Husband-and-wife team Karol Ostaszewski and Laura Clacey started a South African craft-cider brand Sxollie, part of their company Crafty Brands, close to two years ago. The name comes from the South African word ‘skollie’, meaning, roughly, a ‘troublemaker’. The pair discussed the process of starting their business, the thinking behind their brand, and their plans for the future with How we made it in Africa.
Could you tell us a little about your backgrounds? What made you decide to start a cider company and what were you doing before this?
Laura: So it was quite a long development in deciding to get into cider. Karol started with cider in Australia in 2012. He grew quite a good cider business there and then we decided to move back to South Africa. When we started looking into businesses – we knew we wanted to work for ourselves and have our own business – we knew we wanted to be closer to family and friends and in an emerging market, a market where we saw a lot of opportunity. So we looked at loads of countries that we could potentially live in, and decided South Africa, being my home country, would be the best solution.
We weren’t convinced that cider was going to be what we were going to do, but we started looking into global trends and where we thought South Africa was at, and it turned out that South Africa is one of the top consumers of cider in the world, but when you look at craft cider there were no – well very, very few craft ciders in South Africa. We saw the same trends in Australia when we moved there, and when Karol started there were what, five cider companies?
Karol: Yeah there weren’t many craft-cider companies on the market when we established in Australia, so we had that ability to be one of the first to market, which obviously gave us a huge advantage. Our view was to try and get into the South African market even earlier still, because when we entered the South African market we felt as though it was even less advanced than it is currently, or was at the time in Australia. So we knew that that first-mover advantage had a significant amount of –
Laura: And by the time we left Australia there where about 300 cider brands on the market. Here since we’ve started – there were maybe three when we started and I think there are about eight on the market now already. So it is a growing trend. It’s one that is still small, but we think it has great potential.
So in terms of our backgrounds and how we got into cider: neither of us grew up in alcohol, we both grew up in –
Karol: We just grew up with it [laughs].
Laura: Exactly. So, I’ll let Karol start with his background actually.
Karol: I studied humanities at university, I studied French and Spanish and then realised or knew from the very start I wanted to run my own business. However, I didn’t have a traditional business education and so decided to do chartered accountancy for three years, post finishing my master’s. So I joined PriceWaterhouseCoopers in London on one of their graduate programmes and spent three years doing their external audits for FTSE 100 clients. I felt as though that gave me a really good background in terms of how businesses are run, from a corporate point of view, from a bookkeeping, accounting, controls and systems point of view. However, after completing those three years and an additional two years I felt as though I’d had my fill of corporate drudgery in London and I decided to go travelling. So in 2010 I packed up my bags, and my calculator was left in my home, and basically I decided to go around the world and try and seek out a business opportunity. So I went to every single continent –
Laura: Except Antarctica.
Karol: Except Antarctica, you’re right [laughs]. And basically went around the world thinking about business. I also did some charity work and tried to use my language skills as much as possible – which I had from university – and it was only really at the end of the trip, when I got to Australia, that I pinned the opportunity being cider.
The reason is it kind of struck me as a viable and as a good business. You don’t really hear of that many alcohol brands going bust. I think there is always a demand for alcohol. If it’s a period of recession or it’s a period of plenty, generally people will drink. So I think it’s a very durable marketplace. The other reason it was attractive I think that craft was very much defined in the alcohol space. For some reason, people love to think about craft liquor. I think everyone has a passion to create their own drinks in their back garage.
Could you tell me a bit more about what appeals about craft liquor specifically? (And Laura we’ll get to your background in a moment). Firstly what makes something craft liquor? And then why do you think people like it? Why do you think it will be a lasting trend?
Karol: So I think, to take it back to your first question on what I believe craft is: I know that there is a lot of divergence of opinion as to what craft in fact entails, but from my point of view, craft just means something that is kind of a bit more unique, something that hasn’t been on the market for hundreds of years and something that isn’t mass-marketed. Something that is produced with a lot of care and attention and it’s designed in order to hit a certain niche and a certain higher segment of the market.
I think craft is also very much – because it’s not just about the liquid, which obviously is created with a lot more care and attention, it’s also about the brand that is created. And I think that’s where Laura and my attention sits most closely now, because we’ve spent seven years really designing the recipe – from our time in Australia – and then perfecting it here in South Africa. But craft is really trying to design a brand which is unique and different and which speaks to a certain person.
Laura: And has a story.
Karol: And has a story. And then your second question was around a lasting trend. Yes, I think craft can be a lasting trend. I think we just need to look at some economies where craft has shown to be very long-lasting. If you look at the US, craft is now, I believe, about 20% of the overall USA market.
Laura: You’re talking about beer?
Karol: Yes, craft beer. I do think cider will follow on from craft beer, but it’s 20% of the market and I think it’s a huge segment. If you look at Budweiser, their recent results are seriously threatened by the emergence of craft beer. And in the UK – we just spent two months in July and August, just now, in the UK – and we found that the craft movement has spread from London out into the countryside. So now you find the smaller metros of Manchester and Birmingham are starting to catch onto the craft-beer movement.
Laura: But beside that, you know you talk about ‘historically’ – some of the brands that were considered to be craft 40, 50 years ago are now considered to be mass-market, mainstream brands. So I think it’s not a new concept, it’s not something that’s just occurred out of the blue, it’s always been there. I think there is just more of a consumer awareness about small brands and wanting to support them. I think it’s just small businesses.
Laura what is your background?
Laura: My background is totally different. So at university I studied archaeology and geography and then went on, or also landed up – via being a weather girl at the SABC – landed up at KPMG in their sustainability unit, looking at sustainability metrics for big companies, so especially mining companies, and trying to look at how they can offer more to their shareholders and stakeholders than just financial returns.
So it was everything from looking at entrepreneurship development to environmental factors, through to health and safety. From there I moved to the Australian federal government and I was helping them in their aboriginal development programme. And that was specifically focused in entrepreneurship development in aboriginal communities. So helping them invest – well we were investing with aboriginal communities, into buying out businesses, essentially. So, either hotels or mines or other tourism ventures, or even telecommunications companies, and helping them to develop government’s processes, financial sustainability and guiding them both financially and non-financially to become sustainable businesses. I mean they’ve got – it’s quite a challenge in Australia, they are a very underrepresented segment of the community. So doing that, that’s where my passion to want to run my own business came from as well. It’s very hard to preach something you haven’t done yourself, so I was quite keen to run my own business and practice some of the learning I’d passed onto others.
So that’s how I landed up in this space. But Karol is very much the financial guru in our business, and he holds the purse strings, which drives me mad 90% of the time [laughs].
What is it like working with your spouse?
Laura: Oh my god. It’s amazing.
Laura: No, it is wonderful. It’s really nice that we share the same joys and we share the same worries, so when we get home at night it’s not like one person is down and one person is up. If we’re both down we understand why the other one is down, and if we’re both up we have equal reason to celebrate and share in the successes that we get.
It also helps a lot, working with your partner, in terms of family life. Because if, for example, our kid is ill, the other one understands – we can shuffle meetings around so that he’ll go and I’ll take her to the doctor or he’ll take her to the doctor and I’ll go to the meeting. So you can balance your work-life balance far more – or that whole concept, I don’t even know if it exists – but work-life balance becomes far more of a balancing act, and is much more easily achieved, than working for someone else and saying, “Well actually, I’m going to come in late,” and having that endless guilt.
So at the moment, we’re working really crazy long hours and I understand when he comes home at half-past 10 at night, whereas beforehand I don’t know if I would have been so understanding as a wife if my husband came home at 10:30 every second night. Likewise, I do it on the flip days and he understands that as well.
Karol: I think one of the other key advantages is – I think if you look at relationships and marriages, a lot of the breakdown in communication often happens around finance, and I think by being together within a business and understanding the profitability and the cash flows of a business, that concern and that potential lack of communication around finance falls away, because we’re pretty aligned, because we know exactly what needs to be paid for or what money is coming in. So there’s no handbags being purchased or hair-dos being done early-on in the business cycle. Whereas maybe if I was running the business myself and Laura was doing something else, that awareness and knowledge of the inner workings of the business wouldn’t be so strong.
And Laura, with this background in sustainability, could you talk to me a bit about how Sxollie is made? Is it a sustainable business in that sense?
Laura: Funny you ask that – so when we started, I had this grand vision that I was going to create this perfectly sustainable business from all elements – both financially sustainable and engaging with communities and using communities to develop our product, and in the way we hired – I wanted to hire previously disadvantaged South Africans. So not like BEE-compliant, but actually hire guys who were essentially off the street, and train them up and give them skills and all those sorts of elements that create a person who is employable.
And then we started and – I hate to admit this but I think it’s important that people know – we wasted a lot of money and spent a lot of time on trying to be this type of business from the start, when actually what we should have been focusing on was just to get ourselves profitable and standing on the ground, and then we can start focusing on these other elements.
So for example I spent almost four months trying to set up a local business to create our bottle caps for us, because our bottle caps are special Pantone colours that match our brand, and no-one in South Africa can print those. And I thought, well, that’s such a stupidly simple business. All it is, is sheets of metal, you punch out crown seals and away you go. You could find any rural community – I still think it’s a great business opportunity. But I spent so much time invested in trying to get that up and running, instead of just going to Italy or wherever we have to import them from, getting the thing going and then afterwards trying to find a local supplier to do it.
Karol: Yes, once you’ve got that volume in place, once you know that a market exists, then you can start fine-tuning and working out how to create a sustainable business.
Laura: So I still have a vision that this business is going to be 100% sustainable from an environmental perspective. We do look at that, but at the moment we’re just focusing on profitability and just getting ourselves sustainable as a business. And it’s definitely getting there, it’s just that these are the focus areas. Sometimes you can lose your core focus, which is actually producing cider. So from a production perspective, we’re using a winery that’s got top, state-of-the-art equipment. Our wastage is really low – I think it’s below 10% which is almost unheard of.
And is it all produced in South Africa?
Laura: Yep. Well, all the product, yes. So all the apples are from Elgin, from one farm. We’ve got provenance in that area, so we get all our fresh-pressed apples from there.
Karol: And not just provenance, but our bottles, you will see, are labelled ‘Granny Smith’ and ‘Golden Delicious’ and ‘Packham Pear’. So we actually define the specific fruit that has gone into that. It’s not just apples per se, it’s a specific varietal.
Laura: If we had to, we could identify the exact row within an orchard that our fruit has come from. We haven’t started writing that on our labels yet, but maybe one day. And then the winery that we’re using is state of the art, and really efficient in terms of its production, electricity use, et cetera, so we’re quite efficient environmentally. We’ve gone print on bottle. We were hoping to have them as recyclable, but so far, no-one makes the ink that can do that.
Karol: We would love to do bottle returns at some stage. Again that’s something that the big companies, such as SAB, can afford to do because they’ve got a distribution channel in place, which is large enough and broad enough in order to make it cost-effective. We’ve looked at that quite a lot, because I love the idea of bottle deposits and returns.
Laura: But logistically it’s quite tricky for a small company to execute.
Karol: And by the time you’ve washed and cleaned them, maybe the electricity is already outweighing the benefits.
Laura: But where my sustainability life did come in more in our business here, was around the archaeology side of things. So that’s what inspired our brand. Our brand is called Sxollie, and a skollie to us is a hustler, someone who’s pushing the boundaries, who fights for what they want and really goes out of their way to make things happen, as opposed to sitting passively. And we wanted a half social commentary on where South Africa is at and what we think needs to happen in SA to get everyone off their ass and actually doing stuff. But, on the flip side, it also speaks to what we’re doing – just trying to be a bit innovative.
The pattern on our bottle was inspired by – it’s a repeat ‘x’ pattern all around the bottle, and what that is, is – if you look at anthropological studies and archaeological studies and how people moved throughout Africa, one of the theories – or the predominant theory at the moment, is that groups started in east Africa a few-thousand years ago, and then started tracing their way down the east coast of Africa.
And these groups of people are called the Eastern Bantu-speaking Nations, and they are essentially [who] the Zulu, the Xhosa, the Sotho, the Tswana, and all the groups you find in South Africa today [are descended from].
As they moved they split into different groups and formed their own cultural identity. And one of the ways you trace the cultural identity changes is through the designs that they had on their ceramics. One of the patterns they use is this repeat ‘x’ pattern around their water-carrying vessels. And I kind of like that, because it’s a nod to both the movement of people, so both our personal journey – Karol’s English, I’m from South Africa, moving to Australia, not really knowing where we fit in. But not to – we are proudly African, and wanted a brand that stood for Africa and that we could take internationally and say “Look, this is an awesome South African product”.
Do you think that is something that has helped in those markets? So you’re in England, Singapore and the US, besides South Africa. Do you think that the African-ness, or the South-African-ness of it has helped?
Laura: Yes and no. So the South African wine brands have done quite a bit of damage to the perception of South African products. So a lot of the wine you find in the UK, and the US, that is South African, is the sort of cheap plonk they put on the bottom shelf, and our really premium wines that are international don’t have the marketing budgets to be well-recognised. So a lot of people perceive South African products to be cheap, which is not the case.
Karol: Or low-quality.
Laura: Or low-quality, which we know is not the case. So in that way it’s been a challenge, especially in the US. The UK has been less of a challenge, they are more excited and enthusiastic about something coming from South Africa.
We recently won a design award. So we won best cider brand in the world out of 200 ciders, which was so exciting. And that to me is awesome, because it shows South Africa does have great design, great produce. We won the award, I think, purely because it was something different and exciting and uniquely South African, which is what the world is looking for. They’re excited by African design – I mean look at fashion, textiles.
Karol: I think what Laura said around the migration of people – it’s a huge political hot potato at the moment, you know, the movement of people. And we very much sit, to our background, in the segment that believes people should be allowed to move as much as possible. It improves relationships between countries and between people, and I think Sxollie kind of is – I think young people, that’s where they want to be. They want to be moving, and I think Sxollie speaks to that and says, “Look, it’s great to move around, it’s great to have an international perspective.” It celebrates globalisation, it celebrates the fact that it’s easy to produce something in South Africa and send it to Singapore.
And are young people your target market?
Karol: Yes. I mean when we say young, not 18 young, but kind of maybe more 24 to 35.
How do you get them to notice the brand?
Laura: That’s a very good question.
Karol: But we do.
Laura: We do. So we’ve invested quite heavily in South Africa into PR. I think that’s a really good way to get the brand out there, to get people to notice it and to tell – as we were talking about craft, and what craft is, it’s about the story behind the brand. And so we thought the best way to do that is to try and get our story published as far and wide as we could.
Karol: And we’ve got a lot of very good press since we’ve started.
Laura: Yes, we’ve had some great coverage. And the other bit is just hustling. I mean it’s an endless slog going to the bottle store and saying “Hey guys, why is my product on the bottom shelf, in the right-hand corner, behind Savannah, please can you push it forward and put it in the middle.” And then they’re like, “Ah, I don’t feel like it,” so you’ve got to go and move it yourself. So things like that. It’s basically just a hard slog and ticking one box off after the other.
And when you first started, how did you get the product into bottle stores?
Karol: Again, hustling and walking up and down Loop street, Long Street, going through Parktown, Parkhurst.
Laura: And everyone telling us to go away [laughs]. But things have come a really long way since then, and I think the key thing we realised is that distribution is a tricky game, and one that we definitely don’t want to burn our fingers on. So we started outsourcing distribution and that’s been a game changer for us.
Karol: I think, the ability to distribute anybody can do, but it’s a matter of finding the right distributors. Those that can offer a good service, and those that can pay their bills on time. So, you know, obviously with the distributors we use, they carry the book on a lot of the accounts that we manage.
So in terms of cash flow, it’s a great advantage to find a distributor who can actually pay 30 days from statement, and doesn’t stretch us further. Especially in our business, which is ever-growing, ever-building up, cash flow really is the challenge. Profitability not even so much, it’s cash flow. But I suppose that’s a standard business lesson.
Does your distributor here handle your overseas distribution?
Laura: No, we do that ourselves.
And can you tell me about that – why the UK, the US and Singapore?
Laura: The UK was an obvious choice, Karol is English, the cider market’s huge.
Karol: Yes, so just to put that into context, the UK cider market, and again, cider encompasses mass-market, craft – just basically all cider, and fruit ciders – is worth US$3.5bn, so it is a fairly significant chunk of the global cider market. So obviously it was a no-brainer to go and tap that up.
Laura: And in the US, again, huge market. But the US is quite tricky. We’ve started in Florida, because every state has got the three-tier system, which means that you can’t be an importer, a distributor and a retailer of alcohol. You can only be one, and every state has got different laws, and you need to be registered in every single state.
How many states are you in?
Laura: One. Just in Florida. It felt like a huge achievement just to get that going. So that’s the US system, that’s just going to be a life-long mission.
Karol: You asked why the US – again, the craft-beer movement. We saw the opportunity, thinking craft cider would follow on. And second to that there’s the seasonal differences. Cider is traditionally known as more of a summer drink, so we obviously here in the southern hemisphere, want to have a northern hemisphere play. It keeps our cash flow smooth, it makes us less lumpy as a business. So we wanted to increase our northern hemisphere exposure.
Laura: Singapore was purely opportunistic [laughs].
Karol: Well, skill [laughs].
Laura: Our importer there decided – he’s a bit of a hustler himself – he decided he wanted to start a distribution company in Singapore for craft products. He saw what was on the shelves in Singapore, with most of the American, Australian and English craft beers, and he saw an opportunity in cider, and he even thought maybe South African beers, as well. So he just got onto a flight, flew to South Africa without any meetings planned, and called me up and said “Hey, I saw your website, I was looking up ciders online, and can I have a chat to you?” And we went for a chat, got along really well, and the next thing we know our product it in Singapore.
Karol: Well it wasn’t quite that easy, there was a fair –
Laura: Well nine months later, after many drafts of contracts, but yes.
Karol: I think the hustling mentality is certainly super important here in South Africa. I really think that exports should have a greater focus in South Africa, and should be promoted more from a top level, from an executive point of view. There are still a lot of red tapes and loops and hoops we’ve got to go through. Be it the Department of Agriculture, be it SARS, be it – you know, getting all kinds of hurdles jumped across in order to get our product out of the country. And this is in a country that really should be trying to export as much as possible.
So I mean, it did take nine months, Singapore. You know I think that’s the fastest we could probably do it, but it would be great if – because we could have probably done it in three months.
Laura: That’s not getting the product ready, that’s getting the red tape tackled.
Do you think you might move into other African markets?
What are the craft markets like there?
Laura: I have no idea.
Karol: We would love to go. I mean our focus, at the start again – as much as Laura was saying we had this grand idea of tackling African markets first, we then realised there’s a big challenge to getting into those markets.
Laura: What I do know is that they’re quite small markets, and they’re quire dispersed. So you’re looking at your high-end game reserves, city centres, so maybe two or three bars in Harare – I might be totally underplaying it – but I think it’s a far more dispersed one and again, distribution there becomes your key challenge. How do you get from one game farm up in the north to another down in the south, when they want one case of cider? It doesn’t really make sense. But I think that there is huge potential in those markets, I think Africa is a key market for us still.
Karol: I think we just identified it. You know it’s easier for us as a small business to go to the UK, where you go to one street and you have a hundred bars and restaurants and you can just walk up and down and tackle those hundred. Whereas, as Laura was saying, quite how dispersed bars and restaurants are in the rest of Africa.
I mean we even find other parts of South Africa challenging. We’ve gone to Durban, and we do have outlets in Durban, Port Elizabeth, Bloemfontein, but those markets are quite expensive for us to play in. We obviously get much more return out of Cape Town, Johannesburg and Pretoria.
Which is your biggest market, between Cape Town, Johannesburg and Pretoria?
Laura: But if flips. It’s seasonal. So Cape Town in December goes insane, and Johannesburg is more steady and grows on a month-by-month basis, and then in December it’s dead.
And going back to how it’s made, could you explain to me – a ‘champagne yeast’ sounds very nice, but what is a champagne yeast (the yeast with which your cider is made)?
Laura: I’m not an expert, but I’ve been through this from having to do this myself, so in trying out the different yeasts. There are hundreds of yeast strains in the world used for wine making, and cider making, and beer making, and for beer you use special yeast, for cider you use special yeast and – someone’s going to call me out on this, but – let’s say there are 20. And then for Sauvignon Blanc you get a whole range of yeast strains, and for everything else. So this is a yeast specifically used in making champagne. They technically engineered it in a lab, so it’s not a natural yeast.
And what appealed to you about it? Why does it work well with apples? Is it the sweetness of the liquor?
Laura: Yes, that, and it gets higher alcohol. When we did all the tasting, it just tasted the nicest. And then also when you say, “It’s made with champagne yeast,” it sounds so much better [laughs], than something that’s been through yeast strain 11A – it just doesn’t have the same allure.
Karol: Although it does have a certain creaminess. It adds a certain nuttiness and creaminess to the character.
Laura: No it does, it definitely does.
And what’s next?
Laura: So many things.
Karol: So we’ve got a few export markets in the pipeline. We’ve got Iceland and Denmark, I believe somebody’s looking at that.
Laura: Hong Kong.
Karol: Hong Kong is coming up.
Laura: Netherlands. There are a lot of balls in the [air].
Karol: And then we’re eagerly debating some new product development as well. We’re thinking about a lifestyle brand, potentially a bit more affordable, for an early entrant into the cider space.
Laura: The younger crowd.
Is that to take on Distell [the liquor giant that owns mass-market cider brands Hunter’s and Savannah]?
Karol: We would never want to take on Distell, we respect them too much [laughs].
Laura: No, we do. It’s more to be, so craft is such a funny space. We are targeting a younger audience, but it does come with a premium price tag, and often that younger audience can’t afford it. So our ability to expand and grow is finite. In South Africa in particular, there aren’t that many people in the income bracket that can afford our cider. And we’d like to be more accessible to people. We’d like to have that craft, that premium, element, that fresh-pressed notion, and getting youngsters into drinking things that are actually made with quality, care and love, but with a price tag that is actually achievable.
So there are ways of cutting costs. With Sxollie we went with every bell and whistle, so print on bottle, no added concentrate, no added sugar, no added water, no added anything. It is purely just 3.3 apples in every single bottle. We’re using the best yeast, the best wine-making techniques, the best stainless-steel tanks, the best bottling techniques, et cetera. And there are ways of still creating an awesome premium product, but with –
Karol: To make it more affordable. I think it’s in Buddhism you have, I think, seven stages before you reach your Nirvana. I think – again I hope your listeners won’t be messaging me on this – but you know you go through stages? I think we’d like to be able to capture some of that younger market to let them know that Sxollie does do brilliant-quality produce, and, you know this line we produce is not as good as our top line, but it’s still good enough to try, and you can progress and kind of go through the scale.
Laura: That’s just in the pipeline, as you can see from all the stuff written on the board behind you.
For our listeners, it’s a big white wall with millions of figures and calculations and mind maps. Could I ask you to talk a little bit more about what the experience has been like with Distell or Savannah? Or is it not the same –
Laura: Mostly not the same, and we mostly haven’t heard from them. And I say mostly, but we have heard from them.
Karol: We’ve heard from their lawyers.
Laura: Yes, their lawyers, and that was mostly our fault. And again it shows our youth and innocence. We came up with a cheeky campaign at some stage. So Savannah’s got that ‘Have you got apples?’ campaign going, and Savannah – and I can say it, because it’s a well-known fact – their product is obviously made from apple concentrate, which is how they managed to get it at a better price point (although volume obviously makes a big difference for them as well). But we thought we’d be tongue-in-cheek and respond to them and say “Yes Savannah, we’ve got apples. 100% fresh-pressed apples, how about you?” And then we got a lawyer’s letter [laughs]. Fair enough.
Karol: So it got quite a few shares, and then we got a letter from their lawyers saying, “Take this down within seven days or we’re going to take this further.” So we took it down.
Laura: So other than that, we’ve had nothing to do with them. And you know they’ve done a great job. They’ve made cider one of the biggest categories.
Karol: Yeah, you’re right, I think we shouldn’t take away what they do for the category, because nobody in craft – and I mean this in the beer and cider spaces – is spending money on above-the-line advertising. Savannah have got the budgets and they do bring in people to the category: so people see it on TV, see cider, and maybe only a small percentage of those guys will be interested in something like Sxollie, but at least they know that the category exists.
Laura: So thank you [Distell].
I think this is a good place to end. Is there anything else that you’d like to add?
Karol: If any of your listeners want hints and tips –
Laura: Or the other way around, if they have hints and tips for us [laughs].
Karol: Yes, well I suppose we can say, we’re at the moment going through some fundraising, so if anyone has any interest in being more involved in our business, please don’t hesitate to be in touch. We’re constantly on the lookout for growing the businesses and trying to gain traction.
Laura: And our banks here aren’t fantastic at lending to small businesses.
Karol: Well, that’s probably another segment [laughs].