Sweet Leaf CEO: More territory, same plan

They might be covering three times the territory, but the approach will be more of the same, Sweet Leaf owner Clayton Christopher told BevNET today.

Earlier today, Christopher and his board sold a 35 percent share of his fast-growing Sweet Leaf Tea for $15.6 million to Nestle Waters North America, the country’s leading bottled water company.

Sweet Leaf has made its name in the beverage world for providing deep sales support in core markets and a tightfisted approach to those it has not yet activated.

A firm believer in Direct Store Delivery as the best method for getting a taste-dependent product like Sweet Leaf into new markets, Christopher said that Nestle’s nationwide network of regional DSD houses made it a good fit for the brand. That, and the $15.6 million, he confirmed.

“We’d much rather go to market through DSD, and Nestle is fully on board with that,” Christopher said.

But breaking a brand in properly in a DSD often requires extra sales support — “feet on the street” — and even the doubling of Sweet Leaf’s marketing budget via the new Nestle money will only allow for a slower expansion than might be expected. According to Christopher, by adding 10 new sales representatives, the company will be able to add four new key markets to its plans for the year, joining the five it had planned to focus on already. One of those key markets, the Northeast, was one that Sweet Leaf had already dipped its toe into with sales support, before pulling back in the face of a tough economy.

Target markets on the table, in addition to the Northeast, include Phoenix, Seattle, and Miami, joining the company’s Texas core of Houston, Austin, and Dallas as well as the Bay Area and Los Angeles.

“We won’t be putting people in every major market, but those we do will have budgets, not just a sales person or two,” he said. “With sales budgets they can get involved with the community, sponsor events, give away the product.”

Other non-core major markets being supplied through DSD will get occasional visits from the sales team; Christopher called them “incubator markets” that will receive more attention as revenue increases.

“Their distribution strategy and network is very synergistic with ours,” Christopher said of Nestle. “They’re totally supportive of DSDs. They’ll also help us fill out our distribution voids. We go UNFI to Whole Foods – but in areas where there are DSD’s delivering to Whole Foods, we’ll switch that over. We’re working to get our major (grocery) chains to switch over to DSD as well.”

Talks with Nestle began almost a year ago as part of a previous round of financing that eventually helped Sweet Leaf raise $18 million from Catterton Partners last spring. Christopher said he “circled back around” to keep talks going with Nestle, starting in May, and that while the price had been reached in the Fall, the negotiations moved slowly through the winter.

“I think we got a very fair valuation,” Christopher said. “Basically we negotiated this over six months ago, before the economy turned. Luckily we held the same valuation in place. We didn’t get a haircut.”

In a move similar in structure to the Coca-Cola Co., Inc.’s recent 40 percent stake in rival Honest Tea, Nestle will have a 3 ½ year period over which to buy Sweet Leaf outright. That price is fixed, Christopher said, although Nestle has the right to walk away from the deal. With the deal price – Christopher would not reveal it – based on Sweet Leaf’s revenue growing over the next three years, the more the company grows, the better the final valuation will be for Nestle if and when they close the deal.

Changes in place for Sweet Leaf include the addition of a chief marketing officer, who will join new company president Dan Costello, currently a Nestle employee. Additionally, Nestle will put two members on Sweet Leaf’s seven-member board: Nestle CFO Bill Pearson and Sales and Marketing Vice President Tim Brown will replace industry veteran John Shepard — the new CEO of Nestle rival Icelandic Glacial – as well as a board member from an earlier round of financing.

In addition to a tea company, Christopher said, Nestle will also be getting a laboratory for new products. While the water company’s Swiss owners have moved slowly when it comes to innovation in new product lines, he said, they have nevertheless “researched a lot of different products that they haven’t come out with.”

“For us to come out with a new product, it’s so much easier,” Christopher said. “Our board will be a lot more flexible, so it’ll be a good way for Nestle to try stuff out, and it’ll still be a Sweet Leaf brand.”

One thing Nestle will not be getting, however, is a bottled water executive. While Christopher said he saw staying on at his 10-year-old company for at least the time it takes the full deal to go through – and beyond, “as long as it’s fun” – he’s still a child of Austin, Tex.

“I wouldn’t ever,” he said, “move to Greenwich.”