Drnxmyth, a pioneering startup in the ready-to-drink cocktail space, is shutting down. The closure comes after a number of challenges, including struggles to lower margins, a tough pivot from its original e-commerce focus, and difficulties in securing a viable wholesale path.
Launched in 2020, the California-based company made unique, two-chamber “twist to mix” bottled cocktails using proprietary packaging and high quality ingredients.
“Why has the best-tasting, most innovative cocktail product not achieved market dominance as initially thought?” wrote founder Lawrence Cisneros in a recap for shareholders and potential partners. “The parachute couldn’t be fixed fast enough on the way up and down.”
Cisneros made the announcement on Tuesday via LinkedIn, adding that “this product is still possible. And some day someone will successfully scale it.” Cisneros, in his recap, said he still felt like the brand could be a success with the right ownership group and added that the founders, board and shareholders are looking for creative solutions to “this situation,” and are amenable to any options.
The unique Drnxmyth bottle delivered a solution to one of the RTD industry’s biggest challenges — offering the flavor of a freshly made cocktail — by keeping the spirit and a cold-pressed juice-based mixer separate until the time of consumption. Longtime friends Brandon Schwartz and Cisneros worked with top bartenders during the height of the pandemic to develop cocktail flavors.
Since the pandemic fueled a wave of RTDs, plenty of canned craft-like cocktails have emerged on the market, some also touting recipes from known mixologists. But Drnxmyth has not only stood out for its packaging, but the lengths it has gone to build its supply chain, enabling the cocktails to offer those top-notch ingredients such as cold-pressed juices.
The company has launched over 20 cocktail expressions sold in approximately 100 stores across three distributors in Southern California, along with a handful of stores in New York City. To date, the company has earned about $7 million in gross revenues over five years with approximately $10 million of capital invested over a period of 10 years.
In 2023, the company landed $3.7 million as it prepared to manufacture its innovative packaging in the U.S. and expand its retail footprint. The Series A round was led by Anheuser-Busch InBev’s ZX Ventures, with Red Door Capital, and other familiar names in the beverage alcohol space such as Goat Rodeo Capital and 99 Proof joining in. But that’s part of where the trouble began, according to Cisneros.
Obstacles to Lower Margins
At launch in 2020, the company knew that 15% margins would be something “that we would need to work on,” wrote Cisneros. But the company was also busy addressing larger questions as it debuted – about consumer preferences and retail acceptance – and used venture funding to test the market.
“Our strategy was that, once these key preliminary questions were answered, we’d figure out a way to lower margins down the road,” wrote Cisneros.
But pursuing growth with low margins requires significant financing, and to obtain financing the company needed to show further growth. Cisneros reports that ZX Ventures shrunk 95% in terms of personnel and investment funds, and made no new investments. Additionally Drnxmyth found A-B InBev was focusing more internally on inhouse operations rather than continuing to support external business. The major bev-alc company’s involvement ended up “significantly hampering” the startup’s ability to grow and attract investment, he wrote.
A Unique Wholesale Path
Another sticking point? Refrigerated warehouses at spirit distributors. While there are clearly a number of wholesalers with refrigeration capacity, Drnxmyth’s unique partnership model with major liquor companies limited its options.
The cocktail company sourced its base spirits from notable groups including Gallo Brandy, Brown-Forman’s Diplomatico Rum, and MGP Whiskey, among others. When using branded liquor Drnxmyth became a type of experiential marketing platform offering trial opportunities for their liquor partners.
But a co-branded Drnxmyth was required to move through its liquor partners’ distributors. In the case of major brands, those are generally Southern Glazer’s Wine & Spirits and Republic National Distributing Company (RNDC), both of whom Cisneros claims do not have refrigeration in their warehouses. There are other major liquor brands that now move outside of those distributors – especially following RNDC’s withdrawal from California – but Cisneros notes that was not the case five years ago.
Difficult Post-Pandemic Pivot
An overextension in the COVID-19 pandemic also laid the groundwork for trouble years later. Like many companies, Drnxmyth leaned into e-commerce during lockdowns, but despite high gross and contribution margins, demand dipped as the pandemic waned and changes to Apple’s privacy settings made online ads costly.
The company pulled the plug on e-commerce and tried to develop an inexpensive bottle that would aid its retail push. The new bottle cost had been reduced from $2 to $0.90, tripling gross product margins. But according to Cisneros’ analysis there was approximately $400,000 left of development to finalize the product to enable profitable entrance into new markets.
At the same time that the company was developing a new bottle it aimed to prove sales in other channels beyond e-commerce – that shift decreased cash burn but also decreased revenues, which hurt funding prospects. By the time the new bottle was ready in 2024, the company’s revenues could only net it a valuation of $3 million, despite earlier, higher valuations during its previous capital raise.
“The product and path forward are clear and simple, but the internal company economics are not,” read the recap.