Frank Lampen, the founder of Distill Ventures, has followed one of the more interesting career paths, having initially started out more than 20 years ago as a broadcaster in British television, enjoying stints at ITV, BBC and Channel 4. “At the time we were launching E4 (an offshoot of Channel 4), where I was part of the production team, and it was obvious that
everything was changing,” he tells Intel. “Broadband was rolling out, you were starting to see the beginnings of video being delivered over the internet.
“I reached the conclusion that linear broadcast TV was not the future. I was interested in all of the innovation that was happening, so I left to work for myself. I worked in a few different startup ideas, a few of which succeeded and a few that failed. That took me into that startup space and out of that grew our innovation agency and the investing.”
The agency focused on a mix of innovation projects for bigger companies, mostly in e-commerce, and fundraising and strategy for some smaller startups. Lampen was working on a new gin brand for a friend and was really struck by the difference between the kind of support and network available if you were a tech startup compared with if you were a drinks startup. He points out that it was hard to access even basic information such as development permits from HMRC. “The idea was that we could create something in drinks that were available to tech startups,” he says. “That’s where the Distill Ventures concept began.”
Distill approached Diageo as a partner, and in 2013, and one of the world’s first accelerators for the spirits industry was established. Distill’s business remains independent, as do the various startups in its stable, although Diageo owns an initial minority shareholding. The partnership
provides Diageo with a way to invest and support the most promising startups.
Investor partner brings tech know-how and support
“It was early on when we were putting Distill together, we realised we would need an investor partner,” explains Lampen. “We’re still an independent business and Diageo doesn’t have an investment in
our company itself. But we have a great partnership with them whereby we source investment opportunities. They make the investment decisions and then we work with the companies to support them during that period where Diageo is a minority investor. We had a conversation really early on with Diageo and the important thing was to make sure that we
both had an aligned interest in the things that were going to excite us, imagine might be part of their portfolio in the future.
“The really great thing was that there was always this mix of Diageo being interested in renewal within their core categories, like whisky, but having an openness to looking at things which weren’t in their portfolio at the time and new categories that were emerging,” continues Lampen. “The non-alcoholic side is a great example of that. That was exciting for both of us. Eight years on, it’s kind of going strong.
Diageo’s initial commitment of £100m demonstrated that they’re clearly seeing enough opportunity in the types of brands we’re bringing to
them and I’d take that as not the only measure of success but a good measure of the fact that it seems to be meeting their needs as well as our needs.”
In addition to providing seed money, Diageo can provide technical know-how, marketing expertise and production support, although it doesn’t get involved in distribution. The idea is that if the startups get to some scale and Diageo buys them, it’s of a scale where it could go into their distribution and be successful within it. But when the startup is really small, it needs a different type of attention and focus, and so that’s better
done as an independent brand.
The startup companies within the Distill portfolio tend to operate autonomously, including putting together their own route-to-market. “It is all based on the idea that the best kind of conditions to grow a brand is to kind of have a really great founding team that is 100% focused on the business,” says Lampen. “They can get lost when they are part of a bigger
portfolio with established brands.”
He explains that one of the big initial challenges in terms of strategy is striking a balance between providing a support model for working with startups, which ideally should be uniquely meeting the needs of the
individual companies. At the same time, you have to drive some efficiency into that, so you aren’t reinventing the wheel constantly.
“Getting that balance right was probably the biggest challenge in the first years and, you know, we probably tried a few different ways of structuring that from making it a bit more like a curriculum,” says Lampen. “It kept on coming down to what really works is when you get a great relationship between two or three of our team with the founders of those companies, where they can really partner together to support them and drive the vision further. That took us a little while to optimise that and it is still a work in progress just because as the companies grow, their needs change, so we need to keep that under constant review.”
Rise of e-commerce changing the way brands are seeded
Certain aspects have gotten easier for drinks startups, says Lampen. Contract distilling provides startups with a ready source to high-quality liquid. It is also today easier to access talent for things like packaging design. At the same time, the drinks industry has some narrow gateways in terms of wholesalers and retail distributors. Major wholesalers are
particular about how many brands they want to represent and this tends to create a funnel for craft producers.
The rise of e-commerce is changing the way that startups come to market.
The traditional model of seeding a brand in the on-trade before moving it into the take-home market is being challenged. Lampen says: “The first 100 cases you make are probably going to be the easiest ones you sell because people like new stuff and you can go and sell it bar to bar. But going beyond that is challenging.
“A lot of people went to the on-premise initially because they felt retailers would track on-trade trends. Retailers would be going to influential bars and thinking, ‘What new stuff have they got?’ There was this sense that the on-premise was almost a box you had to tick. The reality is that the on-premise is an expensive channel to access relative to the scale it can give you.
“The opportunity presented by the closing of the on-trade is to say, ‘Well
actually, it isn’t true that the only way you can build brands is through the on-trade. There are other ways you can build brands, particularly with e-commerce.”
As the market evolves and e-commerce grows, it presents the opportunity for a different way of expansion, according to Lampen. It may no longer be necessary to lead with an expensive, time-consuming and unwieldy on-trade brand-building model. Now, there is the possibility of expanding into multiple geographies through e-commerce operators.
Smaller craft brands stand to really benefit from the development of
e-commerce. As noted, access to distribution has always been their biggest hurdle. E-commerce promises better market access and is a great leveller in a business dominated by big brands.
The gradual development of credible and popular e-commerce channels is facilitating this route-to-market. If you are selling a whisky brand, for instance, there are a number of strong whisky e-tailers such as Master of Malt and The Whisky Exchange in the UK or Whisky.fr in France. The better retailers in this space have a whisky club feel and have built great relationships with a core customer base interested in experimentation.
Lampen says: “E-commerce offers incredible opportunities for introducing new products to trade and consumers. The consumer online shopping experience can be much better than in a store. The brand owner is in control of who to target and what to say. Data and analytics are freely available, so you can really see what is working.”
There are also huge opportunities for innovation, with traceable bottles, subscription services, packages designed to be shipped easily and online-only exclusive editions. With less to offer in terms of impulse or price versus major multiples, online retailers and suppliers have an opportunity with ‘hard to find’ online exclusives.
Lampen notes: “Many suppliers assume that e-commerce offers an easy win, but it is not a silver bullet. Offering basic online retail is relatively straightforward but putting the pieces together in a way that results in growth and profitability is very difficult. There is a big difference between getting an e-commerce presence and building an e-commerce business, with success relying on achieving operational excellence across a range of areas. You may be listed all over the world, but do you have a scalable, profitable opportunity? Not necessarily. Not unless you put that e-commerce route-to-market together in the right way.” ››
E-commerce really took off during the pandemic, but it is an area where Distill was well out in front, not surprising given Lampen’s background in the sector. “The spirits industry traditionally has lagged a little bit in the e-commerce space compared to other sectors such as beauty or personal care, for example,” he says.
“We saw an opportunity to change that.” The challenge, explains Lampen, is that e-commerce talent is in high demand from a lot of venture-backed startups who will pay the big salaries. “It is quite difficult for really small businesses in the spirits space to hire really great e-comm talent,” he explains. “We took a decision to really beef up our team’s capabilities in
the e-comm space, so that we could then offer much-greater support and guidance in developing e-commerce.
“The great thing is, we took this decision back in 2018 and we spent
2018 and 2019 building that capability. We were relatively well placed coming into 2020 and the market changes. Our brands were all in a reasonably decent place in terms of having basics in place and we weren’t scrabbling around for talent like a lot of brands were. Taking that decision to double down on e-comm a couple of years ago was important and, in hindsight, seems like one of the most important moments for the portfolio.”
No-alcohol pioneer
Distill pioneered the no-alcohol space and had its first big brand success
with the launch of Seedlip. “One of the interesting things around when Seedlip first launched, is it quite clearly was tapping into a consumer need that had been there for a long time,” says Lampen. “The reaction for a lot of people, when Seedlip launched, was, ‘Where the hell have you been? Why has it taken so long?’
We focused on making sure it had online availability quite early on and it did really well in terms of online sales.” Diageo eventually took full control of Seedlip.
The other trend that has accelerated in 2020 is at-home entertainment. “If you think about all the money that we’re saving by not going to restaurants and not going on holiday, a big proportion has been reinvested in upgrading our experience at home. There was always a concern before that with higher-priced products, people couldn’t experiment and trial them in bars. It hasn’t been a problem. People are trading up and there is a much greater propensity to buy higher-priced things that they’ve never tasted before and try it at home.”
Betting big on whisky
Distill is also placing a big bet on the whisky category, which is also a Diageo priority. Of the initial £100m ($140m) that Diageo initially invested, the lion’s share has been on whisky deals. This is because, says Lampen, it was always Distill’s ambition to move into whisky. “We know whisky,” he says. “We didn’t do it on day one just because they’re bigger deals, they’re more complex, and you have to invest quite significantly in that kind of production. You have to have a different timescale in
whisky because you are not just thinking about today’s sales, but you’re thinking about what level of production and ageing you are going to need several years down the road.”
Distill’s new whiskey brands
Lampen says the company is so bullish
on the whisky category because “we
are seeing continued premiumisation
in the category. We see this incredible
kind of consumer interest.” He notes
that some of the research that was in
the world whisky white paper published
by Distill highlights the length of time
consumers spend researching new
whisky purchases. “We have a really
engaged whisky audience who are looking
for new taste experiences and that is
contributing to the growth of the world
whisky category,” says Lampen. “That is not in any way to diminish what the traditional whisky-producing regions have done, and continue to do, but there is this consumer out there that is up for discovery. The ability of whisky brands coming from parts of the world without a long-established tradition is that you get perhaps a bit more sort of freedom to
experiment and do things in a different way. We’ve really searched out the brands that we think are bringing something new to the world of whisky. We are really excited by the growth we are seeing in some of those world whisky brands.”
Ultimately, Distill is judged by its success of either taking startup brands to a certain scale, or whether Diageo takes them on. “Our success rate’s pretty good,” says Lampen. “We haven’t had a huge number of companies leave. I think the companies that have left, almost all of them are still
in the market and selling. A lot of them have raised money elsewhere and some of them have even exited. We’re delighted by that. Sometimes they’re leaving a portfolio because the direction they want to develop the business in is different from what might be interesting for Diageo to own one day. In some instances, it might be a change of priorities on the Diageo side and, in a few rare cases, it’s just because the performance didn’t pan out as we all hoped it would.”
Lampen believes that despite the huge number of startups entering the
market, Distill’s size will necessarily be constrained. “The key thing for us is we want to maintain the ability to have a close relationship with the portfolio founders,” he says. “Everyone in my business knows the founders of all our companies and, in some cases, know them really well. We don’t want to expand it to a point where you might only be interfacing with the companies every few weeks because you just haven’t got time to kind of stay in touch with them.” All of the portfolio companies have a lead partner within Distill Ventures, who works with two or three companies, says Lampen. “They have a close relationship with them,” he says. “We try and keep that kind of close personal connection.” ●
