Dragos Axinte is a man on a mission.

Cachaça, Brazil's beloved national spirit, is one of the world's largest liquors with more global sales than both tequila and gin combined (2014).  However, in the US, cachaça is often unknown or misunderstood: For decades, cachaça was mislabeled as a "rum", until 2013 when the US Alcohol and Tobacco Tax and Trade Bureau established Cachaça as a stand-alone category defined by the distilling methods, alcohol proof, and Brazilian origin. Dragos is CEO of Novo Fogo, an organic cachaça company based in Seattle with the manufacturing distillery located 7,000 miles away in Morretes, Brazil. 

When you're building a brand within an emerging product category, you're faced with both the challenge and opportunity to establish a blue ocean customer base.  When someone says "vodka", they know the category and have a clear understanding of how and where to use the spirit.  When someone says "cachaça", (probably incorrectly, the proper pronunciation:  KAH-SHA-SAH), the rules of engagement aren't as clear.

What do I mix with cachaça? 

Should I drink it neat? 

What known, familiar liquor does it most closely resemble

 

 

Novo Fogo sells organic, small-batch cachaça - a clearly unique offering.  But the product attributes only represent a fraction of what makes Novo Fogo unique:  Dragos's holistic vision redefines the traditional value formula by engaging the entire, and I mean ENTIRE, stakeholder spectrum.  To understand more about Novo Fogo's unique approach, let's first outline three simple steps in a value formula:  SOURCE - CREATE - DISTRIBUTE

First, we start with the middle step: CREATE.

The CREATE step is where the product/service is created (obviously); therefore, most of a business’s time, money and resources are deployed here given that this is what the consumer is ultimately purchasing.   High quality products/services attract premium pricing.  The iPhone is a good example of a product that excels in the CREATE step.  Do consumers care about where or how the parts are sourced?  Not much.  But they're willing to pay a premium when those components are assembled in a way that delivers a high-quality device.

 

 

Next, we look at the initial step:  SOURCE.

Consumers have become smarter about reading the back of the label rather than relying solely on the front of label to make their purchasing decisions. The educated consumer demands more transparency into the supply chain, leading many companies to partner with suppliers that align on values and guiding principles.   This is especially true in industries that involve anything you eat or drink.  In the video, Fred and Carrie shed light on their interest in the SOURCE step (Colin, the chicken) while engaging Dana, the waitress.

Finally, the last step in the value formula:  Distribute

Strategic distribution is a critical step to provide easy access for potential buyers.  Consumers have incredible information at their fingertips to make every type of buying decision imaginable - from an impromptu visit to an ice cream shop to buying a house - people are equipped with information like never before.   Understanding how to optimize distribution can be a critical difference maker in attracting and maintaining long-term, satisfied clients.

"We are farmers first."

Novo Fogo has achieved mastery within all three steps of the value formula by employing a principles-based approach rooted in a long-term vision. Dragos states, "We are farmers first" and takes pride in owning both the SOURCE and CREATE phase. He recognizes that a high-quality product must be sourced from high quality ingredients and there can be a propensity in agriculture to cut corners to increase yield or decrease costs. For example, one easy path to cultivate sugar cane is to burn the fields making the cultivation process easier.  The downside is that this technique wreaks havoc on the environment and can negatively impact the quality of the sugar cane.  In a quest to deliver the highest quality product in a sustainable manner, Novo Fogo farmers forgo machines and instead use machetes to cut the sugar cane by hand; this is a much slower process that produces a significantly higher quality raw good.

 

 

Within the CREATE phase, Novo Fogo maintains a zero-waste facility.  They take innovative measures to leverage the natural wild yeast found in the sugar cane itself, rather than purchase yeast from a vendor.  This innovative approach has three distinct benefits:

From an economic perspective, it saves costs;

From an environmental perspective, it minimizes impact;

From an emotional perspective, it eliminates sleepless nights.

Finally, in the DISTRIBUTE phase, Dragos recalls a moment when he realized that the bartenders who deliver his cachaça to the consumer often lead unhealthy lifestyles.   Late work hours, "bar food", and constantly surrounded by alcohol isn't conducive to the healthiest of lifestyle choices.

Following the ethos of Novo Fogo to "do well by doing right," Dragos launched "Sweat Sessions" aimed at helping bartenders find some balance from the rigors of bartending.  Under the theme "Today we sweat, because last night we drank," Novo Fogo hosts soccer tournaments and 5K runs during Cocktail Week Industry Events, and even an 80s-style aerobics class (leg warmers: optional). 

Implications in Wealth Management

The financial services industry is approaching an inflection point.   The convergence of incredible market forces has begun to nudge market participants to reassess their model to determine both value and viability.   Pricing pressure driven by commoditzation is increasing and there's growing concern that the industry isn't well prepared.  According to a 2017 Price Waterhouse Cooper (PWC) report: “Asset & Wealth Managers (AWMs) are too complacent about disruption to fully take advantage of FinTech developments."  PWC goes on to say, "…they seem to be following the traditional approach to innovation and focusing on short-term initiatives rather than considering new improvements on the market."

Wealth management success requires a solid foundation that builds on Novo Fogo's approach to the SOURCE-CREATE-DISTRIBUTE value formula.   Four key questions can provide insight into the qualitative strength of a firm's foundation:

  1. Does everyone within the firm know and act on the stated core values and guiding principles?
  2. Do all of the firm's stakeholders align with the core values and guiding principles?
  3. Is the firm delivering value that is holistic, sustainable and economically viable?
  4. Is the firm engaged and contributing to the local community in a way that makes it better?

These four questions aren't hacks or tactical tips, but a piercing view into the engine that's driving the firm's implicit value.  Trust is the foundation for success in any industry, especially wealth management, and the backbone for trust is a solid ethos.  What's your ethos?   "Doing well by doing right" is a mantra to embrace, whether you're in the Brazilian cachaca business or wealth management industry.   Saúde!

 

 

 

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