Welcome to the Community Call Podcast.
I am Melissa Travers, Director of Community here at BevNET & NOSH, here with my co-hosts Monica Watress and Jackie Brugliera.
If you're enjoying the show, please follow and review us on Apple Podcasts or your listening platform of choice.
Monica and Jackie, great to have you here.
Thank you so much for joining.
I would like to start off this banter with a celebration because Alexander Harek, CEO and founder of Zesty Z, just joined our Slack community.
With everybody can do at slack.bevnet.com.
You can ask your questions, talk to all of us, get updates on what we are up to.
So slack.bevnet.com.
Alexander, thank you so much for joining us in our Slack community.
And Alexander's brand Zesty Z just launched their new perfect pita chips, which is very exciting.
We got some samples and they are quite delicious.
Yeah, they make delicious pita chips.
And I mean, if you're going to the grocery store, there's really not a lot of options.
There's like maybe a couple big players in the category, but it's great to see a emerging brand enter into the pita chips and it's authentic and it's delicious.
Yeah, and I actually had a conversation with Alexander about this pivot into pita chips.
Part of it was some of their retail partners were asking for it.
So Stacey's brand, which is owned by Frito-Lay, owns 85% market share in the pita chip category.
And there's no clear second place competitor.
So that's what Zesty Z is aiming to achieve.
The product is actually lower carb than most conventional pita chips.
And to your point, what you just said, it is absolutely delicious.
Monica, you wrote a great article in NOSH, so everybody can head over to nosh.com to read that there.
Alexander did such a great job of writing that line between better for you and super tasty.
You know, I think part of the difference is that it is baked, and it's actually twice-baked pita versus the fried options that we see on the market currently.
So that explains the texture.
And then it also, I know as they were developing this, sturdiness and its ability to hold up against a dip was a very important product attribute.
And I would say that they nailed it.
For me, that's really important because my friends always make fun of my dip to chip ratio.
It's pretty much like I'm eating the dip with a spoon.
Absolutely delicious pita chips.
And when I was on their website, I noticed that they were following the trend that we saw at Expo of just putting a food group on your shirt.
So they have hats.
One says Labna, one says hummus, one says baba ganoush.
I think, I don't know, we just need to keep adding these items of clothing that have food groups on them.
And I was almost thinking like we could each wear a recipe.
Ooh, okay, I like that.
We should coordinate that on the next recording.
We gotta pick some sort of food and then mix it all together.
I vote for waffles.
Yes, yes, maybe you have to guess the recipe.
Well, it's a work in progress.
Well, anyways, Alexander, thank you so much for joining us in Slack.
Oh, and one last thing.
I had such a nice conversation with him about the prevalence of the crushing it culture.
And we were sort of talking about how it's nice to see founders talking a little bit more about the difficulties of the business and perhaps moving a little bit away from crushing it and killing it and all of that, because all in all, it is such a difficult business, and it's pretty hard to crush it day after day.
Like, there are certain parts of your day that you can crush, but I just thought his honesty about that was so refreshing.
I love that.
Yeah, same.
Well, in other news, just the other day, I was driving home from the office, listening to Marketplace and listening to Kai Rizdahl's dulcet tones.
He was talking about the rising prices of cocoa, which have reached an all-time high.
Cocoa futures are the agreement to buy or sell a commodity at a future date.
So cocoa futures have more than doubled since the beginning of the year.
Now they're approaching $9,000 per metric ton, up from $4,200 just at the beginning of the year.
It sounds like El Nino induced dry weather, torrential rain, wildfires, and a cacao virus cut the supply.
So certainly climate change is affecting cocoa, like so many other things.
Sugar prices are also increasing.
Monica, I was talking about this with you, and you brought up a topic that it just made me shudder.
Can you imagine a world without chocolate?
It's a very sad and scary place to be.
I mean, what would we do?
Would it be all gummies all the time?
I mean, it would have to be.
I imagine like, I don't know, Charlie and the Chocolate Factory and without that big waterfall and river of chocolate, what are you left with?
Yeah, I don't know.
I feel like when I'm in my darkest hours, a piece of chocolate always helps dig me out of the hole.
Well, we will continue to be paying more for chocolate.
Mondelise, which owns Cadbury, of course, increased prices of up to 15% in chocolate in the last year.
And the 2024 global cocoa supply is anticipated to decline by almost 11%.
So we will be paying more.
I was at Whole Foods just this past weekend looking for Easter goodies for my kids.
There is an Easter bunny that was made by Lake Champlain, which is such a fabulous brand.
I love their chocolate so much.
It's so tasty.
For 3.7 ounces of a chocolate bunny, it was $13.99.
I just stood there, and I kept putting it in my basket and taking it out and putting it in and taking it out.
But it was just so expensive.
Have you guys noticed the change in pricing or did inflation sort of almost operate as a smoke screen?
I would think it's a smoke screen.
I feel like I just expect my grocery store receipt to be exponentially larger these days.
So individual items, I haven't really noticed a change.
But I mean, your Easter baskets must be very expensive.
You know, what I did instead is I went to stop and shop and I got them nerds clusters.
So they're these gummy nerds, they're gummies covered in nerds.
But then I also went to Home Goods and got them some Joyride candy, which they had.
So it was like, I feel like you kind of have to hide the healthy stuff with the not so healthy stuff.
So maybe they're a little bit confused, and that also kind of helps moderate the price.
Well, kids are going to have such a different experience with their Easter baskets growing up this year.
I remember mine was just a giant bunny made out of chocolate and a bunch of chocolate eggs, and that was pretty much it.
We're seeing some seasonal products coming out from emerging brands, which is an interesting twist.
So I know SmartSweets had its Easter themed candies this year, and I've seen a few others as well.
So I think Easter baskets do look different as millennial parents want to give their children healthier or cleaner treats.
Yeah, it's harder for me to feel that great about packing an Easter basket full of candy.
Like I usually try and moderate it a little bit.
What were your favorite Easter candies?
Do you have any that come to the top of your mind?
This would be, I think, polarizing, but I really liked Peeps.
Like some people hate Peeps, but I love marshmallows, and like I'm not a big chocolate person, so I would request Peeps over chocolate.
Do you like them stale?
Like some people like to leave the package open and let the Peep get kind of hard.
Is that your jam or no?
I don't discriminate, so if they happen to be stale because I didn't get to them yet, I would still eat them.
Some people prefer it that way.
I think I'm actually one of those people.
Really?
I didn't know that was a thing.
I'm going to have to try that on purpose.
Is it because they're a little crunchy?
Yeah, they just get kind of hard.
I don't know.
Maybe it feels like you're cracking into more of a shell before you get to the marshmallow-y interior.
Those Cadbury mini eggs are just, to me, they're so perfect.
You have that crackly shell on the outside, and then just enough of that Cadbury chocolate in the middle.
This is funny when I was kind of looking through chocolate news.
In the UK, there is a one kilogram bag of Cadbury mini eggs for 17 pounds 50 because of the cocoa prices, which I don't know how much that is now, but it's got to be more than 20 bucks.
Yeah, and also I feel like people, when those eggs come out, I know people that literally stock up because they only come out seasonally.
So I think with that, some people aren't very price sensitive with that specific product, but that is crazy.
Monica, do you have any favorite Easter candies or treats?
I mean, I love jelly beans.
I can't say no to a jelly bean, not necessarily jelly belly, maybe Brox, the more traditional kind.
And I also love the jumbo size jelly beans.
I don't know, there's something about the shell to filling ratio that I love about those.
You really like shells.
I don't love shells.
What can I say?
I'm so with you.
I cannot believe that you brought up Brox, my great auntie Polly.
We would go visit her, and she had this drawer full of candy just for us.
And she would always have like a bag of Brox jelly beans.
And the thing that I remember most about them is you bite into them and you leave this sort of white residue on the bitten part because they are so crusty.
I can't believe you love Brox.
That makes me so happy.
But I also love the Cadbury cream eggs that you referenced.
And I have been known to pick up a few eggs every time I'm in the store throughout the season.
I was digging into chocolate, as I mentioned today, and I came across a collaboration between Cadbury and Subway UK in Ireland that they did last year.
We were trying to figure out if this was an April Fool's joke, but they did sub melts made by smashing Cadbury cream eggs on Subway's Italian white bread with the tagline Unleash the Goo.
So again, that's an Italian sub roll with Cadbury cream eggs in the middle smashed shut.
Yeah, when I first heard this, I just thought of all of the vomiting emojis, but I think Monica should get into marketing because the way she sold it to me, I think I would try it.
It's like a chocolate croissant.
Yeah, when you put it that way, it is the same kind of ingredients.
I think that is a European tradition though, putting chocolate spread, I don't know if Nutella necessarily or some other kind of chocolate on bread.
And I'm here for that combo.
Yeah, I mean, at first I thought it sounded disgusting, but then after Monica talked it through a little bit, it probably is pretty tasty.
I feel like six inches might be too much, but I'd probably split it with someone.
I actually now am thinking about going to get bread and some Cadbury eggs after work today.
I'm gonna do this.
The sugar rush is real.
Yeah, but I feel...
Or you know what it could be?
It's like a game show like Hot Wings, but instead of things being hot, you pack as many grams of sugar into the thing itself, and both people have to eat until they pass out.
Honestly, I think I would do really well at that game.
I think I've had years of practice of just eating way too much sugar in one sitting.
Well, with the rising prices of cocoa and seemingly everything else, Conserving Capital is at the top of every brand's mind.
In this Community Call, I chat with the Beverage Whisperer, Ken Sadowsky and Gerry Khermouch, editor of Beverage Business Insights.
They will share seemingly simple but very effective insider tips on how brands can conserve capital.
Enjoy.
Today on Community Call, we are thrilled to welcome the Beverage Whisperer himself, Ken Sadowsky, Senior Advisor at VerlinVest and Director at VitaCoco Hint & Life Aid.
We are also thrilled to welcome Gerry Khermouch, editor of Beverage Business Insights.
Today we're going to be talking about how beverage brands can conserve capital.
Gerry and Ken, thank you so much for joining us today.
It's such a pleasure to have you here.
So Ken and Jeff, why don't we set the stage here with the big picture?
I'll ask each of you individually if you can provide some high level insights into the primary capital restraints that brands are currently encountering in the market today.
Ken, why don't we start with you?
Can you give us sort of like a high level picture of what the issues at hand are?
Well, I think the overall macroeconomic issues are playing into the constraint of capital at this point.
And I do see it loosening up a bit at this point, maybe loosening up a lot, but certainly angel investors to sophisticated capital, when there's trepidation and tremors in the marketplace, and there's an opportunity to get 5% on your money by buying UST bills, that sets up for a difficult time for entrepreneurs in general.
Gerry, how about you?
I look at it from a different level than Ken, and I really honestly feel for a lot of the entrepreneurs who launched brands in a vastly different world a few years ago, pre-pandemic, and saw the goalposts completely changed on them when the outside environment changed.
So I sometimes like to give the example of Oatley, which actually just by chance happens to be a Berlin investment.
I followed their IPO Roadshow very avidly, and I distinctly remember the principals not saying a word about getting profitable in less than four or five years.
The market seemed fine with it.
They priced it at a $10 billion valuation, which seemed a little frothy, but the market bidded up to 13 billion almost immediately upon the start of trading.
So clearly Wall Street had no reservations about that plan and that valuation.
And now of course, they're in a position of trying to promote themselves as an asset light company, closing plants, finding outside co-packers and really upending the plan.
Again, a plan that they had said they were gonna do and with some glitches have by and large held to.
So it's kind of, life is not fair in that way for a lot of entrepreneurs.
But the investor is always right, it's time to adapt.
And so now we've seen a complete reorientation of where people prioritize their spending and how much and in what terms they try to bring in new capital.
I appreciate that.
And I also appreciate your play on words with frothy.
So well done there.
Why don't we walk through some of the pointers that you gave and dive in a little bit deeper into some of the ways that brands can conserve capital.
The first one that you outlined was for brands to carefully consider what the most efficient channel and format for the product was.
And the example that you gave me was evaluating whether you could go from cold chain to shelf stable.
A good example would be a brand called Lemon Perfect.
The founder was new to beverages.
He came out of the sports environment and he wanted to create a more approachable and inexpensive suja for the athletes he was coaching.
And was on a soapbox for a year or two saying, if you don't do a refrigerated product, you're full of it because, you know, if you try to make it shelf stable, you're killing all the nutrients that are really the most valuable, et cetera, et cetera, et cetera.
And he quickly found that that was an extremely challenging way to go to market in terms of distribution availability and the inability to get the floor stacks at retail and expense and all kinds of other factors.
And pivoted without remorse to shelf stable, very good product.
He's showing a lot of momentum.
And, you know, that epitomizes the kinds of trade-offs people have to be ruthless about evaluating.
You don't want to kill the germ of what, you know, your idea was and totally compromise it, but sometimes you can find another way to kind of get most of what you're looking for in a way that's feasible these days.
Ken, what are your thoughts on evaluating the right channel for your brand?
The brands that you advise, if they come to you and say, we're going to launch Cold Chain, what are your immediate thoughts and questions for them?
What I tell the entrepreneurs, when they're first starting out and I am coaching them, I sort of stay away from Cold Chain in general.
And what I would say is the inch-wide, mile deep strategy for going to market initially gives the most impressions that a consumer can sort of trip over at one time in a limited geographic area.
So not so much picking out Cold Chain or ambient distribution.
I'm a big fan of ambient distribution.
I actually have never really invested and or helped anybody in the perishable Cold Chain.
That is just my forte and where I've chosen to focus.
And for brands who perhaps launched Cold Chain and are now reconsidering that decision, I've seen it both ways.
The brand either launches another line of product that is shelf stable and then perhaps eliminates the Cold Chain or they completely reformulate.
Any thoughts on what the best practice there is, whether do you reformulate, do you launch another line?
What's the best practice there?
A good example, I think, perhaps the one you're thinking of is kombucha, where the core product needs to be refrigerated.
Many people have tried to do shelf stable kombuchas in the US and very few have lasted very long.
And yet most of the players have extended into shelf stable gut pops.
So they're kind of maintaining the integrity of their initial core concept, which is admirable and not alienating those core users that are substantial and committed.
But they are playing in a more attractive segment at the cost of considerable complexity to their operation, because now they might have two separate distribution channels, obviously two completely different production setups that they have to juggle.
And it's worth saying about that segment in particular that it's been very interesting to see that incumbency in Kombucha, meaning if you're a key player in Kombucha, that does not seem to confer any advantage in this segment that we're calling Gut Pops.
It's very similar to me to what happened a decade ago when all the major energy brands thought they'd take on 5-hour energy with energy shots and found out that just because the name says Red Bull or Monster or Rockstar, it doesn't mean the shot user is going to respond to your brand.
So again, if we're looking at Kombucha, it's a way to play in shelf stable and get all those advantages without compromising the core concept, but it does add quite a bit of complexity, and we're not even sure it's going to work.
Several have just come out with new versions to try again.
And are there any other considerations that present a challenge in the way of packaging, ingredients, that kind of thing?
Ken, any thoughts on that?
Well, I think to dovetail on to Gerry's initial thoughts, which are, I believe, accurate and I'm in agreement with, I think food technology has enabled some of these ingredients to be either nanoencapsulated to keep efficacy or just other components, whether it's aseptic packaging, aseptic production.
And then the second thing is what I think he was alluding to and maybe didn't say directly, was that there's a price point difference for all of the reasons that cold chain represents.
And when you're in a shelf stable environment, your price point can be lower.
What that can do is start you with a core consumer that's a purist and then get you to a more consumer with the sort of, we can put this out there in a shelf stable environment.
Let's move on to the next pointer here, which is to evaluate investment and distribution opportunities with large organizations like Coke, PepsiCo, versus smaller systems like Keurig, Dr.
Pepper and Constellation.
Gerry, you said the latter, that is the smaller organizations might be preferable.
Can you expound upon that?
Well, it's a very complicated issue, no question about that.
There's no one size fits all.
But I do sometimes think that a lot of entrepreneurs have this mistaken view that if they do a deal with the so-called strategic, whether on the soda side or the beer side, or perhaps the wine and spirits side, that they've swapped out a disparate group of independent distributors for one-stop shopping.
And it doesn't really seem to work that way in practice all the time.
Celsius just reported a very strong quarter this morning, and the onboarding into the Pepsi system seems to be going very, very well.
So that's a case where, unlike the case with Pepsi and Bang, it has worked.
But you really don't get one-stop shopping.
You still have to cultivate allies at all the different regions, and there might be an independent bottling system in the case of Coke.
And particularly in the case of the beer systems, Anheuser-Busch on the one hand and Molson Coors slash Constellation on the other, you really get a varying level of interest, commitment and performance from various members.
There are some beer houses that are absolutely superb at managing non-alcoholic brands.
They've been involved in many of the most successful exits.
And then there are others that I'm starting to think are just kind of hopeless.
As much as they need the revenue now, they just can't seem to get their hands around it.
So again, you think I'll do a deal with Anheuser-Busch, and now I have a premier network to go into, but they're really fine tuned engines for their core business, not for your business.
Yes, it's a jigsaw puzzle where the pieces don't all fit together properly, and there might be voids here and there, but you might end up with a superior level of performance.
Do you have any thoughts on why that is, that if you're an emerging brand and you sign on with one of the big systems, that it may not work to your advantage?
To me, it comes down to one word, it's focus.
As a synonym for that, pressure.
Your core supplier, whatever their rhetoric might be, and it's much more relaxed than it used to be back in, say, the 90s, they're going to be pressuring you not to neglect the core brands.
And that's particularly true if they try to innovate their own non-alcoholic brand.
And then you might not think that's the best energy play that's available.
As a wholesaler, you want to bring in some outside brands.
There's a lot to be said for building a portfolio of brands.
And you will be getting a lot of pressure from your core alcohol supplier to stop the nonsense and focus on their stuff.
Ken, what did you mean by focus?
Well, I mean, it's what are you, as a small brand, going to be able to command for focus?
And one of the things that certainly Gerry and BevNET both know that I do is what started as the Snapple Sewing Circle and now is NYDEV, the Northeast Independent Distributor Association.
I do see what the distributors are thinking.
I started as a distributor, so it is my background.
It's in my DNA to look at things for brands from that perspective because it's how I grew up.
And so what I say is if you get a small distributor who's motivated, they will focus on building your brand and they just need help in learning how to do it.
The big systems know how to do everything and you have to learn their way.
And that's where the sort of incongruity or disconnects can happen.
Ken, the next question seems perfectly teed up for you to tackle first, which is to dial in your DSDs, how to have a presence without bleeding cash.
What are your best practices and best advice for brands in that regard?
Strategically, what I say is don't get caught in ready fire aim.
Make sure that you are doing everything you can to make sure that you know what works in one market and then expand to market number two and then market number three and then market number four.
It doesn't go one, two, four, eight, sixteen in markets.
It goes one at a time.
And some brands like, I guess, Prime has shown that they can ignite something that catches fire all at once.
But I wonder what they have for staying power.
So I think the way to build something foundationally is just to make sure that you know what works in one market, to be able to replicate it in the next market and the next market.
And what are some of the biggest mistakes you see brands making with DSDs?
I know that you just sort of recounted the ready fire aim miss strategy.
But what are some of the specific mistakes that brands make when they're trying to grow their distribution with a DSD?
To address what Ken just said in a different way, there's that term of art that we call the land grab strategy, which is raise a ton of money, sign up DSD houses in every major market, and hope that you're that one in a hundred brand that truly ignites across all those markets.
Ken mentioned Prime, Alani, also in Congo brands, Liquid Death.
There are a handful at any time that seem to be making it work, but we don't always know at what expense and how sustainable that would be.
A couple of great entrepreneurs, but bad examples to follow are Lance Collins and Mike Rapoli.
They can make it work because they have access to limitless resources and can just keep refining their brands and strategies until something finally clicks and the timing is right and they find that brilliant exit that dazzles everybody else.
So again, with that radical shift that we've seen in sentiment on the financial and investment side, the mantra pretty much now is pick your spots very carefully.
If you're thinking about a strategic exit, trust us.
The strategics can do simple arithmetic.
They can extrapolate if you're really killing it in New York and LA, they can extrapolate what that probably means for Atlanta and what the potential might be on a national scale.
Work very closely with those houses.
You can sometimes get those DSD partners to invest in your brand.
Some of them will want you to give them shares, but you can often get them to write a check if they believe in you.
And that makes the tie even stronger.
And if there is an exit, then they get their buyout, but they also make out on the equity side.
And just make them your trusted partner.
Listen to their advice on what works and what doesn't work.
And only once you think you've really got something, that's when you start looking more broadly at more of a regional or national network.
I would think that the folks over at Prime know that they're on fire.
But for so many brands, it's a slower burn.
Are there any good ways that you can recommend brands understand whether or not what they're doing is working with their DSD?
Is it a combination of volume, the relationship they have with the DSD, consumer feedback?
How do you know if what you're doing is working?
What I would say to that is, I mean, at a minimum threshold, if you have chosen to strategically and tactically roll out into certain classes of trade and you're meeting the minimum velocity per outlet thresholds of those retailers, you're doing something right.
And whatever it takes to get that product to pull off the shelf is really showing you that there's some reason to be happy or things that you can take to the next marketplace to show as success.
And I think that's really just the...
The VPO is the main thing, volume per outlet.
If you're meeting or exceeding the thresholds, that's a really good sign.
It depends.
There are so many ways of making that happen, whether it's temporary price reduction, which is not a great way of conserving cash or doing demos now that we're in a, I guess, post-pandemic era, where demos can happen and we get liquid tulips.
Yeah, the only thing I would add to that is my experience over the years is distributors are not shy about telling you their opinion.
The opinions are out there and usually very straightforward.
The more common problem I encounter are the entrepreneurs who don't listen.
Let's move on to the next pointer here, which is that breakthrough concepts don't always win and that you may be better off building on an existing concept that can use a little bit of tweaking.
Gerry, why don't you start, and then Ken, I'd love to hear from you after that.
Okay, well, you know, one of the new acronyms du jour is TAM, T-A-M, what's the TAM?
In fact, the CEO of Celsius just used it on the earnings call this morning, and that of course stands for Total Addressable Market.
And what that's really talking about is you can address a niche, let's say mushroom coffee, which actually happens to be a segment I really love, but the total addressable market, the total upside of what that category might be might not be that substantial.
So even if you succeed wildly in winning dominant share in that category, it still might not amount to that gigantic a business.
Whereas on the other hand, if you're an ollie pop or a poppy or even a Celsius, and you say, I'm a replacement for soda, that, Tam, is what?
$100 billion.
And so if you want to get investors enthused, one way to do that is by convincing them that you really are pursuing a real opportunity.
And there are all kinds of ways to do it.
One way is simply to look at what's out there in the market now that sells big and address some of their shortcomings.
You can see like a gigantic bottled water category and go, huh, what's the shortcoming of a lot of these brands?
Oh, they're in plastic.
Plastic's out of fashion.
I'll do a canned water.
And you see brands like Liquid Death and Path and Proud Source starting to do really well.
So again, you want to, it's better to pursue a big prize where there really is a chance of creating a big and lasting business.
However, on the other hand, as I think Ken will probably address, sometimes there's something to be said for just pursuing a dream of really interesting breakthrough concept and just seeing where it leads and not assuming that it's destined to be a niche.
Kenny, you were talking about that yesterday.
Yeah, I mean, look, what I like to do is help entrepreneurs who have envisioned something that's real innovation and get it from a niche to a big market.
I fortunately have been a part of some really nice startups, but I guess the one that's most prescient, given the fact that their public and earnings were yesterday, is VitaCoco.
I mean, I certainly felt like that was Mother Nature's Gatorade from the very beginning.
And, you know, Mike Curbin and Ira Liron really just had no idea of how to make that ready for primetime.
And fortunately, they found me or I found them and helped get them into the position they're in today.
And, you know, that's a great outcome.
But as Gerry says, you know, the tam, what it reminded me of when he was speaking was when Jennifer Ross and Christina Ross Blankfein had done their original thing of swoon was a sugar-free simple syrup.
And I basically said to them, you know, if you get 100% of this marketplace, it's less than Red Bull spills in half an hour.
So, you know, it is tam is an important factor.
And I guess being at the tip of the spear, knowing that there is a spear behind it and knowing that, you know, there might be a core consumer, but there will be a lot of more consumers if you're successful.
It's funny, along those lines, one product I really miss personally as a user is Owls Brew Mixers.
It was just a tea-based mixer, absolutely brilliant, so versatile.
You can have one or two bottles on yourself and make an infinite number of drinks.
The founders did a strategic deal with Anheuser-Busch, and to me, inevitably, we're steered into doing alcoholic teas in a can.
That may be working.
That clearly is a bigger tam and of course much more in sync with what a bud wholesaler would want on the truck than a shelf-stable, low-velocity mixer.
But part of me wishes they'd pursued that dream and seen how far they could take it.
We have a question here from the audience from Ken Davidov who wants to know, he says that Gerry mentioned a brand pivoting from perishable to shelf-stable.
He said this sounds risky and is pivoting a last-ditch effort to stay in the game.
Is that how you see that?
No, not at all.
I think, talking about Lemon Perfect, I think they could have continued to try to push as a refrigerated brand.
It was a good product.
They were generating a lot of interest.
I just think the founder was kind of savvy enough to realize he had enough interest that he could get grade A DSD partners if he was shelf-stable, and he could really blow the thing up.
But I don't believe he was under, you know, in any kind of a desperate situation when he made that move.
It was still very early days.
Ken, when do you see brands making this shift?
Is it early on as the founders are realizing some of the drawbacks that come along with cold chain, or is it when push comes to shove and the founder realizes they need to do something and do something quick?
I don't know if it can be a general answer.
I think it really is a case-by-case basis.
Some brands just have in their sort of raison d'etre to be, we're going to be a cold chain, we've got to be perishable.
Consumers think of us as fresh, ready to drink and effective, or having efficacious amounts of functional ingredients if we are cold.
I guess the earliest days would be orange juice, and just look at how that category has morphed.
It doesn't have to be cold occasion, but it's still the best occasion if you have fresh squeezed juice.
It's cold and it's consumed.
By the way, I mean, kind of a related question to that that always has fascinated me is the whole issue of line extensions.
Again, there are many pitfalls.
You have to be very careful about trying to gauge where your brand can go.
To me, a great example is I could never for the life of me understand why Honest Tea never could succeed in extending into such adjacent categories as yerba mate, kombucha, or I think they even tried cacao at what point.
Those don't seem that far away from tea, and yet the brand just didn't seem able to stretch there.
And again, I just mentioned earlier that a lot of the kombucha brands trying to extend into these shelf-stable gut pops have struggled trying again now.
So some of the avenues that you think you might have might actually not be open to you.
And you have to be careful to try to gauge if your consumers give you permission to do it.
On a larger scale, still an open question if Arizona iced tea can extend into healthier categories.
Nothing they've done has really ignited.
They've done some ingenious products.
It could be that they're associated with a certain kind of indulgence, and their consumers are not going to let them go there under that brand.
Trying to figure out what your consumers will give you permission for is certainly such a huge part of success.
And whether you call it a raison d'etre or product market fit, it's such an important thing to dial in.
Gerry, one of your points was to make sure that you're doing that locally versus nationally.
How do you know that you've found the right product market fit, which then gives you permission to start expanding?
Well, I think a lot of it is frankly intangible.
You just see a certain degree of excitement, the comments you get online from consumers.
They're exhilarated.
They're really thrilled to be able to purchase it.
Your distributors, again, who are way smarter than you might think they are, are letting you know that you're on the right path and that their retail accounts are finding it a valuable addition.
So you just have to stay attuned to things like that.
I'm not so much a firm believer in doing quantitative testing to settle these discussions.
It would make it so much easier though, wouldn't it?
I like to tell people every major product failure was backed by 500 pages of consumer research that said it couldn't miss.
That was going to be one of my next questions is, how do you recommend that founders get that information?
Is it consumer research?
Is it talking to advisors such as yourselves?
What's sort of the best mix for founders to understand whether what they're doing is working and whether they've dialed in the product market fit adequately?
I'm going to answer that, but I also want to go back to Gerry's example of honesty, if I may.
But I'll answer your question first.
What I tell people when they're first starting out, entrepreneurs, I want them doing the demos.
Don't hire an agency to do the demos.
Be on the front line and hear the consumers directly.
Because once you're successful in interrupting someone's path going into a store or coming to an event or leaving an event, depending on what the product is and the occasion, they will tell you.
I mean, the people that stop will tell you what they think.
And it's not a focus group.
That is their, you know, exactly what they're thinking at the time.
So I think that's, I guess, my sort of primary way of telling somebody in the earliest days of how to accomplish that.
But the Honest Tea thing is really an interesting situation.
And I don't know if I'm right or if I'm wrong on this, but what I would say is it's so hard to do that permission marketing and line extensions when they had contracts with Coca-Cola and then Glass going into natural product stores, you know, NSF stores.
So they have this whole bifurcated path to market, and it just made it that much more difficult for them to accomplish new product launches and halo effects and testing different things.
Yeah, though, you know, don't forget, even once Coke owned it entirely, they tried again on Yerba Mate in a 16 ounce can and again, that might have been Coke's flawed innovation approaches, but that didn't work either.
It just seems like very unpredictable in that way.
And to go back to Melissa's original question, I just by chance fortuitously happened to enter this category I think pretty much the same month that Arizona Iced Tea was launching.
And I was at brand week, I was talking to all the marketing experts and then talking to Don and John, the founders of Arizona, was very refreshing.
So as an example, when they launched in pastel cans, all the marketing experts that I spoke to that were my new world said, you can't launch in pastel, it's too recessive.
And then when I'd run it by Don and John, they'd go, 30,000 SKUs in a grocery store, they're all in poster colors and we're the only ones in pastel and you're saying nobody's gonna notice us, huh?
And I'd be like, huh, yeah, good point.
So of course I asked them about what market research they do in testing new products.
And I remember John Feralito saying, we have a barbecue and we see whichever one the kids like more that's in the bucket, that's the one we go with.
And given their success, you can't say it hasn't worked.
Can I see you shaking your head and laughing over there?
Yeah, no, I mean, I remember a vitamin water board meeting where one of the directors was asking if a focus group got done on one of these things of innovation, and Darius was like, no.
And then the same director asked a question a second time about another piece of innovation during the meeting, and Darius was again sort of flippantly just saying no.
And then the director asked a third time, and Darius looked at him and said, not only do we not do focus groups, but if you ask this question one more time, I guarantee we'll never do a focus group.
I love it.
All right, last point here, which is to make your mistakes locally versus nationally, is who and when to say no to.
We see brands all the time launching in a national retailer, perhaps before they're ready for that.
What are some of the ways that brands can understand whether they should say yes or no to a question and who's asking those questions?
Well, look, what I say is if you don't have the wherewithal, you as a brand don't have the wherewithal to know that you're going to successfully pull product off the shelf, then you have to say respectfully, Mr.
Giant Retailer, we don't know enough yet about what it's going to take to make our product succeed in your stores.
And so we would never say no to you, but we have to say not now.
And some of the biggest retailers on earth are getting into these innovation games of especially beverage earlier than they had in the past.
And that has, you know, really forced the issue to like politely say, we don't want to, you know, make a mistake and then never get back into this giant, crucial retailer.
And, you know, one of the things that it takes in my mind is to have a field team, whether it's sales or marketing, to be able to inspect what you expect from the execution at store level.
So if you can't do that, you just, you know, you don't have the right to go into that store.
Well, first of all, I should say, Melissa is drawing a lot of these questions from a feature I run in my newsletter, the first issue of every New Year, that's called New Year's Resolutions for Beverage Entrepreneurs.
And, you know, if you want to read them, feel free to reach out to Melissa.
You have my permission to forward it to them.
And, you know, one of my precepts for a long time has been learn to say no to retailers you can't support or distributors you can't support.
And I often used to say, and that means Walmart most of all, and that's completely changed.
You know, Walmart now has like a very committed merchandising team.
They're just very congenial to early stage brands.
They try to make it work.
I used to warn people like, you know, Walmart will bring you in and they'll just chisel you on price forever.
They don't do that anymore, even though they like to have an approachable price.
You know, so you have to weigh these things.
Will they let you go region by region?
Sometimes they actually prefer to go to slot you into national stores, not all the stores, but the subset that reached the demographic that seems to match up very well with your brand.
So again, might that work?
Can you support those stores?
If you don't have DSD, can you get a merchandising company to kind of support you at the shelf?
Many times I've seen brands get into a major chain like a Target, and without that support, the inventory never got to the shelf to replenish the shelves when it would sell out.
The chain managers, they didn't know anything about that.
All they knew was that your velocity had dropped, which of course it had, because you didn't have any product on the shelf, and out you went.
So you have to be very careful and stage these things really well so that you don't end up in that kind of a trap.
Are there any other opportunities that brands should be careful to say yes to besides expanding into a large retailer?
Well, I have an opinion on that.
I've always told people, don't raise any more capital than you absolutely need.
You know, doing, raising too much makes it harder to prioritize.
If word gets out how much you've raised, everything gets more expensive to you.
No retailer will cut you a break on slotting, let's say, if they know you just pulled in $50 million.
And I would get a certain amount of ridicule from people for saying that.
And the other school of thought was, if the money is out there and available at attractive terms, why wouldn't you pull it in while you can?
And things, again, not because I was brilliant, but because the environment changed, have now tilted to that view that you should be, even if you can bring the money in, and a lot of people are bringing in sizable sums these days.
We're not in a nuclear winter of funding by any stretch, but even if you can, you should think about how much you really need it beyond just suffering dilution and all those things.
And do you really need to resort to institutional capital, or can you keep finding workarounds?
I happen to think family offices like Berlin Vest are a very good hybrid with a longer timeframe than many private equity houses, and yet with that kind of support that you get.
So there are many ways to get capital, but I continue to believe you should err on the side of having too little rather than too much.
In the last few years as capital has been tighter than it had been in a while, do you find it more difficult to advise folks to start up beverage brands?
Is it harder to encourage founders to start up beverage brands and try and scale them in this environment?
No, thank you.
Thank you for this entire thing, by the way.
It's been a real honor to be here, and it's been great to be here with Gerry.
Usually, I see him at Barney Greengrass, so it's better to just be in Miami for this.
But look, I think the answer is entrepreneurs are just died-in-the-wool entrepreneurs.
They don't care about timing.
They don't care about...
There's no fear of failure.
It's just, you know, it's great, and it's not me at all.
So I'm a good coach for them because I think I'm like a voice of reason, but there's no shortage of ideas or people that want to move forward, irrespective of their timing.
And I guess from my point of view as a journalist, I'm always trying to assess how reliable various contacts are in terms of how straightforward they're being with me.
And one of my rules of thumb is, after I've known them a while, if they never ever say...
If I had any idea what I was getting into with this beverage launch, I never would have done it.
If they never tell me that, I presume that they're not being fundamentally truthful with me on that and probably other things.
It is very daunting.
The odds are very steep.
And I think it's helpful to know that going in.
It sort of sorts out the people that will have the stamina to stay the course.
In fact, BevNET Live, I think, is very useful for that because entrepreneurs go to that and they hear an array of experts all basically saying, you don't know how tough this is going to be and how many pitfalls there are.
And then those who want to stick with it and still do it, those are the people who are going to succeed more likely.
Or die trying.
Yeah.
Excellent.
Well, I hope to see you both at our next BevNET Live as well as the rest of our audience.
Gerry, what's the best way for folks to get in touch with you and to subscribe to Beverage Business Insights?
Well, we're at www.bevinsights.com, and you can reach me through that as well.
We're part of the Beer Marketers Insights group of publications, so they've been doing beer newsletters for I think 54 years now.
I launched this one with them.
It's just going on 20 years now.
And so we're steeped in this stuff.
I do NA's, and then we have a bunch of alcohol-related publications.
Thank you for that.
And Ken, how about you?
How do folks get in touch with The Beverage Whisperer?
Well, I would just first like to say I like to drink those beverage alcohol publications.
No, look, I'm at www.beveragewhisperer.com, and certainly there's an info there so someone can reach out.
And yeah, I mean, it's a pleasure to be in the game.
Thank you both so much for this conversation.
I so thoroughly enjoyed it, and I'm sure our audience did as well.
That concludes another episode of the Community Call Podcast.
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