9. WHAT - Categories
Alternative Beverages
Ready To
Drink Tea
(RTD Tea)
Juices/
Juice
Drinks
Lemonades
Energy
Drinks
Enhanced
Water
Sports
Drinks
(Isotonics)
Coconut
Water
13. HOW - Retail Channels
Convenience Stores
Food Service
UDS
14. HOW - Channels
Convenience Stores
Food Service
UDS
Grocery
Mass
Club
Dollar
15. HOW - Channels
Convenience Stores
Food Service
UDS (Mom and Pop)
Drug
Natural
Grocery
Mass
Club
Dollar
16. HOW - Route To Market (RTM)
Collaborative Sales to Retailers
Distribution System Delivers
Distribution System Merchandises
17. HOW - Route To Market (RTM)
Collaborative Sales to Retailers
Distribution System Delivers
Distribution System Merchandises
Direct Selling to Retailers
Product Shipped to Retailers Distribution Centers
Merchandized by Store Employees
18. HOW - Route To Market (RTM)
Collaborative Sales to Retailers
Distribution System Delivers
Distribution System Merchandises
Direct Selling to Retailers
Product Shipped to Retailers Distribution Centers
Merchandized by Store Employees
Retail relationship with Broker
Product Shipped to Retailers Distribution Centers
Merchandized by Store Employees
19. HOW - Route To Market (RTM)
Collaborative Sales to Retailers
Distribution System Delivers
Distribution System Merchandises
Direct Selling to Retailers
Product Shipped to Retailers Distribution Centers
Merchandized by Store Employees
Retail relationship with Broker
Product Shipped to Retailers Distribution Centers
Merchandized by Store Employees
Retail Buyers relationship with Broker
Product through multiproduct distributor
Merchandized by Store Employees
24. The Runa Strategy…
Consumer –
Category - Tea
Young Urban
Professionals
Seeking A
Healthier Energy
Alternative
Product – Guayusa
Package – Single
Serve Glass
Price – Category
Average
RTM - Natural
Channel & DSD
Retailers –
Natural/Urban UDS
Marketing –
Sampling, PR, Word
of Mouth
31. LRB Retail Revenue ($B)
Alternative Beverages
Bottled Water
Carbonated Soft Drinks
Source: Beverage Digest Annual Fact Book 2012
32. LRB 8 oz Per Capita Comparison
2001
Total 1,062
2011
Total 1,173
Source: Beverage Digest Annual Fact Book 2012
33. LRB 8 oz Per Capita Comparison
2001
2011
Total
1,173
+111
CSD
691
(151)
Bottled
Water
239
+154
Alt Bevs
243
+108
Source: Beverage Digest Annual Fact Book 2012
34. The Implication
Each Beverage Category Share point is worth $1.2B
Beverages Category is Growing 2 Pts/Year
CSDs are declining at 1.5 pts/Year
Every Year Consumers Are Spending ~$3B Incremental
Outside CSDs
35. Alt Bevs $34B At Retail
Alternative Beverage All Channel Retail Sales 2001-2011
$40,000
10 Yr
CAGR
$35,000
+38%
$30,000
$25,000
+9%
$20,000
+8%
$15,000
+7%
$10,000
$5,000
+6%
$0
2001
2002
2003
Juice/Juice Drink
2004
2005
Sports
2006
Tea
2007
2008
2009
Dairy/Other
2010
2011
Energy
Source: Beverage Digest Annual Fact Book 2012
36. 2011 Revenue By Brand ($M)
Source: Beverage Digest Annual Fact Book 2012
48. Red Bull Street Activation
Activation Teams In Every Major City
Red Bull Activation
Create unpaid local
exposure
• Coolers at radio stations
• Coolers at local TV news
• Locker rooms at local sports
teams
Links to Distributor
• Maintains link between
microcell and distributor
• Develops driver sales
people
Field
Marketing
Manager
Plans and
executes
bar/club events
On
Premise
Manager
Field
Sales
Manager
Field
Sampling
Manager
Plans and executes
local sampling events
at retail and events
Key
Account
Manager
Executes
Nationally
Driven Off
Premise Retail
Events
48
59. What Will An Exit Look Like?
Dependent on Size,
Profitability and
Growth Potential
Profit is less
important
Revenue Multiples at Exit
Vitamin Water
11.7
Naked
3
Current multiples of
revenue are
around 2x to 3x
Fuze
2.6
Izze
2.5
(Don’t use
Vitamin Water
as an example)
Sweet Leaf
2.4
Honest
2.3
0
5
10
15
What I’m here to discuss:Beverage InnovationCategory BackgroundWhat Drives SuccessSome Hazards to avoidHow Big Strategic Businesses Look at the innovation companies
I started at a promotion agency working on MillerI was a Brand Manager on RC and Diet Rite in the mid 90s Marketing Director on Snapple in the late 90s and Vice President of Strategy at Cadbury Schweppes before spending a couple of years working as an independent consultant to some emerging brands before I came to Hershey.I joined Hershey last December as Director of Global Innovation Strategy, the latest step in a career that has focused on Marketing and Commercial Strategy drop today’s trends into the context of the overall beverage marketplace and understand the changes that are happening
To Quote Seth Goldman – Teo of Honest Tea - Run away from the beverage industryEveryone who has ever opened a can of Coke is an expert and then if you speak to an industry insider, costs, margins, investment levels, all become a subject for debate.
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
LRB market in 2011 is $114 B. CSD -1B Cases, but up $5B in sales to $66B
Growth of Alt Bevs is most strikingFrom $14B to $34B Volume 2x from 1.6 – 3.1B casesExpect Energy to be a big contributor – and is at around $9BAll other Alt Bevs together contribute $11BCSD share drops from its high of 86% in 1997 to 75% in 2001 to 59% in 2011So, what caused this
By 2011 we were drinking around 1173, servings – an 10% increase.111 incremental consumption occasionsWhile this is a great thing for the industry, Even without any segment swings, this is a big change
Decline of CSD’s - 151 lost occasions, was 842 / -18%Water up from 85 occasions to 239, 181% increaseAlt Beverages +79%, 108 occasions
As a result in 2011, of the $34B in the Alternative BeveragesGrowth in energy at around 38% throughout the decade has been a big driver, by high single digit growth in most other categories identifies this sector as being in good health. So, this is the source of the opportunity: Your reason to believe as a beverage entrepreneur.
See the impact of Beverage Innovators in the important brandsOnly Gold Peak, All Sport, Full Throttle and Amp originated inside one of the big bevcos (we can debate propel)Of the $34B in sales, $11B came from brands that did not exist in 1997. Brands mostly created by entrepreneurs: and not by the big beverage companies. But just because trends are on your side, and beverage entrepreneurs have a track record of success, it does not there is a potential market for your idea, So this is all really easy – right? Rising Tide? Big Opportunity
See the impact of Beverage Innovators in the important brandsOnly Gold Peak, All Sport, Full Throttle and Amp originated inside one of the big bevcos (we can debate propel)Of the $34B in sales, $11B came from brands that did not exist in 1997. Brands mostly created by entrepreneurs: and not by the big beverage companies. But just because trends are on your side, and beverage entrepreneurs have a track record of success, it does not there is a potential market for your idea, So this is all really easy – right? Rising Tide? Big Opportunity
I also have one note about some definitions:Liquid Refreshment BeveragesAny Carbonated Soft Drink number does not include Energy Drinks.Bottled Water is Bottled Water – and does not include enhanced watersI will use the term Alternative Beverages: which refers to Any beverage that is not a CSD or Bottled WaterA case is a 192oz Equivalized CaseTranisition to population
As an independent consultant, a major area I analyzed was the drivers of success in a beverage startup. Before I start on this part of the presentation, I just want to advise you that what I am about to say is incredibly difficult to do: Its so difficult that the big beverage companies have all but given up in this area – and look to this community to create big new ideas.
A lot of time and effort is spent on finding a way to carve out a unique space in an increasingly crowded market.- Distributors will no doubt tell you – Retailers are not increasing shelf space just for you…- And then there is my own personal salesperson favorite “please tell me where the “white space shelf is”
It is often said in private equity that “you don’t invest in plan, you invest in a person”. People with the ability to create a proposition, strategically figure out how to position the proposition for success – and then execute the plan: And if the plan encounters issues, is flexible enough to figure out a new approach.There is no doubt that entrepreneurs are special people: Yes, they normally have amazing vision, but they also have the ability to translate the vision into action, and they have the ability to recognize very early why they were being successful and find a way to emphasize it.
There is well-trodden way to the consumer through the independent beverage distribution systems, into the visicoolers of the up-and-down the street accounts in urban markets and into the mouths of your drinkers. The process has built multiple innovative beverage businesses – and is the perfect Route To Market for the right brand.
Perhaps the brand that best leverage the independent system was Vitamin Water. The team understood both the strengths and shortcomings of the system and built their activation plan that effectively supported the system.Glaceau focused almost totally on trial and availability to seed itself. Local market sales people were often supplemented with huge blitz teams that brought excitement into distributor warehouses, and delivered new accounts, sold in new products and performed sampling on the street. High intensity approach, that put cash in the pockets of the local route drivers: And had a big impact in improving the quality of sales call to the retailer.
There was a recent editorial in one of the beverage trade publications complaining against the use of the term “activation”. I disagree. My own definition of beverage activation is the combination of sales and marketing activities designed to rapidly build a brand with distributors, retailers and consumers.Most emerging brands do not have the luxury of separating sales and marketing activities: there is no separation for where marketing activities end and where sales activities begin. Everyone is responsible for the vision and bringing it to life in every decision that is made inside the organization. From decisions on which retailers to promote in, all the to which celebrities to approach to support the brand – these are activation decisions: Not just sales – and not just marketing.
Every new beverage business needs capital to meet the demands of its plan. So having the resources you need to sustain a new business over time is critical to success.However effective should also mean efficient. The market is not interested in multi-million dollar start ups.This subject is worth a presentation of its own – and Michael Burgmaier has written extensively on this issue in Bevnet magazine: So here are a few thoughts on the issues and processes
As an independent consultant, a major area I analyzed was the drivers of success in a beverage startup. Before I start on this part of the presentation, I just want to advise you that what I am about to say is incredibly difficult to do: Its so difficult that the big beverage companies have all but given up in this area – and look to this community to create big new ideas.
For every mega-success, there tend to be two or three similar ideas that just failed to capture the zeitgeist of the emerging opportunity: In the late 90s there were a number of competitors responding to consumer interest in fortification and lower sweetness. But it was Vitamin Water that built its brand around those concepts. In my last role at Cadbury, I met with multiple brands who were either seeking investment or distribution from us. Often their biggest challenge was finding a way to effectively articulate their differentiation… and the number of times I heard “we are a better tasting energy drink”…
While most of the time emerging brands are told “no” as they pitch their idea to distributors and retailers, sometimes unexpected opportunities emerge: And the tendency is to say yes to everything. While a degree of opportunism is appropriate, saying yes to everything can divert time, attention, capital and other resources to non-strategic objectives, that may be a temporary win… but a long term distraction because Saying Yes To Everything will drive…Remember that deeper is always more attractive than wider. To demonstrate proof of concept to potential investors and acquirers
Complexity in Offering, Route To Market, Pricing, Geographic Focus, Salesforce Focus, and Supply Chain objectives exponentially drives the amount of management time required to manage all of this. And it will eventually increase overhead cost, reduce the ability of the business to invest in the brand and eventually – to articulate the overall vision of the brand.
Since innovation beverage businesses spend a lot of time and effort of getting distribution, you have to retain your discipline to understand how the brand is performing on a store by store basis: And understand what is working and why.If there is a strong performing store - Work with your Route To Market partners to gather some salient data.Location, Pricing, Competitive set, movement, level of engagement from retail staff: Maybe even do a sampling event to get consumer informationThe information you gain will help you do more of what makes your brand successfulWhynatte example …
“It’s a brand that sells itself” is a phrase that I have heard too frequently. Remember that even the best Route To Market requires time and attention: Distribution systems are, at their core, operational businesses that excel at distribution and delivery. Your brand organization needs to lead the charge in Sales and marketing everywhere you go. You have to deliver motivation and excitement.You have to plan for activities against each of the key contact and communication points: from consumer to retailer to distributor. And no amount of over-expenditure in one area will offset under-investment in another area. Activation is a high touch activity – being visible is critical – get to know as many people as you can from the GM of your RTM through his sales force and all the way to the local retailer’s staff.
So what turns gates a strategic buyer interestedDifferentiatedGrowing Profitable So, I would suggest that these are just the ante’s into the game: The decision to acquire is based on a wider set of metrics that assess the value to the acquirer’s business. The more boxes your business can check, the more attractive the acquisition will be. Incrementality Business Fit And On trend Which brings me full circle, back to the underlying trends in the marketplace. Just for fun I extended the past ten year per capita consumption trends forward a decade.
By my calculations around $37B in value has been created since the Snapple acquisition by Quaker back in 1994. And it’s a list of some of the great beverage brands of today that were created by entrepreneurs like yourselves. On an average most brands still sell as multiple of revenue rather than profit – and while Vitamin Water continues to be an outlier, and Monster’s valuation is very high at 6x revenue, most brands will do well to get between 2 and three times revenueWhat can drive that higher is exeptional profitability and growth potentialYou will also note an increasing number of smaller investment deals – thanks to Nestle and VEB
What I’m here to discuss:Beverage InnovationCategory BackgroundWhat Drives SuccessSome Hazards to avoidHow Big Strategic Businesses Look at the innovation companies