Zipz Before Shark Tank
Zipz was the vision of J. Henry Scott. Andrew McMurray, a long-time expert in the wine industry, had been trying to develop a better option to package wine in single servings. According to Scott, early prototypes weren’t sanitary or wrapped. Scott focused his attention on improving this design. Before he knew it, Zipz was born. By combining an outer packaging that could be “zipped” off with a dual-function lid and coaster, they had developed a convenient product with a high shelf-life.
The company got its start when Andrew approached Scott about a single serve for Citi Field, home of the New York Mets. Eventually, Zipz partnered with Fetzer Vineyards, based on Hopland, California. Partnering with an established winery meant that they could scale production to even more stadiums and arenas around the country. However, Andrew was sent to the Shark Tank to strike an even bigger deal. He and Scott decided that their packaging was the future of wine, and it would become as ubiquitous as the aluminum soda can.
Zipz During Shark Tank
Andrew entered the tank seeking a two million five hundred thousand dollar investment for ten percent of Zipz. “Woah” was Daymond’s only response to this valuation of twenty-five million dollars. According to Andrew, Zipz was all about packaging and licensing, music to Kevin’s ears. It would be a new alternative to miniature bottles and plastic cups. The construction was sturdy, even standing up to Andrew’s weight as he stood on top of it. It was also simple. The consumer simply “zips” off the outer packaging, unscrews the lid, attaches it to the bottom, takes off the inner seal, and enjoys.
Lori and Robert agreed that the design was clever. However, the sharks’ primary concern was a similar pitch that they had heard already. James Martin had come on the program twice, each time pitching Copa Di Vino, a similar re-sealable product. However, he turned down their offers on both appearances and walked away without a deal. How was Zipz any different?
Andrew clarified that James Martin did not actually own the patent to the technology he was using. The owner was based in France, and Martin was essentially a franchisee. He had the rights to use the patent, but he didn’t own it. Andrew went on to say that the differentiation was in the packaging. The outer seal meant that wine in a Zipz glass had an extended shelf-life over any competitor, at over a year. Furthermore, it had a patent of its own on the combination of the form factor of the glass and the anti-UV outer seal.
Patents aside, Robert tried to understand what business Andrew was in. Was he a wine-maker or a package-maker? Andrew mentioned that, currently, they were doing both. They had their own Zipz brand of wine but also licensed the packaging. So far, Zipz had licensed their technology to Fetzer for use in six major league baseball stadiums. With a fee of fifteen cents per glass, Zipz saw one hundred thirty thousand dollars in revenue from this partnership.
Now for some bad news. Twenty-five investors had already put eight million five hundred thousand dollars into the business. Normally, this might be good news. Just like sales can serve as product validation, some investors look at prior investment as their own type of validation. However, this wasn’t a tech start-up. This amount of investment with only six hundred fifty thousand dollars in sales for the Zipz brand of wine was untenable. With this many investors already, Daymond wondered what more Andrew could ask for? He answered that he was after the expertise of the sharks.
The price point of each unit was a concern for Kevin. At three dollars per glass, he claimed the product wouldn’t be viable in a retailer like Costco. For Kevin, mass distribution through a major chain was the end-game, and he had been struggling with them for years. After years trying to get his own brand onto Costco’s shelves, they continued to string him along, and he hadn’t made a deal yet. Kevin also wasn’t impressed with the twelve hundred stores figure, even with Walmart on the list. At their number of stores, Kevin called their sales “pee-pee poo-poo”. He’s always so eloquent. In America, ninety-seven percent of wine is sold for under ten dollars per bottle. Zipz was pricing out almost all of their potential customers.
Mark had a problem with the branding, saying he’d rather take MD 20/20 than “a brand with a zipper named Zipz.” He was the first one out. Daymond evidently wanted to hear more bad news. “What is your loss gonna be this year?” he asked. “I don’t want to look at it as a loss,” Andrew replied, opting to dig a deeper hole instead of answering the question. Robert didn’t understand. Zipz had a licensing deal. Why were they wasting so much time, money, and effort trying to get into retail stores? Their path was clear, but they weren’t taking it. Daymond evidently agreed. The risk was too high at this stage, and Daymond dropped out.
Unlike Mark, Lori liked the product. She thought it was intuitive and had a number of applications. However, the business itself was too complicated. There were too many other investors, and the retail store bet clearly wasn’t paying off. She went out. Robert framed Kevin’s issue a bit differently. Their price point was only a symptom of a deeper problem. Because Zipz was also in the wine-making business, they were taking on all the risk. Simply licensing the product would decrease their risk and improve their margins. While Robert thought it was a good product, certainly superior to Copa Di Vino, he couldn’t invest either. He backed out.
Kevin continued the pep talk. Costco knew absolutely everything there was to know about wine sales in America. Zipz had the opportunity to do a twenty million dollar per year deal with the company. The price was lowering a glass to a dollar-fifty. “I can get you into Costco. I can make it happen,” Kevin assured him. In a strange turn of events, Kevin looked close to an offer, but first, he wanted Andrew’s plan to get the cost down. The target was to sell each glass to Costco for a dollar and six cents. If – and it was a big if – Zipz could decrease the costs of packaging and scale the business, they might have a shot.
Kevin was willing to invest, on one condition. He would give Andrew what he wanted, two million five hundred thousand dollars for ten percent. However, he also needed the option to buy another ten percent for the same amount in the situation of an exit. This would give Kevin more reward for his risk. If he worked hard with his connections to get Zipz major retailers, he would need some upside in case the business was successful.
Andrew made a quick phone call to check with J. Henry Scott, the co-founder and CEO. During Andrew’s phone conversation, Kevin revealed a little secret. He saw Zipz as an opportunity to get into Costco himself. Still, Robert had it right. “This is the best offer Kevin’s ever made to somebody.” When Andrew returned, he said that the co-founder was intrigued. Kevin began another pep talk. For the option to buy equity before an exit, Kevin was offering great value to the company. With a Costco deal, it would become an almost instant success. With that, Andrew accepted.
Finally, the ordeal was over. All of the sharks were exhausted from yet another wine pitch. “Here’s to that being over,” Daymond toasted, as he raised a plastic Zipz container. Of course, Kevin and Andrew were both excited for their deal. Kevin knew it was his opportunity to get into Costco, something he hadn’t managed after years of trying. Andrew looked forward to their relationship. He and his partners knew that Kevin was “the wine guy” and were optimistic about their chances with him on board. Although Zipz was still a high-risk venture, they couldn’t have a better investor on their side.
Zipz Now in 2018 – After Shark Tank
After the deal, Kevin was ready to work hard to make Zipz successful. He took a risk using the technology with his own brand, O’Leary Fine Wines. His reputation was on the line. In April of 2016, about a year-and-a-half after Zipz’ initial broadcast, they were the topic of a Beyond the Tank update. Beyond the Tank is a Shark Tank spin-off that takes a deeper look at further challenges businesses face after appearing on the show.
We find Andrew McMurray at a wine-testing event in Scarsdale, New York. It’s hosted at Zachys, a fine wine retailer owned by his wife’s family. After working for his wife’s family for years, Andrew is ready to make his own mark. In a meeting with fellow executives at Zipz, they discuss their most urgent issues. While sales are growing, especially with stadiums and arenas on the west coast, Zipz can’t keep up with the demand. Its production facility simply can’t support the volume. Furthermore, making wine isn’t where Andrew wants to stay forever. It was a good way to prove the concept of the business, but he sees real opportunities in heavily licensing the technology.
Kevin is concerned with the growth of the company. It has been steady but not explosive like he had hoped. The real opportunity was in partnering with retail and restaurant chains of distribution, not just stadiums. In a meeting with Andrew, he defined three key points. First, they would need to set up distribution channels immediately. Kevin had taken the liberty of setting up a meeting with The ONE Group, a global hospitality company. STK, their restaurant chain, already carried O’Leary Fine Wines, so he had a connection. Their next challenge would be to meet these orders by scaling production with a large co-packing facility. Most importantly, Zipz had four-and-a-half million left in the bank, enough to keep the business afloat for eighteen months.
Licensing was the first step to actually start turning a profit. Zipz could improve its margins by licensing out the technology and simply collecting royalties. This was crucial. According to Kevin, “If you don’t make money within three years of operations, you’re a hobby. You’re not a business.” In a meeting with The ONE Group, their executives were skeptical. STK already had plastic packaging in its restaurants. They also wondered if Zipz could scale to meet their level of demand. However, they knew Kevin and took him at his word. Both Kevin and Andrew promised that Zipz would land a co-packer to be able to keep up. They were given one chance to keep up with domestic and international demand. “This wine has my name on it,” Kevin cautioned. “If you screw this up, I’m gonna kill you.” It’s hard to tell if he was joking.
After a lot of work, Andrew was able to deliver. He eventually settled on a top-of-the-line co-packer, with the ability to package two million cases of wine per year. Andrew and Kevin toured the facilities, marveling at the production line that filled each glass from the bottom, avoiding oxidation. Zipz was also successful in landing a national partner, Arctic Beverage. The company has a Chilean line of wines called Chillin. According to Andrew, their job now was to focus on packaging…and collecting royalties. Landing a national partner was important because of the piggyback effect of other brands. As Zipz made it onto store shelves where Chillin was already sold, other wine companies would want in, as well.
For Andrew, this was about the big ideas. Zipz was his destiny, and it would be his legacy. After decades of experience in the wine industry, he was driven to make a lasting mark. “You’ve done well, grasshopper. You’ve focused on the royalty,” Kevin complimented. By shifting its business plan, Andrew and the other members of Zipz have secured their futures in the wine and packaging industries.
Initial valuation and offer:
$25,000,000; $2,500,000 for 10% equity
Before Shark Tank: $650,000
Projected end of year (unclear; either 2014 or 2015): $1,800,000 to $2,000,000
Annual wine-by-the-glass sales for STK: $18,000,000
Offers from sharks:
$2,500,000 for 5% with the option to buy another 5% at the same valuation in the event of an exit (accepted)
Arctic Beverage: Licensing Zipz technology to the Chillin brand of wines
The ONE Group: Mass distribution of Zipz in STK restaurants, nationwide and internationally
Zipz is now out of the wine-making business. However, they are accepting licensing opportunities for other wine-makers through their website.
it was 2.5 million for 50%
It was 10 percent.
It was 2.5 for 10% with the option to purchase 10% more equity at a $25 million valuation.
you are correct. and zipz never got into costco and is the worst deal kevin has made.
Did Kevin lose his money?
Makes sense there is no way in heck this will sell at Costco. Only thing that makes sense is airlines maybe and ballparks/ sports venues.