Day One of BevNET Live Challenged Startups To Find Point of Differentiation

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.”

Kevin McClafferty and Rohan Marley

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.