NO QUESTION we’re in a tough period as 2009 gets under way. And yes, we’re all probably in for a long, hard slog. Still, without disguising the difficulties that may lie ahead for all of us, I think it would be salutary here to point to some good things that may emerge from the current pain – not just the broad benefits that economists tells us to expect, such as wringing inefficiencies out of the system and restoring a greater sense of value to consumer offerings, but several specific to the beverage business.
Let’s start with bubbles. Not the ones that percolate in a Classic Coke – whoops, I guess that’s just plain Coke now – but a financial beverage bubble that, in its extreme manifestations, outdid anything we saw on the housing front. I’m referring of course to the market frenzy that saw the modest-selling Jones Soda attain a market valuation approaching $1 billion and the not-really-selling-at-all Purple Beverage get to $400 million. Those valuations – inspired by lucrative takeouts by strategic buyers of Snapple, SoBe and Fuze and the possibly ludicrous takeout of Glaceau – were both a symptom and cause of many of the excesses that now need shaking out.
For starters, they seemed to draw to the beverage business a breed of entrepreneur lacking any fundamental interest in the sector – let alone passion for it – with a knack for raising excessive amounts of capital to support slight, imitative ideas, all marshaled in the interest of the quickest possible exit. “Playas,” one distributor recently wrote to me, “eyeing G5’s and Jags before they sell case one.” That’s by no means intended to tar all newcomers to the business with the same brush, because lots of the most intriguing new brands continue to come from outsiders, and often quite young ones at that. Those entrepreneurs, chasing a genuine vision and displaying some interest in mastering the intricacies of the business and simply dealing with the day-to-day stuff, continue to be a boon to the business. I have no doubt they’ll keep on a-comin’. But the many carpetbaggers, with their short time lines and disingenuous promises, have done a lot to compromise the business.
Another outcome of the crazy buyouts was the ease of raising capital, whether through private investors, venture capitalists or the public markets. With money so cheap and available, new brands would come to market with outlandishly ambitious rollout plans. Usually, these comprised a “DSD land grab,” in which the marketer would recruit a cadre of sales vets from brands like SoBe and Glaceau and Red Bull and turn them loose to sign up as many direct-store distributors as is humanly possible, each promised intensive in-market support on the marketer’s dime. Given the skills, history and contacts of the sales guys, that part of the plan was easy enough to execute. But it put the brand under an intense degree of pressure to generate the instant velocity to support that overhead. That overlooked the fact that brands take their time in developing, particularly in the alternative space; when, inevitably, a landgrab brand fails to break out on the allotted schedule, its owners are forced to step up the capital heist, thereby intensifying the pressure and shifting power to capital people who have even less interest in allowing a brand to find its organic growth pattern.
A handful of marketers managed to make that scenario work – notably, Hansen Natural with its Monster Energy launch. Brands like SoBe, Fuze and Vitaminwater emphatically do not prove the case – they were many years in development, and I wonder whether any of them ever got into the black before its founders exited. Now, with capital scarcer, many overambitious brands discredited, and even strategic acquirers like Pepsi displaying second thoughts about buying their way out of their innovation dilemmas, that scenario is in shreds.
Know something? That may not be such a bad thing. What could result is a flow of new brands launched out of love and commitment. Maybe they will be allowed the luxury of starting small, growing gradually and postponing the national landgrab until all the kinks have been worked out of their branding, packaging and formulation. If the buyout frenzy subsides, it would allow independent distributors more time to develop – and profit from – brands they bring in, offering crucial support to a network that, whatever its limitations, still has proven to be the best platform for nurturing cutting-edge brands. If you’re a retailer, that may mean fewer marketers approaching you with dazzling Power Point presentations which – let’s face it – you never found quite believable anyway. Instead, you’re likely to see more of the old-style sweat-equity entrepreneurs, perhaps based right in your region, backed financially by local businesspeople and distributors and committed to focusing intently on your market. It may make for less in the way of grandiose fireworks (not to mention sales performance incentive funds and other money on the table) but it may put you on the ground floor of a truly sustainable brand phenomenon, one better attuned to your needs and those of your shoppers. It may prove to be a more rational, efficient way to attain the perennial goal of bringing innovative, premium beverage brands to your customers. Now that’s not such a bad thing, is it?