Phusion Projects Founder Discusses Foray into Spirits

The entrepreneurs behind the once-caffeinated and controversial flavored malt beverage, Four Loko, are diversifying.

Following the April launch of Four Loko Shots, a line of flavored spirits checking in at 35 percent ABV, Four Loko parent Phusion Projects, via its Innovative Wine & Spirits subsidiary, last week struck a deal with Pabst Brewing Company to market, sell and distribute its first bourbon brand under the Not Your Father’s label.

Phusion’s ties to the Not Your Father’s brand reach deeper than its current licensing arrangement, however. The company previously held an ownership stake in Small Town Brewery, makers of the Not Your Father’s line of flavored sodas.

Small Town, which was founded by entrepreneur Tim Kovac in 2010, was initially able to expand availability of Not Your Father’s Root Beer thanks, in part, to Phusion, which had acquired a minority stake in the company in exchange for access to a built in network of distributors.

After some early success in the Chicago market, Pabst chairman Eugene Kashper and other executives caught wind of the brand and negotiated a deal to acquire a stake in the fledgling hard soda maker midway through 2015. Immediately thereafter, Pabst took the Not Your Father’s Root Beer brand national, racking up more than $100 million in off-premise sales in the first six months.

Despite the product’s initial success, however, Not Your Father’s Root Beer fell victim to the boom-splat phenomenon that can cripple breakout brands. So, in an effort to breathe new life into the Not Your Father’s label, Pabst introduced a variety of new flavors, including a cream ale and a “mountain ale.”

Those offerings have helped offset some of the root beer declines, and now Pabst is doubling down, extending the brand into the hard liquor space and teaming back up with Phusion in the process.

In a conversation with Brewbound, Phusion co-founder Jaisen Freeman confirmed that his company no longer has an ownership stake in Small Town. However, he said his decade-long relationship with Pabst chairman Eugene Kashper led to the Not Your Father’s licensing deal.

“I always thought it [bourbon] was a natural extension for the brand,” he said. “We decided to do some research to see if it was a viable product, and the sentiment from the consumer and the market research was incredibly high. The brand fit.”

The foray into spirits and wine is the latest chapter in a longer comeback story for Phusion Projects. The company nearly went under in 2010 after the Food & Drug Administration labeled Four Loko “unsafe” due to the mixture of high levels of caffeine and alcohol. A number of the company’s distributors discontinued sales of Four Loko, and Phusion was left with about $25 million in unsellable product.

Phusion’s owners — Freeman, Jeff Wright and Chris Hunter (who has since left the company) — decided to remove the caffeine but maintain the high-alcohol levels (as much as 14 percent ABV) that Four Loko was also known for. After about four years, the company began to rebound, Freeman said.

“We’ve gotten better and more efficient from a sales, distribution and marketing perspective and also with our innovation,” he said. “From the Four Loko side, we just really know our consumer.”

Now in its 12th year, Phusion, based in Chicago, has rebuilt its portfolio around Four Loko and four other products: John Daly’s Grip It & Sip It, Moskato Life, Earthquake High Gravity Lager and the recently introduced shots.

Those new products, coupled with reinvigorated sales of Four Loko, have also helped the company return to growth. Year-to-date dollar sales of Phusion’s products were up 3.8 percent through November 5, according to market research firm IRI Worldwide, which tracks off-premise sales at grocery, convenience, liquor and club stores

Freeman also credited the renewed interest in the Four Loko brand to its Gold and Sour Apple SKUs, which were launched in 2015 and 2016, respectively. Both of those offerings, he said, ranked as the top-selling new beer products in c-stores after being introduced. The company is hoping to mirror those results when it launches Four Loko Black in January.

“We know our lane, and we’ve been consistent with good innovation that our consumers are excited about,” Freeman said.

Phusion has also released its first television commercials for Four Loko, featuring rapper Riff Raff, which are airing exclusively on the Viceland network.

“We’re in investment mode and we’re always looking for opportunities to partner with companies,” Freeman added.

But it’s that open-mindedness about partnership opportunities and a continued focus on innovation that has led Phusion to the spirits category, and back to the Not Your Father’s brand.

Freeman said Phusion started the Innovative Wine & Spirits subsidiary about 20 months ago, as the company looked to diversify its offerings due to beer’s continued loss of market share to wine and spirits.

Within Innovative Wine & Spirits, Phusion has set up separate sales and marketing teams for both its spirits and wine portfolios, while leveraging back-office support from Phusion Projects.

Not Your Father’s Bourbon is the first spirits product in Innovative’s hard liquor portfolio while canned wine Babe Rosé as well as bottles of Pink Party Rosé and White Girl Rosé make up the wine portfolio.

“We’ve hired wine and spirits veterans from some of the bigger names — William Grant, Diageo, Bacardi — and they’re running our wine and spirits teams,” Freeman said.

Phusion has also set up other limited liability companies — Innovative Beer, Innovative Beer Company and Innovative Brewing — that are so far dormant. Freeman said he expects that to change “in the near future.”

“Our long term vision is to find cool, interesting, a little bit edgy brands that are different than the mainstream that we can fuse our distribution power with some success we’ve had on the marketing side,” he said.

Freeman told Brewbound that Innovative Wine & Spirits has quickly developed a national network of distributors — including partnerships with Breakthru Beverage, Southern Glazer’s Wine and Spirits, Young’s Market Company, General Wholesale and Empire, among others — as it built its wine portfolio via the launch of Babe in July 2016.

Innovative is banking on that established network and strong relationships translating to Not Your Father’s Bourbon.

“That covers most of the country besides the control states,” he said.

Freeman said the company is planning its initial rollout for the bourbon in some of the “biggest markets” for Not Your Father’s Root Beer.”

“We’re trying to follow a similar script to Not Your Father’s Root Beer, and hopefully we can get to the level that brand achieved in a short amount of time,” Freeman said.

The bourbon, which is being produced at the Minhas Distillery in Monroe, Wisconsin, is currently available in Illinois and Wisconsin. The company is planning an early 2018 expansion into Michigan, Minnesota, Indiana, Georgia, Texas and Massachusetts before adding Arizona, Nevada and California later in the year.

“We’re barely meeting the demand requirements right now for Illinois and Wisconsin,” Freeman said. “But we’ll be ramping up in the beginning of 2018.”

Freeman said he expects Not Your Father’s Bourbon to be in all 50 states in 2019.

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