Vodafone xone Innovators Series: East Imperial's Tony Burt on finding recipes for success

Vodafone xone Innovators Series: East Imperial's Tony Burt on finding recipes for success

To mark the arrival of the Vodafone xone business acceleratorIdealog is interviewing heaps of established New Zealand innovators, as well as the founders of the 10 startups selected by Vodafone to receive mentorship, funding and the potential benefits of working with a global network. Idealog editor Henry Oliver chats with East Imperial founder Tony Burt in this edition.

Where did the idea for East Imperial come from?

It came to us about sort of 5 1/2 years ago. My business partner and the other co-founder Kevin was working at Fonterra at the time, and I was working at Saatchi & Saatchi, and advertising agency. Our children met in daycare, of all places and we obviously met and got on very well, Kevin and I. Kevin also lived here in Parnell. One thing we realized pretty quickly, we shared a passion for fine gin or premium gin. Then Kevin started telling me stories about his great grandfather and how he was an settler into Kenya. Back in those days, when you're living in the colonies, particularly in the tropics, you had to take quinine as a daily ration for treatment or for prevention of malaria. Everybody or a lot of families had their own recipes or the way they would actually take that because quinine is so bitter. It's not very palatable on it's own, so people used to mix it with sugar and water, to get it down their throat and to obviously take their daily ration.

He had a recipe from his great grandfather. Obviously I was working in advertising and he had a bit of a beverage background, working for Diageo prior Fonterra. Yeah, it was just from there really we decided that, "Hey, let's do a premium tonic water brand, based on your great grandfather's recipe."

What made you realize that it could be turned into a venture?

I think, there's a couple of things really. I think being in advertising, you get exposed to a lot of different things that are going on in consumer behavior. I think that's probably one great thing about the industry. You see a lot of problems or challenges that different brands actually have, and having worked in a few agencies based in the UK and New Zealand, there was a consistent trend that we kind of identified and it sort of ran true for a lot of different market sectors, and that was, consumers craving authentic products or authentic experiences.

With that, I mean they wanted more stories behind their brands and they want to know how it was made, what ingredients went into it, and the history of them. We were seeing that consistently things like travel, food, and drink within the advertising agency and people coming to us saying, "In a craft beer movement is growing or the premium spirit sector is growing, organic food is growing." There was always in the back of my mind that there's an opportunity somewhere there, and when you mix it with alcohol like gin or premium spirits, and when Kevin was telling the story, we both sort of felt, this felt like the right thing to do.

It was definitely an opportunity because in New Zealand at the time, there was no choice for really any other premium tonic water. You got your Schweppes and that was it. You're spending a hundred dollars on a nice premium bottle of gin and then you're putting, those things were just full of citric acid and sugar and artificial flavors into that.

What kind of choices or decisions did you have to make to get the business going? You're both working full time. Did you have to quit your jobs or just work late nights?

We've quit our jobs, yeah. We don't do it straight away. That would've been a bit silly, but no, what we did is we worked our full time jobs and then we spent about a year and half just researching the category. In my background in advertising, I came through the strategic side, the strategic planning and brand planning. To get a really authentic story, we needed to obviously have a brand that knew its roots and understood where ingredients came from and the history of it all.

We spent a long time reading up about it. Also finding where the ingredients come from, the authentic sources, and all the history behind them. We did that for about a year and a half. We then started making the product based upon the great grandfather's recipe in the kitchen. We started hand capping it and bottling it, and it was very much like a brown orangey color tonic water. It was never going to be a big seller, but it was actually delicious.

People don't want to make brown gin and tonics?

No, no. Not yet. We still think there will be a market for it at some stage, but people want super authentic tonic water. We started doing that. I was traveling a little bit for my job. Kevin was traveling a lot for his, a lot more than I was, but also Kevin got transferred to Singapore. This would've been about 3 1/2 years ago, and when he got transferred there, that was kind of a little bit one of those sort of moments where the stars aligned for us, is because Singapore was going through such a renaissance of bar culture and cocktail culture. Some of the best barmen were immigrating there and there was a lot of really interesting things going on in the cocktail scene there.

Our timing for to actually come into that scene was pretty much spot on. When we started talking to these people about our product, they embraced it, they embraced the story. They thought it was a bit crazy that a couple of guys with a couple of bottles in their bags would come into these bars and try and sell it, but they really took us under their wing, to be honest, in Singapore. As a result, we started bottling and got our first order, I think was for about 20k bottles.

Which was a really big moment for us, but again, we're working our full time jobs, we had to try and make it work, and we knew nothing about manufacturing. I'm going to be honest with you. We had a lot of ups and downs and really kind of brutal lessons about it, but we finally managed to fulfill our first order. That was probably about just over 3 years ago. We were still working our jobs, but we quit, both of us quit our jobs about just over 2 years ago, to do this full time.

Were there any early failures? What went wrong?

Early failures. I think looking back on it, we don't spend much time reflecting, unfortunately. Looking back on it, I think we were certainly naïve about how to make beverages and I kind of honestly think that served us quite well, because I think if we went into it thinking and listening to what everyone was telling us, we'd end up with pretty middle of the road type of product. We were very single minded about what we wanted, and we wanted our own proprietary bottle. We wanted it to be 150 ml. We wanted the ingredients to come from this particular region in Indonesia or Thailand, and wanted the process of actually making it to be a certain way.

A lot of the places or people we spoke to just said to us, "No, we can't do that or that's impossible, or no here's a 300 ml bottle, here's a brown bottle." If we would've gone for that route, I don't think the brand would be anything like it is now. We stuck at it, but that cost us. We tried to cut corners here and there because we don't want to spend hundreds of thousands of dollars in making bottles, cost a lot of money and minimum order quantities, and [molds 00:08:06] and things. We cut corners, we made mistakes, we got a bunch of bottles out initially out of China, put them on the line. This is for our first order and they all started smashing, so we had to dump those bottles. That was in the region of about a $25,000 mistake.

Those sorts of things is kind of when we sort of set back and go, "Is this really going to work or is it worth the pain?" The feedback that we're consistently getting from the bar community was amazing, and that inspired us and motivated us to keep going. Said, "We got to get this done." There was a few of those sorts of cross roads where we had to make those decisions and big calls, but obviously they were the right calls in hindsight, but at the time they are big calls.

What motivated you to stay single mindedly on your track when people with more experience were telling you, ‘Do this, do that?’

I just think we believed in the product and we believed that the heritage and the authenticity of the product. We really believed that what was happening in the bar scene and the cocktail scene globally is that people would want to hear the story. People want to hear the story about tonic water, people want to hear the story about where ingredients came from and the history behind it. That really is what kept us going. The easy route would've been just to make an all natural version of what's out there in the market, but we wanted to take it a step further and actually make a genuine, authentic tonic water. That kept us motivated to do it.

What's the key thing that you know now that would've made it different, the biggest difference along the way?

That's a good question. Probably don't cut corners on bottles, because-

Because they'll smash?

They'll smash. Once bottles start smashing on production lines, it costs a lot of money to clean them and holds everything up. When you're paying by the hour for a production line or something like that, it starts being very expensive. I think if you've got an idea and you're absolutely sure of it, is try not to cut the corners. I think you'll always be innovative to try and do things the best way you can and in some instances, the most economical way you can. We've certainly have done that in some places, but we've also been lucky that we've had some suppliers here in New Zealand that have really backed us.

I was meeting one of them earlier this week, and we were talking about an order which we're doing at the moment. We're ordering labels in the millions at the moment, a million labels at a time. I was moaning about something like I do about cost or price, "Hey Tony, just remember when you first came and saw me you ordered 500 labels." He goes, "Everybody in this office here laughed at me and go, 'Why are you wasting your time with these guys. The guys only do 500 labels?'" He goes, "I think these guys are really onto something. I really believe in these guys." We've had suppliers like that that have really helped us and worked with us, which has been great.

That was really good. That will probably be the radio segment, but I might just ask you a few more questions that we'll do because we're going to post this online and we can go a little bit longer.

Where do you see the drinks market going? If there's this return to authenticity, where do you see that headed?

I think we're just seeing the tip of the iceberg to be honest. I think evidence of it is seen in the craft beer market. We're seeing it in craft spirits as well. Craft spirits are just exploding and it's not just something which is confined to New Zealand or Australia and America. Give you an example, speaking to a guy from an American gin brand recently and he was telling me, when he set up his gin distillery in Washington back in 2007 I think it was, there was 200 distilleries doing gin in America. Now there's actually 1,200.

It gives you an example of that whole sector is just exploded and because of that, there's a complimentary demand for mixers. People are learning that if you're going to have a premium spirit and spend top dollar on it, you might as well actually mix it with a good mixer as well.

You said before, one of the options that you didn't want to take, is to make a tonic just replacing ingredients with their natural versions. I'm assuming you're at the upper end of the price bracket for mixers is that accurate?

Yeah, that's correct. Yes.

One of the things we seem to be seeing is this hollowing out of the middle. There's an interest in premium products doing very well. Artisanal or hand made or very specific or local and then also at the same time the bottom end of production seems to be going very well too. It's not just boutique restaurants are doing well, KFC is doing very well. It seems like maybe the people in the middle are the people that are suffering. Is that what you're seeing happening in drinks?

I don't think really. I think a lot of what the research is showing at the moment and for certain sectors is that people are drinking less, but they're drinking higher quality. I think it's certainly true, particularly in Auckland as well when you go out, you'll actually see that there's a lot more options now rather than over above just a rum and coke. I see that a lot of people, now they've been offered it, are actually partaking in it. I'm not saying that they'll probably sit there all night and have 5 or 6 of them, but they will actually try it.

I think it's a very interesting point about this sort of middle hollowing out. We kind of see ourselves as the premium end of it, as you sort of described, but in saying that, we're finding ... For example in the US market, we're finding that we are playing in the premium sector but certain skus of ours are playing in that middle sector. Where on that middle sector, it's more the high volume, high pour bars say in Dallas or in Los Angeles or something like that, where I wouldn't really go as far as to say they're ultra premium venues, but they're still taking our product because they see it as a superior product, over and above what they're currently serving.

I think it is actually in a way, sort of trickling down into that mid as well, but certainly the way that we approach a market is that we aim very much for the high end and the premium end of the market. That's what we've been doing all over with 30 odd countries now, so that's where we position ourselves.

How does that work in the mixer space? I'm assuming that it's clearer with spirits that people will go in and they will hear, if they're into premium gin, there might be a brand that they like or they ask for a recommendation of a brand for the gin, and still rely on the well pour of the mixer. Is that changing that people are requesting brands?

Completely. I think our biggest challenge, or not even challenge of what we do as a brand is around education. It's not just us, it's the whole category, and it's not just mixers, it's premium spirits. Why would you have one brand over another brand and why should I pay a couple more dollars for it? That job ultimately will fall with the bartender in a lot of cases or the waiter or waitress, explaining why. It goes back to what I originally said about people want to know the story behind it. I find that if you're educated and tell someone, "This particular gin comes from this particular region and the botanicals that are used are local to this," people are amazed by those sorts of stories and are willing to spend a little bit more for them, just so they can tell that story.

We sort of ride on the back of that. As I said earlier, that concept of complementary demand. Once someone's done that with the gin, people will say, "If you going to have that particular gin, the best tonic water to compliment that gin is this particular tonic water." Because we have 4 different tonic waters and each one of them sort of works differently with different types of gin. Again, that educating of the bartending community to tell them what the differences are and how to actually serve them.

Right, so you have a perfect person customer goes to the bar and says, ‘I'll have a Hendricks and East Imperial’.

Yeah, completely, or probably go and take it a step further or go, "I'll have a Hendricks and an Old World Tonic by East Imperial," because that's specific tonic that goes really well with Hendricks.

Yeah, but again, we have menu listings and things on that that educate people. Again, our role as a category and playing on this category is all around that education. The other thing about it is as well, there's this real tendency in mixers that if you've got one mixer, you don't need another mixer. It's certainly true in New Zealand, but when you go abroad to certain markets like Belgium which are very mature gin and tonic markets, or Holland for example, or even the UK, you can go to a bar and they'll have ten different gin and tonics with three or four different tonic waters available.

It's kind of like this mentality that people have to say, "I've already got a tonic water. I don't need another one," but there are different tonic waters that do different things to different gins. It's again, it's just an education of the people that own these premises and the people that work from them.

What's next? What other products have you got coming or you looking to expand?

Yeah, what's next for us is we continue to grow at quite a rapid rate. Our focus to date has been pan-Pacific and pan-European. A large chunk of our sales have come from Australia or Asia. That's where we originally started. Then we moved into Europe and we're seeing some really good traction this summer, this European summer now. We've put in a lot of hard work in there last year. I spent four or five months up in Europe last year planting those seeds and getting those markets ready.

We're starting to see the fruit of all that labor now this summer, which is fantastic. Our big focus at the moment is the US. We're with a couple of the largest distributors over there, the behemoths. They take a lot of effort to manage and so we've got 5 people on the ground now in the US who work for us in the sales capacity. There's no substitute for door knocking and getting in front of people doing the tastings, and we're confident that once people taste it and understand the story that people will buy it and switch it. I can't be the person that does it and neither can Kevin, my business partner, so we have to have these people on the ground there.

US is very much a focus for us and we're starting to get some good traction in particularly Los Angeles now and also Dallas. Our next focus is places like Oregon, Portland, Seattle, then also up to the midwest, Louisiana, and then also on the east coast. We just signed with new distributors in Florida and New York. We kind of see as we grow and invest in the US that the US will make up around 60 percent of our sales in three years time.

Will there be a East Imperial Cola or something? Are you going to move beyond mixers to stand alone soft drinks?

No, we've got seven flavors now. I think that the range will expand to probably 10 or 12 over the next 12 months. There'll be some sort of limited edition specialty ones. We've got a Uzu tonic at the moment, which is a specialty one, and we have a grapefruit tonic at the moment again. We'll keep adding to those, and again, this is just off the back of what people are saying in trade and what trends are in trade and what people want. We respond to that. There's no definitive kind of, ‘Okay, we're only going to go to this and that's it’. We'll just keep doing what we think is right.

We think the brand is strong enough to move into the alcohol sector as well. That's something we're exploring as well, to do our own brands in that sector as well. To take the step beyond the mixer and actually start looking at the spirits as well.