Celsius Rising

STEVE HALEY CREATED CELSIUS with the intent of forging new territory in the beverage business by founding the calorie burner as a category. The move offered all the risks and rewards of being an innovator – the risk being that the new category might simply fail to catch on, and the reward being that he’d be allowed a running start to establish his brand before he had to face competition from beverage giants.

But Haley didn’t get that luxury.

Not long after he rolled out his first colorfully-wrapped bottles, Haley had to face Enviga. The tea line, created through the combined might of Coca-Cola and Nestle, offered a Celsius-like mix of nutraceuticals and made the same claims: that it would elevate your metabolism, help you burn calories and, therefore, help you lose weight.

Haley and his company survived that imposing development through a combination of good fortune and good planning. Before introducing the brand, Haley commissioned a scientific study that proved Celsius could help burn calories. Then, when he made functional claims, he chose his words carefully. Coca-Cola and Nestle couldn’t say the same. Enviga fell under attack from the FDA, the Center for Science in the Public Interest and 27 states that eventually wrung $650,000 from Coke and Nestle in a settlement. Even more devastating, Enviga failed to convince a skeptical public that it was worth its price.

In the meantime, Celsius remained outside the notice of regulators, enabling Haley to build the brand and tinker with its flavors, packaging, ownership structure and marketing. Now, as Coca-Cola licks its wounds, Celsius is embarking on a national advertising campaign to support nation-wide retail placement – a move that Haley hopes will edge his company into profitable territory for the first time in its five-year lifespan.

The company made a series of announcements this year, touting a national partnership with 7-Eleven as well as placement at regional chains like Xtra Mart and Price Chopper in New York and New England. Celsius also has an existing partnership with GNC and Vitamin Shoppe, and regional agreements with CVS drug stores, and Haley said he’s working on several more deals for national placement. He said the agreements not only enhance Celsius’ availability, it also helps him promote the brand. Big chains are “taggable,” Haley said, allowing him to craft radio and television spots to not only educate consumers on the product, but also tell them where to find it.

But as Haley pushes his brand forward, he has to contend with Enviga’s mixed legacy. In one way, Haley said, Enviga helped Celsius. It created a clear space for calorie burners in the cooler. But now that Coke and Nestle have been successfully sued over Enviga’s claims, it leaves Haley dealing with retailers wondering how Celsius is different.

Celsius, Haley explained, entered the beverage market through the nutrition and supplement field – an arena in which retailers and consumers place a premium on support for functional claims. He built the product on a proprietary mix called MetaPlus that includes ginger, green tea extract and high levels of caffeine. He commissioned studies evaluating the effectiveness of that particular blend, then crafted functional claims that promised no more than those studies proved, and capped it off with the caveat the “individual results may vary.”

With his core in place, Haley rounded out the package with popular CSD flavors, later adding non-carbonated tea flavors to better appeal to athletes.

“The objective is to help you replace what you already like with something that is better for you,” Haley said. “If you’re already drinking a ginger ale… drink this one, and you’ll have less bad stuff and more good stuff.”

His company encapsulated that approach in a commercial currently airing in New England. The spot shows two women, Zoe and Dawn, standing in an elevator and indulging in their “regular afternoon pick-me-ups.” Each has a set of numbers floating above their head displaying how many calories they’ve consumed – zero for a diet soda, and 500 for a whipped cream topped coffee drink. In walks Kate with a Celsius. Her digits show that she’s burned 100 calories. Kate shares her beverage and, at the end of the spot, Zoe ditches her coffee drink.

The commercial also highlights the brand’s female-tilting demographics – something that’s currently in flux. Given its functional claims, the Celsius brand requires more education than most beverages, and Gerry Martin, vice president of marketing for Worcester, Mass.-based Polar Beverages, said that’s why he’s not surprised that the brand has seen slow (albeit steady) growth in the Boston area. Martin said Celsius has done a fine job with consumer education through online marketing, TV commercials and attention from local TV news programs – but Haley said some consumers are more receptive to the Celsius message than others. He defined his core consumer as “superwomen” (like those conjured in the commercial) who work full time and have a relationship – if not a family – and still want to remain in good physical shape. The brand’s “bull’s eye,” as Haley refers to it, therefore skews female and slightly older.

However, the brand has been gaining traction with men. The most recent Celsius study, published last year by the University of Oklahoma, concluded the drink helped young men who engaged in workout routines burn nearly twice as much fat and gain 50 percent more muscle. Earlier this year, a news report out of Miami highlighted Tom Speero, who lost 60 pounds and 20 percent body fat through a workout program augmented by Celsius. The brand also sponsored a fitness challenge for police, fire and ambulance personnel, and awarded the winning team its $5,000 prize at an Ultimate Fighting Championship event in Las Vegas.

Today, Haley said, the brand is nearing an even division between male and female consumers, and has developed a near-fanatical core user base. Christine Boone swore by the product so fervently it earned her a job. Boone said she first encountered Celsius at a YMCA class, and used it en route to losing 64 pounds.

“I began telling everyone I knew about it,” Boone said. Word of her ministry spread so far that MDT Distributing in Norfolk, Neb. offered her a part-time job as a sales representative. Now, she said, she’s a full-time employee with the unofficial title of “Celsius Mama.”

As customers like Boone and Speero have pulled Celsius toward the gym, the brand has entered new packaging. Celsius debuted in tall, colorfully wrapped glass bottles, and has since moved into 12 oz. slim-cans that increasingly sell in 4-packs. Haley said he chose glass at the brand’s introduction because he didn’t want Celsius to appear as “just another energy drink” – a serious possibility considering its 200mg caffeine load, equivalent to about 2 ½ Red Bulls. The glass bottle proved a complication, though, for Celsius consumers with active lifestyles. Gyms and athletic fields frequently prohibit glass packaging. Haley said he added cans as an alternative, but they’ve now taken over as the standard packaging. The 4-packs, Haley said, drew their roots from the brand’s glass days. Retailers told him that customers that liked the brand would raid the cooler for four or five bottles, then leave with the glass containers clanking together in a plastic bag. Haley added 4-packs to add customer convenience and reduce the possibility of accidental breakage. Now, they frequently appear on grocery shelves.

Long term, though, he’d like to grow the brand outside beverages, and has already expanded Celsius into powdered “stick packs.” Haley said he envisions Celsius expanding into smoothies, and possibly coffee creamers. Some of his shareholders, he said, would even like to see Celsius franchise MetaPlus to other beverage companies.

That investor tug represents an unusual aspect of Celsius as a brand. Haley took the company public far earlier in its lifecycle than most successful beverage brands, granting it a special set of advantages and drawbacks. Haley said he had believed that bringing the company public would enable him to quickly bring in more capital. In the end, he said, the company’s share price spiked too high for potential investors, saddled him with the responsibility of publicly reporting the company’s financial losses, and likely stunted the company’s growth for a year.

“That’s now behind us,” Haley said. “One very positive of being public – it may be the only positive – every consumer can be an investor, and every investor can be a consumer. We’ve got thousands of investors, and the investors that are consumers have faith in the brand.”

If he has an empty shelf in the middle of Ohio, he said, a shareholder will let him know.

Martin at Polar – which takes an equity stake as a standard part of its agreement with the brands it distributes – said he views Celsius’ public status as an advantage. It makes the brand accountable to someone, he said, and gives Haley a unique source of feedback that will help him build toward the future of the brand. In his territory, Martin said, Celsius has already performed well.

“From an authorization standpoint,” Martin said “whomever has seen it has taken it on… with very few exceptions.”

The few accounts that haven’t picked up Celsius, he said, have been holding off due to internal changes, and will likely add the brand in 2010. In the mean time, Haley will make a “huge” marketing investment in Celsius, placing advertisements on billboards, radios stations and national television.

“Times are good,” Haley said. “We’ve certainly evolved.”