With more than 100,000 customers and 2 million bottles sold, buzzy beverage brand Dirty Lemon is growing beyond its Instagram roots and tiny first shop in New York City's Tribeca neighborhood. This year, it plans to open three additional stores and debut a new drink every month, thanks in part to an infusion of cash and expertise from Coca-Cola's investment in parent company Iris Nova.
But while the direct-to-consumer (DTC) brand prepares to expand throughout 2019, it's also cutting its entire digital marketing budget to focus on retail at a time when many traditional players are shuttering their stores.
Dirty Lemon's cashierless — and staffless — store that opened in September is grounded in technology, from heat map trackers that monitor foot traffic and RFID-enabled refrigerators for inventory tracking to QR codes that trigger a text message ordering system, illustrating how tech-powered retail is gaining steam. This category, dubbed "brick-and-mobile," is beginning to take off as early experiments like Amazon Go catch on and shoppers become more comfortable completing transactions through a smartphone.
In a conversation with Mobile Marketer, CEO and founder Zak Normandin said that, in 2019, he and his team are focused on blending years of insights from Coca-Cola with their own fresh take around what tech-savvy millennials want.
The following interview has been edited for clarity and brevity.
MOBILE MARKETER: Having wrapped up 2018, how do you see the mobile- or tech-driven retail space evolving this year?
ZAK NORMANDIN: While consumers shift their preferences to convenience, they still want a human element. We have a store in Tribeca that's built on the honor system and lets customers come in, grab a bottle and text us to tell us what they took. There's no human interaction there, so it sounds counterintuitive. But in that experience, specifically, it works for the brand because we built that space for the sake of customer convenience.
But the back part of the space, which we haven't opened yet publicly, is a full cocktail bar experience, with bartenders making homemade versions of our beverages and testing new concepts. That interaction, while it's tech-enabled, has a big human element to it. So we're trying to utilize the retail technology we've developed but also find a balance between experiences that are entirely tech-enabled, like the front of the space, and experiences in the back that have a deep level of human interaction.
The space in the back of the store offers immersive experiences for customers. How does that concept play into the brand's broader, tech-focused strategy?
NORMANDIN: We'll announce details on the back space in the next few weeks. The entire store concept is to collect data for new products. We're collecting data both from the cooler in the front and from the experiences in the back on consumer preferences for different flavors and ingredients.
From the beginning, we've collected data on what our customers purchase and with what frequency. We use that data to determine what makes sense from an operational standpoint and to make product decisions based on the needs of our core customers. We test new products and gauge customer responses based on things we think they might like, but we can digest all that in real time. That's something other beverage brands — Coke and Pepsi included — just don't have a level of access to in order to make those decisions.
Do you think there can ever be too much tech when it comes to brick-and-mortar retail?
NORMANDIN: Absolutely. Amazon Go, for instance, removes the human element entirely. While that's what we're doing at the front of our store, we're focused on consumers that already know about the brand or customers going to the store to grab a bottle on the go. It's more of a drop point for customers to have faster access to the products.
I think when there's an element of discovery to the experience, customers want to ask questions and have a direct line to the company. Our customers can text message with us to ask questions or place orders. I think those touch points make for a more elevated experience.
We have a bot on the front end of the platform that answers common requests and processes orders, but more complicated queries get pushed to a live customer service representative.
By building our own tech-powered retail system, we're able to provide something special to our customers while also having this great data collection component, which ultimately gives them a better experience. So, it really comes full circle and makes a lot of sense for our business, but I think it's case-by-case for how much tech is too much.
This space is quickly changing. How do you think the industry should approach DTC and mobile-enable shopping in 2019?
NORMANDIN: We launched Dirty Lemon on Instagram in 2015 and existed only in a digital environment for several years. Then we realized that people wanted to see the brand outside that digital space. They wanted to actually experience it and feel the energy of what we were portraying visually online in a real environment.
Consumers crave experiences. They want immersive retail. They want more than simply buying a product. They want to be able to interact and touch and feel and communicate with other people. You're seeing this with a lot of DTC brands shifting their marketing dollars away from digital and into physical retail, but they're doing it in a different way than in the past. What we're thinking through is how can we, as a beverage company, be in the places where our customers live, work and play?
It's interesting that a brand like Dirty Lemon, with a store that was clearly designed with mobile in mind, is cutting its entire digital marketing budget this year and shifting it to retail. Can you explain the reasoning behind that?
NORMANDIN: Having advertised with Facebook and Instagram since very early on, we saw the cost to acquire customers rise significantly, and it's at a place now where it's just unsustainable. I think that's happening because brands that have historically relied on traditional advertising methods are now shifting their ad dollars to online and to Facebook and Instagram. When that marketplace gets flooded with demand, it raises the price to connect with and acquire customers. As the prices rise and more advertisers enter the marketplace, there was a point for us that it no longer made sense to spend millions and millions of dollars on Facebook and Instagram.
So as the pendulum swings from traditional brands going to digital and away from retail, we're doing the opposite, shifting to retail and away from digital. As a young brand, there's only so many levers we can pull to reach the broader mass market. Shifting to retail is a great way to connect with a local audience but also have an impact on the national scale.
"The ball is in our court to ensure we're leveraging Coca-Cola to learn and grow."
CEO and founder, Iris Nova
How do you plan to drum up longer-term loyalty without a digital marketing budget?
NORMANDIN: We're expanding our retail footprint. We have two in New York City: Tribeca and Hudson Yards. I recently signed a lease in Miami, and we have one location in Los Angeles as well. Dirty Lemon will also launch one new beverage every month this year, so we'll have 12 new products coming out in 2019, on top of several activations. All these are retention tools.
We have over 100,000 customers now, and our focus this year is on retaining and providing customers we've already acquired with new products and better experiences, whether that's with faster shipping or new flavors or an experience at the stores that maybe they can't get elsewhere. All of these add to customer loyalty and retention. Plus, Iris Nova is launching two other beverage brands this year.
When you say you're cutting your entire digital marketing budget, does that include Instagram, where you got big, or influencers?
NORMANDIN: We're still supporting those communities, as Instagram is still a critical component of the business. We've built a community online and we're not stepping away from that. What we are stepping away from is the process of blasting ads to millions of Facebook and Instagram users and hoping they make a purchase. Instagram is probably the most culturally relevant social media platform in America right now, and that's a place we need to play in as a brand that's progressive and looking to connect with the millennial consumer.
A lot of traditional brands are starting to dabble in the DTC space, while closing some stores. With your expanding retail investments, what opportunities do you see in the retail space?
NORMANDIN: Consumers have come to expect a level of convenience from brands. They want products delivered to their homes very fast. We live in a world of Uber Eats and Amazon, and for brands, that expectation needs to be met. We have very fast shipping, with seven warehouses in the U.S. and same-day or next-day delivery. Our goal by the end of 2019 is to beat Amazon's average shipping time. We've had to build infrastructure to support that vision.
When you look at the older model — working with distributors, brokers and retailers — it wasn't built for DTC. It was built for central distribution hubs, with trucks bringing products to stores. The access point for customers historically has been retail stores. Just within the past few years, brands selling exclusively DTC have started to pop up, and even more recently for the food and beverage category. I think this will continue. Consumers don't want to be inconvenienced by having to walk into a store, fill up a cart, check out and load things into their car to lug it home.
What will the investment from Coca-Cola enable your company to do from a marketing perspective that maybe you couldn't have done before?
NORMANDIN: The Coca-Cola infrastructure and what they've achieved globally with the core brand — the classic red Coca-Cola — that's a model we're using to think through in building a global audience. At a high level, the model and framework for our growth is very much driven by what we see in big CPG brands. Coca-Cola has hundreds of brands underneath one company. We want to do the same thing. The big difference between us and Coca-Cola is that Coca-Cola sells its rights and IP to their different beverage products to bottlers, while we sell directly to customers.
Their providing a level of expertise and best-in-class knowledge of the beverage industry was one of the biggest value drivers in our decision to partner with them. Coca-Cola is our largest investor, and that comes with a commitment from both sides to be supportive of each other and to use the relationship to learn and grow and develop for the future.