Interview #12: Charlie Rodman

The alcohol industry has been a popular topic of discussion recently, with many people declaring the industry is over and in decline. I decided to go to the experts to see what is happening. I had the pleasure of chatting with Charlie Rodman, the CMO of No Sleep Beverage, an investment and operating firm in the space, about where he sees the industry today and how it will evolve over time. Thank you so much for joining, Charlie! I am super excited to share this conversation

This is the twelfth conversation in an ongoing series with movers and shakers in the retail industry. Is there anyone you want to hear from? Please be sure to drop their names 👇

The following conversation has been lightly edited for context and clarity.

Charlie Rodman: No Sleep Beverage is a platform model within the beverage alcohol space focused primarily on spirits. We offer a variety of services and have a number of companies under the beverage umbrella. The company launched initially as an investment fund, where we took minority positions supporting entrepreneurs within the beverage alcohol space. Our focus is on spirits, but we have made one investment into a wine company, an RTD company, and then we actually went a little bit further afield to make one investment into a cannabis beverage company as well. At the same time that we launched the venture fund, we also launched an advisory service. This was in part to help those brands into which we invested. We typically took on fractional positions within their organizations to help steer their strategy and help protect that investment. 
Ideally, [we will] enhance the returns on that investment by bringing the decades of experience that our team has to those companies into which we are investing.

More recently, we launched an operating company where we have acquired three spirits brands ourselves, taking full, controlling stakes rather than making minority investments. We are owning and operating those. We have also launched a company called The 100 Proof, which is a fractional sales services organization. Having face time with retail supporting the accounts that carry your products is immensely important, and for a small company hiring a large team of people to go in service this enormous network of accounts, is extraordinarily costly, particularly in the early stages. As operators ourselves at this stage, owning a couple of brands, we realized that this was something that we could benefit from as well. We created The 100 Proof in order to help other brands, and ourselves, offset some of the cost of having sales going into accounts.

As for my background, I’ve been working in the spirits industry for a little over a decade. After a stint in equity research, I shifted to strategy consulting, using research to help brands figure out their brand positioning, product, innovation, and customer acquisition strategy, bringing a data-oriented approach to marketing and insights.

Ultimately, [I] went and worked at Pernod Ricard after falling in love with the spirits category through some consulting engagements. While at Pernod, I worked my way up to being head of consumer strategy and insights for their premium whiskey portfolio.

From there, I wanted a better commercial grounding in the industry, not just focused on the consumer. Everything I focused on was looking at who drinks, how people drink, why they drink, and coming up with the programs to excite people to buy. But, if you're actually operating on the production level or, as we call it, the supplier tier, your customer and your consumer are two totally different audiences. You have to sell to a legally mandated middleman in the form of a distributor. I wanted a better sense of that commercialization route to market. 


I went and worked for an importer. It works functionally as a supplier for international brands, but in terms of the business model, it's much closer to how a distributor typically operates. From there, I learned not only how you structure commercialization for distribution, but I also worked with ~300 distributors across all fifty states. I jokingly refer to that as getting my MBA in spirit commercialization because I learned the ins and outs of compliance, registration, how you design programs for sales, [and] how you work with distributors. From there, I was recruited to be the head of marketing for an eCommerce and D2C startup that was trying to find ways to bring traditional retail in a heavily regulated and traditional product category into the 21st century with digital shopping and more direct consumer checkout options. And now I’m working as CMO for No Sleep Beverage.

CR: No, I don't think that alcohol is dead. It doesn't seem like any of the data is really supporting the claims. The headlines seem to really be misunderstanding the second-order data. Last week, I was doing an updated analysis on this, looking specifically at retail, which the Federal Reserve tracks. One important thing to note here is that data, if we talk about retail, generally in beverage alcohol, excludes things like bars and restaurants. For this context, let's focus just on retail. 


It looks like retail is actually inordinately healthy in terms of purchase behavior, which in my mind would be a pretty close proxy for how people are drinking or at least how people are interested in alcohol. If we look at that Federal Reserve data, looking at the period from January 2006 until March 2020, and trend that data out to the present, we are way ahead of where people would have expected us to be. Buying went absolutely haywire in March 2020, when everything started shutting down. We saw about two years of forward growth happen in that one month, just a massive spike in buying. What's happened since then is not what the headlines would lead you to believe. What's happened is we've had continued growth since March 2020, just at a slower rate than what happened [before].

If you look at what it means for the industry, we're actually way healthier than anyone would have projected, even in spite of the recent slowdown in spending that’s capturing headlines. It's just that everyone got really excited by what people were doing when bars and restaurants were closed and expected that people's drinking behavior had fundamentally shifted. It's pretty fair to assume, in my mind, that it's more likely people overpurchased when they didn't have as much that they could spend money on elsewhere. They didn't have as many activities they could go out and do. Bars and restaurants were closed, so they weren't drinking out as much.

There is a litany of different excuses or incentives that have changed people's behavior, many of which were discussed at the time. Yet, the industry instead elected to look at that and say people are going to keep drinking differently. We need to update our forecast. We need to change our growth targets. Alcohol has seen its first-ever year-over-year sales declines at an overall level, but in retail, things have actually continued to increase off of that inordinately high base. Because of that slower rate of growth, we are starting to approach parity with where we would have expected to be.

We should probably reach that [parity] somewhere between the next eight and 36 months. I don't think we've hit the bottom in terms of that reduced rate of growth, people are still working through a lot of the inventory that they've purchased. To say that alcohol is dead is a complete misnomer. The only thing that's dead is our ridiculous assumption that the industry made, that unprecedented growth would continue forever.

CR: I'm glad you brought up GLP-1s because I do think that's actually probably one of the biggest [headwinds] to the continued growth of average alcohol consumption. I think there is going to be continued proliferation of GLP-1 adoption, and there's lots of evidence that it curbs appetite, not just for food, but for alcohol, which has a lot of additional positive health effects. I don't want to frame this just as a negative, we're very much in favor of responsible drinking and of positive health associations that people choose. Even if it does present a headwind, it is a great societal outcome, and one that I do think is quite meaningful in terms of forecasting that our industry needs to start taking more seriously.

In terms of the on-premise bars and restaurants, I think we've seen a bit of a shift in behavior, not only in the price points that people are shopping at. We're starting to see a little bit less of that super premium consumption happening. Qualitatively, you are hearing very much that people are going out less. You look at the macroeconomic environment and see people struggling to pay for basic necessities in ways that they couldn't before. Historically, you can see that the discretionary spend on nights out is one of the first things to get cut because that is a luxury. When you intersect that with the fact that we know people have excess inventory at their home bars, or we have a very strong assumption of that, I think it's fair to say that people are similarly choosing to cut spend on nights out, in order to transition that into the much more affordable occasions at home. 


We had already been seeing a growth in off-premise consumption as a share of overall consumption for the past roughly 20 years. Off-premise has represented the majority share of value since 2009. That trend has continued. People already were shifting drinking behavior into the off-premise. Then, we had this one massive outlier of an event that forced people to shift drinking significantly more into the off-premise. Now, we have macroeconomic factors that I think are also contributing to a further shift into the off-premise or, at a minimum, are reducing the return to the on-premise to the amount that we would have seen. 


CR: The brands that seem to succeed are ones that are able to create a unique brand identity, personality, and attach that to a specific consumer segment. They know what they stand for, they know for whom that's relevant. Then, they can create the marketing messaging and POS. [They] identify the right retail locations that stand for the same thing, figure out the right geographic areas, which then leads to the right stores that they should be going into. They understand for whom they're trying to do all of this.

I say that because we see many brands that focus very specifically on their process and try to message on their process or on their liquid. Liquid is fairly table stakes. You have to have good liquid. There are plenty of options that will give good enough liquid. If you blind tasted the average American consumer on different products, their ability to tell one from another is going to be very low. They're functionally commoditized in many ways. Brand is going to be what helps distinguish and certainly what helps someone remember the product more than the liquid composition itself. The brand needs to be able to have a brand identity beyond its functional elements that resonates with consumers.

In terms of strategies for winning in retail, I would advise brands that you want to cozy up to the retailers that will allow you to do tastings, be in-store, merchandise your placement, and support velocity through their channel. That sounds like it should be really easy. You would think what retailer wouldn't want you coming in, helping them sell your product. Believe it or not, it can actually be really difficult to book those time slots, and find the right accounts. To make sure that you have the people there to understand what times are the times that your consumers will be floating through and be able to engage with them. That's all hyper-relevant information for a brand trying to succeed through the retail channel.

There are a few realities of alcohol retail that are distinct from other product categories. For the most part, unlike typical CPG, you as a brand cannot engage your consumer directly in a sale and capture that customer data the same way. By law, you have to sell to a distributor, then that distributor has to sell to a retailer, bar, or restaurant. And only that retailer, bar or restaurant can sell to a consumer. So you are really relying on your distributor. But many retailers will not work with all distributors.
A big portion of the channels that can sell your product might be cut off from you if you're with the wrong distributor. On the flip side, if you're with one of the really big distributors and you're a small brand, you might not get the requisite attention. Even though we're discussing retail, picking the right distributor is immensely important in terms of making that happen. 


The next consequence of the unique environment of beverage alcohol is the differentiation between chain accounts. How you engage in merchandise at
those accounts is very different. Total Wine and Costco have effectively upended the entire retail landscape for the beverage alcohol industry over the last 20 years.

For a small brand, it presents you with a really difficult choice, because some of these chains have become the de facto point of shopping for most consumers. Some allow a lot of tasting. They offer a lot of visibility,
but you face three really big hurdles. One, immense competition. Two, chains are leaning more and more into replacing brands on the shelf with their own private label brands. A lot of the time they disguise this, so the consumer doesn’t know that the brand is actually a product exclusive to the retailer. Third, representatives on the floor are incentivized with a commission on the sale of private label products and brands that buy-in to a program that offers the retailer more favorable pricing. The representatives have no incentive to recommend a product that doesn't offer the store those commercial incentives. You're stuck between a rock and a hard place, because on the one hand, you need to erode your margin, and on the other hand, you need to risk getting no support or visibility from the reps in the store. 


From a consumer perspective, I am extraordinarily excited about the whiskey space. From an investor or from a supplier perspective, it's probably just about the exact opposite. The excitement everyone had over the last few years that people would drink like crazy meant that loads of extra barrels were laid down that need several years to mature before they can be brought to market. We're now seeing that a lot of purchasing behavior, particularly within whiskey, has slowed. We've seen a lot of distilleries cease production, which means that consumers are going to start getting either much older whiskey blended into their same product at the same price or maybe we can even see some price reductions, although it is usually a last resort for suppliers to bring down price.

Beyond whiskey, I am extremely excited about Mexican spirits. Tequila is at the forefront for most consumers' minds. Mezcal has been the hot, exciting thing for a few years now. It's funny hearing people describe how mezcal has potentially peaked, and then you look at how mezcal compares to tequila as a part of the market, and it's still a pittance. You look beyond that and you start seeing a lot of really cool Mexican spirits that most people don't even know exist, like Sotol, Raicilla, Bacanora, or Pox. There are tons of other flavor profiles, tons of other production methods that I personally get really excited about.

CR: Retail is very much alive, and it's not going anywhere. Not just because the data supports it, but because it is a legally mandated part of the process. So far, we have not seen any meaningful change that is going to displace retail, even if the form and function of it shifts a little bit - more consolidation to chains, more flowing through eCommerce (which legally still has to be fulfilled by a retailer), etc. There are some changes in how we shop within retail, but it's not going anywhere for beverage alcohol anytime soon.

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