BevNET Live Winter 2012 Recap

Startups and growing brands heard it repeatedly—investors with full pockets are waiting for your next marketable innovation.

It was the steady mantra at BevNET Live in Santa Monica on Dec. 3 and 4, a conference that gathered representatives of the beverage industry from across the world to engage in panels, presentations, expositions and a sampling bar. The dichotomy of startups and veterans was palpable, but no matter a brand’s experience, the theme remained: good ideas with proper management can make their dent.

The conference began with the opening round of the New Beverage Showdown, a contest geared at finding the industry’s best brand with less than $1 million in funding, $2 million in revenue and 12 months on the market. 20 brands, including eventual winner Spacho, presented their beverage ideas and business models to a panel of judges that rated concept, taste, packaging, function, market readiness and what can only be described as “it” factor.

The next portion of the conference certainly didn’t lack the “it” factor. Mark Wahlberg, actor, producer and former rapper, joined BevNET editor Jeffrey Klineman for an onstage interview that touched on AquaHydrate, a performance water brand of which Wahlberg holds shares, his balancing of Hollywood and business, and even a little talk of Celtics vs. Lakers.

Wahlberg admitted that he’s currently a student of the beverage industry, but he doesn’t consider himself merely an endorser of AquaHydrate. He said that during his training for the 2010 film The Fighter, he took his workouts to another level with immediate results from the performance water. He said that he awoke easier and hadn’t changed anything in his routine except for what he was drinking.

“A name can get you to try it the first time,” Wahlberg said. “But it’s the quality of the product that brings people back.”

That kind of true connection with the product eased him into committing time to an atypical endeavor.

“It’s definitely out of my comfort zone,” he said.

Wahlberg, however, found a way to bridge the two different cogs of his life: business and entertainment. He said he demanded that AquaHydrate sit on every desk in the office of Ari Gold, one of the main characters of Entourage, a popular HBO show that Wahlberg produced. Bottles of AquaHydrate scattered the sets of the 2012 comedy Ted.

“Everything that I do, it’s a packaged deal,” he said.

Shifting from the perspective of a star shareholder to that of company founders, Klineman invited to the stage Richard Tait, cofounder of the sports energy drink Golazo, Serge Freund, cofounder of the gourmet iced coffee maker RealBeanz and Camille Reith, cofounder of the chia-based smoothie company ChiaVie. Joining Klineman in a question-and-answer session, Tate, Freund and Reith all stressed the importance of brand management.

“Everybody is being lied to in today’s world,” Tait said. “You have to be authentic.”

Tait also explained that authenticity often entails risk. Some investors told him that his idea had a limited target audience and belonged in convenience stores with other energy drinks. On the contrary, Tait sees his brand as the leading energy beverage in Whole Foods.

“People thought I was crazy to put a soccer ball on the bottle,” he said.

Reith also took a risk by branding her products around chia, a nutrient-heavy seed. While thriving brands like Mamma Chia have helped lure investors, Reith admitted that ChiaVie is still identifying its target audience.

“With chia getting so popular right now, we want to make sure we stay relevant,” she said.

Also seeking relevance, Freund fully believes that once consumers continue to educate themselves, RealBeanz can prosper. Freund said he is thankful for Starbucks CEO Howard Schultz, who introduced iced coffee to the country. Now that consumers are holding a greater desire for lighter and healthier options, he believes that RealBeanz has properly timed its product.

“We believe that in two years from now, we’ll be a household name in the United States,” Freund said.

Following the entrepreneurs, Donna Spagnola, the president of Central Beverage Co. out of Chicago, told the audience about an emerging affinity group of midwestern distribution companies. While still in its earliest iterations, the group includes wholesale DSD operations like Buckeye and Full Circle in Ohio and Canada Dry Bottling Co. of Lansing, and IDI in Michigan, as well as Folsom and Palmentere in Missouri, RBI and Gateway in Iowa, Bernick’s in Minnesota, Folsom in Illinois and Terborg and Pure in Indiana.

Between them all, they carry more than 90 brands, Spagnola said, running through them all on-screen before arriving at the one they all have in common — Marley Beverage Company. The Midwest Distributor Group employs about 900 people and annually sells about 20 million cases of non-alcoholic beverages and snacks through DSD operations.

Spagnola also offered ideas about how suppliers can take on the huge city of Chicago, which she called a “black hole” for some beverage companies. Central is in the midst of considering a contractual requirement that suppliers keep a marketing person in-market — or hiring their own to support the brand and having suppliers pick up the tab.

“We all make more money when we are more efficient,” Spagnola said.

 

Retail and Finance

Tracking where capital originates on a near daily basis, SPINS has provided market analysis on trends for health and wellness consumers since 1995. Bobbi Leahy, SPINS director of sales, presented some current trends in the juice and functional beverage category to help the conference’s attendees gauge the progress of their respective categories.

Products using chia seed or oil, for example, grew 1,030 percent over a 52-week period ending on Sept. 29, Leahy said. In comparison, Yerba Mate grew 46 percent. She identified other trending beverage categories such as coconut water hybrids, fermented drinks, fruit and vegetable blends, antioxidant and exotic fruit blends, probiotic drinks, non-dairy alternative beverages, energy shots, raw drinks and high protein sports beverages.

Leahy said consumers are drawn to beverages with natural, functional, innovative and complex ingredient profiles. With market research from groups like SPINS, brands can find ways to adapt and succeed. On a smaller and more private scale, investors also have their own tendencies.

Taking the stage to discuss the state of investors in the beverage industry, Michael Burgmaier, managing director of Silverwood Partners, Brett Knudsen, managing partner of PCG Advisors and Franklin Isacson, investment manager at Verlinvest, agreed that strategics are ready for the right product.

“The private equity world is flush, active, vibrant, aggressive and wants to act,” Knudsen said.

As seen in the morning’s New Beverage Showdown, startups are constantly sprouting ideas that are often redundant with other products already dominating certain beverage categories. Burgmaier insisted that a product with a clear focus and growth potential will garner interest with most investors.

“It’s the point of differentiation that’s going to get you noticed,” Burgmaier said.

Isacson acknowledged that many startups expand too early and are unable to meet consumer demand with limited resources and infrastructure. He said that he’s much more impressed with a company succeeding in two or three cities than a company producing mediocre results in 30 states.

“We understand that young brands can burn money in the first few years,” he said, “but there needs to be a path to profitability.”

One brand walking that path is Marley Beverage Company, a relaxation drink that blends the needs of a stressed society with the uplifting messages of Bob Marley’s music. CEO Kevin McClafferty and his team have formed a lasting bond with the Marley family, including Bob’s son Rohan Marley, who spoke of the seamless relationship onstage next to McClafferty.

“It’s not an album, but we had to come to terms that it’s going to represent something good,” Marley said.

McClafferty shared his methods with DSD partners and views on branding and product flexibility. He suggested that suppliers create demand in smaller regions before investing in large markets. Intelligence and delightful packaging won’t matter if you can’t sell or produce your brand.

“You’ve got to have that infrastructure if you think you’re going to grow,” he said.

In 2010, Marley Beverage Company sold 100,000 cases. That number rose to slightly more than 1 million cases in 2011 and exceeded 3 million cases in 2012. McClafferty credited much of that growth to the high service levels that DSD offers. Marley Beverage Company currently has 140 DSD partners in 50 states.

“You can get a whole vibe when you walk into a DSD house,” he said. “You really want something that matches the personality and the brand.”

McClafferty suggested talking to drivers, sales representatives and the rest. Ask yourself: do they believe in the brand? Are they talking about the lead brand? Are they wearing the brand’s logo on their shirts? He argued that these seemingly miniscule details carry over into the bigger picture.

“Brand personality is what dictates your path to market,” McClafferty said.

That personality derives not only from the brand’s team and message, but also from its flexibility amid growth. Marley Beverage Company uses lemon balm, rose hips, valerian root, chamomile flowers, hops and passion flower to enhance mood alertness and calmness and to relax muscles. The company formerly used the sleep-inducing compound melatonin in its products. However after some negative press concerning melatonin-containing supplements that had been issued warning letters from the U.S. Food and Drug Administration, Marley Beverage Company removed melatonin from all of its products and, according to McClafferty, hasn’t seen a dip in product effectiveness or sales.

“It’s vital as a startup to have a lot of flexibility in your plan,” he said.

McClafferty also outlined the steps that a startup needs to take before expansion. If a brand is expanding shelf space, reducing losses and increasing its all-channel volume (ACV), it may be ready for the next step.

“When you have demonstrated the ability to surface the marketplace consistently and with a high quality, you’ve made it,” he said.

Other brands who have made it — or are on the verge of doing so — were heard from the next day, as well. During the “case study” part of the day, representatives from big-time brands shared their paths from humble beginnings to current prestige before a bevy of note-taking startups.

Some messages overlapped: both speakers Scott Greenburg, an investor and attorney, and Todd Berardi, CEO of HiBall Energy, in relating their personal stories, encouraged entrepreneurs to have marketing flexibility and to listen to their consumers to help brands thrive.

Nick Shore, senior vice president for MTV, also listens to consumers — and helps his company adapt accordingly. His studies of the ever-changing nature of millennials turned them into a series of shopper trends for beverage marketers.

Executives Jason May and Joey Cannata of Rockstar Energy, which has succeeded largely on its ability to market itself to those millennials, shared their near-rags to riches climb with tales of ambition, dedication, and devious salesmanship.

Ben Lee, director of business development at CircleUp.com, said that if you have a great story and product like Rockstar Energy, there are ways to fund your project without reaching into the parental wallet.

 

Stay Flexible, Obey the Consumer

The day began with Greenburg, a partner with K&L Gates, who reflected on investing in Starbucks, then known as Il Giornale, a Seattle-based cafe that sold coffee and tea. Greenburg said that eventual Starbucks CEO Howard Schultz had a greater vision for the company than its founders. Schultz traveled to Italy and studied the culture, movements and styles in cafes. He observed the customers and baristas, the interior design and the coffee. By Americanizing the tradition of Italian coffeehouses without gutting its spirit, Schultz created a goliath.

“He combined that incredible passion with really smart decision making, pragmatism,” Greenburg said.

An experienced and successful investor aside from his Starbucks coup, Greenburg said that startups thrive with astute ideas.

To find the right idea, he said, brands must truly define their message or product, pour their heart into it, build a team, adapt whenever necessary and execute with passion.

As Starbucks began to grow, Schultz forgot about tea for a while and focused on coffee. He abandoned previous product ideas in favor of lattes — the initial concept for which, Greenburg noted, was hotly debated inside the Starbucks organization. Schultz’s decision-making process often defaulted, Greenburg said, to the idea that it wasn’t Shultz’s brand; it was the consumer’s brand. Ideas sprouted from simply observing and listening to his customers.

“The customer wants one thing,” Greenburg said. “We’re going to listen to them.”

Berardi presented next and said that he also favors certain risks, especially those that raise a brand’s ceiling. As his company grew, Berardi said he felt truly attached to glass bottles for his products. Glass was his point of differentiation in the energy category, compared to the cans of Red Bull, Monster and Rockstar among others. He wanted HiBall to serve as the premium energy drink, not just one of the other cans in a long aisle. However in time, he realized that differentiation must be as focused as possible into one area.

“It’s about the liquid,” he said, “not about the package.”

Berardi weighed the pros and cons of switching to a can. He noted that cans have more real estate to convey the brand’s message; 60 percent more volume with 30 percent lower cost per ounce. He realized that cans chill faster, stay colder and have a shelf life 18 months longer than glass. He was discouraged by the idea of drastic change amid serious growth and risking retail placements and distribution slots during transition. After weighing both sides, he made the switch.

“We literally did not lose anyone,” Berardi said.

HiBall, which BevNET honored as 2012’s best energy drink, currently resides in Whole Foods, Safeway, Kroger, Stop & Shop, Giant Eagle, Shaw’s, Wegmans and more. In August 2012, the company signed with L.A. Libations to scale and evaluate opportunities in DSD, convenience stores and elsewhere.

“You’ve got to make key strategic partnerships,” Berardi said. “It’s so critical.”

Berardi said that he stayed versatile and nimble, always considered margins greater than 50 percent, networked as much as possible, remained open to change and used his gut to make decisions.

“I had enough with artificially flavored, sugary energy drinks,” he said. “I created HiBall because I knew there had to be a better way.”

As Berardi noted, it can be difficult to encourage flexibility during growth, however his willingness to change led to his brand’s ascension.

For MTV’s Shore, on the other hand, flexibility is a way of life, because his day consists of multimedia efforts to keep pace with the constantly changing minds of millennials.

“I’m the guy that knows more about Jersey Shore than any human being should know about Jersey Shore,” he said.

By following the trends of millennials, Shore is able to adapt MTV and meet consumer demands, no matter how deranged they may be. He used music as an example. Everything used to be released as vinyl in a sleeve. These days we’ve got MP3’s and iPod shuffles.

In a slideshow devoted to illustrating key traits of the millennial generation, he noted the difference in today’s culture compared to years previous. The baby boomers dissented against the system. The flannel-wearing Kurt Cobain fans wanted to smash the system. These days, millennials want to take over the system.

“They’ve been handed these amazing tools to take over the world,” Shore said. “Think of Harry Potter. Every kid’s got a magic wand.”

When parents started using Facebook as a family photo album, millennials fled the party and joined Twitter and Instagram. They use words like “yolo,” “cray,” “legit,” “obvi,” and “boss” to name a few. They dislike driving because it’s singular and distant from the computer.

All of these seemingly odd tendencies are widespread and Shore argues that companies need to start paying attention, rather than dictate the market.

 

Rising From Near Nothing

One brand that has succeeded in marketing to millennials is Rockstar Energy. After a weekend trip in Las Vegas, perhaps somewhat like the kind that has become cliché on television, then Skyy vodka employee Russ Weiner said to his buddies: “we partied like rock stars.” His co-worker May heard this and the light bulb went on. Shortly after, with $50,000 for 3,000 cases and transportation, Rockstar Energy was born.

“We looked at the positioning of brands such as Virgin and Playboy who had successfully built brand identity and equity around terms from the current popular vernacular,” said May, now Rockstar’s executive vice president of marketing. “We knew that we could capture the identity of the term ‘Rockstar.’”

The album jackets for ACDC’s Back in Black and Highway to Hell, Van Halen’s eponymous debut album and Iggy and the Stooges’ Raw Power inspired May in his design of the Rockstar can. The deliberation, May said, resulted in a simple and strong message.

“A larger package, superior liquid, a black can with a clean iconic design – it was obvious to me from the onset that the Rockstar brand was destined for success,” May said.

In early 2001, Cannata was running a local political campaign in San Francisco. Through a mutual friend, he met Weiner and quickly formed a friendship. Soon after Weiner landed Southern Wine and Spirits as a distributor, he hired Cannata, now the executive vice president of sales and distribution, to form new distributor alliances with retail consumers across the country.

“We were fortunate in the sense that Russ was successful in obtaining some of the key, major retailers in California early on. Accounts such as Chevron, 7-Eleven, BevMO, Costco and Safeway,” Cannata said.

When necessary, Cannata took a hands-on approach to securing distributors. One day early in Rockstar’s existence, he set up a meeting with the general manager of M&M distributing, a part of the Admiral Beverage Group. He loaded a UHaul with Rockstar and drove to Salt Lake City for the meeting, which went, he said, just fine but not great — no product was sold. After the meeting, Cannata drove to the Sundance Film Festival in Park City and gave cases of Rockstar to the local bars and nightclubs. Before he left Utah, he told those bars and nightclubs that when they wanted more Rockstar to call the general manager of M&M in Salt Lake City. Four days later, the general manager called Cannata complaining about his endlessly ringing phone and insisted on making a deal. Admiral Beverage Group, Cannata said, currently represents one of the highest share areas for Rockstar and has consistently been one of the best performing distributors.

“I guess you could say Rockstar crashed the party,” he said. “Pure guerilla marketing.”

In 2005, Rockstar struck a deal with Coca-Cola Enterprises and in 2009, switched to PepsiCo. The energy drink brand, which now sponsors various concerts and all kinds of left field sports like wakeboarding and bull riding, has been soaring ever since, but has apparently never forgotten those early lessons in flexibility. Re-aligning sales and marketing operations across two large distribution networks isn’t easy, Cannata said, particularly when you’ve been selling against the products you’re now selling alongside. It’s a lesson that can be applied to large companies and small ones alike.

 

Calling on the Crowd

For startups like Rockstar before its explosion, with next to no capital but an idea with growth potential, another speaker offered a developing option to help a brand progress. After seeking help from friends and family, CircleUp’s Ben Lee suggested entrepreneurs consider crowdfunding resources like the ones he presented at the conference.

“A lot of the success of small brands is driven by word-of-mouth marketing,” Lee said, proceeding to show how crowdfunding can offer that, and capital to grow on as well.

Crowdfunding is a funding effort that garners interest in a product or brand and exchanges goods or equity for relatively small bits of investor capital. Lee mentioned some of the different kinds of crowdfunding options, such as donation-based Rockethub.com and Kickstarter.com, debt-based LendingClub.com and OnDeckCapital.com, and equity-based Angel.co and Circleup.com.

Lee suggested that entrepreneurs should comprehensively understand their brand and their story before taking advantage of these sites, which are capable of raising between $500,000 and $3 million depending on the company. The brand not only tells the message, but can serve as a significant part of product differentiation. The story gives the investors a sentimental, human aspect to an otherwise numbers-based discussion.

“Consumers are going to get excited not about the entrepreneur,” Lee said, “but about the brand more than anything else.”

With the passing of the Jumpstarts Our Business Startups (JOBS) Act in April, companies will soon be able to trade private equity for capital; an exchange that could greatly increase the use and possibilities of crowdfunding.

“It just snowballs from there,” Lee said.