Reddit co-founder Alexis Ohanian’s latest investment is an Armenian brandy he’s co-created with direct-to-consumer spirits club Flaviar. He believes the model has the power to disrupt the big alcohol multinationals, not with better or more agile marketing, but with less of it.
Ohanian, who now runs the venture capital firm Initialized, is more skeptical about the power of D2C brands than many marketers.
The success stories of D2C brands such as Caspar Mattresses and Dollar Shave Club have gone down as modern folklore in recent years; their ability to scoop up customers with minimal media spend and rock bottom distribution costs have made them a serious alternative to legacy conglomerates for consumers and marketers alike.
Now they are pivoting into big-bucks media buys, consequently turning the heads of agencies, conglomerates and publishers. Shops such as Red Antler and And Rising are focusing much of their new business efforts on these clients and Hulu views them as key accounts for the future, while the likes of Unilever are dipping into these organic consumer bases by simply buying them up.
But Ohanian, who sold Reddit to Condé Nast in 2006, is cautious that the D2C hype will result in an overvalued bubble.
“You're seeing this glut of direct-to-consumer brands because the barriers to entry are so low getting that initial traction is not hard,” he told The Drum. “But then [businesses] can start to make a compelling case of, ‘well just give us more money and we'll make you more’.”
This, he argues, could lead to a raft of substandard brands hitting the market.
It’s interesting, then, that Initialized Capital’s latest investment is in a D2C brand. But it wasn’t the direct element of members-only spirits club Flaviar that attracted him – it was its unusual approach to alcohol marketing.
According to Ohanian, the biggest players in the spirits business overinvest in marketing to the detriment of quality. The problem has become so bad, he believes, that “liquor has been held hostage ... by the big incumbents”.
“Their whole operation has been built on a model that's largely driven by marketing,” he explained. “That doesn’t encourage them to take any risks when changing product quality because their customer base is drinking it – in [consumers’] heads they're like 'oh this is cool'. So, no-one's incentivised to push quality.”
Flaviar produces and distributes craft spirits and ships them to subscribers for $210 a year. This means the dollars that a traditional alcohol brand would spend on marketing are diverted into product improvement, development and launches. Flaviar’s latest release is Shakmat, an Armenian brandy that Ohanian has stamped its name on.
As the great grandson of Armenians who fled the country’s genocide in the early 20th century, the investor has a personal connection to the brand, which translates to ‘chess’ in the native language. He spent time personally developing the drink with the Flaviar team to raise awareness of both the national drink and Armenian culture.
“These guys have taught me so much,” he said. “Their experiments and everything we've seen so far in D2C has shown me that quality matters so much more now.
“When you look at a bottle of fill-in-the-blank, premium liquor, so much of what you're paying is subsidising marketing. Even if you could take a portion of that and put it towards improving the juice – the quality of the product – it would be significant. And thanks to social, the quality of the product or the experience spreads itself.”
"Working with Alexis was great,” said Jugoslav Petkovic, co-founder of Flavia. “He really gets the process of making a fine spirit, a bit like chess, you need skills, knowledge and resourcefulness – it’s about smart moves not quick moves. Crafting a spirit takes time.”
Ohanian also believes that revolutionising the alcohol industry will take time, too. He’s unconvinced about blockchain’s potential to create transparent production lines and distribution chains, for instance. But one thing he’s excited by is Flaviar’s access to data.
“The thing I can't wait to know about it what our customers actually like about us,” he said. “We just know, and we're talking about it every couple of weeks. That feedback loop is something that I'm sure so many traditional liquor brands wish they had.”
Ohanian has previously played a big part in the creation of his brands. The Reddit alien started life as a doodle he drew when he was bored in college (“miraculously it's proven to be very popular”) and he was the original creator of Initialized’s honey badger mascot. This wasn’t so much the case with Shakmat.
“I realised I'm not actually that good an artist,” he laughed. “I was sending the guys sketches but we had a professional come in. It was very collaborative.”
The resulting branding is minimal, young and fun. But with multiple shots of the Armenian landscape and a bottle featuring the local language, Shakmat stays true to Ohanian’s truly personal investment.