Episode 211: Everyone in Hollywood Has a Spirit Brand—But Are They Making Any Money?

Hello and welcome to One Dizzy's Podcast. You're serving in drinks culture and the people who drive it. I'm G. Gabriel, a digital editor and podcast producer here at One Dizzy's. This Sunday marks the return of Hollywood's biggest night, the Academy Awards, where stars gather to celebrate the year's best in film. But these days, plenty of those same stars are also competing in a different arena, the spirits industry. Over the past decade, celebrity backbodies have become a booming corner of the drinks world, from tequila and the scale to vodka and beyond. Summer passion projects, summer savvy business moves, and others fall somewhere in between. And with A.L.S. names launching or attaching themselves to brands, including Oscar nominees like Kate Hudson, who founded King Street Vodka, and Venetio del Toro, who is back, Peraverting the Scale, it raises an interesting question. What ingredients actually make a spirit's brand succeed? In this episode, we take a closer look at these ventures with Ed Mundy, who heads up Beverage's Research at Investment Bank and Financial Services for Mchefries. We get into why celebrities enter the spirits business, how these partnerships typically work, and how often star power truly translates into sales. Ed, thank you so much for coming on the Wine Athusies Podcast. Why don't you introduce yourself to our listeners? Hi, Jake. So my name's Edward Mundy, I'm a Beverage's analyst, I'm based in London for US Investment Bank. Jeffries, I've been working in alcohol for best part of 20 years, most of which has been spent during my time at Jeffries and other banks before that, but I also worked in industry and I'm having sort of grown up in the beer industry 20 or years ago. So a good combination of both. I've seen things from the financial side of things, then seeing things at the call face with their brewery. Do you work with these types of celebrity spirit brands in your day to day job? So my day to day job, I spend a big chunk of my time looking at beer companies, spirits companies, and soft drinks companies. Clearly we do focus on celebrity brands, and so far as when the large companies buy them, we want to track them, see what type of return they're making, see what type of growth they're throwing off. And clearly as part of our broader job, we keep an eye out on which brands are hot, which brands are not hot, and particularly one of the next big categories. We don't spend that much time, I would say directly interfacing. You know, we're some of these companies, but it's clearly something that's on the radar for us all the time. So in that vein, I mean, is there a starting point that you can identify where this sort of took off? Sure. So look, I think the first, people have been doing celebrity brands, not just within garbage alcohol, but across broader goods for decades. There've been a number of instances where celebrities have got involved in some of the brands, other for fashion, product, fashion reasons, or just as part of something they'd like to do. But I think the real time that celebrity brands took off in a big way, in a really big meaningful way, that was when Tiagia bought Casamigos, which at the time a lot of commentators thought was a big price, big ticket being paid for it. And I'm sure we'll discuss this a bit later on, but yeah, the Casamigos deal with the first time there's a really big ticket in multiple, a page for these types of brands. Yeah, I mean, I think that was close to a billion dollars all in. But what about spirits, what makes a spirit so attractive for celebrity in terms of, you know, why not a celebrity frozen pizza or, you know, which I'm sure there have been? But what about celebrity spirits makes it so attractive? Well, there's something about alcohol relative to the rest of the casino staples, right? A lot of consumer products that you buy or you use on a daily basis are sort of quite functional, right? And you buy chocolate, you buy washing detergents, I mean, you buy toilet paper. But spirits is slightly more luxury, it's slightly more discretionary. And, you know, as a result of that, there's a number of reasons that sort of make spirits quite attractive. I mean, the first point is that the unit economics of spirits are pretty attractive, you know, very high gross margins, very high profitability. And, you know, when you take a brand that's got real resonance with consumers in the right category at the right time, would the right distribution muscle behind it and the right backing? I mean, you can really scale, you know, that brand up quite exponentially, you know, frankly. And, you know, if you're one of these big companies that's acquired, you know, one of these celebrity brands, it can make a real dent in terms of your top line growth. And ultimately, that's how a lot of these companies are valid on the top of top one growth that they could throw off. Right. Yeah. Was there a time where spirits like these were seen as more gimmicky and not taken seriously, at least as much as they are now? Yeah, look, I think if you go back, you know, a couple of decades, you know, there've been a number of examples of the brands, or a bit gimmicky that maybe didn't work, you know, didn't have that, that degree of all-fenticity. I mean, you know, as you know, Trump Ford Co was a very, very good example of that, you know, and any loons ago, a brand that was quite blingy, but it didn't really live up to it in terms of the backstory, it didn't really look up to it in terms of the taste profile. And those were dropped. But I think what was interesting about Casamigos is that this ticked a lot of boxes, you know, when it came to what it made it successful. And I always took a very simplistic view of brands that are successful, whether they are celebrity, or not celebrity, back to them. And ultimately, you need a couple of things. You need a really good backstory. Number one. So for Casamigos, as very authentic, this is the brand that's the key that's made for you and me, very craft-oriented, you know, driving that friendship with your friends and family. You need a really good liquid. You know, in the case of Casamigos, it was a time when people didn't know much about tequila. It wasn't mainstream, but I knew it was a nice imagination. And you know, this was quite a smooth, easy to drink tequila. That was very easy to mix. You know, good vanilla notes, I was no burn. And you know, that's it's a lot of boxes, I think, for the consumers. And then you need good packaging. And then you need really attractive packaging. So you need a backstory liquid. You need packaging. On top of that, there was a bit of an urban myth as well around. And this doesn't give you a hangover, which, you know, clearly was not something they ever pushed hard at all. Right. They got their timing, you know, just right. But, you know, I think all successful brands have those three things, you know, the backstory, the liquid and the packaging. I think Casamigos was very successful with that. And also getting the timing right. Well, barring a major sale to a major corporation of that spirit, how do celebrities make money here? I mean, is there, I know it probably varies from spirit to spirit, but what are some of the ways that they can? I mean, typically the celebrity will get involved in the brand brand in one of the early stages. They'll probably put some other money behind it. You know, they'll get some friends behind it. They'll get some proper financial backing behind it. And the goal is to get the brand visible. And that's where the celebrity, you know, really pays a role, you know, given their social media presence, you know, given the putting their name to the brand. You know, ultimately what you're trying to do though. And these brands are in the early stages. All about growth. It's all about distribution. But what you're trying to do ultimately is try and get the velocities up. You're trying to get the proof of concept up. And you know, when the brand hits maybe 50, 100,000 cases, that's when it starts to show up meaningfully with the large corporates. And that's when you can think about an exit. But you know, that way would be the end of it. I mean, typically they'll still on board. If these deals are strictly in such a way that there's an initial upfront fee and then there's an earner at a later stage, the volume of hit and number of metrics, which are usually top line driven. I mean, the bottom line will follow that. But ultimately, all about getting the top line, you know, growth, you know, going. And if we take, you know, the example of Casamigos, I think when the adria got hold of the brand, it was just 100, 120,000 cases. So, you know, it had critical mass, it had proof of concept, it had scale. But it wasn't so big that it couldn't grow exponentially through increased distribution and rate of sale. And, you know, I think the brand picked it nearly three million cases. So, if you think about 30X, you know, on the size of that brand and they paid what 10 times the sales of that brand, you know, in retrospect, yes, that looked like a very big ticket. Yeah. I quit it soon, but you know, paid it self back and more in spades. Right. Yeah. Also, it can be pretty lucrative. But if I wake up tomorrow with a million Instagram followers and I find myself with 15 and that's a fame, and I want to acquire or found a spirits brand, what is my plan of action? Is there a matchmaker that I need to get in touch with if I don't have any sort of spirits knowledge pre-existing? And how does that work? Yeah, I think, I mean, if you, you know, when you reach that fame, Jake, you'll almost certainly have an A2, right? And remember, it's not just, you know, this won't just be the anything you're looking at. Clearly, I mean, you'll be looking at a number of other products across the MADFOOT, that's cosmetics across the number of, you know, maybe some clothing, maybe some sneakers. Yeah, who not? And people, yeah, exactly. And people will sort of come to you, you know, right? And, you know, that doesn't necessarily mean that you have to get involved in a spirits brand by taking a stake in it or buying it out or even creating one. You could be an ambassador for brand as well. So celebrities can be aligned with brands. David Beckham with Hay Club, you know, they don't necessarily have to buy stake in that brand, but, you know, when they buy sticks in the brand and they're sort of one of the founders of the brand, there's a bit more authenticity behind it. There's a bit more skin in the game. And when the brand is ultimately bought, which is, I think, the game here in terms of an exit, the fact that you've, you will have a stake in your brand will give you more of a motivation to continue to push it, to be on the initial, you know, down payment. Writing this all down for my, for my future agent. Are those kinds of diagio style buyouts, at least at that scale, is that still what people are looking at as the dream outcome? Is that even a possibility at this point? So, if you look at the deals that followed the diagio deal, I think in terms of the multiple that was paid, irrespective of whether a brand has a celebrity behind it, if it's going to deliver that type of growth, you're looking at multiples of between five and ten times sales. So, I think irrespective of whether there's a celebrity behind it, if there's a brand that's in the right port, the cycle, has the right characteristics in terms of packaging, liquid, backstory. It's really got that really strong momentum. You're going to get that type of multiple anyway, because the next tone of that brand will see the opportunity to scale up the brand. Initially within the US, then probably internationally as well. So, I think that is the goal, but having said that, if you have a celebrity with a brand that's not seeing those velocities, it doesn't have that potential. It's not sort of ticking every box that we sort of talk to. Then, you get that type of multiple becomes much, much harder. Now, we have seen a number of deals that followed Casamie guys, I mean, we saw Aviation, which was about a big aviation gym, big ticket item with a buyout. We saw, obviously, proper 12, the Irish whiskey with Conor McGregor behind it, another quite big ticket item. But both of those brands at the time had a pretty good momentum and a decent runway ahead to see that type of Casamie guys' growth. Now, whether they succeed or not is another matter. But when you look at it from a perspective of one of the big multinationals, yes, it's a big ticket price. But in terms of the ability to move the dial, in terms of the ability to drive grace, an inference group, which ultimately would then influence the share price, the risk-cord asymmetric if you get it right. For brands that don't quite reach that level, what is the sort of median outcome there? Well, there's a lot of brands that don't make it, of course, maybe they don't get the distribution, maybe they don't get the traction, maybe it's just not the right brand and the right place at the right time. They tend to slowly physical way. What tends to happen is either the price starts to get promoted back, so he starts to see quite heavy discounting, which can drive incremental volumes quite quickly. So if you see the price of a spirit's brand being dropped by $10 or $15, guess what people are going to buy it? But the type of message that you send to your consumer base around the brand equity, how strong is the brand? Is it worth paying for? It starts to be undermined to some extent by that heavy promotion activity. So that's a bit of a separate slope, what you sometimes see as well is that brands that are in their very early stages, if they're not additive, they're not creating a positive contribution to the broader celebrities brand equity, because a lot of these celebrities will have more than one finger in one pie. I mean, I'll have lots and lots of figures and lots of eyes. If they've got a one that's a bit of a flop, you might see that brand sort of quietly, you know, it starts to just wither away a little bit without much fun. So, you know, it works both ways, frankly, it's both in terms of, you know, what the celebrity might bring to the brand, but also what the brand might detract from the celebrity in the event that it doesn't work. Yeah, yeah, that makes sense. Is is their consumer fatigue setting in? I mean, in your opinion, are our drinkers still buying? Or is this kind of fizzling? So, yeah, we need a bit more time for that rather than the technical podcast, I think, Jake, but you look at sort of longer term themes. I mean, people have been drinking alcohol for 8,000 years, and I don't think it's going away at all. And, you know, what you're seeing is you're seeing a bit of a correction, you know, after a really good run over the last 25 years, and then in that two or three years where people sort of had a bit more disposable income, had much less to do, and probably tranquil a little bit more. So, it's quite hard to disaggregate what is a bit of a hangover following the pandemic super cycle, where, you know, growth basically was was was was running at double the rate that it normally runs at. Relativity is some of the other challenges that are shipping where it beverage alcohol, you know, whether it's just the affordability problem, you know, 12 years of inflation in two years makes it very difficult for a big ticket discretionary item like alcohol. And look, this is not just impacting alcohol. This is impacting everything from, you know, barbecue sauce to the chocolate, you know, to to to broader consumer goods you're seeing, you know, that pressure comes through at the moment. So, there's an affordability question, you know, health and moderation has always been a question. It was sort of was there before the pandemic and, you know, certainly, you know, got a bit more pronounced since the pandemic. Now, there's a broader question around recruitment of younger consumers, younger league drinking age consumers, you know, to alcohol. And then there's a broader question around to what extent is somebody's brands advertising and commercial activity and marketing and innovation is not quite fit for purpose. And when you take a step back, I think what gives you confidence in this industry that there are pockets of growth, there is primal, if you get still going on, there are brands that are still absolutely crushing it frankly. So, I don't think this is enough to put, you know, fresh money off from coming into the sector, but they're very, very easy, get out of bed and grow four or five percent tailwind that existed in the 20 years running into the pandemic. You know, that's not there right here right now. There's still a correction going on, but I do think it's difficult. I do think it will come back. So, it does make it a little bit tougher, but what it does mean is if you're looking for a celebrity brand, you just have to look in the right places because there is growth out there. I mean, just look at the, I mean, the data shows brands that are doubling, still seeing really good growth and still seeing really good exits if you're the right proposition. Yeah. With the right pack, the right price point, the right liquid, the right back story, you can still do very, very well. I mean, look at a brand, it's such as beatbox, you know, just exit it for seven or a million bucks. So, it's growth, there's still a lot of opportunities out there. Well, yeah, yeah, that's a great example. You mentioned health and wellness is that something that you're seeing more celebrities move into as far as, you know, the NA sort of spirits, drinks, angle, is that the next frontier? Yeah. So, I mean, zero alcohol, you know, as a broader theme, if we take a more mature market, like, like Europe, where people have been cutting back an alcohol for six years or so. In a zero alcohol beer, there's as much as 15%, one five of overall beer in some of the developed markets of Spain and Germany. Yeah. It's growing pretty quickly in the UK at the moment. I mean, it's still quite nascent, you know, within the US, you know, the, the category is going through a bit of a renaissance. I mean, very much led by the likes of Hanuken Zero, you know, Mikocha Zero, Alcy Applatic, Guinea. And these are products that are quite aspirational. A lot of these products are consumed by people who both drink and don't drink, depending on sort of what time the day it is, what day the week it is, you know, what they're doing. So, there was a moderation theme, but I think what's interesting about zero alcohol beers is that the negative connotation that used to exist with zero alcohol, I, you probably drink them because you didn't have a great relationship with alcohol. That's completely gone away now. And I think people are drinking is zero's complement, you know, there's this in consumption. And we're even seeing it in Europe. I mean, I'm sure it's going to spread to the US, but people are mixing their own Guinness. So you can have a full fact Guinness at 4% ABV, or you can have a family scheme that two and a half, we can have zero at zero. So people are making that their own type of Guinness. And this broader mindfulness, this broader healthy violence agenda did exist before the pandemic, but it suddenly paced a little bit. So, like I think, you know, chilly, you know, you've got celebrities starting to go into zero, but ultimately you've got to have a great product. And what's interesting about zero is the type of beers that are being produced by the multinational are very, very good because it's quite hard to make a good zero. Not like a craft beer where, you know, if you, you know, I'm not saying anyone can make a craft beer, but with a craft beer, if you just put a lot of hops into it, you can disguise the flavor as zero's much, much harder to do that. So you've got to get your production, you know, process absolutely spot on. And given it, doesn't have ethanol in it, it's not quite as shelf stable as alcohol, because alcohol's a preservative. Therefore, again, it just makes it a little bit harder to get the liquid absolutely spot on, you know when it comes to zero. Yeah. Um, um, harm Holland has bureau at Lewis Hamilton, I think, has a spirit free agave brand. So I mean, people are people are moving into it, but have you ever personally purchased a bottle of alcohol because of the celebrity attached to it? Well, um, there's a lot of choice, uh, Frankie J. But look, I have been given brands, um, but you know, have got sort of celebrities attached to them. So more, more in the beer space. So, right, yeah, I've been given brands of, you know, celebrities that I like, you know, just a sort of presence and, you know, for fun, but, no, I haven't explicitly gone out and bought a brand because of celebrities, you know, pushing it. Now that's not to say I haven't got a bottle of castamegos, because, right, it's a very accessible, you know, what you're going to get, you know, you're not going to look, you know, too embarrassing from your friends. I haven't from from buying a bottle of castamegos because unlike the US, you know, in the UK, there is still a bit of a connotation, you know, towards the key there of something, you know, you might have done at college with a, um, you know, a lime and some salt, and it gives you a horrible hangover. And you know, if you're trying to mix a migrator to someone who's got this negative perception of, you know, the category or try to match a mix of Paloma, you want to go with something you know is going to be good and safe and reliable. So, I have bought a bottle of celebrity backed tequila, but I haven't gone out of my way to buy it, because it's celebrities behind it. Well, thank you so much. This has been really enlightening. Good luck to your brand when you get your million followers, Jake. Thank you. I will probably be in touch at that point. Please be in charge. How do you feel about celebrity spirits brands? Let us know at [email protected]. You can subscribe to this podcast on Apple, Spotify, and anywhere else you listen to your favorite shows. You can also go to windethosius.com/podcast for more episodes and transcripts. I'm Jake Abrams. Thanks for listening.