Still A Struggle

I GUESS THE STORM ISN’T over yet.

Last year, heading out of Natural Products Expo West – a big barometer of the vitality of the entrepreneurial beverage business – it was apparent that the waters were rising. A lockup in lending, declining consumer incomes, and the sheer lack of capital availability meant that investment deals were nowhere on the horizon. A good many emerging companies were battening down the hatches, concentrating on developing sales in core markets and not trying to seek real venture capital or private equity investment.

Money was tight, valuations were down, and the notion of seeking big ducats from investors didn’t seem to fit well with the times.

This year, heading back into Expo West, it seems like there’s some hope that the deal train will start to flow again – money has started to arrive: to small companies like Snow, growing brands like Vita Coco, and in big chunks, like the CCE/Coca-Cola Co., Inc. and PBG/PepsiCo Inc. mergers. As of presstime it even seemed that Jones Soda might finally have found a buyer in the form of the ever-creative Chris Reed.

But even with the worst over, the rain hasn’t stopped. Looking at recent layoffs at a number of innovative brands, including OWater, Steaz, BAWLS and Function – all of which featured veteran leadership and clever marketing approaches – it’s apparent that investors aren’t just sitting on the sidelines. If the sales numbers aren’t there, particularly in relation to the money they’ve put in, investors are starting to look askance at their portfolio companies’ performance.

So what does that mean for retailers and distributors? For evolving brands, supply and support need to remain constant – if not, it’s a warning sign that checks aren’t clearing and resources are stretched thin. But it’s also important to remember that if those companies are getting hurt, getting rid of them might not clear the way for a new generation of new beverages; if experienced operations find their resources stretched thin, the next wave might not be getting any growth capital at all.

One of the main areas of concern, according to one investor, is that consumers – much like investors – are tired of companies that don’t deliver on their potential.

“There are a number of products that just haven’t worked,” he said, “and a lot of retailers and investors are staying away from the next new thing.”

That might be so, but hard times can have negative impacts on brands before they have a chance to catch on. It’s another side to a down economy’s effect on innovation – it doesn’t just stifle new enterprises, it cuts the oxygen to growing ones, as well.

And that means that it might just be better to stick with the slow-growing – or even backsliding – brand while waiting for the next crop to arrive. Call it a double dip, a “V”-shape, a fallback. Whatever you do, though, don’t hang a struggling brand out to dry if it’s still raining – the new seeds might wash away, as well.