In July, fresh off its first ever round of institutional fundraising, LifeAid announced its intention to shift into the next phase of its long-term growth strategy by expanding from e-commerce to traditional brick-and-mortar retail.
The last 12 months have been in pursuit of that goal, and the Santa Cruz, Calif.-based lifestyle beverage company, which markets a range of functional drinks for specific use occasions, is beginning to reap the rewards of its work: for the second year running, LifeAid was named to Inc. Magazine’s annual Inc. 5000 list of the nation’s fastest growing companies, ranking number 227 with a 2016 revenue of $12.8 million. Its three-year growth rate, meanwhile, is an impressive 1,903 percent.
“We had a pretty big idea for LifeAid, but we had to have a road map because the idea is so expansive,” said co-founder and CEO Orion Melehan, adding that the company is up to 55 employees from 36 earlier this year. “We really wanted to take this online company powerhouse that we created and go offline in conventional retailers.”
That shift began last summer when LifeAid raised institutional funding in an investment round led by KarpReilly, a private equity firm that has previously backed beverage companies such as KeVita, Spindrift and Zola. Melehan said KarpReilly recently exercised an option included in the original agreement increase its investment at a higher valuation, which he pointed out had grown by 40 percent over the past year.
“We believed they exercised that option because the true value of our company, when we hit our revenue goals this year, will be well in excess of where they came in at,” he said, noting that the investment was “for a relatively small percentage” that represented “a couple million” dollars. He added that the new funding would be used for growing its sales support team and field marketing efforts, as well as building out inventory.
Over the first half of 2017, LifeAid landed several major retail placements in the natural and conventional grocery channel. In December Safeway stores in the Southwest began selling five LifeAid SKUs in coolers and ambient shelves, and the grocery chain has since added the products to its Southern, Houston, Portland, Denver and NorCal divisions. LifeAid also launched select varieties in five regions of Sprouts in March and at Whole Foods locations nationally in April, along with placement at five divisions of Kroger including Texas and the Mid-Atlantic.
Despite the significant gains, Melehan said e-commerce still represents about 70 percent of the company’s total business, a far cry from its eventual target. Ninety-eight percent of those sales are generated from the company’s online store, rather than Amazon. International sales, fueled by strong performance in South Africa, Australia and the European Union, make up about 10 percent of LifeAid’s total revenue. Those are numbers that he hopes to change.
“We think that five years from now, based on our road map, we’d be looking for 80 percent [of business] at brick-and-mortar and 20 percent through e-commerce,” he said. “I think many CPG companies do 90 percent brick-and-mortar and 10 percent e-commerce. That’s considered a high amount for e-commerce.”
In creating a roadmap for expansion, LifeAid has purposely used its extensive experience in e-commerce to break into traditional retailers, mobilizing its consumer base of 400,000 social media followers and 200,000 email contacts to jumpstart sales from the moment they enter a new store.
“From a retail perspective, their biggest fear and what drives a lot of slotting fees is the thought that I take a bet on this company and its going to make me look bad because they are not going to hit their numbers,” said LifeAid co-founder and president Dr. Aaron Hinde. “It’s the exact opposite for us. Not only do we have a track record now with the retailers that we are in like H-E-B and Whole Foods, but we also have this huge social media and email list that we can drive consumers and drive turns from day one so we can really de-risk that proposition for our partners.”
As LifeAid moves into new channels, Hinde said maintaining price integrity was a critical component of its growth strategy. In order to maintain consistent pricing across online and in-store sales, the company has taken a measured approach, seeking to establish a strong foothold in conventional retail before moving to the mass, club and convenience store channels.
“If you look at some of our competitors, they rolled out to mass way too early, at a point where a gym could go into a Walmart and purchase product cheaper than they were selling to them direct wholesale for,” said Hinde, adding that the company was not currently seeking further investment but would likely require additional funding for a push into convenience, food service and other channels. “There’s no quicker way to kill your different poles in the water than to have pricing inequity. So we are very tight on maintaining mat pricing online, making sure all of our retail pricing is coming in right at the same range, that we’re not getting overly discounted, that we are not playing the race to the bottom like we see happening in so many other beverage categories right now.”
The brand has also looked to protect its strong position at the places which spurred its growth to this point: CrossFit gyms, golf courses and retail environments with a strong connection to a specific SKU. CrossFit has been one of the most important: FitAid is the official recovery beverage of the CrossFit Games for 2017 and 2018. In May, the company launched FitAid RX, a new variety that includes creatine, as an exclusive for its CrossFit affiliates. PartyAid, a recovery beverage, has maintained a consistent presence at the annual Burning Man music festival in Nevada for several years. Meanwhile, The Vitamin Shoppe, a longtime retail partner of the brand, recently brought in all LifeAid SKUs with the exception of GolferAID to a further 200 stores.
However, other commercial areas have presented unique challenges tied to the specific product offering. TravelAid, for example, which focuses on placement at airports, train stations and other areas with a high volume of travelers, has taken more time to develop a retail presence.
“We didn’t realize some of the challenges in getting around some of these Coke-exclusive contracts in [airport food service supplier] HMSHost and some of the big concessions at airports,” said Hinde. “The first airport we were in was Phoenix, which gave us one location test. Now we are in eight or nine locations in Phoenix Sky Harbor, and we just got into San Francisco International Airport.”
As LifeAid continues to make strides into conventional retail, the current atmosphere around the category is giving Melehan and Hinde encouraging signs. The expanding interest in better-for-you functional drinks, from both beverage companies and the retailers that sell their products, is such that Hide said he believe in five years the category will have its own buyer.
“I think our success is being shared by some other companies in the space,” said Hinde. “I see Celsius has a huge valuation on the public markets and we are not too far behind them in terms of where our run rate is. I see our friends over at [fitness and recovery drink brand] Kill Cliff just raised $13.5 million; I think all of that goes to kind of validate the lifestyle beverage category that we are helping to build. It’s the successor to where energy drinks and sports drinks left off.”
Melehan added that, even with the brand’s current momentum, developing its existing product line takes priority over releasing new SKUs.
“I think our products are very innovative already, so we’re looking at innovation in marketing to the other various channels which our product targets,” said Melehan. “We can go after a wide array of consumers with our current platforms, so we are making those verticals work before we look to conquer other frontiers.”