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Dassie

How is companies making money with this "new" business model of giving away hand sanitiser for free?

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Posted (edited)

Hello

I read this article on CNN:
Alcohol ban has South African distilleries pivoting to a new product
https://edition.cnn.com/2020/04/21/africa/south-africa-alcohol-ban-gin-distilleries-hand-sanitzer-spc-intl/index.html

Quote

It is a significant hit to the South African economy, especially the liquor industry, which bears the brunt of these regulations. In 2018, a "Research and Markets" report valued the country's liquor industry to be worth more than $583 million. The biggest market is the domestic one, and local producers like Inverroche Gin are already feeling the pinch.

"The sale, export and even transport of alcohol is expressly forbidden during the lockdown, and all restaurants and bars were specifically ordered to close," says Lorna Scott, founder and CEO of Inverroche Gin. "Our entire industry came to a halt overnight. Short- and long-term budgets were rendered meaningless."

Inverroche Gin is one of South Africa's most successful and recognized artisanal gin brands, considered pioneers of the craft gin craze that has taken the country's liquor industry by storm. Located in the seaside town of Stilbaai in the Western Cape, they are one of a handful of local distilleries that have temporarily registered as an essential service to manufacture disinfectant -- pivoting to an entirely new product, for now.

Ordinarily, its license allows the company to only make spirits, so it had to obtain special government dispensation to use its current stock of alcohol for sanitizer. The South African Revenue Service also came on board, waiving excise duties on the use of potable alcohol. And so, working with a skeleton team, under very strict regulations, Inverroche Gin began making sanitizer.

But, these products are not being made to sell; instead they are being donated to vulnerable communities across South Africa.

"Inverroche has made a commitment to produce hand sanitizers, in bulk and for free, based on the WHO recipe and using our base alcohol which was intended for the production of our gin, to the frontline workers," Scott tells CNN. "(We are) a key driver of economic growth in our local municipality and this initiative keeps us connected to the very people who have always supported us. It creates a sense of purpose for our own staff, and confidence and trust in our organization that we will weather this storm."

Other distilleries in places like the United States and Europe are using their facilities for sanitizer production, as the demand for it and other items, like face masks, has put a strain on traditional supply chains. While alcohol may be prohibited in South Africa, these brands are showing how the private sector can help the public sector combat Covid-19 while remaining solvent as a business.

"It cannot be business as usual," Scott says. "To keep your business alive, you have to adapt to a new set of values and a new business model which recognizes and gives priority to sustainable practices, and embraces social and environmental responsibility."

I'm just curious, they say they are giving their sanitisers away for free and in bulk, yet CNN says "these brands are showing how the private sector can help the public sector combat Covid-19 while remaining solvent as a business" and the founder says "It cannot be business as usual," "To keep your business alive, you have to adapt to a new set of values and a new business model which recognizes and gives priority to sustainable practices, and embraces social and environmental responsibility."

How is giving a product away for free keeping you solvent when you have material, labour and other operational costs (water, electricity) and how is giving a product away for free a "new business model"?

The article provides zero indications as to who is funding this free sanitisers. Am I missing something here?

Edited by Dassie

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Posted (edited)

It's obviously not possible to give a product away for free without any strings attached unless the companies are "pivoting" into a NGO model, taking donor funds and using that (and of course paying themselves large salaries as NGO directors do). The article is confusing and ambiguous as to how these companies will sustain themselves giving away their product for free and I feel some quotes might be taken out of context.

That being said, it appears to be a PR piece for a gin brand as to how they are using their facilities to make hand sanitiser, Inverroche appears to be passing them off to CNN more prominent than what they are. In 2017 they had 25 staff and in 2019 50 according to articles so hardly a "key driver of economic growth in our local municipality" as they claim. The holiday accommodation industry in Stillbaai adds more value to the local economy than they do. It also seems to me like an unnecessary expense to give away free hand sanitiser in expensive glass bottles that is used for a R500 bottle of gin when plastic will be far cheaper.

New Harbour Distillery which also makes "artisanal" or "craft" gin is also making sanitiser to stay in business at a far more sustainable price of R85 for 200ml. Which is pricey but has all fancy ingredients and they are donating sanitiser as well.

I have no idea what the owner means with all these buzzwords, but she might just be milking the situation for all its worth or it could just be rich people giving away their money, maybe they started with a lot, now they have more and can afford to give it away. But it's not something that a normal business can do, especially not under these circumstances when you probably won't even have profit to benefit from any tax incentives. Keep your powder dry, the economic repercussions will take a long to recover from.

 

Edited by Friedmanite

“One of the great mistakes is to judge policies and programs by their intentions rather than their results.” - Milton Friedman

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