Entrepreneurship Zone: 21 June 2023 :: Non-alcoholic G&T: South African taps into booming demand for alcohol-free drinks

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Entrepreneurship Zone: 21 June 2023 ::  Non-alcoholic G&T: South African
taps into booming demand for alcohol-free drinks

 

	
 


·          





When Johannes le Roux began researching the development of a new
ready-to-drink (RTD) beverage brand in 2015, he didn’t know that he would be
the co-founder of The Duchess, a non-alcoholic gin and tonic producer.
Today, the Cape Town-based business looks set to benefit from strong
projected growth in the global non-alcoholic market over the next five
years.

In 2015, having launched, scaled and sold a successful local brandy and
cola business, Brannas Draught, Le Roux was ready for his next foray into
the alcoholic beverage market.

“I learnt a lot about the beverage industry while developing Brannas
Draught: how to create a brand from scratch, how to create the liquid, how
to manufacture a beverage line and how the distribution network operates,”
Le Roux tells How we made it in Africa.

Following the sale of his business, he travelled to the Netherlands to
undertake market research and discovered considerable demand for
alcohol-free products.

“The more research I did and the more people I spoke to about trending
alcoholic drinks, I realised the vast majority were trying to cut down on
their alcohol consumption. It was clear the global alcohol-free beverage
category presented a fast-growing segment,” he says.

At the time, several alcohol-free beers had already entered the market, but
no alcohol-free gin and tonics or wine spritzers were available.

On his return to South Africa, Le Roux secured seed funding from five
friends and family members, which provided manufacturing funding for the
first product batch. He consulted with the food technologists who had
assisted in creating the Brannas Draught range, as well as his botanist
aunt, who provided the botanical extracts required. He and a small team
experimented with the blending of distilled gin and juniper extracts,
creating a botanical tonic that would ultimately become The Duchess
Botanical Gin & Tonic.

The business sold over one million units in South Africa in its first year.
In 2020, it added an alcohol-free wine spritzer range and has brought its
total units sold since inception to over seven million across five
territories: South Africa, the Netherlands, Belgium, the UK and Australia.

Today, 74% of its market is female and between the ages of 18 to 34 years.


Growing the business in South Africa


Explaining his approach to growing the business in South Africa, Le Roux
says it was all a matter of persistence, coupled with a solid knowledge of
the market and a unique product.

“I did a lot of LinkedIn stalking to find purchasing managers and made a
lot of cold calls to the head offices of big retailers to pitch to their
head of beverages. Once we had secured meetings, we would literally arrive
with a bottle opener, glassware and a cooler box of our test samples,” he
recalls.

The Duchess also focused on establishing a sales pipeline at local food
markets, such as Neighbourgoods, and Le Roux attributes much of the
business’ success to its strong brand positioning and design elements. By
the end of 2017, this approach had earned it listings with major retailers
Pick n Pay, Checkers, Spar and Makro.

This momentum was helped by Covid-19-induced alcohol sales restrictions in
South Africa and an overall awareness around alcohol-free drinks.

In 2019, The Duchess attracted the attention of ZX Ventures, the corporate
venture capital and innovation arm of brewing company AB InBev, which came
on board as a backer and provided the local drinks provider with networks
and deep industry knowledge.

In 2020, South Africa’s total sales of alcohol-free beverages reached 1.34
million cases. Of this, 64.8%, or 866,667 cases, was beer; 19.5%, or 260 000
cases, ready-to-drink products; and 15.7%, or 209 333 cases, wine, according
to figures provided by the company.

The Duchess is now available in most local retailers.



The Duchess produces non-alcoholic gin and tonic in three flavours.


International expansion


Back in 2018, Le Roux set his sights on the international market, bringing
on an experienced friend as international sales manager. “What we did in
South Africa – cold-calling buyers – he did on an international scale and
spoke to buyers across hundreds of territories. Within a year, we were able
to secure our first listings in the Netherlands. It took a lot of
persistence and endurance but I think it was the only way to do it.”

Exports currently account for around 50% of total sales. In the
Netherlands, The Duchess products retail at Albert Heijn, Jumbo, Plus, Gall
& Gall, Sterk Amsterdam and Coop, while in Belgium they can be found in
Delhaize, Carrefour and OKay. In 2021, The Duchess launched on Amazon in
Germany, the UK and Spain.


Production and distribution


Utilising what Le Roux describes as a “lean and scalable” operations
structure, The Duchess sources its raw materials from long-term external
providers. The flavourings and tonics are provided by a flavouring house,
the botanicals are grown by Le Roux’s aunt, the glass bottles are sourced
from Consol Glass and the labels are printed by Cape Town-based Label Image.

“Our operations manager then arranges the transport of all raw inputs to
our co-packer, Chill Beverages International, in Stellenbosch. We put an
order in with them for, let’s say, 4,000 cases and they blend, fill and
carbonate to create the finished product,” Le Roux explains.

When it comes to distribution, the business adopts a fit-for-purpose model,
adjusting its distribution approach based on the volume of the order, the
nature of the client agreement, and the territory in which the product will
be sold.

“We’ve got different approaches for different markets and I can honestly
say we haven’t yet solved our distribution strategy. That is probably the
most important, costly and complex part of the beverage business, especially
since the biggest and best distribution networks are in-house distribution,
such as those of AB InBev and Coca-Cola. As an independent brand, competing
with that is tricky,” he says.

Locally, the Duchess works closely with regional distributors, servicing 50
clients and about 1,500 independent retail, forecourts and on-trade outlets.
This is supported by a national merchandising partner.

In Australia, where The Duchess has a single client – Woolworths – the
product is sold directly to the company, which utilises its own distribution
resources. “This tends to be the most effective way to do it because there
are no middlemen involved and consumers get the best price on the shelf.”

In its other markets, such as the Netherlands and Belgium, the business
sells directly to import companies specialising in specific territories that
take care of key account management, sales, distribution and local
marketing.

“Most beverage companies use the importer model: finding an importer that
is strong in your category of trade in that country and then signing an
exclusive agreement. This means, however, that there is essentially a
middleman and, as a manufacturer, you make a smaller margin on those sales,”
reveals Le Roux.



The company has also expanded into producing alcohol-free wine spritzers.


Non-alcoholic global market boom


Competition in the local and global non-alcohol RTD beverage market has
intensified since the inception of The Duchess in 2015.

Major competitors now include Savanna Non-Alcoholic, Abstinence, Seedlip,
Heineken 0.0 and ABInBev’s Castle Free.

According to the International Wines and Spirits Record (IWSR), consumers
are increasingly opting to limit their alcohol consumption by drinking
alcohol only occasionally or consuming both alcoholic and non-alcoholic
beverages at the same event or celebration.

The 2022 IWSR No- and Low-Alcohol Strategic Study shows that no- and
low-alcohol beer or cider, wine, spirits, and ready-to-drink products grew
by more than 6% in volume in 10 key global focus markets in 2021, and now
command a 3.5% volume share of the industry.

The market value of no- or low-alcohol beverages in Australia, Brazil,
Canada, France, Germany, Japan, South Africa, Spain, the United Kingdom and
the United States grew from $7.8 billion in 2018 to just under $10 billion
in 2021.

Additionally, the study forecasts that no- and low-alcohol volume will grow
by an 8% compound annual growth rate (CAGR) between 2021 and 2025, compared
to regular alcohol volume growth of about 0.7% CAGR over the same period.

“According to the new IWSR research, 43% of adults across the focus markets
who have purchased no- and low-alcohol beverages say they are substituting
those products in place of full-strength alcohol for certain occasions,
rather than abstaining from alcohol overall,” reads the report.


Future plans


On the heels of ZX Ventures’ backing of The Duchess in 2019, in late 2021,
Rand Merchant Bank (RMB) announced it had partnered with AB InBev’s
corporate venture capital arm to take an equity stake in The Duchess.

“Our team’s focus is on building a community around our beverages. A social
and emotional connection that consumers can relate to. AB InBev is the
perfect sales and distribution partner and we have recently brought on RMB
as strategic financial backers,” comments Le Roux.

Owing to increased competition in the market, The Duchess is now focused on
reducing its local costs by some 35%, which should make non-alcoholic
beverages accessible to a wider audience.

It will also leverage a newly launched B2B app by AB InBev, BEES, which
allows small taverns, outlets and liquor stores to purchase stock directly.

“We want to focus on the South African market this year, while globally
things are steadying. It’s difficult to activate the brand internationally
when you are unable to hold launch events in certain countries. So this
year, we’re focusing on getting the core things at home right,” he says.

Thereafter, the business has earmarked funds to expand into new territories
such as the US where the no- or low-alcohol segment is forecast to grow by
28% CAGR by 2025.

The Duchess range is packed as 6 x 4-packs per case of 24, with each unit
containing 275ml, and offers a range of three non-alcoholic gin and tonics
and two alcohol-free wine spritzers.- howwemadeitinafrica



Johannes le Roux

 

 

 

 


 


 


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