Zacks Small Cap Research – LQR: Leveraging Digital Marketing to Grow e-Commerce Platform & Advertising Operations as Sector Online Channel Expands – Technologist

Mystery Tequila campaign piqued consumer interest…

SWOL is manufactured by a local tequila distillery in the Tequila region in Jalisco, Mexico on an as needed basis to fulfill CWS orders. SWOL Tequila is a limited-edition small batch tequila produced in batches of up to 10,000 bottles. SWOL Añejo Tequila retails for $89.99.

The company plans on expanding the brand by increasing marketing for SWOL and developing new flavors. SWOL Cristalino and SWOL Peach are examples. SWOL Peach Tequila is bottled in glass blown flasks and retails for $79.99. SWOL Cristalino Tequila is a crystalline tequila that is also bottled in glass blown flasks. It retails for $79.99. Both beverages are labeled with the SWOL patch specific to each flavor. According to IWSR, flavor is a “key driver of US beverage alcohol consumption.” IWSR notes that
flavored tequila subcategories are significantly outperforming the traditional non-flavored general category growth.

The company’s marketing team has overseen branding and promotional efforts for SWOL. LQR created a marketing campaign around SWOL “Mystery Tequila” that generated about six million views, according to LQR, where CWS’s influencers network promoted SWOL without showing the bottle or label. The company is encouraged by the results of this promotional activity and believes it led to growing anticipation for the SWOL launch. The company believes its efforts around brand identity and product innovation will enable it to continue to expand the product line carrying the SWOL trademark within high-growth niches.

$1 million purchase order…

Reflecting what the company believes is the growing popularity of SWOL, LQR House secured a $1 million purchase order from Cannon Estate Winery earlier this month for SWOL Tequila. Cannon Estate is developing a high-end lounge where it intends to serve SWOL as the featured tequila, according to LQR. Cannon Estate Winery also has indicated plans to expand SWOL’s footprint in Canada to retailers and other venues that carry its wines. The company views this agreement as a milestone that will help expand SWOL Tequila to retailers and private clubs across Canada.

… As successful campaigns help to generate new leads

The company measures the success of its various promotional campaigns by increases in sales on the CWSpirits.com platform and believes that its growing database correlating its marketing activities with growing brand revenue can demonstrate a proven return on investment (ROI) for brands that leverage its marketing services. LQR also points to its marketing efforts as a key driver of its e-commerce revenue growth and earlier this month announced that December 2023 revenue recorded a greater than 5-fold
advance to $339,713 compared to December 2022. LQR House is optimistic that this momentum can continue and expects revenue from the e-commerce platform to grow significantly in 2024.

LQR believes that it is developing a portfolio of successful marketing campaigns that will generate positive word-of-mouth about its capabilities and generate new marketing referrals of alcohol brands looking to gain market share. The company points to its strategy of leveraging influencers with large followings as an important competitive differentiator that it believes will enable it to continue to attract start-ups and emerging brands.

As the company expands its portfolio of alcoholic beverages marketed through CWS and other venues, LQR intends to focus on the spirits, wine and specialty mixed drink segments of the market. The company has set a 2024 goal of expanding LQR House’s marketing contracts to 50+.

Potential future initiative: Brand incubator…

In addition to developing its e-commerce and marketing arms, future potential initiatives include incubating certain emerging brands, with LQR leveraging funding, its marketing tools and influencer network, plus management know-how to incubate and grow emerging brands in high growth segments of the alcohol space. With its access to data from the CWS platform and AI-enabled technology tools, LQR House believes it can help these brands build awareness and accelerate growth.

Management’s longer-term strategy also includes using data generated from the CWS platform to identify prospective investment opportunities to expand its portfolio of niche brands, focusing on specific categories that would be complementary or offer incremental revenue opportunities. Once LQR House has made an investment, the company expects to be integrally involved with developing the product, including creating the formulation for the beverage. For example, once LQR decided to acquire rights to the SWOL brand, the company sent a team to Jalisco, Mexico to meet with the manufacturer to jointly develop the SWOL taste. The company’s potential incubation strategy would also extend to brand
development whereby the LQR House creative team would create marketing materials, including designing the brand’s logos and labels and implementing an influencer campaign and other promotional activities such as website banners and ads, email outreach and SMS advertising before the launch.

Another potential future initiative: Wine Club – Subscriptions

Another potential future initiative for LQR is to create a wine club and offer member subscriptions. In May 2021, LQR acquired rights to Soleil Vino and related intellectual property. Soleil Vino could be one of the elements down the road integral to launching a virtual wine club that offers members subscription services through cwspirits.com. Members would have access to sommelier-curated wine selections.

Takeaways from Drizly; company optimistic about market share gains…

Drizly is one of the largest online alcohol marketplaces in the U.S. According to its website, it is available to more than 100 million customers across the U.S. and Canada. Uber acquired Drizly in 2021 for $1.1 billion. According to trade publications, Uber intends to close Drizly in March 2024. Because Drizly did not rely on its own delivery service, many trade publications questioned the synergy behind Uber’s original purchase of Drizly. LQR is optimistic about the opportunities the exit of a sizable player such as Drizly might present and believes it is well-positioned to benefit. Specifically, LQR believes the void
created by Drizly’s pending closure could lead to increased market share for CWSpirits.com.

Many trade publications have also cited cybersecurity issues as a factor behind Uber’s decision to close the service. Drizly had confirmed that a hack exposed information on roughly 2.5 million customers and the Federal Trade Commission subsequently imposed restrictions on the types of customer information that Drizly could collect and retain. We believe this underscores a challenge that e-commerce operators generally face in accepting private personal information from online purchasers.

Management

The company believes its management team has the collective expertise to execute the company’s growth initiatives. Sean Dollinger founded LQR company in January 2021 and has been CEO and a member of the board of directors since January 2023. He is also on the board of directors of Veg House Holdings Inc. and serves as its CEO. He has significant entrepreneurial background and was involved in founding and developing PlantX Life Inc., a public company in Canada, according to LQR, as well as of Lifeist Wellness Inc. (formerly Namaste Technologies). The company believes his prior experience in e-
commerce and digital marketing will help LQR execute its growth strategy.

Kumar Abhishek has served as LQR’s CFO since May 2023. Prior to LQR, he owned India-based Boston Crest Private Limited and also served as the director of finance and operations at PlantX Life Inc. and at Lifeist Wellness Inc.

Financial activities…