Rise of the virgin drinks
The Duchess launched the world’s first alcohol-free gin and tonic in Cape Town in September 2016.
Since then, the company has sold over 3m units across 1 500 restaurants and retail stores in South Africa and expanded its footprint into Europe, where it is available on the shelves of 600 Albert Heijn stores in the Netherlands and 400 Delhaize stores in Belgium.
It is also available in 230 Dan Murphy’s stores in Australia.
The brand received international recognition when it took home the Best Adult Drink as well as Best New Drink Concept prizes at Zenith Global’s annual InnoBev Awards in 2018.
In October 2019, ZX?Ventures, the innovation arm of AB InBev, bought a minority stake in the company to support global market expansion.
Johannes le Roux, co-founder of the company, spoke to finweek about the business.
What did you do before you started The Duchess?
I studied property development at UCT, but left my studies at the start of the recession in 2008 after realising that the poor economy would result in me ending up in property marketing rather than developing funky new properties.
A friend invited me to start an advertising agency with him, called The Suits, which thrived at the time because we outsourced most of the work.
How did your journey into the beverage market start?
In 2013, at the age of 23, I started experimenting with the carbonation of brandy, which led to the creation of SA’s first-ever brandy and Coke on tap, called Brannas Draught – efforts that left my apartment in Mouille Point cluttered with kegs full of brandy.
The product’s popularity resulted in KWV buying a 25% stake in the company only a few months after its launch.
The time leading up to the finalisation of the deal with KWV was one of the most nerve-racking I have ever endured.
We ordered 500 kegs from China to keep up with the growing demand, but the kegs arrived before the deal was closed.
I faced harbour charges of R36 000 a day, so I quickly had to secure a bridging loan to pay for the kegs.
Brannas not only taught me the importance of balancing cash flow with production, but also helped to establish a strong network in the beverages industry, and helped to prepare me for all the fundraising I would do to get The Duchess going.
KWV became increasingly involved in Brannas, so two-and-a-half years after starting the company I employed a managing director to take over my workload and I started looking for the next big drink disrupter.
The market for Brannas is limited because people do not really drink brandy and Coke in other parts of the world.
We roughly sell about 50 000 units of Brannas a month, and we focus on Gauteng.
Why did you start The Duchess?
I got the idea to start a non-alcoholic gin and tonic during a visit to the Netherlands.
I noticed the start of the gin and tonic trend, and the large number of people who were looking for non-alcoholic, low-sugar alternatives, especially mothers and athletes.
Tell us more about the development of The Duchess.
As with Brannas, I started working with a flavouring house to develop the drink.
British company Seedlip developed a non-alcoholic gin around the same time, but I wanted to develop a premixed drink that was volume driven and could be taken out of the fridge with no need to mix.
The initial samples where quite basic, but my aunt, Febe Wessels, supplied me with some botanicals that enhanced the complexity of the drinks, making it difficult to distinguish between the non-alcoholic and real thing.
Why did you call the brand The Duchess?
We played with the ideas of Dutch and royalty and ended up with The Duchess.
Dutch, because gin originally comes from the Netherlands.
Where did you get start-up funding for The Duchess?
I asked some of my family and friends to invest in the company, and this money was used to produce the first product.
To keep costs low, I co-founded the company with Inus Smuts, a graphic designer, who helped developed the logo of Brannas.
We did all the initial product development and marketing ourselves.
What was the market reception like for the drink?
We sold our first batch of 10 000 litres within a month after it was launched in September 2016 and sold another 20 000 litres by December.
We knew the product would be in high demand, but the reception was a hundred times better than we had imagined it would be.
It was perfect timing, as sales later turned out to be seasonal – peaking in the spring and summer.
How did you get into Europe?
Many of the tourists who bought The Duchess at farmer markets asked us to expand the market into their countries.
At one point we had enquiries from 25 different countries.
We therefore asked Kevin Anderson, one of our early investors, to help build the international market because he had strong international connections due to his background in renewable energy.
What were your biggest challenges when you started out?
Breaking into the beverage market is expensive since you need a lot of working capital, keep stock and it takes up to six months to receive payments.
Start-ups seem to never have enough money.
We also had to educate people about the product, since it was a totally new concept.
We did this by hosting tastings at shops across the country.
Another challenge was the seasonality of sales, which we addressed by breaking into the European market.
What are your biggest challenges now?
After ZX Ventures bought a minority stake in us – the size of which I am not allowed to disclose – we expanded our staff component from eight to 18 people.
Growing this fast presents various management challenges, so we employed a human resources company to sit with each employee once a month to help smooth out the transition and identify weaknesses and opportunities for growth.
Doing business internationally is also tricky since you need to be sensitive to cultural and other differences.
We therefore had to adapt the way in which we do business in different countries.
How do you market The Duchess?
We realised that women were generally side-lined in the alcohol-free drinks market, so we decided to specifically target them.
Since we have a small budget, most of our advertising and marketing is done via social media.
We have also had great PR success, resulting in us getting published across many platforms because the brand was the first non-alcoholic gin and tonic.
How has the market changed since you started out?
We don’t really compete with soft drinks since this market is on the decline due to the high levels of sugar.
However, competition with other non-alcoholic drinks increased significantly.
Many of these companies also have huge pockets, allowing them to spend lots of money on marketing and promotions.
ZX Ventures’ investment in the brand will allow us to significantly expand the operation and our global reach.
AB InBev has committed to grow its non-alcoholic division so that 20% of its sales come from the non-alcoholic division by 2025.
What has been the best advice you have received so far?
To carefully choose investors and to not lose your identity once a company invests in you.
While investors want you to make money, remember that they invested in you for a reason.
It is not just about the product, but also about your way of thinking and doing business.
What advice do you have for other entrepreneurs?
People tend to overthink things and want everything to be perfect before they venture into the market.
I, however, feel that you need to launch once you are 65% ready. You can then tweak and refine the product on the go.