Comment - Spirits - Searching for the Next Johnnie Walker
This month, Ian Buxton runs the rule over Diageo's recently-announced spirits start-up support programme.
You hardly have time to blink at the moment before someone’s opened a new micro-distillery or launched their own spirits brand.
Whether it’s the change in legislation favouring small distillers, the proceeds of executive redundancy settlements, the appeal of the artisanal and hand-crafted, or just – perish the thought – a passing fad, we seem to be in the middle of a new 'Gin Craze'. Not to mention a revolution in vodka and the imminent arrival of whiskies galore.
But, the enthusiastic entrepreneurs behind this wave of wannabe brands and craft distillery openings are shortly going to face a problem: Selling the second and subsequent bottle, once friends, family and the mildly curious have moved on to the next new thing. Dependent on novelty and – all too often – lacking the funds to gain real traction in a highly congested and increasingly competitive market, there’s a serious danger that quite a number of these hopefuls will crash and burn.
Give it four or five years, and there might well be a glut of slightly-used small-scale distilling facilities on the market. Or, a lot of sad-looking packaging.
But, now, they’re being offered a helping hand – and from Diageo no less; perhaps the last people you’d expect to be encouraging a raft of tiny competitors. But Johnnie Walker, Arthur Bell, James Buchanan, Charles Tanqueray, Alexander Gordon and Pierre Smirnoff were all real people who all started small, so, for Diageo, this is a search for the next generation of premium spirits brands.
It’s no surprise to find their money behind the seed capital funding being offered by Distill Ventures. In essence, this is a venture capital fund, using an incubator model for business development straight out of the technology sector in an attempt to identify real long-term winners from the craft distilling and boutique brands scene with the potential for break-out success.
The scheme was the brainchild of London-based innovation agency Independents United. As well as offering strategic marketing advice to their clients, they have also invested in promising-looking start-ups. Knowing Diageo, they saw an opportunity to take this model to a new level.
The new scheme has been brought to market remarkably quickly, according to Distill Ventures’ Frank Lampen. “From a serious pitch to today has taken just seven months,” he tells me. That’s a token of Diageo’s enthusiasm and commitment to the scheme, which is being backed with real cash.
Up to GBP1m (US$1.3m) of seed capital - with a maximum initial investment of GBP200,000 - will be available in the first year. For those developing businesses fortunate enough to qualify for the project’s Growth Programme, there is potentially “no limit if the case is right and we can identify enough opportunity,” says Lampen.
Of course, it’s not all altruistic and philanthropic. Like any investor, Diageo expects an equity stake for its money and - to prevent competitors from snapping up any likely-looking successes – an option to purchase the business in the longer term. For the harried entrepreneur, inclusion in the programme will gain them access to high-level advice and mentoring; administrative support and - most importantly - the cash flow vital to allow them to focus single-mindedly on sales and brand development.
“Money is too often the barrier to break-out success,” says Lampen. “We aim to give brands the scope and room to achieve that. And,” he stresses, “this isn’t about Diageo coming in to run your business or even about doing your sales and distribution. You remain in control and have to make things happen. The investment is structured to give you the room to do that.”
It’s the logical development of a trend that’s seen William Grant & Sons acquire the Hudson brand of rye and Bourbon whiskies, while leaving production at the Tuthilltown Distillery, which was able to take the new money to expand their facilities and launch new lines of gin and vodka.
While Pierre Prinquet did appear to suggest recently that something similar might emerge from Pernod Ricard, a spokesman described the reports to just-drinks as “very speculative”, suggesting that they were “not aware of anything at the moment”.
If the initial response to Distill Ventures is to prove any guide, this is certainly going to be keenly watched by Diageo’s competitors. Lampen claims that “around 80” meetings have already taken place and that the early indications are “really encouraging”.
“This is about finding a brand that will be on fire in a few years’ time," he concludes. "We will help them push to that level.”
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