A Brief History

Our journey began on one of our co-founders’ parents’ farm in 2009, when Sam and Hannah decided to try their wine-making hand at making cider. After extensive research, we knew the style of cider we liked best. The ciders available at the time were almost all made from concentrate and far too sweet for our liking, and we therefore wanted to make real cider from real fruit with patience, craft and quality.

We knew that the final product would taste its best if we started with the best ingredients, so we scoured the country to find specific apple varieties from orchards around New Zealand. After long wintery nights crushing, an exploding fruit press, experimental brews and many hours spent hand bottling, we had our first 3,000 litre batch ready for release in the Spring of 2009. We sold it exclusively through the local Matakana Farmers’ Market and were rewarded with great feedback.

Over the course of the next year, we had a stream of eager and regular buyers, and this resulted in steady growth and allowed us to scale manufacturing and build our own cidery in Fernhill, Hawke’s Bay. Today we’re producing over 460,000 litres per annum, making Zeffer the country’s largest independent, dedicated cider producer.

What we’ve learned since our first batch:

Governance and strategy. We learned that methodical strategic planning and strong governance is invaluable and it has been crucial to our success to date. Our board is responsible for developing and overseeing the strategic direction of Zeffer.

Our board meets bi-monthly to check progress against our strategic plan, identify and mitigate potential risks to the business, approve capex, and ensure the business is focused and diligent in its goal of continued sustainable growth. In addition, we conduct annual strategy sessions where we renew our rolling 3-year strategic plan and finalise our more detailed 1-year strategic plan for the financial year ahead.

Distribution is king. It doesn’t matter how good your product is if you’re not able to get it in the best stores and bars. We have worked with 3 different distribution partners over the years and all of them have contributed to our success. However, since signing with Quench Collective in late 2016, we have observed a significant boost in our off-premise coverage.

Focused core range. We have learned to focus our efforts on a limited number of products rather than spread our distribution focus too thinly. It’s better for the brand for there to be a consistent offering in 50% of stores rather than a sporadic offering of 1 or 2 different products across all stores. A variable offering across the stores results in variable sales, which impacts repeat orders. We work closely with sales reps to ensure they understand which products need to be prioritised when working with the buyer.

Targeted, effective marketing. We have significantly increased our marketing return on investment and have improved our brand presence by analysing which events and types of campaigns most effectively reach our target audience. We now only focus on key, high profile events and run 1 or 2 campaigns in early summer which provides momentum into the peak summer period. We’ve also prioritised social media and have adjusted our content and approach and engaged a specialist digital agency to execute our strategy.

Concentrated export approach. We have refined and continue to develop our export strategy by employing our years of experience and knowledge of the domestic market. It’s all about choosing the right distribution partners, ensuring effective price modelling, targeted product offerings and providing high levels of marketing and sales support. This process has led to us focusing the majority of our time on one key export market (discussed below). We were fortunate to have an MBA team conduct their project on Zeffer’s path to market in China, which taught us a lot and assisted our strategy development.

An additional benefit of continuing to grow our exports is that sales in Asia and the northern hemisphere help to balance out the seasonal nature of domestic cider sales (with a high season being New Zealand summer).

Three-year strategy

In January 2018, our senior management team and board of directors completed our rolling 3-year and 1-year strategies. The following are the highlights of our 3-year strategy which directs the Zeffer team’s focus and creates a set of actions for each senior manager to deliver on.

Our purpose: To craft world-class, imaginative apple cider that opens people’s minds to how great cider can be.

Our vision: To sustainably grow to be a $10 million revenue company with positive EBITDA by FY21, with $8 million of revenue coming from branded sales in no more than four markets.

Our 12 key objectives to achieve this:

• Develop the strategy for our future sales and create networks that support this.
• Implement systems that support contract ability (contract manufacturing).
• Develop our sustainability strategy (zero waste).
• Implement lean management with production.
• Excellent financial reporting and analysis to support decision making.
• Deliver authentic experiences to create loyal consumers (includes cellar door).
• Design and implement digital strategies for NZ, China, the USA and Australia.
• Develop our NPD process for packaged and kegged products.
• Understand and have mitigation plans for all key risks.
• Implement and support our leadership structure.
• Implementation of sales and marketing strategies for New Zealand, China, Australia and the USA.
• Develop and implement our Health and Safety training and management system.

Marketing

The Brand

The name Zeffer is a play on the word Zephyr, a sailing term meaning a light breeze. This reflects our coastal Matakana roots. For trademark purposes and to make it unique, the spelling was altered. Zeffer is now trademarked in New Zealand, China, United Kingdom and Australia with additional trademarks to be added soon.

In late 2015, a full rebrand of the Zeffer range was completed, to ensure the key pillars of the Zeffer brand were effectively communicated via its packaging. The rebrand allowed a consistent message to flow through each of the Zeffer ciders, while also showing clear product differentiation within the range:

Craft: Close alignment with the craft beer movement in terms of differentiation from mainstream offerings through enhanced flavour profile and handcrafted brand positioning. The text ‘Premium craft’ is prominent at the top of each Zeffer label.

Freshly Crushed: Most cider in the New Zealand market is made from an apple concentrate as opposed to freshly crushed fruit. All Zeffer cider is made from selected crushed apple varieties. A ‘freshly crushed’ badge on the core range conveys this and ‘Fresh crushed’ sits atop the label for the innovation and reserve ranges.

New Zealand: Proudly a New Zealand brand made from New Zealand fruit, ‘New Zealand’ is in prominent text at the base of each tier’s label.

Premium: Zeffer commands a premium positioning in the cider market, ‘Premium’ is used on the front of each label in the three tiers.

In 2017, we completed a full audit of the Zeffer brand to ensure our messaging and targeting was aligned with our target market. This helped define our brand purpose, tone of voice, attributes, values, and ultimately the essence of the Zeffer brand, which guides all of our brand communications. In short, Zeffer is all about real people, in a real place, making cider sustainably and creating real moments for people to connect, all the while staying true to our company values.

Capturing Our Target Audience

The brand pillars and key selling points are reinforced in all brand communications, including 
point of sale, in-store tastings, social media, events, and targeted above the line campaigns.

Our primary marketing goal is to increase our exposure to customers shifting from the mainstream with the premiumisation of the cider category, along with customer education on the strengths of the craft cider segment to attract new cider consumers from beer, wine and spirits. We do this by marketing through channels we have learnt are cost-effective instead of inflating our marketing budget to blast as many channels as we can.

Zeffer participates in a number of targeted events to raise awareness and allow new customers to trial our ciders. We focus on high-level events, as opposed to crowded trade and industry events. To date we have been the cider supplier to WOMAD, New Zealand Fashion Week, Coldplay Concert, Laneway Festival, MoreFM Summer Vineyard Tour, Blackbarn winery concerts and Takapuna Sun and Sound, among others. Events like these have been successful in promoting our range to our target customers, and we’re looking to increase our presence at similar targeted events.

Social media is an important channel for Zeffer and we have put a huge amount of focus into this over the past year. We are executing a renewed social media strategy by working closely with a specialist digital agency to ensure our messages are targeting the right people, at the right place and at the right time. We are also looking to engage a range of Zeffer ambassadors/influencers over the coming year and increase our trade marketing to support our distribution growth in the grocery channel.

Export Focus and Domestic Growth

Over the next two years we aim to sustainably develop the business to scalable level, where export revenue grows from 23% to 36% of total sales on turnover of $7.5m. We’re already executing towards this goal, and instead of attempting to simultaneously grow a number of markets, we’re focusing on one core export market, China. Over the past 12 months we have worked to establish pricing, format and channel strategies through market research and industry support networks. We have launched very successfully and have proven the significant opportunity for Zeffer in China with over 200 outlets pouring Zeffer in many of China’s leading bars and restaurants.

Zeffer is already the leading craft cider brand in China and we are capturing accounts at a rapid rate. We have placed local sales representatives on the ground in Beijing and Shanghai, each with their own set of strict KPIs. In the coming year we plan to launch an ecommerce store on JD.com or Tmall.com and increase our focus in market by appointing a Global Sales Manager whose core role will be to drive our sales representatives and marketing strategy in China.

Last year we were successful in our application for an International Growth Fund from New Zealand Trade and Enterprise (NZTE). NZTE are a close industry partner and their strategic support along with our International Growth Fund are contributors to our early success in the market. The International Growth Fund provides Zeffer just under $500,000 over 3 years through a joint investment scheme in the Chinese market to help us realise our Chinese export opportunity and grow our sales revenue more quickly.

Cider is still a relatively new concept in China, although over the last 2 years larger international brands like Magners and Strongbow have made their debut with strong reported initial sales. Overall, the import of cider into China increased from 93,268 litres in 2009 to 524,950 litres in 2015 (Technavio Global Cider Market Report, 2016).

Much like the Chinese beer industry, where mainstream brand sales have declined in recent years as the market begins to demand more premium/craft beers, we believe the same trend towards premiumisation will emerge for cider (as has been the case for almost all developed markets).

The Free Trade Agreement, climate, craft beverage boom and burgeoning middle class present highly appealing opportunities for Zeffer to capitalise on. We are New Zealand’s trailblazers with our cider export focus into Asia. The path is unchartered by New Zealand cider producers, largely due to the domestic focus of the New Zealand multinational cider brands (Lion, Independent). Heineken/DB have had the most offshore success to date, with Monteiths cider in Australia and Old Mout in the United Kingdom.

While our core export focus is on China, we capitalize on other market opportunities as they arise and where there is ‘low hanging fruit’ in terms of sales.

We have a distribution agreement with one of the leading craft beverage distributors in Thailand. There is real potential in the Thai market, and to capture the current opportunities, we now have a Bangkok based sales rep on the ground. Zeffer was the first cider on tap on the Island of Koh Samui, and we have produced a custom bottled cider for one of Thailand’s most exclusive resorts.

We’ll continue to sell in and explore other international markets as opportunities arise. For example, Singapore is another important market where we have a highly motivated distribution team. We recently installed Zeffer taps on the rooftop bar of the world-famous Marina Bay Sands resort. However, while we envisage growth in the years to come, we see Singapore reaching saturation before China.

We have also recently entered the Taiwanese market and are currently performing market testing and developing a launch strategy. We are also conducting a feasibility study this year on our future market entry into the USA to build on our current distribution in market. In Australia, Coles recently ranged Zeffer into 67 of their First-Choice liquor stores across the states of New South Wales, Victoria and Queensland.

NZ still has a lot of distribution upside and will remain a focus for Zeffer, while also becoming a test market for our new products before they are pushed into export. Our three-year goal is to grow Zeffer to 6% of the total NZ market share in grocery cider sales (from approximately 1.5% - 2% currently). Based on the current grocery cider sales of $54m, this would see our domestic grocery sales account for $3.24m of our $10m total revenue forecast in FY21.

Our off-premise nationwide distributor is on track to continue to grow sales through their high call frequency and merchandising coverage in all key retail outlets. At the same time, we’re focused on building trusted relationships with NZ’s leading craft bar operators to ensure long-term commitments to pour Zeffer. We’re facilitating ease of access to Zeffer bottles and kegs for on-premise operators by using second tier distributors in all NZ regions and mobilising our own on-premise sales representatives to support sell in.

Our new cidery in Hawke's Bay

In July last year, we moved the cidery from our previous site just outside Auckland to our new home in Hawke’s Bay. The primary reason for this move is because the site is just down the road from our apples and pressing partners. This has an immediate and substantial impact on freight savings and we are also utilising Port of Napier for our export orders. The other reason for our move was to allow our production volumes to scale up. The site we have secured has significant capacity and will allow Zeffer to scale up to over 2 million litres in the coming years with minimal additional capex.

There was a bottling room fit out that needed completing at the new site, but the majority of the infrastructure was already in place and Zeffer purchased all of the tanks and production equipment as part of the move. To scale the site up to produce over 2 million litres, there is some additional capex required in the form of packaging tanks, carbonation systems, and a few other minor capital equipment purchases.

Cellar Door

An additional benefit of our new premise is the potential of a cellar door offering to showcase Zeffer. Prior to Zeffer taking over Crossroads Winery, Crossroads operated a very successful cellar door which drove high margin revenue. Since we took over the site we have opted not to run a cellar door until we can renovate the space and ensure it is aligned with our brand messaging, creating a memorable Zeffer experience for visitors. Although situated around 20km from Napier and Havelock North, we are on a busy road near some of the region’s top attractions including Trinity Hill, Te Awa winery and restaurant, The Village Press, and the beginning of the Gimblett Gravels wine region.

After engaging an external analysis of the opportunity for the Cellar Door space, the plan is to establish an off-premise offering with cider tastings available on site. This is to reduce the time and dollar commitment required through building an on-premise offering, where a full commercial kitchen and higher staff numbers are required. The Cellar Door is planned to open in time for Labour Weekend 2018. The offering may be extended in future years to include a bar and kitchen, pending the success in year 1. This is an exciting opportunity as it gives the Zeffer brand a tangible home and allows us to showcase our site to consumers, trade partners and key networks who will enjoy an authentic Zeffer experience at the real home of Zeffer.

Contract Manufacturing

The increase in production capacity at our new site allows us to develop contract manufacturing as an additional arm of the business. The benefits of this include greater buying power of packaging materials; a reduction of fixed overheads as a percentage of our cost of goods produced; and the ability to sweat our assets to generate cash flow and provide a greater return on our fixed assets. It also allows us to have the site operating at near capacity in our quieter production times during the year, allowing full retention of skilled production staff.

We are currently in discussions with a number of potential partners in the alcohol and non-alcohol beverage space who have shown interest in Zeffer manufacturing their products. This additional revenue stream has become a focus alongside our own cider making, although it comes with an assurance that contract manufacturing will never take priority over the Zeffer branded products, nor jeopardize our ability to maintain the highest production standards and quality.

Key Target Performance Metrics

Exit Strategy

The short-term goal for Zeffer is to sustainably drive revenue growth. However, we believe that the most likely mid-term exit opportunity for shareholders will be through a trade sale as we continue to cement our position as NZ’s and China’s leading craft cider.

The cider category has been an active space for acquisitions over the last few years. Heineken in particular has been aggressive on the acquisition front, buying international brands such as Bulmers and Strongbow. Closer to home they acquired Redwood Cellars (Old Mout) via DB Breweries.

Wineries are also closely looking at cider companies. Cideries are seen as complimentary businesses to wineries due to shared equipment and fruit being grown in the same regions. There are a number of wineries who have also produced cider, including Jacobs Creek, Kono and Giesen.

Most major players have made investments in both cider and beer. Now they are investing in craft beer to offset declining main stream beer volumes and investments in craft cider will follow.

“Cider is the second strategic pillar of the company, with a plan to shape the cider category in the long term. It will take time and it’s not a short-term play, but we do see it really growing for the future and accounting for a much bigger slice of the overall pie in Heineken.” - Sharon Walsh, Heineken Director of Global Cider, November 2016.

Dividend Policy

At this stage the company has no plans to pay a dividend, instead preferring to reinvest profits into ongoing growth of the business. The board will review this position and various dividend policy options on a regular basis.

Risks and Mitigations

Staff retention / key person risks

Key staff hold equity in Zeffer. The senior management are committed and motivated to driving Zeffer long term to achieve the sales targets projected. That being said, no member of the team is irreplaceable, and there is a wide pool of talent in the NZ wine and beer industries we can draw from ongoing.

Competitor risks

NZ has one of the most competitive alcoholic beverage industries in the world. We’ll work to ensure we maintain our premium product position through marketing and superior product offerings. We also aim to keep innovating to stay ahead of the competition, developing sought-after cider styles. Lastly, we’re focused on only working and maintaining long-lasting and trusted relationships with the best distributors.

Scale-up risks

We are conscious of the risks involved in scaling a FMCG business, particularly when we are looking to expand both domestic and international markets. The short production time, simpler fermentation equipment and significantly longer shelf life means cider has less scaling risks and capex requirements than beer. The equipment at our new cidery allows us to scale the business beyond forecasted volume growth over the next five years. Further, we don’t grow our own fruit and it’s easy for us to store large volumes of juice, meaning there are few scaling risks on the supply side.

Market risks

There is a risk that craft cider falls out of favour in our target markets, despite the cider category being fairly well established throughout the world. Focusing on 3 core growing markets while continuing to keep strong relationships in other markets helps to mitigate this risk, and the board will regularly review sales volumes with management so it can act quickly in implementing changes in strategy.

Export risks

As with any export company, there is a risk that offshore distribution agreements will break down. However, we have built trusted relationships with our key export partners and are in regular communication. There is also a risk that premium cider doesn’t develop as we anticipated in our foreign focus markets. We have thoroughly tested the opportunity in these and have been presented a strong case by our distribution partners as to why we should invest time and resource into their market. As with any export market, regulatory and import rules can present a barrier to entry. We work closely with the Ministry of Primary Industries and New Zealand Trade and Enterprise to stay up to date with any regulatory changes and work with our import partners to ensure smooth importation.

Food safety risks

Recall of product due to contamination is an ongoing risk with any food business. We have a strict food safety program in place in order to meet export standards, and to date we’ve never had issues with non-compliance with this program. We’re implementing new equipment components at our new cidery that will further bolster safety.

Supply shortage risks

Our primary ingredient is apples. Currently, there is an abundance of fruit supply in the Hawke’s Bay region, however a poor season or an industry-wide adverse event is a risk. To mitigate this, we’re forming long term supply contracts with our key growers to ensure access to sufficient juicing fruit. Outside of this, apples can be sourced from overseas, however this would be a worst-case scenario and our preference will always be locally grown fruit.

Budget/Governance risks

We will need to ensure that we continue to have appropriate governance controls in place. We’ve worked hard on improving the structure of the Zeffer board over the last year, and we’ll aim to keep at least one reputable, independent and/or non-executive director on the board going forward. We also have a history of lean operations, and we’ll continue to implement our low-cost model as much as possible.