The Portland, Ore.-based company, which has produced a line of premium fruit-based soft drinks since 2003, recently brewed its one millionth bottle of soda. Despite the milestone, David Yudkin and Jeana Edelman, the owners of Hotlips, aren’t celebrating.
In a recent interview with The Oregonian, Yudkin and Edelman explained that while reaching one million bottle mark is a welcome achievement, Hotlips has a ways to go.
“In the beverage world, [a million bottles] is nothing,” Yudkin told the newspaper. “Industry people say when you get to a $5 million company, you’re on the map. We’re below $500,000 trying to get to a million.”
Yudkin explained that, at this point, Hotlips is only slightly profitable. The company is making $0.90 per case and has a gross margin of about 35 percent. To increase the return on what has been a significant eight-year investment of time and money, Yudkin said Hotlips will look to double production to 45,000 cases. It’s a number that he believes is possible considering that the company would not have to make any major investments or structural changes.
Additionally, Hotlips has been working to keep shipping and distribution costs at a more consistent level. The company decided to refocus distribution efforts on the West Coast and “cut bait” on expensive routes and markets on the East Coast and Midwest.
“We’ve gone through the romance of someone calling and saying I have 300 convenience stores all across the South, and I would love to have your product, but I need it for 50 cents a bottle,” Edelman said. “That’s not going to work. We realize that volume for its own sake is not a way we are going to make this product profitable.”
Edelman said that Hotlips now works with 25 small-scale and very specialized distributors who understand the type of upscale customers that purchase Hotlips sodas.
“The market for this is people who say, ‘This is a fruit, it’s from Oregon, I trust it, I want to drink it and I’ll pay whatever I have to pay for it,’” Edelman said.
And for now – and most likely, in the future – Yudkin and Edelman said they expect to finance growth in the company internally. The owners appear unlikely to accept investor-partners or funding from venture capitalists noting that most would want a majority share of the company and unreasonable return on investment.
“The typical strategy in this industry is to buy market share while losing money, get to a market share where you’re notable, then sell,” Yudkin said. “For me and Jeana, the primary goal is not an exit strategy, but to build something we like, and it has to be profitable at whatever stage it’s at.”