Making The Case For Distributor Brands

TOM and SCOTT LEBON, president and vice-president/CEO of New Age Beverages, have done a lot of work for PepsiCo and The Coca-Cola Co. – much of it unplanned.

The Denver-based distributors have invested their time, money and sweat into a host of independent beverage brands.

More than once they’ve painted and plastered insignias onto their trucks and helped salesmen roll in coolers and shelf-talkers, only to have to repaint the trucks and roll the coolers back out once the owners jump at the big dollars dangled by a Coke or a Pepsi. The buyout clauses and shares purchased early in the game can keep a distributor going for a while, but in the end there’s still a hole in the portfolio and a long slog until they’ve built the next great brand.

It’s quite a roster.

“We lost Monster, Rockstar,” says Scott Lebon, the older of the Lebon brothers. “We lost vitaminwater, Fuze. We lost NOS. We needed something we could rely on a little bit.”

A few years ago, the Lebon brothers – with the help of Dan Carney, the founder of Pizza Hut — decided they had had enough, and decided to paint their trucks with something entirely new, something that the owners couldn’t take away from New Age to sell to Coke or Pepsi because New Age was the owner itself. That new thing was Xing Tea.

Xing, which is a big-can, all-natural, sugar-sweetened green tea, is approaching its third full year on the market and nearing full, national distribution – almost entirely through independent distributors like the Lebons themselves. The Lebons created Xing as both a hedge against the loss of brands to the Red and Blue systems and as an entrepreneurial play. They wanted a tea they could stock in every channel they serviced, from natural food stores to gas station mini-marts, and nothing they had access to fit the bill. So, after two years of honing the flavor, price-point and graphics, they tested Xing in their own territory. Within three months of its February, 2007 debut, the Lebons said, their sales figured convinced them that they had crafted a strong enough brand to start calling distributors outside their home state of Colorado. Now, they ship Xing to more than 40 states.

The Lebons aren’t the only ones. Stung by the fleeting nature of modern entrepreneurial beverage brands, a number of clever distributors have applied their own industry know-how to creating distinctive brands that can’t suddenly get sucked into the Red or Blue systems. In New England, Polar Beverages, long a seller of independent brands but also the maker of regional CSDs and tonics, has recently started marketing its own value tea brand, Black Jack, and also a high-end licensed play, Goslings Ginger Beer. In Illinois, Folsom Distributing went into energy shots with Blutonium. In the Bay Area, Nor-Cal Beverages created Go Girl and Molotov energy drinks, while in Southern California, Coast Beverage Group created PRE Probiotic Enhancer Juice. Taken as a group, these brands represent an emerging trend in the independent beverage market: beverage brands built by experienced beverage distributors who try to pour their industry knowledge into making same kinds of brands they’ve supported for decades.

Of course, neither the Lebons nor their peers can claim to be the first distributors to launch a beverage brand. The best known, AriZona, was started by veteran distributing partners John Ferolito and Don Vultaggio. Jones Soda came out of Peter Van Stolk’s distributorship in the Pacific Northwest. But this new crop of distributor brands emerges during a different era. Independent distributors, crushed by the high-profile departures of the Coke and Pepsi acquisitions mentioned earlier, are under pressure to break the costly cycle that constantly finds them building brands only to lose them.

“If there wasn’t any independent distributors, there would be no Monster, no vitaminwater,” says Scott Lebon.

The Lebons and their peers hold fast to the idea that independent distributors are good for the beverage business. So in building their brands, they have clung to the DSD system, to the point where they’ve steered clear of warehouse shipments even when dealing with large retailers like Costco. They say they’ve rejected contracts with national chains that couldn’t be fully served through their DSD network – though they add that they’ll talk to those chains again when their network can handle coast-to-coast coverage.

Their decision to use only DSD houses, Tom Lebon says, is as practical as it is philosophical: they believe they share a common language with other distributors.

“It gives us the advantage that we know where they’re coming from,” he said.

Satwan Gill, president of 5 Star Beverage, agreed. The San Diego-based distributor has carried both Xing Tea and Coast Beverages’ PRE, and Gill said he had a positive experience bringing both into his system. PRE later left due to a supplier issue, he said, but he said both companies understood what they were doing so well that he’s now more likely to be interested in a brand created by a distributor than one created by an independent entrepreneur.

“They understand our needs,” he said. “They understand what it will take for us to be successful and for the brand to be successful.”

Those needs included both marketing support and sales numbers. As distributors, Gill added, New Age and Coast were able to show him familiar sales comparisons. While uncertainty about sales numbers has traditionally gone up and down the distribution chain, by shipping Xing through their own trucks, the Lebons say they get instant feedback on sales and pull-through, as well as observations from their salesmen in the field.

Despite those advantages, they said they’d caution other distributors before they get into the brand-building game. Even with their combined 40 years of brand-building experience, they said, building a beverage brand is still a high-risk proposition with a lot of obstacles – the biggest of which, is money.

“To start a brand, it costs millions of dollars,” said Tom. “If it doesn’t work, you just lost a couple million dollars.” Scott added that a company pushing a new brand can easily spend $1 million just on coolers. Other distributors-turned-brand-builders echoed the same concern. Bob Groux, President of Coast Beverage Group said launching a brand in southern California – never mind nationally – costs no less than $1 million.

To help them fund their plan, the Lebons partnered with Pizza Hut founder Carney, who adds both experience and ambition. Carney says he is focused on building XingTea like he did his earlier venture – as a brand that not only sells in the US but all across the world. “It’s not for the faint of heart or the short on cash,” he said.

Scale also presents an issue. Even as distributors – an organization with a history and a reputation in the beverage business – the Lebons struggled with minimum order sizes and bulk discounts when dealing with suppliers on Xing. It’s hard to compete with Coke and Pepsi when economies of scale mean those companies pay half of what the smaller guys fork over for materials. But as a brand grows, the back-end costs come down.

While brand creation may be a dangerous game, several distributors that have succeeded at creating their own brands have, or plan to, roll the dice again.

Nor-Cal Beverages, for example, is readying a second entry into the energy category, according to Gordon Guzenski, the company’s director of business and brand development. The company’s initial entry into brand creation was something of a fluke, he said, the result of a packaging line installed to fill a contract that fell flat. Guzenski and his family-owned distributorship created Go Girl in part to fill unused capacity, but they did so with ambitions of also pushing the brand to national distribution. Four years later, Nor-Cal ships Go Girl to eight states. Building an energy brand, he said, was a tougher slog than he expected, but he still considers Go Girl a success. And he wants to do it again, launching Molotov, a latin-themed energy drink brand, this month.

While it took Nor-Cal four years to ready its second salvo at brand creation, Polar launched its second entrepreneurial brand less than two years after its first. The company introduced Black Jack Tea in early 2008 to capitalize on a pair of trends: the then-strong growth of tea brands and drinks in big cans. Polar initially targeted the brand for local distribution in the Boston area, but renowned New York-based independent distributor Big Geyser has since brought the pirate-themed line to New York City. Even before Polar finalized that deal, though, it had launched its second house-created brand, Gosling’s Ginger Beer, in partnership with Gosling’s Rum.

If Polar and Nor-Cal are buying back in, Groux’s Coast Beverage Group is doubling down. The company’s PRE probiotic juice drink is just now moving out of its earliest stages of brand building, Groux said. He expects to spend years building the brand to its full height, he said, but Coast has already performed close to 1,000 demos and is beginning to place TV and radio advertising.

“The early success with PRE has kind of inspired us to do a couple more [brands,]” Groux said, with two launches planned by the end of the year in “categories that we think have significant growth opportunities in them.”

For the Lebons, though, their success with Xing has not inspired them to craft a follow-up brand – at least, not in the immediate future. Presently, they said, they’ll focus on Xing as their sole national brand, and grow it through flavor and packaging extensions. They’ve already added a Xing-branded lemonade line as well as 16.9 oz. PET bottles to accommodate consumers and retailers that prefer resealable packages.

Then again, Xing – starting as a flavored green tea product – has a lot of inherent expansion potential. Beyond new flavors (which the Lebons are working on), they might extend the Xing brand into other teas or fruit drinks.

So, even without offering another name, the Lebons can give their network of DSD houses plenty to hold on to. And even better, they probably won’t be repainting their trucks anytime soon.