Stoel Rives | Deeply Rooted Podcast S2E3: The Intersection Between Alcohol and Agriculture

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In the latest episode of the Stoel Rives | Deeply Rooted Podcast, Jess Thomas, co-founder of SOGOOD Saké, joined Claire Mitchell, food and beverage attorney for Stoel Rives LLP, to discuss the intersection between alcohol and agriculture, challenges of starting an alcohol business, and some of the opportunities for saké to increase its popularity in the United States.

During this episode, Jess shares insights including:

• Saké: A Misunderstood 8th Century Beverage
• The Brewing Process: From Rice in the Field to Saké in the Bottle
• Launching an Alcohol Brand with the Challenges of Regulatory Compliance

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Episode Recap

In the latest episode of the Stoel Rives | Deeply Rooted podcast, Jess Thomas, Co-Founder of SOGOOD Saké, joined Claire Mitchell, food and beverage attorney for Stoel Rives LLP, to discuss the intersection between alcohol and agriculture, challenges starting an alcohol business and some of the opportunities for saké to increase its popularity in the United States.

A Misunderstood 8th Century Beverage

With origins in Japan, saké is one of the oldest known alcoholic beverages in the world, dating back to the 8th century. There are misconceptions about the beverage outside of its home market of Japan, with Jess saying, "this is a product that has been fundamentally mis-marketed, and it's probably widely misunderstood or under-appreciated in the United States. It presents a really interesting challenge."

Jess and his Co-Founders view this as an opportunity to educate consumers about premium saké's exciting and unique qualities. Jess said, "you have to do a lot of heavy lifting from a marketing and brand-building perspective to show consumers who think of it as you know, it's warm, and it gives you hangovers, and you do saké bombs. So there are a lot of misconceptions about saké that I think, from an entrepreneurial perspective, present really fun challenges to try to solve."

The Brewing Process: From Rice in the Field to Saké in the Bottle

The saké brewing process is similar to beer with additional, unique technical steps. The specific variety of rice drives most of the saké's flavor. Jess analogies this to wine, saying, "rice is to saké as grapes are to wine."

SOGOOD Saké focuses on creating a premium product, and there is a tremendous focus on the quality of rice and where the rice is grown. "The core of the story and the soul of our company has to do with the rice we use," Jess said. One of Jess's Co-Founders, Ken Lagrande, and his family have been growing rice in California for generations. About seven years ago, Ken and his family began producing a specific variety of rice called Yamada Nishiki. Nicknamed the 'godfather of saké rice,' by using this rice, Jess says, "above all us, it's what differentiates us and what makes our brand unique and story unique. We are, as we say, seed to saké. We are very proud of the fact this is our version of Napa Valley wine to French wine. At the very least, we've managed to pay homage to the beautiful saké that comes from Japan."

Launching an Alcohol Brand with the Challenges of Regulatory Compliance
(And Why Not Throw in a Global Pandemic)

The complexity of ensuring that an alcohol brand is compliant is compounded by the constraints that in addition to federal laws, each state has its own regulations. Jess says, "there are several layers of things that are challenging to think about and be conscious of. And even within that, saké specifically, because it's so new and small, it is particularly challenging. In some areas, it's regulated as a beer, which has its own set of taxes and reporting obligations. And then, in some ways, it's regulated as a wine. And so depending on where you go, who you're talking to, and what you're trying to get done, you may be taxed or regulated as a beer or wine." Jess noted that having a partner like Stoel Rives helps them navigate the increasingly complex regulatory landscape, adding he often asks himself, “is what we are doing 100% compliant, or do I need to call Stoel Rives to make sure we are staying inside the lines?”

On advice to entrepreneurs wanting to start an alcohol brand, Jess advises, "be very patient." The brands that do well are focused and take a very deliberate approach. Outliers like the Tequila Brand Casamigos (which was acquired by beverage maker Diageo for nearly $1 billion after only four years) may motivate startup alcohol brands to chase growth above all else, which Jess warns is a fast track to building an unsustainable company. Jess reiterates that being deliberate and strategic and "learning what to say no to" are the keys to a successful alcohol brand.

Timing is also a critical component of any brand launch, and Jess acknowledges that the pandemic did not play in their favor at the onset. "We probably, from a timing perspective, launched our brand specifically at the worst moment since prohibition," Jess said. SOGOOD Saké started brewing its first batch of saké right when the initial COVID outbreaks began. Jess and his Co-Founders had the decision to make, do they shut down production or move ahead? They decided to move forward, which aligned with the timing of restaurant shutdowns. "Our original launch strategy was big city bars, hotels, and clubs. All of a sudden, those venues shut down, and the distributors who serve them shut down or were not taking new products. It was a good lesson in humility as we spent a good chunk of 2020 and 2021 trying to get our feet back under us," Jess said, adding, "we made it work, and it was a really good learning lesson for all of us."

Defining A Category: Setting Up Saké as a Breakthru Beverage

Saké has continued to see an increase in popularity, and though not as mainstream as other spirits, Jess is optimistic about their role in having more people enjoy saké in the United States. "At some point, it will have its moment in the sun in the next five to ten years, and it'll take some brand leadership. It'll have a tipping point where there's enough of a groundswell of consumers where it will have its moment like Rosé did three years ago, or, you know, Fireball for people that remember that. And we hope to be a part of the set of brands that influences that," Jess said. To make this happen in the US, it will largely depend on brands like SOGOOD Saké to communicate the unique qualities of saké. Jess said, "whether we compete with wine or spirits or beer depends on our ability to educate the consumer, to give them the permission to feel like they can have it elsewhere. When they're sitting down at a seafood restaurant and trying to decide whether they want to have a margarita, a glass of wine, or a glass of saké, that's the moment we want to create."

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Episode Transcription

Jess Thomas

Whether we compete with wine or spirits or beer or all of the above, it really depends on first our ability to educate the consumer, to give them the permission to feel like they can have it elsewhere, right when they're sitting down at a seafood restaurant and they're trying to decide whether they want to have a Margarita or a glass of white wine or a glass of saké. That's the moment that we want to create.

Claire Mitchell

Welcome to the Stoel Rives Deeply Rooted podcast. I'm your host Claire Mitchell, a food and beverage attorney and a member of Stoel Rives Agribusiness, Food, Beverage and Timber Industry Group. This season we're interviewing respected industry leaders and discussing how they and their companies are embracing innovation and capitalizing on new opportunities to move their industries forward in an ever-changing way. Joining me today is Jess Thomas, co-founder of SoGood Saké, a super-premium American made saké company that uses rice grown in California in its small batch brewing process. In this episode, Jess and I will discuss the intersection between alcohol and agriculture, some of the challenges with starting alcohol business, and the opportunities he sees for saké in the US market. Jeff, thanks so much for being here today.

Jess Thomas

Yeah, thanks for having me.

Claire Mitchell

So I was researching saké a bit in preparation for our podcast today and I saw that saké or a saké-like fermented rice drink is one of the oldest known alcoholic beverages in the world, dating back to the 8th century. So despite having a centuries old history, saké production here in the US is still somewhat in its infancy. What got you interested in this beverage and launching a brand of your own?

Jess Thomas

Yeah, you know, and that's sort of the great irony of the category is that in Japan, where, you know, from where saké originates, they've been brewing and brewing at a very high level saké for centuries. I mean, well predating the origins of the United States certainly, let alone alcohol here, and bourbon and everything else that we do really well in the States. So I think in terms of the inspiration, you know, first of all I have three cofounders on this project. Ken, Merrill and Phil. And we’ll talk more specifically about Ken and his role with the rice probably later. But we all I think first and foremost come at saké from the perspective of consumers who love the products and we've all had very unique experiences trying saké and learning about it and then ultimately trying really beautiful saké and having that kind of “ah ha” moment where you realize that, you know, this is a product that has been pretty fundamentally mis-marketed and is probably widely misunderstood or underappreciated in the States. You know it presents a really interesting challenge, right? Because you have this product that is, you know, again when it's produced well and when you have the best version of it, I mean it's unlike any other wine, beer, spirit that's out there. And it has a lot of really interesting and unique properties, But it is inherently, … you know, you have to do a lot of heavy lifting from a marketing and brand building perspective to show that to consumers who think of it as, you know, it's warm and it gives you hangovers and, you know, you do saké bombs or whatever. So there are a lot of misconceptions about saké that I think, again, from an entrepreneurial perspective present really fun challenges to try to solve. And so that's what brought us all together, I think, was the love of the product and the recognition that there's a really interesting challenge here and interesting business to potentially build.

Claire Mitchell

So you mentioned creating the best version of it. Can you tell us a little bit more about how super premium saké like SoGood gets made? My understanding is that the production process is probably most similar to brewing beer, but could you describe for us how you get from rice in the field to saké in the bottle?

Jess Thomas

Yeah. So, and that's a great question, Claire. So as you point out, yeah, the brewing process for saké is most similar to beer. It does have some very unique technical steps to it that beer does not have. But, you know, really, the analogy from a ingredients perspective that we use is, you know, rice is to saké as grapes are to wine. And you know rice and the specific type of rice or variety or in some cases kind of the terroir where it comes from that derives, that’s drives a lot of the, most of the flavor or the body or the other characteristics that again, you would associate with wine. Where they differentiate is the technical grade of quality of saké doesn’t come necessarily from different types of rice. It comes from what we call the polishing rate of that rice. And so what you do when you start to brew saké, the very first step is you take a kernel of rice, you know, multiplied by a million and you mill or you polish that kernel of rice down to a specific percentage, right? And so you can take it to 70 or 60 or 50 or even 40 or 30 or 20. But the lower, you know, the more of that rice kernel you mill off the smaller of the kernel you have left. And then the small dead center of that kernel is where all the starch lives, right? And it's the starch that you need to create that fermentation into sugar and then secondary fermentation into alcohol. And so the higher concentration of starch you have left will relate to a higher technical quality of saké. So as an example, we at SoGood, we focus on super premium technical quality grades called Junmai Daiginjo. And what that means is across the entire, you know, all of the rice that we use to ferment and brew our saké, that rice has at most 50% of its weight remaining. And what we used to ferment is that very, again, starchy center which produces really well balanced, really delicate, really fine, super premium varieties of saké.

Claire Mitchell

You drew the analogy to, you, know terroir with respect to respect to wine grapes. I’m curious if there, you know, was a specific reason to choose California as the source of the rice for your saké.

Jess Thomas

Yeah, no, I mean there was a very specific reason and I'll say, as I said upfront, you know, our motivations for building this brand were all very independent and different and all very entrepreneurially related. But the core of the story and the soul of the company has to do with the rice that we use. One of my co-founders, my partner Ken and his family have been growing rice in California for generations. They were among the first people, Californians, to grow rice in California and the byproducts, one of the channels for that rice is, one of the avenues I should say that you can tell it to are saké brewers. And you know, for some number of years, Ken and his family have been growing and selling saké rice to brewers. And so, you know, when we first kind of started tinkering with the idea of developing a saké brand, you know, one of the first things we said was, “Okay, how can we do this in a way that, you know, is authentic and from a quality perspective would match what comes out of Japan. And, you know, this was well before any of my formal education around saké and we did a little bit of research and we found that, again, the rice actually drives a lot of the flavor within saké and a lot of the just all of the characteristics that you value when it comes to wine. And so Ken and his family, probably about six or seven years ago now, started growing a very specific variety of rice called Yamada Nishiki, and Yamada Nishiki was developed in Japan and it has one use and one use only. And it is to brew beautiful high quality saké. It is, they call it the godfather of saké rice. You can’t eat it. You can't make mochi with it. The only thing that you can do with it that it has an intended purpose for us to brew saké. And so getting his family again started growing that in preparation, you know, for the potential of what ended up becoming SoGood Saké. And so that is above all else what differentiates us and what makes the brand unique and I think what makes our story unique is, you know, we are, as we say, “seed to saké”. And so you ask about why California rice and that's the reason. You know, we are very proud of the fact that this is sort of our version of Napa Valley wine, you know, compared to French wine. And we think that that we've managed to hopefully create something that at the very least pays homage to the beautiful saké that comes from Japan and we're just trying to do our version of it here.

Claire Mitchell

So California wine grapes have been somewhat threatened in recent years by climate change due to rising temperatures, smoke taint from wildfires. Is that same impact being felt by rice growers that produce the rice that's destined for a bottle of SoGood Saké?

Jess Thomas

Not exactly. I mean I think any ag producer in California would tell you today that it's the most challenging time, you know, in their lifetimes or their careers. I think for every industry within ag there are different reasons for that. For rice, it's all about the drought, you know. Are there impacts from the other things that you mentioned? Absolutely. But ultimately the ability to produce rice in California comes down to the availability of water to grow it. And so, you know, when you talk about the threat that thousands of family rice farmers are under, it has to do with the fact that we are, you know, in an unprecedented drought. And that impacts everything, including certainly our saké rice. Yeah.

Claire Mitchell

It's really such an interesting product. You know, we've talked about its similarities in terms of production to beer. I know it's sometimes called rice wine. You know, your product packaging, which is beautiful, makes it look like a very high end, distilled spirit. Shifting gears a little bit, in talking specifically about the alcohol industry, I'm curious to hear from you, you know, what you consider your main competitor to be in the market here in the US.

Jess Thomas

It’s a question that I wrestle with every day. I think the short answer is the competition for saké right now is saké and it is the fact that there is, you know, very, very widespread misunderstanding or lack of understanding or unfamiliarity or, you know, all the above with saké. And the results of that unfortunately for the industry is that it has really one, you know, we have one home right now and it's within Japanese restaurants. And you know, it's beautiful that we have the ability to sell, you know, we have a built in audience. We have, everybody that I talk to, I've talked to people all week long, all month long, every day. We say, “Oh, I love saké. I have it when I go to eat sushi.” And the reason that that we can't convince someone or we haven't yet convinced someone to have saké when they go to tacos or when they go to oysters or when they go to a steakhouse is that very, very few people have developed enough of an understanding and appreciation for saké to give themselves permission to open those new occasions up. And so today whether we compete with wine or spirits or beer, or all of the above, it really depends on first our ability to educate the consumer, to give them the permission to feel like they can have it elsewhere, right? When they're sitting down at a seafood restaurant and they're trying to decide whether they want to have a Margarita or a glass of white wine or a glass of saké. That’s the moment that we want to create, right? We want to set ourselves up to be competing against wine or spirits or beer. Today, you know, the category is competing against itself. And, you know, when you go into a sushi restaurant, you compete against, we on the menu, compete against the other eight or nine brands that are there. And that's the big challenge for the industry is to break it out of that single use occasion and give people again the permission to enjoy it anywhere they enjoy a white wine or a light spirit.

Claire Mitchell

So if I'm not mistaken, I believe you have experience launching other brands aside from SoGood Saké previously. Can you walk us through your process of taking a concept to market? You know, what are some of the key steps from your perspective to ensuring long term success of a business be it saké or something else?

Jess Thomas

That’s a great question. So this is my sort of second, you know, foray into food and beverage entrepreneurship. And the first brand that I launched was a brand called True Jerky, which we're very, very proud of and we ran for a number of years and then ended up selling to a partner, a manufacturing partner. And you know, I think to me when it comes to specifically food and beverage – and again, I can't speak for other categories. You know, different entrepreneurs. There are millions of success stories and podcasts dedicated to them that can give you probably better answers than mine. But for me, you know when you're talking about food and beverage, you know first and foremost obviously the products and the care that goes into the product makes all the difference in the world. I always say sort of, “Product is always table stakes for food beverage brand.” If your product isn't going to be in the top 10% objectively, right – and when we all love our products as I’m sure people do their kids – but if you can't objectively consider yourself in the top 10% of your category from a quality perspective or uniqueness, differentiation, whatever, however, you want to define that, then you’re going to have a really tough time. And so that part of it is table stakes. I think increasingly, as the barriers to entry for new brands and products has gotten lower and lower and lower. I mean, it takes a few thousand bucks and a few hours on Shopify to put to launch a new brand today. As those barriers to entry get lowered, then the table stakes to build the successful business get higher, right? So now, not only do you have to have a good product. You also have to have a good brand, right? Well packaged, well designed for the channels and the category that you play in, your supply chain and your margins are table stakes. And to some degree even you know your co-founders, your relationship with your people that all is table stakes. To me today, as I look at the landscape and the ecosystem of brands, both successful and unsuccessful, the secret sauce is all in marketing execution. It’s brands that can figure out how to acquire customers and keep them and keep them profitably. Eight or ten years ago when we first started True Jerky, that was right in the era of food companies being treated like tech companies. Grow, grow, grow, grow, grow at the expense of everything else, and then get to you know 20 million bucks in revenue, even if you're losing, you know, 16 and you know one of the big CPG players will come snap you up because they don't want to do innovation in house. That seems to have shifted. And the successful brands today seem to have figured out how to very strategically acquire customers using all the things that I mentioned – sales, marketing, etc. But it's marketing execution that does that. And so today the longevity brands to me including our own, including what we do at SoGood, has to do with marketing execution.

Claire Mitchell

So unlike probably many other products within the food and beverage category, alcohol is very highly regulated, both federally and at the state level. I'm interested to hear what some of the challenges have been for you and your partners given this sort of the unique nature. of alcohol regulation in the US.

Jess Thomas

Well, yeah compliance. Anyone who works in now beverage, alcohol will tell you that, will almost roll their eyes at compliance because it's just such a given that it's kind of a nightmare, you know. And the challenge with compliance in the States is that everything relates back to prohibition. All the laws that we have relating to alcohol stem from the repeal of prohibition. And so because of the system that we have, every state has its own… you know there are federal laws relating to compliance with which you obviously have to comply, and then state laws. And so any state that you want to sell into, you need to be compliant with those states’ law. And so there are several layers of things that are challenging to think about and be conscious of and report on. And then even within that, saké specifically, because it's so new and it's so small, it is particularly challenging because in some areas it's regulated as a beer, which is its own set of taxes and reporting obligations and everything else, and then in some ways it’s regulated as a wine. And so depending on where you go and who you're talking to and what you're trying to get done, you may be taxed or regulated as a beer or wine. And so the biggest challenge for me is just, especially coming from the food side where you know the regulation is comparatively very small, even though what I used to think our regulations were tough, the challenge is just keeping in mind at all times, “Okay, is what I'm doing 100% compliant or do I you know do I need to call Claire at Stoel Rives and make sure that we're staying inside the lines?”

Claire Mitchell

So, if you could offer one piece of advice to someone that may be interested in getting into the alcohol industry for the first time, what would that be and why?

Jess Thomas

I would say be very patient. I think that one of the things that I've learned throughout this process and seeing and just kind of watched as I’ve observed the industry, is the brands… it's a little bit of the tortoise and the hare, right? The brands seem to do well are the ones that are focused and patient and build sort of brick by brick and the brands that tend to flame out are the ones that are chasing. I mean, you know, everyone I think has seen what's happened in the space with brands like Casamigos. And it's easy to think, “Well, of course, that’s going to be us.” And in some cases, you know, it obviously will be. Casamigos is not the only billion dollar brand that's been acquired in the last five or ten years. But brands like those are very, very uniquely exceptions and not rules. And so, you know, my advice again, having been through a little bit of that …certainly I mean, it's easy to do that when you're building an alcohol brand is you really get ahead of yourself. But the way to do it is to be patient, build it strategically, be smart about it, and you know, there are a million ways to spend a lot of money in alcohol. I will say that and the key is, as much as anything else, just learning what to say no to.

Claire Mitchell

You were in the process of launching SoGood Saké in the midst of a global pandemic in late 2020 and 2021. What was that like and how did that factor into your business plan?

Jess Thomas

Well, as Mike Tyson once said, “Everybody has a plan till they get punched in mouth.” And you know, I think we probably from a timing perspective, launched our brand at, you know, specifically the worst moment to do so since prohibition, I would guess. We started brewing our first batch of saké, which is a process that once you start it, you can't stop and it takes a few months and we started brewing it right as things were bubbling up with COVID and it was really unclear what was going to happen. There was the crazy night with, you know, the NBA shutting down and Tom Hanks got COVID or coronavirus as we called it at that point. And so we had a decision to make, we said, “Do we let this play out or do we move ahead?” And we said, “You know, we've been working on this for a couple of years. Let’s move ahead now.” Now obviously, things shook out the way they did. Everything closed: bars, restaurants, hotels, you, the world. And, you know, our whole launch plan was out the window because our original launch strategy was, you know, big cities, bars, restaurants, hotels, clubs. And of a sudden, all those venues shut down, the distributors that service them largely shut down, or at least weren't taking new products. And so we really spent, you know, it was a good lesson in humility because we spent, you know, the big chunk of 2020 and then a lot of 2021 really just trying to get our feet back under us. You know, get our distributors in place and then kind of deal with the constant sort of opening and closing. And then you know with regard to the service industry specifically there was lots of staffing issues, turnover. You know, that was a challenge even after we got through most of the re-openings. So it was, it was a huge challenge and remains so. I mean, you know, you have one launch. You get one launch as a brand. And if you don't do it right, and in our case, it was out of our control, but you know, then you’ve got to scramble and you’ve got to pick the pieces back up and just keep moving forward. So the answer your question is we had to scrap the everything that we had planned on doing and figure out how to go a different direction. And, you know, we made it work and it was a really good learning lesson for all of us. But not a fun experience going through it, I'll tell you that.

Claire Mitchell

I can't even imagine. So we've talked a lot about some challenges you've experienced, both with COVID and just in the alcohol industry generally. Before we wrap up today, let’s talk a bit about opportunities. Saké seems to be seeing really strong growth in the US, particularly over the last few decades. Where do you see the domestic saké industry in, say, the next 5 to 10 years? And specifically, what's next on the horizon for SoGood saké?

Jess Thomas

Yeah, it’s funny because I have, there's sort of two different answers to that question. And I'll answer the first part of it about the domestic market. The domestic market for saké, I think at some point in the next 5 to 10 years it will have its moment in the sun and it will take some brand leadership and it'll take just, it'll have a tipping point moment where there's enough of a groundswell of consumers where, you know, it will have its moment like rosé did three years ago, or you know, Fireball, for people that remember that. I mean it will have its moment, you know. And it will be really fun when it does and we hope to be a part of the set of brands that influences that. But that’s just how things happen in alcohol, right? You have trends that take… I mean think about White Claw. And you the seltzer craze is kind of dying on the vine right now, compared to what it was, what the outlook was two or three years ago. But you know that was really one brand and some good luck and some help from college kids. So at some point in the next, I think the next decade saké will have its moment and we really hope to be a part of that and help be the ones pushing that and driving that trend because we do think saké has a permanent place on the bar shelf or the wine cabinet for any American consumer that likes the characteristics of saké which is pairs well with food. Really delicate, really subtle, really well balanced and has a variety of use cases, whether that's a low alcohol cocktail or you know, paired with a meal. And so we're really optimistic and bullish about the US market. In the short term, we're actually focusing a lot of our efforts on export. We have a base of business in London and London is a market that understands saké, perhaps a little bit better than markets that we operate in in the States. And so our focus right now is we're actually going to build a pretty strong test case for, you know, big city saké adoption outside of Japanese restaurants in London. And so we're focusing right now on a bit of export there and a bit of export to some other markets, Europe and the Middle East, namely. And so in the short term, again, we certainly aren't abandoning the States, but we're going to, it's going to take some time to build the groundswell that it needs here. And so we're going to kind of build a footprint abroad and then circle back and really make a big push in a year or two here.

Claire Mitchell

Just thank you so much for taking the time to chat with me today. I’m really excited to see what the future holds for SoGood Saké. This was great and I’m looking forward to keeping a bottle of it regularly stocked on my home bar. So thank you.

Jess Thomas

The one consumer at the time. That's my job. [Laughter] And of course, all the millions of listeners home. And thank you so much for having me. We're really excited to be here and always happy to talk about the brand and saké in general. So thank you.

Claire Mitchell

Thanks, Jess.

Thank you for listening to the Stoel Rives Deeply Rooted podcast. Follow along and get additional insight from each episode visit stoel.com. That’s s-t-o-e-l.com. Please also take a moment to rate and subscribe to the podcast on Apple, Spotify or wherever you listen to podcasts.

About Stoel Rives | Deeply Rooted Podcast

This season, our hosts are interviewing respected industry leaders and discussing how they, and their companies, are embracing innovation and capitalizing on new opportunities to move their industries forward in an ever-changing world. The first three episodes will be hosted by Claire Mitchell, Merissa Moeller and Kristin Russell of Stoel Rives’ agribusiness, food, beverage and timber industry group.

The views expressed in this podcast are solely those of the individuals involved and may not reflect the views of Stoel Rives LLP. Participation in this podcast by any individual is not an endorsement of any view or opinion expressed.

This is not legal advice and the podcast doesn't create an attorney-client relationship.

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