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Ecommerce on Tap is a world where Supply Chain meets storytelling. Join Aaron Alpeter each week as they offer insights into the backend of successful businesses. Brought to you by Sourcify and Izba Consulting!
Aaron Alpeter (00:00)
it almost feels like fragrances or skincare, where celebrities have to have their own skincare line and they have to have their own like tequila line.
Hey everybody, welcome back to e-commerce on tap. I'm your host, Aaron Alpeter. I hope whatever you're driving through right now is going smoothly. This season has been asking one question of every company. It is when you're manufacturing in Mexico, how much of the advantage in Mexico is inherent to USMCA versus something deeper, So we're gonna talk about something that's probably the most Mexican of exports.
Other than avocados, and that would be tequila. tequila cannot legally be made anywhere else on the planet. it's not cheaper someplace else, it's not more convenient someplace else, it is illegal. in order to make tequila, it has to come from a specific part of of Mexico. And the company we'll be profiling today is Patron.
Joining me today is Margarita Bello, who is one of my right hands at Izba. she leads a lot of our client work, a lot of our strategy, and she basically is is spending her time fixing problems for clients and then for our consultants.
she's just a wonderful person. Margarita thank you for joining and why don't you introduce yourself to the folks on the podcast?
Margarita Bello (01:10)
thank you for inviting me, Aaron. And for everybody who's over there, please subscribe and like this content. I think what Aaron does over here always is awesome. As a local fan from working from afar, I always like it. So please do so. so a little bit about me. I'm a chemical engineer, as a food scientist by training. I spend most of my time training in my home country, Venezuela. and I also been running into mostly food and beverage industry in my pastime, although here at Izba I done a little
more into it but during my past life what I have done is a spirit I was a VP of operation for Next Century Spirit. So I have a little bit of background about that. So when we text to a spirit is a little more than just a research for me. I like I actually did dive into that industry. I live into it. I was in the floral production actually build a facility of a spirit in my time life and run into decisions about how to make it smoother through the process.
So now at Izba, I spend most of my time coaching. I actually help our consultants to help our clients and do what we love to do is start scale and exit over here.
Aaron Alpeter (02:16)
Let's do it. Let's do it. we have a tradition before we get into the actual episode. We always like to talk about things that caught our mind, so tidbits or other things that popped up. this is a couple weeks old at this point, but CH Robinson was buying RXO for about $5.8 billion. And I I think there's a couple things that are interesting on this one. First one was the purchase price is a large transaction. The second is who's acquiring who. it wasn't that long ago where XPO Logistics was this.
Massive roll-up of everything on the supply chain. And then they decided that splitting things up would make it easier. it would make actually make it easier for them to make money. And so we're seeing a reconsolidation, a reshuffling of the deck. But what's really interesting about this was they are targeting around $300 million in synergies, for the most part, driven by AI. And so I don't remember. Do you remember this this company called Convoy that came out, gosh, seven, eight years ago? So it was all about tech freight brokerage.
And their whole promise was, hey, we are going to take something that's very manual and we're going to put tech behind it and we're going to revolutionize the industry. And I think they had the right idea, but Convoy today basically went bankrupt and Flexport bought their assets for like not next to nothing. Maybe it was like 20 million bucks after a couple billion dollars of valuation. but the reason that I think they failed is Convoy decided that they were not only gonna build the tech, but they were also going to be a freight brokerage as well.
And so CH Robinson went from, maybe this is interesting, maybe we'll partner with you to like, wait a minute, you're trying to like take our business. And and they they were like, we're going to do this ourselves. And so they put an enormous amount of money over the last couple of of years into building out their own AI assisted freight brokerage piece. And now they're in this position where they are so much more efficient than anybody else. They're able to acquire these companies, take a lot of manpower out.
lower prices for consumers. So it's it's kind of an interesting piece here, not only because of deal, but because I think this is the convoy playbook that is finally being executed and it's being executed at a very large scale.
Margarita Bello (04:19)
Wow. Well, I have another one for you. I actually was talking to my husband this about the other day. It was very interesting. About that Nike exit the S&P 100 after eighteen years of following with a two hundred billion dollars mark in whiteout. Like it is crazy how this market is moving out. I know y you have read up a little bit about it in in overview.
Aaron Alpeter (04:42)
Yeah, it it's weird to think that Nike is not on the S P one hundred. I mean they're still listed, they're still public, of course, but they've had such a difficult time the last couple of years that they're not one of the largest companies in America now, which is which is wild.
Margarita Bello (04:56)
Is wild. That blew my mind. Yeah.
Aaron Alpeter (04:59)
Unsurprisingly they were replaced by a tech company.
Margarita Bello (05:04)
There you go.
Aaron Alpeter (05:06)
Yeah. Well let's get into it.
Patron started in nineteen eighty nine. It was founded by two guys, John Paul DeJoria and Martin Crowley. DeJoria had made his money in hair care with Paul Mitchell, and Crowley was was really the one who had the idea around doing it. And he was traveling in Mexico and ran across a hand-blown glass bottle and pitched DeJoria of of making like the best tequila in the world instead of just bringing home in whatever the case you know people could find.
So they brought in a master distiller, Francisco Alcarez, and and they launched the business. And in 1989, most tequila in America was selling for about $4 a bottle. And Patron launched at $37 a bottle. And the the pricing was the whole strategy. tequila in the US is really something that you do shots of. and Patron was betting that people would sip it the same way they would sip a cognac or a single malt or something else like that.
And so they thought that the packaging was so important because they had to convey a the the premium experience that would be there beyond just what liquid would do. And so 37 bucks in 1989 was about 90 bucks today, if you think about it from inflation. So this was a real premium price and and it wasn't just a temporary marketing stunt. And Bicardi shows up twice in in Patron story.
the first one was in 2008 when they bought a 30% stake. And the deal was structured so that DeJoria became the principal owner of the parent company. And as part of that same 2008 deal, a payment went to the estate of Martin Crowley, who had passed away by then for his share of the company. And then about 10 years later in 2018, Bacardi comes back and buys the remaining 70% for $5.1 billion. And analysts at the time thought it was about 25.5 times Patron's operating earnings.
Or about 7.5 times on sales. And they were estimating to do about $675 million in revenue. And so the important thing here, as we're getting into this, is that the deal wasn't just about one brand. It was making, from Bacardi's perspective, it made them the number one player in the entire US super premium spirits market. And it pushed it to the number two spot just by market share behind only Diageo. And so Patron joined the tequila stable that was already owned by.
Cazadores and Corzo and other folks like that. I think market time was also important with this acquisition because in 2017, Diageo had purchased Casamigos, which was George Clooney's tequila brand, for like a billion dollars. And that brand was only four years old. And so Bacardi taking full control over Patron was really like the direct answer to.
that acquisition that Diageo was doing. And so they said hey if you're hey, you know, if Diageo's gonna own a validated premium tequila brand, then we're gonna have our own and it's not gonna be this this four year old celebrity label.
I think that what makes tequila very different from every other spirit in this conversation was everything else that Bicardi already owned. So again, 181 municipalities on earth where you're legally allowed to call something tequila, and every one of them is in Mexico.
And this isn't something where it's like a certification like organic, or you you can just build your supply chain somewhere else to get cheaper. It is legal geography. It's it's very much like champagne in France. It has to come from the Champagne region. the equivalent in Mexico is Jalisco. And there's a couple other parts of some other states, but that's like permanently forever, like what the footprint's gonna look like. And in terms of of tequila, it's it's made from one very specific plant.
which is Blue Weber agave. And it's bottled between thirty five percent and fifty five five percent alcohol. And Mexico's government enforces all of it through a body called the CRT.
Margarita Bello (08:39)
regulador del tequila.
Aaron Alpeter (08:41)
What she said. What she said.
but yeah, I'm I'm gonna refer to it as the CRT. where the agave is grown and where the tequila is made is obviously the most important part about what it is and what makes tequila tequila. But the CRT has a huge impact on not just the story, but the marketing that's there.
And you compare to other places in Mexico like Leon or Guanajuato and these are places that have you know a lot of boot making skills. They've got a lot of leather and things like that. But somebody could spend 20 years and a lot of money building a rival cluster in another part of the world. no matter how much you spent creating a agave plantation in Arizona, you still can't call it tequila.
Margarita Bello (09:24)
Yeah, I mean that is a really nice position to be for them. if anybody wants to somebody call it patron and have actually map it out of all this stream, it will be nice. But it's not just about the quality relief about and to be safe. In my experience the risky part is not about only the label, what are the issues in the label that is happening? It's also about what does supply change look like? What is the three supply backup it is like nobody's just watching that about that.
Aaron Alpeter (09:53)
Yeah. And well, I mean, when you were at Next Century, were you like w were you making stuff from agave?
Margarita Bello (09:59)
We were making some from Agave. We used to buy it directly from Mexico. We used to make it some like RTD from tequila, but we couldn't call it tequila when you're already on the R T D and space. So it is a very general overview of like how you do it. So we used to do a lot of co-manufacture for celebrity brands or not celebrity brands, my followers, but it's a very interesting space.
Aaron Alpeter (10:22)
Yeah, and so it's interesting because even though you're getting the the actual raw ingredients from Mexico, it had to be bottled in Mexico to be called.
Margarita Bello (10:29)
It has to be bottled in Mexico.
Aaron Alpeter (10:31)
Interesting. And and so like from a consumer perspective, do people like think that tequila was different from spirits? Like how was that perceived?
Margarita Bello (10:39)
It is very different overall. and like you as you said, Champagne is kind of the same situation. Like tequila it is over on around the same space. It cannot be like only neglected, like because you're actually bringing the agave directly into it. Most of our clients in our timelines used to have it in the space of RTDs, like used to make that kind of spirits and call it spirit. because what was the purpose of bringing it from Mexico if you can even call it tequila itself?
Aaron Alpeter (11:08)
Yeah. And so did you guys look at getting agave from outside of Mexico or is that just where the best stuff comes from?
Margarita Bello (11:13)
No, we just feel comfortable doing it for Mexico.
Aaron Alpeter (11:16)
That's interesting.
spirits and tequila are treated as two separate markets, even though it's it's effectively chemically the same thing. And coming into 2025 Patrone was the best seller in about 12% of the bars And they were doubling their shares and and just growing very quickly. So it was it was doing well. This this brand
didn't have any issues at all. It was it was growing. and this is despite all of these celebrity brands that have come out. And so, you know, we talked about Casamigos with with George Clinton, but like Kendall Jenner has 818. you've got like Michael Jordan and Dwayne Johnson and a bunch of I'm sure you've got a lot of other celebrity brands you said you worked with. and so it almost feels like fragrances or skincare, where celebrities have to have you know, their own skincare line and they have to have their own like tequila line.
Margarita Bello (12:05)
Yeah, i it is it is true.
Aaron Alpeter (12:06)
if everybody is producing in the same locations from the same crop, it's like how do you separate yourself?
if it is all the same product coming from the same place with the same manufacturers, like why pay more? Like I that does make sense.
Picardi buys Patron, it is large, well established, like everybody knows it. you've got a lot of new entrants that are coming in that are basically the same thing. You've got you know downward pressure on profit as a result.
you you also have the situation where there are farmers who are making less growing the crop so they're getting out of it. And and so you think that between the the demand that they have, the market share they have, the lower cost that they'd be in a better spot than they were. But I want to get to the actual controversy that happened for why they got shut down, even albeit for four days. And it was February of twenty twenty-five, and they launched a US ad campaign built around the phrase 100% additive free.
And so no secret ingredients was was what they said. And they said the ingredients were agave, water, and yeast. And the CRT basically sees this and suspends Patron's export certification. this wasn't a fine, this wasn't a lawsuit, this wasn't like a hey, let's have a conversation. They suspended the license that said you can't export your product as tequila from Mexico. And you think that the CRT
which is a Mexican regulatory authority, should have no authority over an ad that only runs in the US. And so they kind of went back and forth and they decided to reinstall it. But they also agreed that they would pull the phrase additive free off of their site and they let it go through. by July they came back and said I I they they called the campaign Censored Truth. And so it's like Billboards, Transit Ads, Bleep Dot Radio, stuff like that, that
Basically said, Hey, this is why we're not allowed to say this anymore.
Margarita Bello (13:56)
That whys me. it's crazy that their own government did that to them. For for an ad?
Aaron Alpeter (14:02)
Yeah, and it it's really interesting because I think you've got two things that are being stressed at the same time. You've got the legal CRT problem that's there, and then there's this like biological crop itself. And I think, you know, nobody outside the country has ever had a reason to think about who actually decides what tequila means. And, you know, really one of these things is is the CRT is the only body on earth who can certify that a bottle is legally tequila.
they've got a a specific certificate of origin that's tied to an ID, a NOM number is what they call it. And without a valid certificate, there's no legal import into the US, which means that this product's just sitting at port, the product's, you know, not really happening or things like that. And so what was interesting was that Patron decided to pick this fight.
because the Mexican rule carves out for a specific allowance of additives, but below a certain threshold, they don't have to appear on the label. And I believe it's like 1%, up to 1% of the volume can be additives. And so when Patron said, Hey, no secret ingredients, they were kind of putting a light on on the rule and kind of trying to use that as a way to expand themselves because again, there's so much.
celebrity stuff going on. There's so many brands that are popping up and they're trying to find a way to stick out when they basically have the same product that's coming through there. And you know, their their competitors, Don Julio, Casamigos, Lunazul, Siete Bucks, Spirits, I mean, all of these guys are are using some sorts of things that have a private label problem as well. And it's it's effectively the same thing. Like lab testing will show you there's really no difference between these. And so I think that's the interesting thing here is that they were
trying to get to a point where they could have some sort of distinction and they ended up thumbing their nose at the authorities who who shut them down.
Margarita Bello (15:50)
Yeah. That's crazy. That is that is crazy.
Aaron Alpeter (15:54)
why don't you talk to me a little bit about this one percent thing that made a big deal. like what are some of these additives that could be included or is this just impurities that are inherent in in the quality process?
Margarita Bello (16:06)
the additive allowance are never as a clean the sound is on paper on it,
Aaron Alpeter (16:10)
so what were some of the things that you would have to pay attention to in the in the quality process? Was this more about just the purity of the alcohol or is it about like like what what does quality look like in a tequila or a spirits company?
Margarita Bello (16:23)
Overall is the purity of it and you have to see how many grades of alcohol do you have, how much it is, like what it is at additional things, how pure it is a product, so that it will show you overall when you're receiving the products in the what we're talking in in the original and paperwork of how everything is done, like that's how probably we'll look into it.
Aaron Alpeter (16:46)
Got it. Okay. Yeah, there's this this place called Hacienda Patron that sits near a town in Jalisco in the highlands,
Patron had gone out and said, We're gonna really source everything from this particular location because they felt the Agave quality in that region was was really good. There's some deep wells in the area. So there's like a specific mineral balance that gives it a slightly different flavor or or tone. I remember actually when I was in South America, we went to a like a cook a cacao
plant or you know people were making chocolate.
Margarita Bello (17:15)
Uh-huh. Uh-huh.
Aaron Alpeter (17:18)
And one of the most mind-blowing things we had was they at at the end they did a a tasting and they said okay we have the exact same percentage of cacao we made these the exact same way exact same person made them but this tree was was near fire this one was near mango tree and this one like got a lot of sun and the difference in color and taste was was pretty phenomenal where there's just like one that there was a difference and so
I think it's just it kind of goes into that where they've spent time and and you know it's a very difficult place because there's only so much land that can grow this stuff. And they said this is the part we're gonna focus on. And what was interesting was that Patron decided not to just buy the land, but they contracted with eight families. And these guys have been kind of working with them for generations at this point.
it's interesting to me that Patron could have said, Hey, we're gonna buy all of this acreage that we need and we're gonna employ all the people that that we need, but instead they said, We're going to just establish these partnerships with these eight families and they're gonna grow all the agave that we need.
I wanna hear more about like how they actually harvest the agave and then turn it into tequila. So maybe you can walk us through that.
Margarita Bello (18:30)
Yeah.
So the Jimadores, which are the handmade harvest people that takes the agave, it takes about full five years to grow it. And then the agave gets cooked close to about eight hours in clays ovens.
then it gets crushing into two completely different ways at the same time, so you can have an a like a roller mill that separates the juice cleaning from the fiber and gets a cleaner, more floral results into it.
then there is the Tahoma, that an old ton like volcanic stone wheel, like they have it over there, that crushed the agave with a fiber that is still on it.
Aaron Alpeter (19:09)
you're talking about stone wheels that made out of volcantic stone and and like clay ovens. I mean, this this seems like it's very much a cottage industry versus some sort of manufacturing process.
Margarita Bello (19:20)
In in a certain way it is, but you know, there's a culture about it. There's also a one reason why this is still only one place in the planet, right?
it's not the cheapest ways probably. It's actually a harder way to make it and probably it's more expensive the way to do it. But because maintaining this two separate fermentation and distillation path instead of one.
can protect the flavor profile that they have known it is their characteristic about it. So it's not something that
marketing can flourish, you know, I've been in other industries, but you can just add flavor, you know, they add flavor into it to enhance it. This is not what you're looking into here. You're looking to blending into two streams to get back together.
Aaron Alpeter (20:03)
it definitely sounds like more like a craft than a big business. And so I I'm just
Margarita Bello (20:07)
Yes.
Aaron Alpeter (20:08)
curious, like when you were in a factory, you didn't have to worry about the tequila piece of it. You had well, I'm assuming you didn't have volcantic stones that were going around and around. Like what did it look like in a modern
Margarita Bello (20:16)
No. It did it.
Aaron Alpeter (20:18)
manufacturing facility?
Margarita Bello (20:19)
Mm mother.
Yes, we were definitely a modern manufacturer and and most of the things that we used to do honestly is that we used to buy a spirit and the company next century what it has a ovary to enhance flavor for different type of spirit, with temperature. So they were talking here a lot about temperature, but they were able to do with a roost of thyme and different type of wood. So in some level it has like that own uniqueness of like how to make it that
product taste that you want without additive, without that overview. So slightly different paths but kind of the same. For what we used to do mostly with agave at that time was mostly added to RTD. So very different industries overall of how you you know, you can go directly from Mexico and the Jalisco place to actually get it from it.
Aaron Alpeter (21:12)
Yeah.
I'm sure that Patron could probably automate its bottling line and have like ten people running a thing, but instead they're they're employing four hundred people, right? Like they're they're doing this intentionally very small, very very craftsman like because of I I I guess I I don't understand how much of it is actual impact on the product and the flavor versus how much of that is just how it's always been done.
versus how much of that is marketing? I mean, do you have a sense there of you know where why they keep doing it this way?
Margarita Bello (21:44)
I mean, I have thought about myself too.
there's always a spreadsheet that can tell you like automation's payback in like 18 months or whatever the timelines that you want to give it to. But that spreadsheet doesn't capture your relationship that you have with the town, with the operators that you have over there, with the employer for 400 people instead of twelve.
it's a hand-finished bottle. And this is something very in like you see in a lot of the spirit industry. A lot of the things are very much hand-finished bottle, and those are the ones
once more special when you see all this like special batch that you know people put even their handwriting into it to say this is
Aaron Alpeter (22:22)
Really?
Margarita Bello (22:23)
yeah there are actually it worked for several of those with they were put like this is bottle 300 of I don't know 600 bottles that we did so it's there's something special about pattern like keep choosing harder and more expensive on a purpose into it so don't think that it's just an accident. I'm pretty sure they have done the math themselves but there's something
something in the beauty of making it this way.
Aaron Alpeter (22:49)
Yeah,
it feels like what is different is the effort that people are going into, like the the effort that that human beings are putting into it, not just the company. I know you and I have talked about this, especially in the age of AI, like consumers are rewarding effort.
you know, it
Margarita Bello (23:03)
Yes.
Aaron Alpeter (23:04)
AI will make everything look perfect. It'll make every every grammatical error correct. you know, every every video could be perfect. The models could be flawless. And people see through that and they're like, all right, well that's fine. You had a y you spent some cloud credits and worked out. But the reason why things like live selling are doing so well is because it's imperfect. It's because people are fumbling over their words. And I think consumers recognize that this was someone's conscious
time that they invested in it. And so they're they have a little bit, it feels a little bit more authentic and more real. It kind of seems like this is the same dividing line for tequila, where yeah, you could have something that's built in in a lab that, is flawless and probably a lot more efficiently made. But it feels like people or consumers are rewarding the effort that that human beings are putting into it, which I think is an interesting commentary.
Margarita Bello (23:55)
I totally agree,
I used to work for a capture manufacturer in my longest time and I do remember that during my time in my home country they used to effort in the farmers and they used to there was a real true partnership when they used to provide like the seed and everything. But it's yours. We are partnership of this. So that sense of ownership when you give that to the farmer and being back up by the company, it helped out so much in the future's sake.
Aaron Alpeter (24:23)
Yeah. Margaret, just just like you know, I I have no experience with tequila in general or spirits. Like, just talk me through what what does it look like if I want to start a business there? Like how difficult is it? What do you have to think about? Because it it in some ways it looks like the barriers to entry are so massive because especially if I want to do tequila, there's only a certain part of the world it can come from. It's gotta be made in that spot. So it's not as if you know, I I can just get on Alibaba and find a tequila manufacturer. It's just
It just feels so difficult to get into it. So how do you find people who are wanting to that space? You know, what do they do to be successful?
Margarita Bello (25:02)
Good question, my advice in general
is to look for experts in this field. There are people like Angon Chuning, Next Century Spirit Worker working and then I don't work there anymore, but I really have great relationship with them. They're experts in the field to help you to start that growth if that is something that you would like to. They're co-packers and can help you. But I mean the reality is that you really want to go to that puts on the grounds and that get that overview. You actually have to go and talk to the suppliers directly into the headlist of place and
what it is over there. So it is a business overall as any business you have to have your your business plan how should cast precision into it as any other you would like to but in this one it is it is your business plan is one's the most important thing are you trying to export this are you trying to go review you know it has to be bottling hellisco no matter what so you have to look into that overhaul about it
To make sure that it's worth it.
Aaron Alpeter (26:05)
Yeah. when it comes to thinking about the the bomb or the cost structure of running a spirits brand, how should I think about you know what percentage of my cogs is tied to the actual product?
How much is tied to, you know, people working with volcanic stones? How much is the bottle itself? Like, what does that structure typically look like?
Margarita Bello (26:24)
in my experience, the spirit itself is the most costly part about your product. I will say it probably it is around forty percent of it, is at least what it is, forty to fifty percent
Aaron Alpeter (26:35)
Really? Wow.
Margarita Bello (26:36)
what it costs into it. And depending on you know what a grade of alcohol you want into, it might vary into it. But it's a very significant portion of it. I remember when I used to buy spirits constantly for a different type of product that I used to do, it was the most costly part. So you need to be more very coherent. However, I
Will say that mostly my experience, the bottle inside of the business, there's a lot of manual work that I have seen. There's some some automations into it. There's some industry. I actually bought a I built a facility, but I remember buying a bottle online to be more efficient. But there's some level of you know uniqueness, and people in the spirit industry love this kind of thing. They love to have that feeling that is handmade, that somebody put their hand into it, that
to a certain level is not only a machine that run through it and did it there is especially like bottles for the mid-size my guess of course with big players like Bacardi and everything for other spirits they might have like more designated lines but overall what I have seen in the industry it is it costs a good amount of money so you need to be watching out what are your expenses overall over there. so in your bumps your spirits is probably the major thing but I
I won't lose sight of the overhead and labour.
Aaron Alpeter (27:55)
That that's so interesting because I you know, we did a a whole season on fragrance, a couple of seasons ago. And what was interesting about that was like f the fragrance was like the cheapest part. Like the actual chemical that that smelled was mostly water and a little bit of alcohol. Yeah.
Margarita Bello (28:05)
Because it it's different. You put a small
portion into it. So that also deviates what I was saying depending on the grade of alcohol that you want. Like if you're running
Aaron Alpeter (28:14)
Yeah, well what is well you said grade of alcohol, what does that mean?
Margarita Bello (28:17)
well like it depends of how much percentage of alcohol do you want in your product.
If you're talking to an RTD, give you example, the spirit is not going to be that forty percent because it's just a small portion of it. You're adding water and you're probably adding more into it than what it is, carbonated water and then what you're doing. But if you're talking a hard liquor, like I don't know, I'm gonna say like articulate that we're talking right now, or whiskey, like their the grade of alcohol that you got into them as much higher. So it depends on the type of product that you would like to do, probably the expense into it. That's why you go to a
store
and you will buy a can of those salsiers that you have much cheaper. They're comparable to like a beer, let's put it that way. But you bo go to the store and buy
a bottle of tequila or a bottle of whiskey or bourbon, how much that costs. Around forty-five dollars a bottle to ninety dollars a bar or even more into that. So of course the price locating into the grade of like how much alcohol you're putting into it.
Aaron Alpeter (29:21)
The concentration effectively, yeah. Okay.
Margarita Bello (29:23)
Mm-hmm.
Aaron Alpeter (29:24)
And so it sounds like there's a lot of alchemy that goes into it when they're creating a a drink. And so I'm curious, like if someone's going through the product development process, do they always say, Okay, I I I know that I want this exact percentage of alcohol, or I'm gonna play with the percentages to get a different taste or a different outcome or a fact like how does that product development process look like? 'Cause I think
you know, from a non drinker, it's like, well, does it does it get you drunk? Great. Like you know, there you go.
Margarita Bello (29:53)
Well
Yes and no, there's also regulations. The TTV regulates a lot into this, so you have to actually depending on what you would like to develop for the market, there's some certain regulations on what you can call what. Depending on the how much percentage of alcohol you have in the product is what you can call in and into it. So
Aaron Alpeter (30:11)
Got it.
Margarita Bello (30:12)
you what we used to do in the timeline, we used to be meet with the with the client what you would like to develop, making sure that it was regulated by the TTV and there was some level of overview of how much you would can do and develop a
course with the flavor profile what are the things that you do want it to it will get into development overall.
Aaron Alpeter (30:32)
Got it. Okay. It's the same sort of thing where tequila's tequila and and that's what it is. I mean, one of the things that it's just interesting we've profiled in a couple of other episodes, like like the liquid death episode, is just the distribution is so different when you're dealing with spirits
Margarita Bello (30:45)
yeah.
Aaron Alpeter (30:45)
or alcohol and stuff like that. So talk to me a little bit about that.
Margarita Bello (30:49)
Very different. I work in RTDs, let's put it that way, and I don't have work with Spirit. the distribution industry for spirit is much harder, I will say.
is not free will for everybody you can go. Every state has different delineation into it, depending on what you do, depending on give an example, there are more RTD in this the hard liquor space, there are different overview of how you see a bottle of completely whiskey. online regulations much different. There are some states that there are more let's put it easier way to sell things online depending on what it is. And even the differential from hard liquor even to a wine category.
category very different. It is my overhaul it is it one is much easier to buy online hard liquor how many websites do you see of hard liquid there are just a few states that actually can actually do it so the regulations are more are harder. So this is an industry that is very B2B related into it. So that's why it's not an industry that you will say there's a concentration of DCC growth overall.
Aaron Alpeter (31:54)
Got and do you think that i is the reason that wine is somewhat easier to ship around because the alcohol concentration is a little bit lower, or is it just because people are more familiar or accepting of wine?
Margarita Bello (32:06)
I will say it has to do with the concentration, but I don't think it has to do only with that. I think it is also how the TTV regulates into it. So it's a different type of overhaul of how it's not called hard liquid, let's put it that way. So it it goes in a different target. but I don't think it is because people are more well know at all. It's more about regulation state.
Aaron Alpeter (32:30)
Got it. it sounds like you've you've kind of like competed with some of these big players like Patron or Bicardi or or things like that. When you're s when you've got a founder who's starting a business, what percentage of the market are they aiming for where they're like, Hey, if I make it, I you know, I'm good. I mean, I remember I met with a a couple of founders probably about six months ago, and they had a a vodka brand that they've been working on for four or five years, and they're like, Yeah, I think we're gonna do like two hundred thousand dollars in sales this year.
And they were excited about it. And I'm like, I'm thinking like that's not a whole lot. You know, like that's that's a lot of work for just a couple bottles, it feels like. so what does success look like in this industry?
Margarita Bello (33:08)
I would agree. It's funny. We we in next century we had a celebrity brand, that they owned it and it it was hard to get out of the feet, I will say. overall the success, it doesn't look as much as you think it like a big I will keep comparing to RTD. The volume is much larger than in the spirits industry overall.
The amount of I will say there were some clients that we used to do the MOQ was so low that you would imagine. Less than five thousand bottles, that's almost nothing when you actually think about let's go to retail and let's go sell it. So that success is probably in the long run. So I'm
In this part, I wouldn't say I call an expert, but this is my personal opinion about this. I this is why I see when there is some level of success for a lot of this hard liquor brands, that's why Bacardi Diaggio buys them constantly. because you can see you get past to that mark of like, okay, they were able to actually make it, they didn't die, they were able to sustain themselves, but then there is a story that lets Budna muscles into it on behind it. So that is
my own personal opinion.
Aaron Alpeter (34:20)
Yeah. What
do you think is the threshold? Like how many cases is it? Is it ten thousand cases, a hundred thousand cases? Like where's that inflection point where you've gone from a hobby to something that's worthwhile?
Margarita Bello (34:29)
Let me let me go back to my
memory. I will say it has to be more than ten thousand cases for them to win overall. But don't quote me on that because I've been out of the industry for a while, so I know so the industry has changed quite a bit of like the consumer of alcohol in the past couple of years.
Aaron Alpeter (34:45)
Well, I I
I've I've heard the ten thousand mark as well, so we'll we'll go with that one. but you know,
Margarita Bello (34:51)
Yeah.
Aaron Alpeter (34:51)
it it's so interesting because I mean, if we were working in beauty, for example, and you were to say, Hey, I sold ten thousand products, ten ten thousand lipsticks, people would be like, All
Margarita Bello (35:00)
Nothing.
Aaron Alpeter (35:02)
right, so that was like a good weekend or what was it? And so just it it is so interesting to me that you know Bacardi paid twenty-five times you know, earnings
To get this thing when they were only doing, you know, two million cases at at at their peak, which is which is just fascinating. And so it it is so interesting to me that everywhere else, every other company that you're ever the industry we look at, they you know, you're talking about millions, tens of millions, hundreds of millions in terms of of revenue, in terms of sales, things like that. But this is one where you every customer counts and and every decision that people are making, you know, at a bar or at home, like actually adds up. And so to your point.
That staying power of someone choosing Patron versus Casamigos is worth fighting over and is worth like owning.
Margarita Bello (35:50)
Yeah. I totally agree. And for actually working that industry and say next sector invested in building a their own facility, which is in a spirit is I will say it costs more money than other industries in my point of view, plus regulations plus overhaul. It takes more time.
their their bet was they had their own brand plus they were at that time plus they were betting into other clients to come those small ones that didn't have the opportunity to take themselves to help them out and fulfill their own. they might have changed what they were looking into that but that was the overall when I was there. And I applaud them to like help them out to all those folks that were trying to make it and trying to make it because there's a lot of people like you and me like I have this idea and I want to do it and they were like
Okay, I will help you. Let's go get it.
Aaron Alpeter (36:42)
Yeah. I I'm curious, I want to get your perspective on the CRT because that i it is just such a wild story to me, the fact that you know, they got mad at an ad in another country and decided to shut down, you know, Patron's exports for four days. And and so like what what do you think the motivation was behind there? Why do you think they had the reaction that they did? How do founders or companies need to be aware of, I guess, how moody a government agency might be?
Margarita Bello (37:12)
As a Latina, I would say not one hundred percent shot, let's put it that way. Most
Aaron Alpeter (37:18)
Okay.
Margarita Bello (37:19)
of these entities are about control. I want to set the tone that I'm controlling and I have the power to shut it down.
and control you. So don't think that you have your own will to do whatever you want. I'm here to control it. I'm here to tell you that I love your money and I will get it out. But at the same time I have power over you and I will control it.
Aaron Alpeter (37:43)
That is so interesting.
So so you think this was more of a, you know, they they were poking fun at the regulation and and they said, not funny. Like you're
Margarita Bello (37:52)
Not funny.
Aaron Alpeter (37:52)
you're gonna you we're gonna show you who's boss.
Margarita Bello (37:55)
Mm-hmm. Exactly.
Aaron Alpeter (37:57)
That's so interesting. And you know, you wouldn't see that in another in other country like peop people actively look at the FBA.
Margarita Bello (38:01)
No. Latin America.
Aaron Alpeter (38:04)
Yeah. That that is so interesting.
Margarita Bello (38:05)
Yeah. I was thinking you can see a lot of this in Latan America, but yes, it's is about
Aaron Alpeter (38:09)
Yeah, what other examples
have you seen where where you've got somebody who's just exerting things that don't really make sense or overreacting just so they can prove a point? And and how do companies do you think about it? Cause I think, you know, part of the season is just talking about how to work inside Mexico and how to work inside Latin America. And so is this power dynamic evident when you're trying to source a factory as well? Like should you be deferential to your factory or
Or does the factory show that you're the one in charge? Like, yeah, give me some some insight here on Latin America.
Margarita Bello (38:37)
You have all day?
just joking. I mean in my home country there was a lot about this, let's put it that way. I'm going to give you one big example, Owens, Illinois. is a bottle manufacturer which used to help out to bottle Pepsi Coke and on other products. And they gave support to in my home country to one of the biggest manufacturers of which it was Pepsi, which was part of Lar Group. And because
was a political overview that they were supporting them, they shut them down, they closed their facility and decided to take it on their own.
So I will say in general Latin America has an amazing things and overall, but also it comes with a few watch out that there's not as usual, like if especially you live in a country as America. I mean there are other countries who have experienced different things, but the overall it is the control that I was just mentioning is a very thing true in the Latin American countries of how much power the government has overall.
Aaron Alpeter (39:45)
Mm-hmm, interesting. if you're a a US company that's looking to source in Latin America, how should you approach this? Should you again be deferential or should you be, trying to assert that power? Like what's what's the right way to work culturally? And I guess I would wonder if if I'm too deferential, are they going to take advantage of me? but if I come in and try to act like I'm the one in charge and be like, we don't need you.
Margarita Bello (40:07)
Yeah, I would say not hot and cold. I would say just in the middle. Just
Aaron Alpeter (40:10)
Okay.
Margarita Bello (40:10)
show that you're willing and you're actually want to spend money to get money. They get money out of you. It doesn't matter what. But at the same time, don't be overall in the structure of I don't care and just do whatever you want because they're going to bypass you. So it is in that middle sweet spot of like not too hot, not too cold.
Aaron Alpeter (40:32)
You know, there's a there's a word in Swedish called logum, which is just perfect and it literally means just right. You know, and so the whole g the
Margarita Bello (40:38)
Mm-hmm.
Aaron Alpeter (40:38)
whole thing is to you gotta be logum in Latin America, is what I'm hearing. That's great.
Margarita Bello (40:41)
Exactly. Play with
the with the s with the game but at the same time make sure that you're steady in what you have to say.
Aaron Alpeter (40:48)
Yeah.
Well, Margarita as as we think about this Patron story and, just manufacturing Mexico, there are so many different angles that are interesting to this for me, but what sticks out to you? I mean, what what what was new or what do you think people need to take with them?
Margarita Bello (41:05)
I will say that the industry has been growing in the past couple years. It was very domain, let's say about one or two companies, let's call it that way, there has been this overall of celebrity that it seems to be some level of diluted, but what is causing is what are the farmers are happening and what is that overview that is happening to them.
It's not only celebrities that I will call it, these influencers that are happening in life, in the modern life, that is changing of how the industry is looking like. A farmer that has been done this for years and now it gets paid less is for them it's like why do I keep doing this? Instead of a company as Patron who have approached it in the past, it is
I'm going to make this as part of my family and let's keep it make it that way. So there's a part of like history over there, that even though there's more celebrities doing it, it's like how do the locals, let's call it that way, keep going about how the things are changing. It's something that is very interesting to me.
Aaron Alpeter (42:05)
Yeah, I I think that that certainly resonates with me as well. And you know, it it is so much of what that part of Mexico is known for. And so it's it's
Margarita Bello (42:15)
That's right.
Aaron Alpeter (42:16)
kinda like, you know, if you go to Idaho, you think about potatoes and it's it's kinda Jalisco is is agave, it tequila, it is stuff like that. I think what's so interesting to me is is you know, with the other companies and things that we profile around Mexico, so much of it has been around USMCA and
and labor rates and you know being close to the US consumer and all those things. And that's all still true, but this is something that's fundamentally different because this is
Margarita Bello (42:44)
Yeah.
Aaron Alpeter (42:45)
where something is comfort. Like the legally, this is what's required. And I think that it is easy for us just to think of Mexico as, a more premium version of China or something that's like nearby that we get stuff from.
but this is something that's like this is part of that region, part of its its core, its soul. And I think
Margarita Bello (43:03)
It was more pure.
Aaron Alpeter (43:04)
yeah, yeah, it's it you know, y again, go back to the volcantic ro rock that people are using to to smash everything and get going. I mean, this is how it's been made for hundreds of years at this point. And it's just so interesting that yes, USMCA is important, it can impact things 'cause well, I mean, if you put tariffs on stuff coming from Mexico, your tequila is not more expensive, right?
So th that doesn't go away, but that's the reason why someone chooses a source from Mexico. It's because this is the only place that they can source.
Margarita Bello (43:32)
Yeah, it's amazing.
Aaron Alpeter (43:33)
Well good well, Margarita this is a lot of fun. appreciate you bringing on and and teaching me a little bit more about alcohol.
Margarita Bello (43:39)
Yeah, well thank you for inviting me overall and this has been fun. And again, people who are around here, please subscribe over here. Aaron has an amazing content that is always sharing around.
Aaron Alpeter (43:52)
Great. thank you guys for tuning into this episode of e commerce on tap. We'll see it in a couple of weeks on the next episode that we'll be profiling.