, my kids learned it a different way. All right. We learned that 2 plus 2 equals 4. My kids learned that 4 divided by 2 equals 2. Therefore, 2 plus 2 equals 4. The, the, the shelf price backwards, which you touched on, Sam, I want to be at $5.99. Okay. You have, in order to be at $5.99, you have to build in a 30% retail margin. So you have to minus that. Right.

Right.

Then you have to minus the distributor margin of, let's call it 27.5%. Then you minus that, right? Then you minus freight and tax. That leaves you with a net FOB. Divide that FOB by 2. That's what your COGS need to be, right? And now this is a quote unquote what the book says, right? For my clients, what I say is instead of doubling your COGS to meet your FOB, do it at 1.2. To cover what you said, Sam, feet on the street, budget for activations, budget for social media, et cetera, et cetera. So really the question is, again, Adam's point of chicken and the egg. Why do you want to be at that shelf price? Like, and Sam, sorry, Adam, you and I were talking about my canned THC client, right? They came in saying, we want to be at $5.99. And then we did the exercise and then we did the competitive sales analysis. And we found out that THE beverages, uh, the velocity at $6.99 is 18% higher than at $5.99. Right? So then we worked backwards. We found out that their FOB could be about, I think, $4.50 more a case. To get distributor full margin and retailer full margin be at $6.99, which is selling through at 18% faster than $5.99.

Interesting.

All right. So again, chicken and the egg, Adam is right. Learning the math, everyone is right. But the way that, again, and the way that I just explained it to you is Gallo 101. That's how Gallo does their, that, that's how Gallo does their shelf analysis. Because I was taught by a 25-year veteran of Gallo who does pricing. And so the cool thing about this though, guys, is the 3 of us are having this call right now. We can have 3 totally different views on how to get there, right? But I'm a, I'm a tortoise and the hare guy. Slow, steady, and straight. You speak my language. Yeah. And then, and then Adam, going back to what you were saying, You know why? And for the next 3 to 5, for the next 3 years, anyone thinking of doing a line expansion should, should punch themselves right in the stomach. Right. Go, go deep and wide.

Right.

Go deep and wide with what you have. Right. God forbid you get desirability and you keep, and you get people to ask what's next, what's next. And then if you want to do the High Noon example of do a variety pack with a flavor you can only buy in said variety pack. And then the best works example, and I'll, then I'll shut up, is just 4 weeks ago, Hennessy VS launched an, launched an RTP line, 3 different flavors, 40% versus their 80 proof, right? Sorry. 40 proof versus 80 proof.

Yeah.

And the reason being is I used to work there. I have a lot of friends there. For 7 years, the US brand team for Hennessy's tried to get the Maison to approve it, but France said, no way. Bernard Arnault's son takes over as global CEO of Moët Hennessy. 6 months later, you got RTP. All right. A lot of it's generational, but here's what I know. They made a quorum. They made 100,000 cases of it. Distributors took it all in one PO and it's already sold out in 6 weeks.

Wow.

Wow.

What if they would have done— now think about this, guys. What if they would have done this during the pandemic?

Sure.

Right?

Yeah.

And so, um, that's the cool thing I like about talking with you guys is, you know, Sam and I are from similar generation. Adam's from a different generation. We look at the business from at least 2 different ways. Probably 3 different ways, I'll be honest with you. But there's usually 80% continuity in kind of what we talk about. And so, you know, there you go. So I'll be quiet.

I'm going to send you this. I'll make a copy of this. This is the field marketing training album from Gallo. And Chris, within this, it has all that pricing that your 25-year veteran taught you. It's all right here in the book.

Oh dude, scan it to me. I will. Don't send it to me, dude. Dude, that's worth like 100 grand.

I was gonna say that's fucking gold. Scan that shit in, redact all the pertinent information.

Yeah.

And start selling that shit. That's good money.

Well, when we're not on camera being recorded, guys, I'll also share with you the story that this gentleman So he was a 25-year veteran in 2005. So he started with them, what, '85? No, '85. '85. Right. Okay. And he told me the story about, he told me the story about, talk about field marketing manual, Sam. He told me the directions given by the last original surviving Gallo on how to launch Thunderbird in urban markets. When we're not being recorded. I'll tell you that story. On one hand, it'll offend you to high heaven. On the other hand, you'll be like, that is genius.

Well, I'm going to scan this chapter today to you. I got to read this paragraph, but he just brought memories. Understanding distributor pricing practices. The purpose of this chapter is to acquaint you with the language and general pricing practices of a typical Gallo distributor. The explanation will barely scratch the surface of the intricacies and complexities of distributor pricing. It's assumed that you already have a strong background And basic retail wine pricing. Nevertheless, you should thoroughly review chapter ten pricing fundamentals. Like this thing is like everything he taught you is right here.

Yeah, dude, a hundred, a hundred percent. And it's funny you talk about gala distributors. And so you look at, you look at Johnson Brothers, right?

Yeah.

Johnson Brothers is by far the best executional distributor in the U.S., right? Do these ten things. In ninety days, and guess what? All ten things get done in ninety days. Right now, now, now look at what Reyes has become on the beer side the last thirty years. Who's been the best executional beer distributor? Reyes. Right? Where'd Gallo go in California? Right. So, but the thing about the Reyes model and the thing about almost every distributor model. Currently and for the next 3 to 5 years, Reyes tells their suppliers very clearly, we will deliver your product. We will be great stewards of your brand, right? We will work at 22 to 24 points versus 25 to 30, right?

Mm-hmm.

You take that money and invest in people in the market, boots on the street, We will, we will help you execute, but you got to do it. Right. And we will be there at your events. We will blah, blah. And I've seen it. I've seen it all happen, especially the last year. And, you know, we can all agree that what's the last brand a distributor built? Some may say Tito's, but I think we could agree Tito changed his name and Tito built Tito's.

Right.

I think his real name is like Joe Smith or something. But, but that's, I don't know about you guys this time, the last 2 years, I've, I've never had more fun because I've had to use my brain a lot more. You know what I mean?

You do, you have to, I mean, because of the nature of where the business is at, you have to be, you really have to think through the approach of how you're going to either solve a problem Or pursue an opportunity in this business. And it's not for the faint of heart, but it is fun. I actually enjoy talking to people. I always talk about it, but I mean, I'm on this term ghost distribution. Like, I know you caught earlier, but had a client in Pennsylvania and they're like, we're only in 10, um, Pennsylvania liquor control boards. I'm like, you're in 10 Pennsylvania liquor control boards. What are you doing to build that business?

Like, exactly. Exactly.

And it's—

they were complaining they didn't have enough. I'm like, well, you have— you've proven that you deserve more.

Yeah. Well, it's also, you know, I don't know about you, Sam, but almost all of my clients are, have no experience in Bevac. All right. They're very successful in other businesses, but our business. And so my biggest client who, you know, Sam, uh, they work with you in Texas, right? Yeah. Their, their winemaker who's fucking, you know, Wine Spectator Winemaker of the Year. Sorry, Wine Enthusiast Winemaker of the Year. His, his belief is this brand should be 80% on-premise. Okay. So all of the investment, all of the programming, and like in New— like, you know, we're, we're just mentioning Texas, but like in New Jersey, we're doing RIP programs just for on, you know, focused on on-premise. Right. But what's happened the last—

What's a RIP program? What is that?

Sorry. A RIP program. Oh, I love this. It's a legal, um, how, how do I explain it? It's a legal way to do volume discounting in New Jersey that protects, or that should protect the brand shelf price. It's a margin enhancer for the retailer.

Okay.

So RIP means reduction in price, but the way they do it is actually the way you'd want someone to do it. So let's say that today. Chris's cab is $79.99.

Okay.

And their, and their cost is $50, right? You do a 5-case rip during the month of June. They buy 5 cases. It could be all at once or cumulative, right? They cannot lower the shelf price more than like 20% or something, right? So they can do a, a 1-month, they can do a special quote unquote, To go from $79 to let's say $64.99, but they can't go lower than that. But what you want them to do is you want them to keep it at $79 or maybe go down to $74 and just keep the extra money. And then 30 days later, the distributor literally writes them a check for the discounted, for the deeper discount of the product. And you can do in New Jersey, most people do it once a quarter and they bridge buy in between. But, uh, it's like in California you can do QDs, right? Costco buys a, right? They buy a container, they pay $10. Safeway buys half a container, they pay $12. And independent retailer buys 5 cases at a time, they paid $15, right? This is a legal way to get around it. But when you look at brands, going back to the shelf price that Adam brought up, you know, I worked, I worked for Moe Hennessy for 7 years, right? They spend all their money to try to bring people to the shelf at $79.99. All right. Don't discount. All right. Invest on desirability, invest on marketing, coolness, aspirational activations. Uh, Sam, you mentioned Liquid Ellipse a little bit ago, right?

Yeah.

Invite-only parties, blah, blah, blah. That's how you grow. That's how you should be growing. Brands in the premium and luxury space. And knock wood, for me, that's, those are all the brands that I'm working with. I've purposely chosen to stay above, let's say, 40,000 feet. I have, I have THC clients, totally different conversation, but luxury's recovering quicker. Premium's recovering quicker. Discount your heart away, Purnell. What's happened to them the last 3 years? Discount your heart away, Diageo. Discount your heart away, Brand X, right? Tortoise and the hare.

I love it, man. That's, uh, that is amazing. Um, hey, quick question while we got you, Chris. We were talking before we went live. What do you think a client wants to see out of like a consultant? Like, what are you running into? Like, do you run into impatience or like, how do you like manage the expectations of a client that keep them to understand what they're getting into? Or how do you qualify them? I guess maybe I'm getting to the question, like, how do you qualify a client?

Well, first of all, I'll clarify, I'm an advisor, not a consultant. We've talked about why I don't use that word. Adam knows. But, uh, but you have to be amazing during the initial conversation, Sam. Again, I know you have, you and Alicia have 50 of these a week, right? During call number 1 or call number 2, like before the shit off the— before the shit or get off the pot call, you gotta, you gotta tell, you gotta tell them all the bad things. Now, all the bad things just means you have to be amazingly transparent, right? You know, one of my first calls I took when I started this company, Sam, was this guy who's a manager of a very Popular musician. That musician has a brand that's actually doing pretty well right now, right? So he was looking to do a tequila, and he's like, da da da da. And then in five years, we want to sell it for a hundred million dollars. So I so I go, okay, let's let's stop right there. What's your FOB? Okay, divide that by a hundred million. You'd have to sell these many cases. At an 8x revenue to be at $100 million. That's not going to happen. So you need to look at $50 million. There's no way. I'm like, well, that's, that's real. I live in the real world. I got bills on a, you know, I got mortgage to pay. You need to look at a 3-year, $25 to $50 million valuation because that can be hit. Well, sounds like you just I go, hey, I'm not— if anyone tells you anything different, they're lying to you and you should go with them. And then you'll come back to me in 6 months because they screwed the pooch. And guess what happened? They came back to me and they came back to me in 8 months and I said, no, thank you. I don't have any more room. Yeah.

I love it, man. I mean, I think transparency is so important. And I think, you know, Adam asked me like, what kind of questions do you ask clients? I mean, I think that's where you kind of came in. I always ask like who your competitive set is, you know, how much, how much runway do you have?

You know?

How much have you sold? Like anything else we're missing that you would ask the client? I love the math you just did on the evaluation, by the way.

Yeah. Well, that is math because, you know, the only 2 brands that people outside of our, that are outside of our business, right? Maybe 3 brands. People outside our business that, who know is Casamigos, Aviation, and Buzz Balls. Those are the only 3 brands that people who Don't even know shit about shit. Oh, sorry. Can I cuss here?

It's all right.

No, absolutely.

So, so Casamigos. Now this is the thing that blows me away. Casamigos was at 70,000 9-liter cases in 2016, '17 when it sold for a billion. Right? Just do that math. Right? And then go back to Constellation's purchase of Ballast Point. Wait, what? 10 years before that, which where they took a $900 million write-off the next year, right? Look at it. Look. So Casamigos Diageo lost their you know what on, all right? They are currently losing their you know what on aviation. There's a reason why Ryan Reynolds all of a sudden started promoting aviation again because he knows he ain't going to get that extra $400 million. All right. Now look at Buzzballs. Buzzballs a different conversation. All right. Organic story, right? Woman was a schoolteacher, created this for her and her friends to drink after school and talk smack about the kids. It's sourced from spirit, wine, what's neutral spirit, wine, and malt, right? And they've got a production facility like 10 miles from my house. An argument could be made that Buzz Balls at a Billion Was not ridiculously overpaid. It was overpaid, but you know, says right. You know, old Bill Gollering got the money. He's doing fine. All right. And so you have to just do the math, right? And look at other businesses. This is where Sam, my clients who don't know anything about our business, but they know business. They know the multiples. All right. So I tell them, hey, so what was the last business you bought? Oh, I bought. I bought Bev assets from Sam. Okay. What'd you pay?

Okay.

What was, what was the multiple? Oh, it was 8x.

Okay.

So just do that same math, right? What's the 8x multiple on a 70,000-case brand? And let's assume it's the same FOB as today, right? I think their FOB per 9-liter case, I'm going to say it's $400, right? $400 times 70,000. I can't, I don't have a, I'm, I can't do the calculator right now. But do that and then multiply it times 8. That is so below a billion. You know, that's so below a billion. And there's a reason why Diageo's on their, what, 4th, 3rd CEO since Sir Ivan passed. And they're about to do a whole elimination of jobs August 1st. And you read about Treasury, they're finally gonna get rid of what, 60 of their 90 brands.

Right.

It's going back to what Adam said or what you, I don't know if he said it, but hey, do I, should I expand to more SKUs?

No, I think focus on the basics and, and the, uh, the core of what you have. I mean, absolutely. You know, we've had a couple brands where they're like, well, we're gonna come up with this innovation. I'm like, you, you haven't even proven the first brand that you have yet. So why are you coming out with all this other stuff?

Yeah. Well, there, there's a champagne brand I'm really trying to close. It's got, It's a Blanc de Blancs and working with, yeah, I know Renard Blanc de Blancs is my desert island champagne. So met with them, tasted it. It, uh, a celebrity's involved, but she's involved, involved. Like she goes to the markets and she actually, she was in Wisconsin for 3 days. Let's put it that way. Right. She's involved. Great package. Great story. Organic story. Quality's fucking good. It's just good. And they're like, yeah, so we're thinking of It hasn't even really, really launched yet. They're in like doing Via Park Street and stuff. And so they're like, yeah, we're thinking about doing a rosé. Then we're thinking about maybe laying down 1,000 of these bottles for a vintage down the line. I'm like, okay, do the second thing. Lay some Blanc de Blancs down. Right. And then in 3 or 5 years, launch a vintage. That's easy. Look at the, look at the rosé numbers post-COVID. How's, how's rosé doing right now? All right. Whispering Angel is, is owning the category still. They're at, I'm out, I'm outside of Liquor King in Frisco, Texas right now. And Whispering Angel is $17.99.

Amazing.

When you buy, sorry, when you buy 2, sorry. You know, it's, and the, the margins are, it's, it doesn't make any sense. Why would you want to do a rosé right now?

Yeah, it's amazing.

Yeah. Hey guys, I gotta run. Sam, Adam, thanks for letting me yap in your ear for a few. Hey, we'll talk to y'all soon.

Chime in anytime, brother.

Love it. All right, guys. Have a great rest of the call.

See you. Later, brother.

All right. That was really good. I think we can wrap up, Adam. Any closing thoughts before we close it on the day?

Yeah, I think Chris brought up something really interesting about the way math gets done. And so I'll reiterate, once upon a time I used to be pretty good at moderately higher level math. And so, you know, you do proofs, right? Of like, okay, yes, 2+ 2= 4, but only if 4 divided by 2 also equals 2, right? And bear with me on the, on the, uh, you know, hypothetical here, but I think too many brands don't pressure check the math from multiple angles, right? They see 2+ 2= 4 and they go, okay, cool, that's my plan. They don't then flip the math or look at it from a different direction and go, well, does it still work if this, if we do it this way? Right. And I think if they did, it's just a more defensible position to be in. Not that shit's not still going to go wrong and stuff's not going to happen because it does, but you just go into it feeling more confident in like, okay, it's not broken. And in fact, I could argue from several directions that it works. Right. That's my point for the day.

No, I love that. I love the fact that we got to get more people to pop in. I love pop-ins, by the way. So we should encourage, like, maybe we have a particular guest, maybe we know someone that could add some value and have them do a surprise pop-in would be really good. So I love that. I love the fact that we started saying earlier on, but you gotta be brutally honest either the first or the second meeting about what the realities are of the marketplace and what they're gonna face, because you don't wanna have that conversation 90 days in. They're entering thinking, hey, I've got this person. I'm gonna be in 1,000 accounts. Could that happen? Absolutely could. But probably the odds are it's not.

Yeah.

Doing the math, the odds are that that's not going to happen. But if you approach the market and you have a really good plan in place and you work that plan, you can be very successful. And if you talk to people like yourself, Adam, or Chris or Alicia or Ryan on the marketplace, or even reach out to like a Jay Williams. I mean, Jay Williams could teach a masterclass on how to build a brand. Now he's one of those brands that he did fairly— he's doing it fairly quickly, which is amazing. You know, but he didn't do that overnight. I can tell you, I ran into him at BevNet when he was at his launch and he put a lot of blood, sweat, and tears and a lot of unknowns. And I'm sure Jay would qualify that for sure. I'm not going to pretend to know what that, what those unknowns are, but Jay, if you capture this episode, let us know. But yeah, there was a good talk today, brother. I hope the person that was supposed to join us, I hope you're okay. Please let us know.

Great.

That's important to us. And we'll wrap up today and thank everybody for joining us on your Saturday and have a beautiful weekend.

Thanks everybody. See you next week. Bye-bye.