An Inspired Idea

At the InnoBev conference in June (co-sponsored by the publisher of this magazine), a so-called “Dragon’s Den” paraded a trio of starry-eyed beverage entrepreneurs before a panel of hard-nose distributors for a cold shock of reality. In a perfect touch, the moderator was Brit Richard Hall, sporting the requisite accent as well as a flinty edge of dispassion that one associates with hired assassins and reality-TV show hosts.

Aside from its ability to throw a clearer light on several new brands, what I loved about the concept was how it captured what I believe is a fundamental – and, as we’ll see, highly productive – tension between beverage marketers and the folks who get their brands onto retail shelves. If you look at those marketers as wide-eyed, idealistic Don Quixotes, then distributors and bottlers are the stocky, earthy Sancho Panzas whose role is to keep them grounded. A year ago, at a different event, Honest Tea’s Seth Goldman hilariously encapsulized the contrast between the two sides by playing a profanity-laden tirade that an unidentified distributor had left on his voicemail. The ingenious Dragon’s Den at InnoBev essentially embellished that theme.

So we had a former GE Capital guy, Dan Ratner, present his $5-a-bottle cosmeceutical, Cell-nique, before such seasoned operators as Lewis Hershkowitz of New York’s Big Geyser and Gerry Martin of New England’s Polar Beverage (“Gerry Margin,” as he’s called by some who do business with him). Both companies have demonstrated a knack for spotting (and investing in) promising beverages that go on to become household names. So how did Ratner fare? To his credit, the Cell-nique guy didn’t come off as a complete nood-nique. But the panelists were blunt, if always respectful, on his strategy’s shortcomings. “Nice-looking package,” Hershkowitz allowed, but “very limited in where it could go.” With the 25percent margin Ratner is offering to distributors, “your economics are off,” he warned; distributors want 35 percent. “Limited-distribution item,” echoed ?Martin, adding that Cell-nique would need to commit significant resources to explain to consumers why they should pay $5 for this brand. (Closer to $6 in New York and San Francisco, Hershkowitz noted.)

It wasn’t much different for the other two entrepreneurs. “This is a very crowded category already,” Hershkowitz warned Pixie Mate marketer T.J. McIntyre. “You’ll be on the same shelf as Snapple.” Though SoNu developer Brad Winter clearly regarded his shrink-wrapped black bottle as an on-shelf show-stopper, “black concerns me,” mused Hershkowitz. “I don’t see that as a refreshing color … I would have thought this was an alcoholic malt beverage.” Martin again hammered away at the need for in-market support. “You’ve got to make ?some noise,” he warned. “Come back with some marketing specifics.”

It’s the kind of conversation that plays out often, if not always so politely (as Goldman’s tape proved). Credit the three entrepreneurs for being spunky enough to endure such criticism publicly. And make no mistake: it’s precisely this kind of interaction, uncomfortable as it can be, which has allowed so many entrepreneurs – often complete beverage novices – to create and refine concepts that prove more enduring than most of what the big players bring out. Let’s face it: indies like Polar and Big Geyser have only survived because they’ve perfected the art of latching onto new trends, scrambling to place smart bets on new brands that might someday replace the successful brands they’re continually losing to Coke, Pepsi and other big companies. No question, in their dealings with hapless ?entrepreneurs, they can come off as bullies (which is why the reality show concept worked so well at InnoBev). But through the constant risks they have taken to discover hidden gems, they have developed a pretty good idea of what it takes to succeed, with distributors, with retailers, with consumers.

Contrast that with the major bottling and beer distribution networks, whose executives not only have been discouraged from taking the initiative but, in the case of Anheuser-Busch, with its demands for exclusivity, financially penalized for doing so. One great, unintended consequence of that can be seen now that many of these wholesalers are being asked to diversify their portfolios with craft beers and non-alcoholic beverages. In many cases, they’re finding themselves to lack the instincts to pick promising brands and assemble them into coherent portfolios. That certainly undermines any feedback they can offer their core suppliers or outside entrepreneurs on new brands. It’s not much different with the soft-drink bottling networks. Despite selling teas and waters for 15 years now, many bottlers essentially are still captives of the big CSD concentrate companies and have never developed much of a vision for noncarbs or energy drinks. Against that you have the hurly-burly of the independent distribution segment, or what’s left of it today. You might say that, like democracy, it’s turbulent and it’s sloppy, but it does seem to work.

Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.