Non-alcoholic spirits should be priced “underneath their alcoholic equivalent”, according to Scotland-based manufacturer Spirits of Virtue.
Roddy Nicoll, co-founder and CEO of the Clydebank, Glasgow-based distillery, said customers view non-alcoholic products as “too expensive” as they are not subject to alcohol duty.
Speaking to Just Drinks, Nicoll said: “Price point is so important. I’ve thought that non-alc spirits are way overpriced from day one. We don’t believe that that’s where they should be.
“I think there’s a natural price position which is underneath the alcoholic equivalent. There’s no duty. The end user knows that, and therefore it’s too expensive. I don't think there’s any necessity for that.”
Founded by Roddy and his brother Kerr Nicoll in 2018, Spirits of Virtue has a portfolio of seven brands, each providing alternatives to a particular spirit.
It also contract distills own-label products for retailers in the UK including Asda, Lidl and Aldi, as well as UAE supplier Spinneys Beverages.
Nicoll put the company’s success down to a “subtle combination” of packaging, presentation, price point and provenance.
“We’ve been selling in Asda for four and a half years and the volumes have done nothing but grow month by month,” he said.
“As you’ll know, with an own-label product they don’t advertise it, it doesn’t get all the pazazz, it doesn’t have the brand equity that non-alc Gordon’s has, or the above-line spend that Seedlip has, it doesn’t have all that kind of digital zeitgeist that maybe Caleno generates.
“Why do people buy an own-label product? Because it’s good value for money and it tastes nice.”
Creating a value proposition
While Nicoll has spent a lot on packaging, he warned many start-ups spend too much on marketing – allocating up to 70% of their revenue stream on “digital spend”.
“You look on Google and you see all these things at the top and you have to ask yourself, how much did it cost them to get into that position?” he said.
“We’ve entered the American market $7 cheaper than our nearest competitor because I won’t spend the money on PPC (pay per click). I just won’t do it.
“My philosophy is more: rather than being $32 a bottle, I’ll come in at $25 and I think it’s a value proposition. But I’ve also done bespoke glass and I haven't cheated on the provenance of the liquids.
“Will that give me 100,000 bottles in a month? No, but the growth will be organic. The good thing about organic growth is that it takes longer to come up but it also takes longer to come down.”
Pricing is a point of contention in the low-and-no category. Last year, Craig Hutchison, founder and CEO of UK business Mindful Brands, said he hoped non-alcoholic drinks pricing would stay relative to conventional alcohol.
He said: “Price is your biggest quality indicator. And for sure, this makes it a high-margin business but – certainly when you’re a start-up – you need all those margins because you’re putting it all back into your brand.”
Spirits of Virtue employs 20 people and exports to 17 countries.
Its 0.0% abv brands include Glen Dochus and Sobour, “homages to Scotch and American whiskey respectively”, Usko vodka alternatives, gin substitutes Pearsons Botanicals and CeroCero, alcohol-free rum 270 Botanicals and Tequila alternative Seven Giants.
The brothers are about to launch a fundraising round for an undisclosed sum, having raised almost £3m ($3.8m) to date. They plan to spend the money on marketing campaigns and building distribution. The company was last week valued at £3.5m.
Looking forward, Nicoll sees players like Diageo and Pernod Ricard “building up that nice LoNo-spirit shelf” while own-label will form the bulk of sales volumes “in the middle”.
“Then [Spirits of Virtue] will come in with specialised ones: the Tequilas, the bourbons, the whiskies, flavoured rums. We’ll pick off those smaller, niche things. I think that’s the way the ecosystem is going to work.
“But why would they be any different? I’m not really reinventing the wheel there – that is exactly how the spirits section works in any big retailer.”
Export opportunities
Nicoll recently signed distribution deals in China and Japan, which he said gives it “first-mover status” in non-alcoholic spirits in both countries.
It recently began exporting to the US, and Nicoll said: “The American market is really ready to go pop.”
He added: “As a UK-based exporter, we’re not just exporting quality liquids, we’re exporting knowledge of where the market’s going to go. My [US] export partners are greediest to know: ‘Tell me what's coming. How do we position ourselves?’”
Spirits of Virtue’s US distributor took an initial 40ft container with 19 SKUs and has since doubled that order, equal to around 45,000 bottles. “In non-alc terms, that’s a lot,” Nicoll added.
He also told Just Drinks the business is set to turn a profit for the first time in 2024.
“If you know anything about non-alc companies, that is probably the biggest achievement of all,” he said. “Because there are a lot of people out there ploughing an awful lot of money into non-alcs. I think I might be the first one to break even and make a profit.”
Its “conservative” forecast is a turnover of approximately £3m in 2024, equal to 450,000 bottles. Around 40% of this will come from private label, with the rest from Spirits of Virtue’s brands.
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