Learning from the Super 7

In the beginning, there was cola. Well, there were other beverages, but the bottom line was this: if it came in a bottle, and you were going to drink it without having the ambulance come for you, you drank beer, wine, or soda. The same applied for cans, minus the vino.

Juices were fresh-squeezed or highly concentrated. Fruit flavors came from powders; tea – hot or iced – was brewed at home or concentrated, sweetened, and canned; coffee was instant, it was decaf, it was regular, but it was always made that day and poured into a cup. It was never ready to drink. There was no ‘mocha.’ (There was, however, Yoo-Hoo.)

It’s not that it was a boring world, but it was one whose liquids suffered from a certain kind of placid repetitiveness. Aside from a few quirky regional drink brands, the only excitement in the beverage industry seemed to happen when the Kool-Aid Man busted through the wall. And while he always showed up with a flourish, you couldn’t take his stuff with you unless you had a canteen.

The world needed new flavors, new brands, and because the pace of the world was getting faster, these things needed to be ready to drink.

Meanwhile, revolutions were happening in travel, in cultural awareness, at the table, and in business. Creative marketing combined with efficiencies that allowed for shorter product runs, hot-filling of packages, better flavors. The potential for variety was matched only by the desire for the new, the fresh, the trendy.

And that’s when things changed. By the time the infamous Cola Wars of the 1980s were winding down, the seeds for a new beverage aisle had sprouted. New words were already entering the lexicon: Hydration. All-Natural. Low-Cal. Fresh. Electrolyte.

Bottled water had become a status item in restaurants, Gatorade a fixture on NFL sidelines.

The market was opening up. A third way was emerging, one whose broad outlines were summed up by the phrase “New Age.” Things that hadn’t been bottled or canned were coming into wide release: Fresh-brewed teas. Real juices. Sports drinks. Clear sodas. Jolt Cola.

New Age fit for a while. But there’s a problem with throwing a temporal moniker like “New” on something – it doesn’t last. Once the potential for change is realized, the pressure to follow through on that potential ensues. And when change occurs, it goes one of two ways: it results in decline, through devolution, or advances, through innovation.

In the beverage business, innovation is everything. A rote-sounding platitude, to be sure, but considering the importance of small changes like new flavors, new packages, new advertising methods and slogans – the so-called incremental innovations required of all packaged goods companies – and seeing how the marketability of those change is instantly dwarfed by the emergence of new classes of beverages, it’s one that resonates.

That doesn’t mean it’s easy. IBQ has spent hours talking with each of the individuals listed here about how they create and maintain an environment that fosters innovation, and how they recognize, utilize, and apply it. Some ideas are obvious: new flavors, new sizes, new formulations. Some swear by testing and focus groups, some rely on their gut and experience.

What separates inspiration from innovation? Perhaps it’s that process of applying inspiration to something concrete (or, yes, liquid). Regardless, what seems to define major innovation in the beverage industry is the contrast between the ability of a single sensational idea to gain quick entry into the business, and the hard work and long hours required to turn that idea into an overnight sensation.

In that same vein, there’s a separation between in-novation and invention. Those with an earthbound view would probably say that it’s the difference between figuring out how to ferment grapes and the first bottling of Coca-Cola. Those who don’t fear bruising the spiritually-minded might find the turning of water into wine to be quite an innovative trick.

Now, innovation is most important when it comes to getting a thirsty consumer to overcome their reliance on the tried and true and turn to a new product. It’s finding the new space between water and wine, and wedging it into a crowded cooler so that it doesn’t just take a slot or a shelf, but creates a whole new door of beverages in a heretofore unrecognized product class like bottled waters or energy drinks.

The men represented here have done that, and in so doing, they’ve shaped the modern beverage cooler. They have expanded it past a pair of warring cola factions into a broad spectrum of beverage choices. Drink categories have gone from Soda, Beer and New Age to incorporate the innovations of these pioneers. Here are their stories.

Dietrich Mateschitz

It’s the dream of not just every beverage entrepreneur, but every entrepreneur, period, to conquer massive amounts of sales territory through the clever execution of a simple idea.

In the case of Red Bull, the idea was quick energy and alertness, served cold, at all the places one would need it – on the slopes, in a car, at the tavern and in the trenches – literally. (Red Bull is one of the most requested items by U.S. troops serving in Iraq).

And Dietrich Mateschitz was the one who executed it.

Mateschitz is the co-owner of Red Bull, the beverage marketing company that launched energy drinks as a global phenomenon. Moving from a home base in Mateschitz’s native Austria into Germany, and then across Europe into the U.S., the product’s success came from its ability to provide “energy” – a commodity in high demand in an increasingly fast-paced, interconnected world – via caffeine, sugar, and caffeine-related products, as well as a multi-pronged marketing approach that included nightclubs and bars along with edgy, individual-achievement oriented “extreme sports.”

The original formula for Red Bull came from Mateschitz’s initial encounter with a restorative “elixir” on trips to Thailand as a salesman, but after acquiring the rights to market the product globally from its Thai owner, Chaleo Yoovidhya, (now a billionaire as many times over as Mateschitz himself), the product was reborn as a lightly carbonated, crisply packaged product that carried a slight air of mystery about it.

It combined the brain-and-body fueling abilities of coffee with the youthful characteristics of soda; it hit at the right time, when rave parties and dance clubs encouraged young Europeans and coastal Americans to stay up all night. A single, 8.3 oz. slim can provided energy for a billion-dollar sales empire.

It also exemplified the power of innovation in the beverage business. By creating a drink that focused on a single effect – increased energy – and on a single marketing target – the individual – Mateschitz turned Red Bull into a dangerously profitable member of the beverage pack.

Dietrich Mateschitz rarely speaks with the press. Keeping Red Bull private means that he has little need for public dialogue. Despite the original odd myths about the effects of his product, myths that the company did little to discourage as they seemed to bolster sales, today, there is little concerning Red Bull’s success that is shrouded in mystery. Mateschitz himself, however, engenders scrutiny: his sport jet, race car, and private island-based lifestyle, fueled by Red Bull profits, gives him the aura of a professional playboy, one bolstered by stunts like the purchase of auto racing teams or the New York Metrostars soccer club and renaming them – what else? – Red Bull. It’s all in building the brand, however. Like Hugh Hefner and Playboy before him, Mateschitz seems to be the model for Red Bull’s core message: with enough energy, you can do anything.

For this interview with Mateschitz, we attempted to focus less on brand Red Bull and more on what sorts of innovative ideas its founder had put into play to make it into a success. We quickly determined that he believes the brand itself is the innovation.

IBQ: What does innovation mean to you?

Dietrich Mateschitz: For me innovation means that “things” did not exist before or at least the approach towards their execution is significantly different and hasn’t been done before in that very unique way.

Is there a special kind of way that innovation must be employed within the beverage industry? In other words, is there anything unique about the industry and its relationship to innovation?

I don’t think so.  There is a way to be quite innovative in general, not just in the beverage industry. What is true for soft drinks is also true for most other markets.

What kind of environment fosters innovation?

Our passion is quality and individualism. As a principle we take everything into question and think about ways to execute things differently, i.e. in more creative, efficient, intelligent, funny, and rational ways that have never been done before. If you don’t try to do it better or be more creative, you won’t find the alternative strategies.

What kind of training creates an innovative mind?

I am not too sure if this is something that comes through “training.”  One has to have the corresponding personality and attitude towards work and life, fun and performance. I like to say that one needs to have “a clear mind and bright eyes.”

Do you consider yourself an innovator? Why or why not?

Yes, I think so. If you look at Red Bull’s history, you’ll see an ongoing innovative process woven through our marketing mix.

What parts of Red Bull’s makeup as a beverage company do you feel are particularly innovative? What makes them that way?

It starts with the product itself, its positioning, formula and benefits. Red Bull created a new, highly attractive and – for 20 years now – expansive market.  Its theme advertising campaign could hardly be more individual. Also, twenty years ago no one had the idea to sample a product out of an Austin Cooper with a fridge in the back instead of two seats and two great looking students driving to the right events and locations.

Finally, according to its slogan of “…gives you wings,” we created the Red Bull Flugtag, the Taurus Stunt Awards, the Red Bull Air Race World Series, the Red Bull X-Fighters, the Flying Bulls at Hangar-7, and the Taurus Rubens Air Show (where helicopters and airplanes took over the role of actors for the first time ever), among others.

It’s been said that market pioneers are continuously trying to develop new products and marketing programs to secure a bridgehead in future markets, defend market share, or enhance their image as an innovative company. How is Red Bull doing this, and as its chief executive, how are you doing it, as well?

By continuing to create those kinds of innovative approaches and activities.

How much of Red Bull’s success do you attribute to marketing innovation, and how much to product innovation?

The right product, its quality and innovation, is a precondition for everything. Red Bull creates the highest product expectations and benefits. If the product does not fulfil its expectations, you will not have the corresponding re-purchase rate, which decides everything, including the long term success.  No marketing budget in the world brings back a disappointed consumer.

On the other hand, it is a matter of fact that much of the success – with respect to time and volume – depends on your marketing activities. The better you do your homework, the more your brand will change to a premium brand from a “cult” brand.

Over the long term, which do you see as being more critical to the company’s future success – broadening the product base you offer, or continuing to come up with new ways to market your chief product?

We don’t believe too much in line extensions, taste segmentations, etc.  Red Bull is an “efficiency product,” tailor made for its target group.

You’ve been described as having “Westernized” Red Bull before selling it – what were the specific attributes of Western culture that caused you to make changes to the product, and how hard were those changes to make?

The only things we took back to Europe were the active ingredients from the original Japanese/Thai formula. Everything else, including package design, advertising and promotion, positioning,  distribution, and price strategy, was developed individually for the European markets.

What’s the worst mistake you’ve made with the company thus far, have you been able to overcome it, and how?

When we launched in Germany in 1994, we dramatically underestimated the demand our product would have. We were selling an average of a million cans a day and ran out of stock after a few months.  We were not able to buy additional cans anywhere in the world to keep up production.  As a consequence, we lost our listing and had to re-launch Red Bull six months later.

Red Bull is primarily known as a one-product company due to the success of its eponymous energy drink. Are you satisfied with that perception of the company?

Yes, for the time being. We have yet to finish our global rollout and Red Bull is still expansive, so it would be wrong to launch other products now.  In the medium and long term however, the company needs and will get additional main pillars.

How can a company as reliant on one product as Red Bull currently is maintain a nimble approach to innovation?

As far as Red Bull is concerned, it comes mainly from its marketing activities.

Beside our recent acquisition of the New York Red Bulls, we will compete in the NASCAR series with our own Team Red Bull, participate in the Champ Car Series with one of our talented young drivers, and will increase the number of Red Bull Air Races in the United States, etc.

Red Bull has dabbled in other products like Carpe Diem. Do you see it getting a major U.S. push? What will influence that decision? Will you only roll out new products if you see the opportunity to create a new category, rather than a presence in an existing one?

Carpe Diem’s range consists of Kombucha, Kefir (two fermented products) and Ginkgo as well as Carpe Diem Botanic Water. All products are so called “functional products.”  In the field of beverages, this means that they are thirst quenchers, great tasting and the consumption is beneficial because they also fulfil a dietetic purpose.  After doing well in Europe, we have decided to launch Carpe Diem Botanic Water in the U.S. this year.

As the original generation of Red Bull consumers ages, how much of a problem is it going to be to fight off competitive brands?

For the kids and teens today, Red Bull is as young, innovative and attractive as it was 20 years ago for the “first generation.”

By selling three billion cans worldwide in 2006, Red Bull is “THE” Energy Drink. All others are me-too products and sell their brands at lower prices, sometimes two-to-three times cheaper.

Of course, such a price advantage guarantees a certain volume share in each market – and in the Energy Drink category.

(more to come)