No Encore for Bravo

The ultimate failure of Bravo Foods International, which marketed licensed ready-to-drink dairy beverages, became official in September, when the company filed for Chapter 7 bankruptcy protection in a South Florida courthouse. But the actual seeds for failure had been planted several years earlier.

That’s too bad, because the company, on paper, would seem to have had a lot of unique stuff going for it: a master distribution agreement with Coca Cola Enterprises (CCE), licensed, recognizable brands from major companies like General Mills’ candies and Marvel Comics superheroes, and an innovative shelf-stable dairy product line. Nevertheless, Bravo, which had been publicly traded on the “pink sheets,” ended up deep in the red.

So, the purpose of this column is to discuss two questions: First, given its apparent positives, why did Bravo fall apart? Second, what can beverage marketers learn from the demise of this company?

Let’s start with why it failed. There are many theories out there, including poor products, bad management, and its status as a publicly-traded company. While there are certainly other factors involved in the demise, I believe this is the result of two factors: lack of experience and miscalculations about the company’s deal with CCE.

The company was led by CEO Roy Warren, who was the architect of the company’s shift from its initial line of business (dairy imports from China) to its focus on UHT pasteurized shelf stable dairy beverages. I don’t question his passion for the company and SEC filings reveal that he sold his stock for less than he paid for it – certainly not what a crook would do.

On the other hand, Roy and his team’s lack of beverage experience led it down a path that most beverage people would have thought twice about. Specifically, in August of 2005 the company signed an exclusive master distribution agreement with CCE. On paper – and especially to investors – this sounds great, given CCE’s status as the biggest bottler of Coca-Cola products in the world. But they forgot that CCE and its sister company, Coca-Cola North America (CCNA), were having a family squabble over the direct shipment of PowerAde to Wal-Mart and CCE’s push to sign up the innovative brands – like Bravo – that it thought CCNA should have been coming up with internally. Since CCNA also handles negotiations with all of their major retail accounts, that meant that even if Bravo was on CCE trucks, it wasn’t likely to end up with shelf space in major Coke accounts.

If the Bravo team had possessed industry experience, the company might have avoided this situation, or at least come up with an agreement that didn’t involve complete exclusivity. As it was, however, the agreement essentially put handcuffs on the company. Going in, the company was looking for $70 to $100 million in sales from the Coke deal. It got less than $10 million. From there, what is a company to do? It’s very hard to give shareholders a positive spin on the company’s being off target by such a huge percentage, but it’s equally hard to tell those investors that you’re terminating your agreement with a juggernaut like CCE, which is what the company ultimately chose to do. It was only a matter of time before Bravo went belly-up.

There are a variety of lessons to be learned from this situation. Most important is that small companies cannot easily run with the big boys. In my time in the industry, Bravo is the smallest company to ever engage Coke for distribution of this sort. While it’s a coup to attract the interest, it also creates impossibly high expectations and short tempers. Coke is simply not a company whose strength is in growing little brands, especially in one that it has little experience in like dairy. Handing over distribution – the most important part of any beverage business – to Coke at such a young age is extremely risky and not advised, especially after this situation. In hindsight, Bravo should have tried to either sell the company to Coke OR removed the exclusivity and been more conservative in their expectations.

As a follow on to that lesson, I believe that this is one of the biggest risks to being a public microcap beverage company. The CCE agreement vaulted the company’s value to around $300 million. It certainly must have been nice for management and investors with unrestricted shares, but it really meant nothing about the ultimate success of the company. In many ways, it simply made the already unreasonable expectations even more unreachable. Going public certainly isn’t bad in and of itself – it’s a viable way to raise capital and provides a clear exit strategy – but it’s certainly worth considering all of the baggage that comes with it, especially if it ends up getting in the way of building your company.