US tech platform Thirstie aims to level the playing field for thousands of small independent alcohol brands by giving them a platform, co-founder Devaraj Southworth tells Alex Oldroyd of Global Drinks Intel.
USA. Devaraj Southworth is the co-founder of Thirstie, a US tech platform that enables seamless click-through ordering directly from an alcohol brand’s website for delivery to the consumer’s door, in full compliance with the myriad of federal, state and local regulations. Put in a single sentence, this sounds straightforward enough, but it takes complex technology, combined with a swathe of retail relationships, to deliver an apparently simple solution for the consumer and then convey data about the purchase securely back to the brand owner.
Southworth embarked on this, his third entrepreneurial project, seven years ago with his co-founder, Maxim Razmakhin. Neither founder has a background in the drinks industry, which may explain why they only saw the opportunity and not the hurdles presented by the regulatory idiosyncrasies of the US spirits industry. He says they approached it from the perspective that they “understand how challenging it is to create a product, develop a market and raise capital” and they wanted to apply that experience to a traditional category. “From my estimation, there are two categories in the US that — and this is an overused phrase — are ripe for technological disruption when you look at digital penetration and digital consumption from that lens: automotive and alcoholic beverage,” says Southworth.
They picked alcohol as they saw the opportunity to transform an industry where only about 1% of sales were online compared with 15-18% for other consumer goods. Southworth previously worked at Accenture, helping companies understand how to go to market, and at Amex on mobile payments. Meanwhile, co-founder Razmakhin had worked with a couple of technology-related startups. They approached the situation from the perspective of providing a technological solution to a market opportunity rather than from the perspective of the drinks industry itself. Southworth says: “We see ourselves fundamentally as a data analytics business rather than a drinks business.”
Consumer-facing marketplace
At the outset, Thirstie launched as a consumer-facing marketplace. It developed partnerships with brands and retailers and put in the back-end technology to manage home delivery in compliance with regulations. The big transformational strategic decision was made after the first couple of years when they saw a larger opportunity working for suppliers and brands on a white-label basis, utilising the same back-end technology and retailer network to enable brands to interact directly with their consumers while still maintaining full compliance with the regulatory three-tier system to manage the home delivery. (White labelling is when a company removes their brand from the end product and instead uses the branding requested by the purchaser.)
Interestingly, IWSR Drinks Market Analysis recently produced a report referring to the increasing popularity in the US of white-label storefronts, like Thirstie, among premium brands. The IWSR concludes these sites, of which Southworth estimates Thirstie is the largest, are popular because the brand can provide better information, experiences and service to its consumers while capturing valuable data. Southworth says: “We have several patents that we’ve been issued and an IP (internet protocol) around how we present data, process payments and manage regulation.”
The decision to change tack was not taken lightly, as Thirstie had already raised investment based on the original plan. Southworth says the marketplace model is “more flashy”, but the decision to move to a tech platform was “pivotal” — especially considering Thirstie was not as well capitalised as some of the other market places, like Drizly. Fewer competitors were providing platforms for brand sites, so there was an opportunity to take the first-mover advantage and leadership.
While few brands could afford to fully utilise the marketplace model because they had to have internal capabilities as well as paying high fees, Southworth recognised that, with the new model, Thirstie could service smaller brands more cost-effectively. It took some time to make the transition but, now, anyone with basic content management capabilities can build their brand’s storefronts on the Thirstie platform, using drag-and-drop functions from the site if need be. The brand’s site can be launched very quickly, which is good for the client, but has also enabled Thirstie to expand very quickly in response to the Covid-19-related demand for home delivery. Southworth says: “We went from four customers to 200 in 15 months and we’ll probably double again in the next six months.”
Southworth is very enthusiastic about the opportunity that the platform can create for smaller brands. “For small independent brands, it’s about democratising and making sure that these smaller brands have the same access and capabilities as the larger billion-dollar companies do,” he says. Then, the brand’s success depends to a great extent on its own ability to manage an e-commerce digital storefront. Thirstie can provide help with audience analysis, demographic and geographic targeting and with understanding commercial aspects like which campaigns have worked. Southworth admits the brands still have a wide range of outcomes, with some seeing quick success, others taking a bit longer and some unable to make it work at all.
Transparent pricing and affordable for small brands
Looking at what Thirstie does now, there’s a very transparent pricing structure and there is a capability to target very tightly by geography, so it is affordable for smaller brands who can operate in a fairly compact geography and then use the data provided to demonstrate their consumer pull and manage their expansion.
In order to fulfil short-term delivery windows, a brand does need to be available in local stores, but the system can still be used as long as there is some retail availability in the state. “Thirstie is a hybrid and we have the capability to get you that product in one hour,” explains Southworth. “We have that capability to get you that product in a two-hour window over a three-day period. And if you are out on vacation and you are OK getting that product in five days, we can get it to you. We’re doing some pretty interesting things from a partnership perspective, with DoorDash and Postmates, to increase that on-demand capability.” For the moment, on-demand delivery is about 30% of Thirstie’s business.
Southworth sees the critical benefit of Thirstie as its ability to provide the brand data back to the brand owner, either with analytics or ready for the brand owner to analyse for themselves. In that respect, the brand storefront is much the same as one might find in a market that does not require intermediaries for direct-to-consumer shipping like, for example, the UK.
The difference, however, is that, where in the UK the brand owner can potentially capture a higher share of the supply chain margin, in the US, there is no disintermediation of the wholesale and retail tiers. In the absence of margin capture, the business case for the brand site relies on other benefits, Southworth elaborates: “The basket size for a branded storefront is close to double that of a marketplace, and the conversion rates are eight times different — and then you can have the shopping cart data.” However, he says the two models for home delivery are not mutually exclusive and many of his customers would use both Thirstie and a marketplace storefront like Drizly.
Time and resources needed to grow retail network
Was there was anything they would have done differently? Southworth wonders if they should have raised more money sooner. However, he balances that against the need to stay focused, patient, maintain quality and create shareholder value. While there was never a point when they thought it wouldn’t work, Southworth says it definitely took longer than they might have anticipated. This was because they had to build credibility, both around their business and in the concept; they had to build out the retail network, attracting retail partners across a lot of markets; and they had to manage local regulators, demonstrating compliance at every step.
“It’s been quite a bit of resource, from a cost perspective, we’ve put into making certain that we crossed the T’s and dotted the I’s to make sure that this system is highly compliant,” says Southworth. “And that’s the cornerstone of who we are. The biggest operational challenge was growing the retailer part — that’s hard work. It takes time, it takes resources. But we’ve done it well.”
Rolling out faster could have risked customer service and regulatory compliance, but now that Thirstie is established in the states where home delivery is legal, the company is rapidly bringing on more retailers. Southworth says: “We have several hundred retail partners and we’re now doubling the number of retailers.” The platform can also work with the on-premise but, right now, it is waiting to see whether the legislation allowing home delivery from bars and restaurants is going to have sufficient longevity to make it worthwhile bringing these outlets on board.
There’s no doubt that Covid-19 accelerated the development of e-commerce in general and alcohol specifically, giving a boost to Thirstie’s business. Southworth says some brands saw sales through the platform increase 500- 700% last year. E-commerce acceleration has generally continued because “consumers and investors now really believe that e-commerce in alcohol is real”. For Thirstie, says Southworth, “things are moving at breakneck speed — we have more than 30 brands reaching out every week”.
It was probably not as difficult for Thirstie to find investors at the outset as it is for other startups because the founders already had a successful track record and they had a professional network of individuals with both money to invest and relevant experience. Their early investors included seasoned business people from the worlds of technology and beverages. Up to now, they have not taken institutional money and they have been a little wary of the investors who have come to them wanting to invest and change the strategy, while the original investor base brought a wealth of experience and connections. “We wanted to make sure that there were people that understood our business and were patient, if that makes sense,” says Southworth. “It was about market fit, about looking for profitability. It was not about raising large amounts of capital.”
Having experienced explosive growth in the last year or so, Thirstie will now look to raise more money and will probably take venture capital investment in the next round. This is partly because they see the value that can be added by the venture capital partner and partly because they think the Drizly transaction has opened investors’ eyes to the opportunity. “The perception from the financial community is very different because there has been a significant player in alcohol beverage e-commerce that saw an exit,” reveals Southworth. Despite receiving a lot of attention since the Drizly announcement, he says he is trying to remain focused on delivering the core strategy.
Recruiting the right people is crucial for success
One immediate challenge Thirstie faces is to build out its internal infrastructure to support future expansion of the business. Success so far has been founded on a very strong base of people with the right skills and the right personal fit. Southworth says of his co-founder Razmakhin: “He’s a phenomenal product innovator — a visionary, who understands the trends and where products will be years before they actually end up there.”
The technology element, which Southworth credits to strong engineering leadership, has obviously been critical, as has the data analytics capability which is currently being further developed by a Wall Street veteran with a background in proprietary trading. The company just announced a number of additions to the advisory and operational teams to further strengthen its capabilities. “I recognise from being a repeat founder, that there’s a certain point in time where you need to make sure that you build a very strong infrastructure,” Southworth says. “We have a strong infrastructure, but if we want to be a unicorn [a privately held startup company valued at over $1bn], it’s got to be stronger. If we actually are going to change an industry, we do need the right support.”
Recruitment is not undertaken lightly. “Our HR process is extensive,” reveals Southworth. “I don’t think there’s been a role in the last four years that has had fewer than 350 candidates. We’re incredibly honoured by that.” Even then, they may not hire anybody if they don’t feel they’ve found the right person. “Finding the right people is absolutely pivotal, making sure that there’s chemistry and making sure that, obviously, there’s competence,” says Southworth. “If they have the right people in the right roles and the founders can trust those people, they are comfortable delegating. Also, from a founder’s perspective, you have to be OK with relinquishing some of the things that you’re incredibly passionate about and entrusting them to someone who hopefully is more skilled in that domain than you, so you can focus on the larger picture.”
The future development of the business has many potential avenues, such as international expansion to enable a brand’s site to adapt to different markets with the same functionality for the consumer to order directly. One option they have considered for this would be to license the technology to partners for international development rather than investing to develop the overseas infrastructure themselves. However, there is also an opportunity to apply the same proprietary technology to other regulated industries, such as cannabis, and this is an area Southworth may explore. Either way, his ambition is to continue to develop the company to create a unicorn.
“We are not looking to sell our business,” Southworth says. “We’re looking to build a very large business and at some point maybe…” It is unlikely that one of the multinational spirits companies would buy Thirstie due to the three-tier regulatory structure. It would more likely appeal to another e-commerce, technology or payments company, bearing in mind the company’s patented IP relates to data presentation and payment processing.
Southworth sums up his current ambition for the business: “We know we have a multi-billion-dollar opportunity if we just focus on providing superior e-commerce infrastructure and — really boring — data and analytics solutions so that brands of any size can make data-driven decisions on how to build their brand. And give smaller independents — the tens of thousands of them — a platform and level the playing field. That’s really what we’ve been trying to do. We’re not there yet, but we’re moving there relatively quickly.” ●
