Berardi’s Rules

In some circles among beverage entrepreneurs, the mantra is, ‘Go big or go home.’ If you don’t bring $30 mil or more in financing to the table, you may as well not bother. It’s hard to fault that logic: after all, this is a highly competitive segment, one where the costs of building a brand seem to always outrun projections. If you can make the ante, like a Lance Collins or a Mike Repole or a Greg Steltenpohl or a David Smith, with a successful track record and network of financial, strategic, and distribution contacts, there’s no reason not to think big. It may make sense then to do the DSD landgrab, moving quickly to national availability in mainstream channels like grocery and convenience stores. To varying degrees, the current ventures of those seasoned entrepreneurs – Core Water, Body Armor, Califia Farms and High Brew Coffee – are validating that approach. Who am I to disagree with it?

But don’t believe that that’s the only way the game has to be played. True, the bigger-is-better contingent often affords the go-slow approach only the most patronizing acknowledgement. Nice, they’ll say, if all you want is to have a little cottage business, plying a niche that more ambitious players can’t be bothered with. Since most new brands (whatever their approach) never break out, it can be hard to argue with that logic. But there are exceptions. AriZona Iced Tea, remember, was a phenomenon that grew out of two young guys working out of a threadbare office in Brooklyn’s dreary Gravesend neighborhood, never borrowing a dime let alone reaching out for outside capital, and letting patience and ingenuity do the heavy lifting in building what’s now a billion-dollar brand.

In the same way, I found the recent acquisition of organic energy brand Hiball by Anheuser-Busch InBev to be greatly reassuring, in providing evidence that maybe that approach can pan out these days, too.

I’m sure you know the outline: after having been jilted by Monster Energy in favor of Coca-Cola as strategic partner, A-B is making a small bet that it can catch the coming wave of healthier, plant-based energy drinks with its modestly priced acquisition of Hiball at a time that conventional energy drinks like Red Bull and Monster have dramatically flattened in their growth trajectory. (A-B hasn’t disclosed the price, but for a company that did $15 million or so in 2016 it would have to be well below $100 million, very modest by the standards of a company that just swallowed SAB Miller and is continually rumored to be preparing runs at the likes of Coke or Pepsi.) With that deal, A-B also got a nifty bonus: Hiball’s year-old Alta Palla organic sparkling water line, playing in a lately exploding segment.

(Disclosure: I made the first introduction between A-B and the Hiball guys at Expo East last fall, though I’ll readily acknowledge it was pretty fluky and that meeting would have occurred anyway. And though I try to keep my ear close to the ground, I had no idea that initial contact had evolved to anything meaningful until the moment the deal was announced.)

Founded 13 years ago, Hiball for years was a three-person operation, working out of a sparsely furnished suite in San Francisco: that is, Todd Berardi, his wife Alyssa (a graphics whiz judging by her handiwork on behalf of the brands) and Dan Craytor, who relocated to Colorado along the way. It was only three years ago that they started outside hiring, going from just the three of them to about 20 by the time A-B acquired the company this past summer. I should note also that, in building their brand, Berardi and Craytor seem to have made no enemies; at the time the deal was announced, even rivals seemed genuinely jubilant at their good fortune. That’s rare in such a competitive business, where the temptation to cut corners is ever-present.

Along the way Hiball has never taken in any private-equity capital, relying instead on friends and family, even as it undertook arduous and expensive course corrections like a switch from a small glass bottle to 16-ounce cans. Call it parsimonious or highly efficient, but the company’s operating style enabled it to hang in there without recourse to any outside capital at all for the past five years. In recent years, Todd assured me, the company has run at breakeven or even cash-flow-positive. I should note also that, in the case of Hiball as well as other compact operations I track, this modest operating style in no way betrays a lack of ambition; it’s just about the means to an end.

Like only a few others in the business whom I’m aware of, the Hiball team has prided itself on not succumbing to retailer pressure to do screwy, cash-draining promos for the sake of exposure. As I sometimes remind readers of my newsletter, you can die of exposure. “The brand has to be able to survive on its own and at full retail price,” Berardi told me. It was only when the company’s cash flow turned positive that it committed to a demo program, extended into adjacent energy categories and was able to launch Alta Palla as a non-energy play.

What are some of Todd’s rules for success? Key among them, he cites maintaining high margins and limiting promo activity. “Since we were using our own money, we watched every dollar we spent to make sure our burn rate was kept at a minimum at all times,” he told me. It was only once the brand started showing real momentum that Hiball started hiring, undertaking demos and other marketing activities, splurging on a branded EarthRoamer vehicle and extending Hiball into new segments while laying the groundwork for Alta Palla.

Of course, there are plenty of caveats here. First, though it’s operating at what seems to be a $40 million run rate lately, Hiball can by no means be claimed to have definitively broken out yet, and there’s always a chance that in a year or two, under its new owner, things will have reversed or even unraveled. Deals like these also are always a matter of timing, and A-B has had a history of lurching from enthusiasm to enthusiasm, whether its Eagle Snacks brand or its Ninth Street Beverage incubator, before abruptly changing tack. So part of Hiball’s recent success was simply being in the right place at the right time.

But it’s still a remarkable story, and one that, with the team continuing under A-B, is still worth watching. As I write this, major brands like Monster and Rockstar are known to be devising their own healthier-energy plays, a tacit endorsement of the opportunity that Hiball and rivals like Guru and Runa have been pursuing over the past decade. If Hiball does end up playing a leading role in a flourishing new energy sub-segment, it will be further vindication that a modest operating strategy can eventually have major impact.

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