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About a year ago, Victor Regino took his abuela’s recipe for coquito, a traditional Puerto Rican rum drink that means “little coconut” in Spanish, and turned it into a full-fledged business.
With two partners, Luis Olmo and Travis Escobar, ready-to-drink bottles of Papi’s Coquito started lining the shelves at liquor stores and behind the bar at various spots in Providence.
”We were really taking a chance when we launched Papi’s. We were optimistic, but it was a good bet,” said Regino. “Now we know we have something here.”
But the three are finding themselves at a familiar crossroads.
”The infrastructure just isn’t here,” said Escobar.
Here, meaning in Rhode Island.
While it’s known for food and dining, Rhode Island’s “ecosystem doesn’t really support the industry that wants to grow here,” Escobar said.
The three founders — all of whom are men of color, work full-time jobs, and have debt (like student loans) — say there’s increasing demand for them to expand across state lines. But with a lack of capital and co-packing facilities, the three are struggling to secure investments they need to scale.
They’re working with a trademark lawyer to rebrand from Papi’s Coquito to Island Coquito. It will be able to play to both the state they were founded in and Puerto Rico, the island coquito derives from. It’s also to safeguard the product while setting the stage for smoother expansion efforts in the near future, explained Olmo.
The three have also tried to secure funding from local investors, but they’re spending most of their pitch explaining how the business model actually works.
The founders didn’t have the startup capital to open their own distillery in Rhode Island (which could cost hundreds of thousands of dollars). In order to avoid having to front so much cash, they looked for a co-packer who could blend, bottle, and label their product. But there isn’t a co-packer in Rhode Island for alcohol brands anymore, and so they are forced to work with an Indiana company. The three source all of the ingredients, and the finished bottles are sent back to the company’s offices in Pawtucket. Basically, they’re a distributor of their own brand.
Like most manufacturing businesses, the more bottles they make with their co-packer, the less it costs them per unit. For some investors, Escobar said, it’s a complicated model (even though many companies have similar ones).
Then there’s the issue of marketing: Many people simply don’t know what coquito actually is, Regino said.
The drink — a liqueur distilled from sugar cane molasses blended with a sweet, non-dairy coconut cream, vanilla, and cinnamon — is a staple in the Latino community. But most of the investors they pitch have never heard of it. Some don’t want to invest in alcohol brands.
And while there are incubator programs for food and beverage brands in Rhode Island, there aren’t any that work with alcohol brands.
Lisa Raiola, the president of Hope & Main in Warren, said beverage companies face the same hurdles that all consumer packaged goods face. Often, they have to prove demand in a crowded field and spend “hefty amounts of their own money.”
However, liquor companies have another special set of challenges, including layers of additional bureaucracy at the federal, state and county level, she said.
”That is why the industry is so heavily dominated by a few big players,” Raiola said.
But Island Coquito has a proven concept: It’s sold in more than 60 locations and, at about $28 per bottle, they’re consistently outselling two major competitors in the cream liqueur category.
Still, the lack of business infrastructure in Rhode Island means they have to consider moving out of state.
“Rhode Island has been this great place to launch this business to start up and get support,” said Escobar. “But we’re in this place that so many entrepreneurs are in after a certain point, which makes us question if we have to leave in order to actually be successful.”