South Africa taps into growing demand for soft drinks

Johannes le Roux

When Johannes le Roux began researching the development of a new brand of ready-to-drink (RTD) beverages in 2015, he had no idea he would be the co-founder of The Duchess, a producer of non-alcoholic gin and tonics. Today, the Cape Town-based company looks poised to benefit from the expected strong growth in the global soft drinks market over the next five years.

In 2015, having launched, grown and sold a successful local brandy and cola company, Brannas Draft, Le Roux was ready for his next foray into the alcoholic beverage market.

“I learned a lot about the beverage industry while developing Brannas Draft: how to create a brand from scratch, how to create the liquid, how to make a beverage line and how the distribution network works,” says Le Roux. How we did it in Africa.

Following the sale of his business, he traveled to the Netherlands to undertake market research and discovered considerable demand for non-alcoholic products.

“The more I researched and the more people I talked to about alcoholic beverage trends, I realized that the vast majority were trying to reduce their alcohol consumption. It was clear that the global non-alcoholic beverage category presented a fast-growing segment,” he says.

At the time, several non-alcoholic beers had already entered the market, but no non-alcoholic gin and tonics or spritzer wines were available.

Upon returning to South Africa, Le Roux secured seed funding from five friends and family members, who provided funding to manufacture the first batch of products. He consulted with the food technologists who had helped create the Brannas Draft line, as well as his botanist aunt, who provided the necessary botanical extracts. He and a small team experimented with blending distilled gin and juniper extracts, creating a botanical tonic that would eventually become The Duchess Botanical Gin & Tonic.

The company sold over one million units in South Africa in its first year. In 2020, it added a line of non-alcoholic wine spritzers and brought the total number of units sold since its inception to over seven million across five territories: South Africa, the Netherlands, Belgium, the UK and Australia.

Today, 74% of its market is female and aged between 18 and 34.

Business development in South Africa

Explaining his approach to growing the business in South Africa, Le Roux says it was all about perseverance, coupled with strong market knowledge and a unique product.

“I did a lot of LinkedIn stalking to find buying managers and made a lot of cold calls to major retailer head offices to introduce them to their beverage manager. Once we got some appointment, we would literally arrive with a bottle opener, glassware and a cooler containing our test samples,” he recalls.

The Duchess has also focused on establishing a sales pipeline in local food markets, such as Neighbourgoods, and Le Roux attributes much of the company’s success to its strong brand positioning and elements Design. By the end of 2017, this approach had earned it listings with major retailers Pick n Pay, Checkers, Spar and Makro.

This momentum has been fostered by the Covid-19 induced restrictions on the sale of alcohol in South Africa and a global awareness of soft drinks.

In 2019, The Duchess caught the eye of ZX Ventures, the venture capital and innovation arm of brewing company AB InBev, which joined as a backer and provided the local beverage supplier networks and in-depth knowledge of the industry.

In 2020, total soft drink sales in South Africa reached 1.34 million cases. Of that, 64.8%, or 866,667 cases, were beer; 19.5%, or 260,000 cases, of ready-to-drink products; and 15.7%, or 209,333 cases, of wine, according to figures provided by the company.

The Duchess is now available at most local retailers.

The Duchess produces alcohol-free gin and tonic in three flavors.

The Duchess produces alcohol-free gin and tonic in three flavors.

International expansion

In 2018, Le Roux set his sights on the international market by bringing in an experienced friend as International Sales Manager. “What we did in South Africa – cold calling buyers – he did that internationally and spoke to buyers in hundreds of territories. Within a year we were able to get our first listings in the Netherlands. It took a lot of perseverance and endurance, but I think it was the only way to do it.

Exports currently account for around 50% of total sales. In the Netherlands, The Duchess products are sold at Albert Heijn, Jumbo, Plus, Gall & Gall, Sterk Amsterdam and Coop, while in Belgium they can be found at Delhaize, Carrefour and OKay. In 2021, The Duchess launched on Amazon in Germany, UK and Spain.

Production and Distribution

Using what Le Roux describes as a “lean and scalable” operating structure, The Duchess sources its raw materials from long-term external suppliers. The flavors and tonics are supplied by a flavor house, the botanicals are grown by Le Roux’s aunt, the glass bottles are from Consol Glass and the labels are printed by Cape Town-based Label Image.

“Our operations manager then organizes the transport of all raw materials to our co-packer, Chill Beverages International, in Stellenbosch. We placed an order with them for, say, 4,000 cases and they mix, fill and carbonate to create the finished product,” says Le Roux.

When it comes to distribution, the company adopts a tailored model, adjusting its distribution approach based on the volume of the order, the nature of the customer agreement, and the territory in which the product will be sold.

“We have different approaches for different markets and I can honestly say that we haven’t solved our distribution strategy yet. This is probably the most important, expensive and complex part of the beverage business, especially since the biggest and best distribution networks are internal distribution, such as those of AB InBev and Coca Cola. As an independent brand, it’s hard to compete with that,” he says.

Locally, the Duchess works closely with regional distributors, serving 50 customers and around 1,500 independent points of sale, forecourt and horeca. This is supported by a national merchandising partner.

In Australia, where The Duchess has a single customer – Woolworths – the product is sold direct to the company, which uses its own distribution resources. “It tends to be the most efficient way to do this because there are no middlemen involved and consumers get the best price on the shelf.”

In its other markets, such as the Netherlands and Belgium, the company sells directly to specialized import companies in specific territories who take care of key account management, sales, distribution and marketing. local.

“Most beverage companies use the importer model: find an importer who is strong in your category of business in that country, then sign an exclusive agreement. It does mean, however, that there is essentially a middleman, and as a manufacturer you make a smaller margin on those sales,” Le Roux reveals.

The company has also expanded into the production of non-alcoholic wine spritzers.

The company also expanded into the production of non-alcoholic wine spritzers.

Boom in the global non-alcoholic market

Competition in the local and global non-alcoholic ready-to-drink beverage market has intensified since The Duchess was established in 2015.

Major competitors now include Savanna Non-Alcoholic, Abstinence, Seedlip, Heineken 0.0 and ABInBev’s Castle Free.

According to the International Wines and Spirits Record (IWSR), consumers are increasingly choosing to limit their alcohol consumption by drinking alcohol only occasionally or by consuming both alcoholic and non-alcoholic beverages when drinking. the same event or celebration.

the 2022 IWSR Strategic Study on No and Low Alcohol shows that non-alcoholic and low-alcohol beer or cider, wine, spirits and ready-to-drink products grew by more than 6% in volume in 10 key global markets in 2021, and now account for a share of 3.5% volume of the industry.

The market value of non-alcoholic and low-alcohol drinks in Australia, Brazil, Canada, France, Germany, Japan, South Africa, Spain, the United Kingdom and the United States has increased from $7.8 billion in 2018 to just under $10 billion in 2021.

Additionally, the study projects that alcohol-free and low-alcohol volume will grow by a compound annual growth rate (CAGR) of 8% between 2021 and 2025, compared to a steady growth in alcohol volume of about 0.7% over the same period.

“According to the new IWSR study, 43% of adults in targeted markets who have purchased non-alcoholic or low-alcohol beverages say they replace these products with pure alcohol for certain occasions, rather than refrain from consuming alcohol in general,” the report read.

Future plans

Hot on the heels of ZX Ventures’ backing of The Duchess in 2019, in late 2021 Rand Merchant Bank (RMB) announced that it had partnered with AB InBev’s corporate venture capital arm to take a stake in The Duchess.

“Our team is focused on building a community around our drinks. A social and emotional connection that consumers can relate to. AB InBev is the ideal sales and distribution partner and we have recently brought in RMB as strategic financial support,” comments Le Roux.

Due to increased competition in the market, The Duchess is now focused on reducing its local costs by around 35%, which should make soft drinks accessible to a wider audience.

It will also leverage a recently launched B2B app from AB InBev, BEES, which allows small taverns, outlets and liquor stores to purchase inventory directly.

“We want to focus on the South African market this year as globally things stabilize. It is difficult to activate the brand internationally when you cannot organize launch events in certain countries. So this year, we’re focusing on getting the essentials right at home,” he says.

Subsequently, the company earmarked funds to expand into new territories such as the United States, where the alcohol-free or low-alcohol segment is expected to grow 28% CAGR by 2025.

The Duchess range is packaged in 6 x 4 packs per case of 24, each unit containing 275ml, and offers a range of three non-alcoholic gin and tonics and two non-alcoholic wine spritzers.

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