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Arizona Iced Tea Hit the Streets for Research, Then Innovated Against the Competition

The founders started in Brooklyn, hanging out at bodegas and at basketball courts, to find out what potential customers and store owners wanted. They listened, responded, and sales skyrocketed in two years.
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I was hanging around outside a bodega at 11pm on a Friday night, in the Brownsville section of Brooklyn. It was 1992. There was salsa music playing, people ambling down the street, and women carrying fans home to combat the oppressive heat. The fire hydrant was spraying water into the street.

"Arizona is hot, crazy hot," said a young man, about thirteen years old. "It’s hotter than here, hotter than Brooklyn." I’d been talking to him, trying to learn as much as I could about him. I remember him describing Arizona as far away, with sand dunes and deserts. He had a distinct impression that the state of Arizona was a remote, hot place--a world away from New York’s subways and concrete beaches. He was surprised I was there and even more surprised that I was talking with him and his friends.

I was doing on-the-ground research for Don Vultaggio and John Ferolito, two Brooklyn partners who ran a business: Arizona Iced Tea, as part of their larger beverage distribution portfolio. I was after questions both basic and big: What did kids want and why did they want it?

People opened up about what they wanted, and our design reflected that.

I talked to tons of kids. From that learning, the owners would design the bottle, make the signage, figure out where to put billboards, and come up with flavors--basically everything they needed to do to beat Snapple. 

When you’re doing ethnographic research, the idea is to listen more than you talk. So I never asked them direct questions about the product. And I didn’t ask such generic questions as "Where do you want to go to school?" Or "What’s more important, money or fame?"

I learned a lot at bodegas and basketball courts by simply listening.  

So I tried to find out who these kids were, what they did, where they wanted to go, and why. I wanted to observe, respect, and understand them. Listening to what people are talking about without interrupting them is broadly informative, if time-consuming.

Over many nights at that and other bodegas, outside apartment buildings and near basketball courts, Don, John, and I learned that young people chose their iced teas based on which one looked the coolest. And that even if they were wildly thirsty, they wouldn’t decide what to drink until they checked out what was on offer in the cooler. (Interestingly, we found this was true for all consumers, not just teens in Brooklyn). 

Teens wanted to be cool but also bigger than life, and bigger bottles cinched it. 

The smartest thing the founders learned was the importance of standing out. At the time, 16 ounces was standard for iced tea bottles. Bottles was a key word. Don and John had put Arizona in a can. Our 24-ounce Arizona made a statement, but it cost the same as a 16-ounce bottle of Snapple. It had a bold pattern and bright colors. It looked different from every other tea on the shelf.

It wasn’t only about looks. What we learned outside the bodega, that night and every other night, was that cheap wasn’t what anyone aspired to be. So when Don and John finally launched Arizona in a bottle, they went bold. Snapple came in a thin glass bottle and the paper pealed off in your hand. It felt cheap. But the kids on the corner aspired to be cool and rich. Anything that makes you feel bigger and cool--like your older brother, they said--is a powerful thing. That’s why Don decided to use a wide-neck bottle, which looked more like a beer bottle than it did a bottle that contained iced tea. The glass had substance; it was heavy. It was meant for serious, bold drinkers, not the typical 40-year-old women who constituted the bulk of the packaged iced tea market.

The tea felt unique because it had fun packaging and came in unusual flavors.

That bottle was a first for the tea industry. Co-founders Don and John solidified their business by spotting the little things that mattered to customers. The small and seemingly insignificant details they incorporated into their product helped propel their brand to hundreds of millions in sales within the first two years. They used bright colors, elaborate artwork, and unique and different flavor combinations. They sponsored massive outdoor media programs to create ubiquity. And they were relentless about their desire to create a brand that felt special. They ran the company with massive outsized ambition. John once said to me, "People need 80 gallons of liquid a year and I want to be the only beverage people drink--not just their iced tea."  

Importantly, they had the mindset and the discipline to create what back then was a revolutionary product. They saw that people would respond to a bold and innovative tea, before Coke & Pepsi and before mass market consumers knew they wanted it. And they got there by interacting with people.

Experience taught the founders to think about what storeowners needed.

It’s useful to know, too, that Don and John had accrued some savvy from the beer distribution business they ran prior to launching Arizona. They had tested a few beer products of their own so they’d seen the product lifecycle from idea to production to distribution. And they applied what they knew to Arizona.

Importantly, they knew the stores and knew the margins. They had a feel for the way a small merchant thought about merchandising a product in the cooler--which had to do with case turnover and the ability to drive the sale of adjacent items and why (and more importantly when) he'd choose to give you precious shelf space. They had seen brands enter the market, and fail, because they were too corporate, inflexible with price promotions for merchants, out of touch with the challenges of running a 24-hour Korean grocery in NYC. Smartly, they had trucks in New York, which covered Brooklyn, Queens, and parts of Manhattan, and that was important because the drivers not only knew the streets but also knew the market they were serving.

Don and John also knew which stores did volume and which didn't. They trained their sales guys to hustle and never quit. And they were tough but fair with their employees. They'd challenge the folks who worked for them to tear down Snapple signs and fill garbage bags with them. Then they’d take a few lucky employees out for awesome Italian dinners at the (original) Minetta Tavern in Greenich Village, an historic haunt for generations of bohemians. 

Customers loved getting more tea than they paid for, which gave Arizona pull. 

But Don and John didn’t forget about the customer. By selling the 24-ounces at the 16-ounce price, Don and John left some margin on the table, but gained a strong loyalty with consumers. It led consumers to ask for Arizona when they walked into the store. There’s nothing more effective at driving distribution than consumer "pull."

The takeaway: Hit the ground. Be in constant contact with your consumer. Don and John taught us to ask people endless questions, to dig and dig until we got information we may not even have known might be useful. At every moment, the founders and I would be out on the block, walking in to stores, talking with bodega owners and moms and kids and store owners and stock boys--what did they drink? What did they buy? Why did they choose what they chose? These questions are obvious. But having the humility to listen carefully to the answers, and then to respond to them by designing a better product, isn't.

Last updated: Aug 15, 2013

JOHN CAPLAN | Columnist | Founder and CEO, OpenSky

John Caplan is the founder and CEO of OpenSky, a social network for shopping. OpenSky launched in April 2011 and now has more than 2.5 million members. Before OpenSky, Caplan was the CEO of Ford Models and president of the About Network, which sold to Primedia in 2001 for more than $500 million.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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