As E-Commerce Booms, Iris Nova Eyes Opportunities to Evolve

In many ways, Zak Normandin’s strategy for Dirty Lemon seems to have gone as planned.

In launching the beverage in 2015, Normandin helped prove that a text message-based ordering platform could work. In building out the brand in subsequent years across a wide range of functional SKUs, he proved the product could find an audience and establish an identity. In establishing a new parent company, Iris Nova, and bringing more brands on to its growing distribution network — as well as a $15 million funding round led by The Coca-Cola Company in 2018 — he showed that the same playbook could be successfully replicated for other beverage startups.

And yet even for a company on the cutting edge of e-commerce innovation and changing consumer preferences, in 2020 Iris Nova has decidedly more practical concerns. Beyond the trendy drinks and novel technology, Normandin is thinking about questions like how he’s going to win over Walmart shoppers, or whether he can reach consumers at home through direct mail advertisements. Somewhere in the overlap between digital disruption and good old fashioned beverage sales, Normandin is seeking the path to long-term profitability.

“I think e-comm, for a short period of time, was a strategy to build brand visibility and then start focusing on wholesale,” he said. “Now I think that needs to happen hand-in-hand.”

Distribution, Big and Small

For a look at some of the simultaneous nature of its services, take the recent announcement of Iris Nova’s partnership with GNGR, a line of 2 oz. cold-pressed ginger and turmeric juice shots. In itself, it doesn’t seem all that remarkable: the company has been recruiting independent brands onto its digital distribution platform since September 2019; GNGR is the 12th company to join. Online, the onboarding process is simple: each new brand receives a dedicated phone number and has Iris Nova’s hosted shopping cart integrated on to its website, at which point it becomes available for nationwide shipping and for expedited same-day delivery in New York and Los Angeles. Shipping, fulfillment, storage, and packing materials are all factored into the price.

Yet in other ways, Iris Nova has also evolved to act more like a traditional beverage distributor. While the company remains committed to online service — same-day delivery will soon be available in Chicago, Normandin said — that part of the business is also the key to opening up a broader retail presence for Iris Nova’s portfolio brands. That means taking on some clients like Mountain Valley Spring Water, which already has its own direct-to-consumer shipping platform, exclusively for wholesale distribution.

But even with on-trend health and wellness products like GNGR, Normandin said his company is focusing on developing relationships with “higher volume strategic channels” rather than in the “oversaturated” natural channel. The company began that transition in February when it launched three of the most popular SKUs from its flagship functional beverage line Dirty Lemon in 500 Walmart locations nationwide. The expansion is set to continue next month when the brand enters 1,500 CVS stores across the country.

“We’ve cut out a lot of our focus on traditional grocery retailers,” Normandin said. “Once a brand receives a level of visibility and sales volume within the strategic wholesale channels we have established as core to brand growth, then we think that they are a good opportunity to be presented to these large retailers. E-commerce supports all of that.”

With its technology in place, Iris Nova still has the same challenge as any other conventional DSD house: getting products to customers, be they chain stores or online shoppers. The company’s operational infrastructure is designed to support both segments, with drivers delivering items directly to consumers’ homes and then to the higher volume strategic channels on a daily basis, according to Normandin. Moving between the two segments means investing in flexibility: along with a fleet of trucks, the company has scooters for making deliveries, while it is also looking to expand its range of services, such as sample pack bundling, to clients.

“We had the time (during the pandemic) to rethink the way we were managing inventory and the pick-and-pack line,” he said. “Now we have a great model to be able to replicate this in other cities. With fulfillment centers, what additional value add can we build into this to give brands more flexibility in helping elevate the experience they are offering to their consumers, so they know they can come to us with a cool idea and we will have everything in place to execute on it quickly.”

More important than giving brands visibility, Iris Nova’s wholesale business is a long-term opportunity to acquire customers profitably, whether they end up purchasing in stores or online. That strategy, despite the company’s disruptive streak and progressive outlook on the market, reflects Normandin’s belief that, in the years ahead, upstart beverage brands will face a much more difficult challenge in breaking through to mass audiences than they did previously. According to him, low barriers to entry have resulted in a glut of beverage brands on the market, making consumers “numb” to the breadth of options on-shelf and forcing retailers to allocate that limited real estate more selectively. Meanwhile, the majority of fast-growing brands that have achieved an exit “haven’t grown beyond the point of acquisition at the level that strategics were hoping for,” he added, as those large corporations have “never been good historically” at integrating founder-driven brands into their vast infrastructures.

The imperative for brands to rise above the noise, Normandin argued, is to develop meaningful relationships with its consumers while being active in as many different distribution channels as possible.

“I think the opportunity with Iris Nova lies in taking advantage of the inherent fragmentation that exists within the industry right now,” he said.

Portfolio and Partnerships

The growth of Iris Nova’s brand portfolio in recent years underscores the need for the company to keep product flowing through its infrastructure as it moves into the black; according to Normandin, the brand turned a small profit last month, an indication that Iris Nova has the potential to evolve beyond the need for continued rounds of venture capital. Those eventual profits will allow the company to continue scaling strategically, with the immediate goal of opening up more markets for same-day deliveries, which will require high volumes in order to make the margins worthwhile. Since first bringing other brands on to its platform in September 2019, Iris Nova has been rapidly building it out with brands like Olipop, DASH Water, Miracle Seltzer, Something And Nothing, Better Booch, Switchle and Rishi Sparkling Botanicals, as well as GNGR. The creation of a consolidated online marketplace for all of Iris Nova’s portfolio brands — rather than integrating its back-end system on to individual beverage makers’ websites — is also being mulled.

As operations are upgraded and streamlined, that thinking is also carrying over into product development. Starting this fall, Dirty Lemon is transitioning from using high-pressure processing (HPP) to a shelf-stable formulation, a change which took the company two years to complete. Less time spent solving issues of cold storage and transportation means reducing the financial and productivity costs involved, allowing resources to be allocated back into optimizing efficiencies.

“For Dirty Lemon, we want to get to a place where we are just managing it like any of the other brands, where we have inventory in our warehouses and we fulfill orders as they come in” Normandin said. “Historically, the operations side has always been a very costly part of the Dirty Lemon business, due in large part to the inefficiency that exists in cold chain beverage distribution.”

Smoothing out those inefficiencies now may prove to be critical: with e-commerce adoption soaring in CPG this year, competition in the channel is rapidly tightening. In facing up to the Amazon juggernaut, the likes of Walmart and H-E-B are scaling up their digital shopping efforts (both delivery and in-store pick-up) in recent months, while Postmates and GoPuff are committing resources to boost same-day rapid delivery services. As the space proliferates with new vendors and platforms, the value of the data generated is changing along with it. With roughly six years worth of data on Dirty Lemon consumers, Iris Nova can track how that group’s preferences extend to new products and flavors from other brands in its portfolio. That’s information useful not only to the company and its partners, but also likely to outside parties.

“Right now, if you’re looking for data in the beverage space, you need to go to Nielsen or SPINS and pay a lot of money for that data,” he said. “That data is specific to retail and scan-through POS dollar sales, but I think even more valuable than that is data on the customer. As an investor or a retailer or a strategic looking to make a purchase, you should be able to look at a specific brand and have a snapshot of what’s the demographic profile of the consumer, where do they live, what are their interests and hobbies. That’s something that [Iris Nova] brands have full access to, but having there be a channel for other parties to be able to access that is really interesting. We need enough data coming through the system, but that is something that we are looking at as the next progression of how we are communicating with external parties and just what we are doing with the data and information that’s been collected.”

In taking on greater responsibilities as a distributor, Iris Nova is also moving on from one of its more attention-grabbing initiatives — mainly on-premise service. The Drug Store, a pop-up retail concept that the company first launched under the auspices of Dirty Lemon in New York, had been positioned as a key component in extending the brand’s identity into innovative, experiential shopping platforms. Yet, having gone through multiple iterations of the idea, including a completely self-serve vending machine in Manhattan, Normandin said that the company’s funding priorities have shifted to supporting distribution operations instead. The Drug Store’s brief experience at Hudson Yards, a $25 billion mixed use real estate development in the heart of Manhattan, he said, was revealing.

“We spent a ton of money developing a retail concept for what was at the time considered the most innovative shopping experience in America,” he said. “We opened up and then realized really quickly that it was not the place for us. Six months after launching, we closed and moved on.”

Of course, there’s also the COVID-19 pandemic which, at least for now, has funneled nearly all consumption occasions to at-home, a shift that creates both opportunities and challenges for Iris Nova in terms of building awareness and identity. The company is still seeking to “reach consumers where they live, work and play,” Normandin said, which now happen to occur in the same place, but it’s also sticking to its belief that Facebook and Instagram don’t provide a strong return on investment for advertising (though he added that the company is exploring “some exciting new concepts” on the latter platform to help promote Dirty Lemon). In the quest to reach consumers at home, he’s also exploring a more time-honored medium: direct mail.

“The digital world is very large, and the phone is just one part of the consumer experience at home,” he said. “I think printed material is a fantastic way to market. Mail is not dead — it’s still a very real, viable channel to communicate something to an individual. We put a lot of thought into that, and we are working on some small tests for direct mail that I think have a really interesting opportunity to market the service that we provide.”

Is mail the way to win over beverage consumers? To Normandin, asking the question may be more important than the answer itself, if simply as a reflection of his desire “to zig when people are zagging.” He’s still committed to using beverages to grow the platform, though he acknowledged the potential to crossover into home goods and personal care products down the road. Rather, threading the needle of the three-tier system for beverage alcohol distribution is closer to where Normandin sees the brand going next. Whether selling booze or botanicals, whether online or off the shelf, the essential challenge remains the same.

“I don’t ever want to be in production. I don’t ever want to have a facility,” he said. “We just need to be really good at making sure products are going to the customer.”