BevNET Live 2009 Coverage

WITH AN ENERGY that put the lie to bad news about the economy, BevNET Live 2009 took the next generation of beverage entrepreneurs and innovators through a curriculum and networking bonanza that stretched from the basics of distribution and marketing deep into theoretical models of investment and trend analysis.

Harnessing the combined wisdom and experience of panelists, speakers and BevNET’s own staff, the event highlighted fast-growing categories and warned of the dangerous practices of me-too products, unsupported marketing and poor brand propositions. It also let the pioneers of established brands speak about the elements of growing a great brand.

“It always does start, for the brand, with what’s in the bottle,” said Tom First, speaking from his position as both a founder of Nantucket Nectars and an entrepreneur making a second run with enhanced water product owater. “We weren’t stubborn about what we had other than trying to make the product great.”

BevNET Live’s panels served as an inspirational flashpoint for marketers looking to take emerging or regional products to the next level of retail distribution.

But they also gave any observer a picture of an industry in flux. Jolt Cola founder CJ Rapp warned marketers to be wary of a growing gap between brands that try to work their way into independent stores and small chains and those “red and blue” Coke and Pepsi distributors who are supported by their much larger suppliers. With shrinking resources in between, Rapp warned, emerging marketers need to be crafty.

“The big brands, they can react, they can execute, and they do so well,” Rapp said. “The small brands can get pushed around a little bit.”

To battle their way into the independent system, he suggested smaller marketers support each other – even sharing resources like back office operations.

Marketers interested in expanding their footprint through the addition of investors were able to find a lot more encouragement than they may have anticipated, as a financial panel indicated that money was getting ready to leave the sidelines after a few slow quarters.

“All I have is a checkbook,” said SoBe founder and Sherbrooke investor John Bello. “We’ve got money in our checking account, and we’re willing to invest in a couple of things: great concepts that are timely, that are forward thinking, and great teams that are passionate about winning and are willing to pay the price.”

Amongst the crowd of more than 200, it appeared that several were eager to be the next ones to step up and start paying it.THE BEVERAGE INDUSTRY is still coming to terms with the consolidation of the Coca-Cola and PepsiCo bottler networks in the mid-1990s. While it created opportunities for many new brands to crack the shelves of independent distributors, it also vastly reduced the number of those distributors with whom they could work.

Still, the system has given rise to many successful brands, many of which were able to take advantage of burgeoning growth in the convenience and natural foods channels to scoot around the roadblocks presented by Coke-only or Pepsi-only distribution houses.

Supplying that growth has been a creative, dogged, and highly confusing network of the remaining independent distributors – four of whom BevNET brought together to speak with Beverage Spectrum Publisher Barry Nathanson and columnist Gerry Khermouch during BevNET Live on May 14. What follows is an edited transcript of the panel conversation.

The panelists included Steve Gress, President of New York-based Exclusive Beverage; Tom Lebon, Owner of Colorado’s New Age Beverages; Gerry Martin, VP of Marketing, Worcester, Mass.-based Polar Beverages and Guy Battaglia, VP, High Grade Beverage Co. in New Jersey. Nathanson moderated the panel.

“Distribution, when I first started, was an afterthought,” Nathanson said. “You dealt with the major marketers. There were only a certain amount of brands. It was a very easy, simple job to do. Over the years the business has evolved to the point where distribution is the be-all, end-all for the hundreds of marketers who have come out. In the old days there were dozens, but now these people are all looking for a place to put their product. So the role of the distributor has taken a disproportionate amount of importance. So this session and this whole talk today you are going to hear about is what it takes today to really get your product out there.”

Barry Nathanson: What are your major criteria for choosing a brand I know that one of you said earlier “I could speak for an hour on that.”

Steve Gress: The first thing I look for is if it fits our portfolio or not: we specialize in organic upscale and healthy beverages. And what we look for in the company is that our expectations are in line, that they can support us with ‘feet on the street’ — that’s about it.

Tom Lebon: I think that one of our major criteria is the person behind the brand and the experience that they have. To us that is everything. Because if a person comes in that doesn’t have experience in the business, it takes too much for a distributor to focus and teach that person everything about that beverage category. So it really is the people behind the brand, their experience and reputation.

BN: But if you find that you have an affinity for a person, because we know that our business is people-oriented, will you go that extra mile to help that person and walk them through more than you would when you dismiss another brand?

TL: Definitely. If you know that they’ve got the experience, you’re going to go along with them, because it’s like two people working together as one. Then there are guys out there who have the experience but bring in a brand that you know is going to be gone in two years. So at the same time, if it’s a person who is just bringing in a brand to grow it and sell it then you have to make sure the paperwork is right on both sides to get the deal done.

BN: Gerry, what’s your magic criteria?

Gerry Martin: Like the rest of the fellows here, really there are a good ten of them. But really we look at the personality, the passion, and the pull through – whether or not the brand is relevant, or can be relevant, that’s key. We need to know that when I put it in front of a buyer that this is something that is going to make the difference. That a consumer will reach for a Crunk instead of a Monster, or a Venom, instead of a Monster does nothing for the retailer. If Venom or Crunk will bring a consumer into the store, that’s the difference, that’s the pull factor.

Guy Battaglia: I agree with everything that everyone has said up here. When we look at brands, we look in stages. Number one, within a category, is it something that we have? If it is, does it seem like something that is better than what we have? But this business is pretty simple. Does it taste good? Does it look good? That’s a big part of the battle. And then we will always examine whether the supplier has the funding available to take it to the next stage in developing a brand. Because we can get it out there, but if he can’t do anything to communicate or try to promote the brand, then it’s not going to go anywhere.

BN: If the brand owner is responsible for demand creation, selling, marketing, advertising, then what brand-building components does the distributor have responsibility for?

GM: I think that I mentioned the push or the pull factor, we are responsible for the push. We are putting over a hundred sales reps out there. I’m putting my key account people, who are contacting and have a relationship with every channel, out there. Again, from the Polar perspective, we do 95 percent of the private label in the Northeast. We have someone in-house at every supermarket. We know when resets are happening when their not. We do private label for a number of the convenience stores. So relationship is key. We fight every day to be relevant, and we do so with relationships.

(Our accounts) deal with the same people every day, and that helps.

BN: Steve, how do you do it in such an ultra competitive market, in New York City?

SG: Well I couldn’t agree more. This is one of the hardest markets out there. Ninety percent of it is relationships. You send the supply rep. out there cold into the market and they won’t get the time of day. We offer our relationships, our people, we encourage ride-alongs, we encourage area blitzes. Our relationships help get it on the shelf. That’s our responsibility.

TL: I that as a distributor you’ve got to stick behind a brand that you believe in and stay with it. You’ve got to stick with the brand, you can’t just give up on it.

GB: I always tell our guys that it’s our job to make sure that when the new supplier comes in, first of all that we don’t embarrass ourselves. New suppliers tend to come in here and offer all kinds of incentives and free goods and do whatever they have to do to get it into the market. So we try not to embarrass ourselves by just taking your money and not doing the right things. It’s always been our focus that we do the push. We talk about pushes, it’s to try to be consistent with delivery, try to be consistent with pricing, to try to make sure you’re hitting the right price point. And that in itself is really a big battle with the retailer, to make sure that at the very least they are putting up a point of sale that helps bring attention to the brand.

BN: How have you changed your contract policies and terms in the aftermath of brands you developed pulling out, ie Vitamin Water, Muscle Milk, Monster? Have you changed your philosophy and legally changed the way you do business?

GB: Absolutely. There’s a couple ways of looking at it. I know that Gerry (Khermouch) had brought up that some distributors are angry, and they certainly have every right to be. And they are looking for perpetual agreements. Personally, I think if suppliers are willing to give you perpetual than I’m not going to have that much faith in that brand. But I think what we’ve been trying to at least move towards in our discussion with suppliers is fair market value. In the beer business it’s common.

The conversation that I have with suppliers is that I never count anybody’s money. I understand that at some point in time, if your brand is big enough, that the big guys are going to come in and give you a ridiculously stupid number. But my conversation is that on your way out, you pay me my fair value for what I did for your brand that got you to the point where now you are going to get paid all this money. I think it’s important that suppliers come around to realize that.

TL: Like vitaminwater — we grew it for seven or eight years and, right at its peak, when it’s starting to grow, you lose it to one of the big guys. It’s hard to take that when you’ve worked with them for so many years. You have to adjust your plan because if you loss 50,000 cases a month, you have to restructure. Sure, there’s a payout, but then you have to put that back into your company and into your people to keep your company alive.

BN: Does the payout give you enough time to recover from it? Obviously, it’s a sensitive subject. You can never compensate for losing a 50,000-case a month brand. But were they fair with you?

TL: I feel some of the companies were, yes. And it does help you for a time period. We depend on new brands, new innovations. We depend on people like you guys who are creating new brands to come to us with new brands so that we can grow and replace the vitaminwaters and Monsters. Without companies like you guys we wouldn’t be in business. So the distributors depend on new brands. I try to never turn down looking at a brand.

GM: I agree. We’ve lived through a varying degree of buyouts from SoBe and Izze and Rock Star and Monster and vitaminwater and Fuze and probably eight to ten different ones where we feel we have done a nice job of being a part of the success, the regional success and a bigger piece. So obviously it has changed the way we look at contracts these days. I think a lot of it has to do with when you sit down. If you’re up front and honest that you know that in most instances the endgame is for that brand to sell. That’s just what it is. We try so that on the front end we are doing our part and that we are protected on the back end. And if we are doing our part the brand owner is usually more than happy on the back end.

GB: I think that there are more distribution companies that, like Polar and New Age and us, who are coming out with our own products to keep our distributors alive because we can’t depend on other products staying around with us. But I think one of the things that suppliers need to understand is that there is a lot of money involved in supporting this stuff. You have to think about a cooler. A cooler is a thousand dollars. Truck decals, you get a decal on a truck and it might last 4 or 5 years but it is $3000 to $4000 to put a truck decal on a truck. There’s so much stuff that you need to promote a brand correctly. And if you don’t come to the distributors with all that we can’t promote it correctly. You can’t depend on us to buy it all for you.

BN: Do you exclude beverages already in the natural distribution channels? Do people who made their foothold in, say, UNFI, and want to expand, are you hesitant to take on those brands or do you embrace them?

TL: I guess for me, Colorado being a healthy state, we try to work with UNFI and Whole Foods and stuff. We’ll bring in a healthy product, we’ll sell directly to Whole Foods and UNFI because for the small brands coming in it’s going to cost them a fortune to ship three or four pallets to UNFI. Instead it helps us as a distributor to move through product and order new truck loads if we can also sell to UNFI with a small upcharge and to Whole Foods. So it’s a benefit to us and to the supplier usually.

GM: What we do is, if a brand belongs with UNFI we’ll tell them up front that they aren’t mainstream enough and direct them to go there if they came to us first. If the brand is in part of its growth stage with UNFI or a Whole Foods-type of distributor network what we do is require that they make that divorce before we bring them on. We’ll ask them that if that is part of their general scheme and plan because that is one of the things that we’ll require. We know that it’s in scale and that every channel makes a lot of sense. If it’s only going to sell in that channel that it should stay in that channel.

BN: I have a question that each of you can answer in maybe one sentence of two sentences. What is the worst thing a marketer can say to you?

SG: I used to be an attorney. (laughs).

GB: Here are the two things that make the hair on the back of my neck stand up. The first, which hasn’t been said as often as it used to be, is “it flies off the shelf.” That’s the first one. But the new one is that “I love this business and I have no desire to get out of it.” That’s the one that turns me off immediately.

GM: Mine is re-launch. It really comes down to there is a history there. It’s either re-launch or no-brainer. Because as you walk through the no-brainers, you realize that there was not a lot of thought put behind the questions that makes it a no-brainer.

TL: I agree, just some one who is brand new in the business. And you are their first distributor out there. It’s tough to walk somebody through that when they don’t know the category.