Anatomy of a Start-up
Peter van Stolk doesn't worry about having his brands knocked off. He's counting on it
OK, so Urban Juice & Soda is not technically a start-up. It's an application of the knowledge founder Peter van Stolk accumulated in 10 years as a beverage distributor. And the key lesson he's gleaned is that value doesn't always lie exclusively or even primarily in a product brand. Sometimes, of course, it does. What would the Coca-Cola Co. be worth without Coke? Or Anheuser-Busch without Bud? But those brands have sustained their values, and not all brands do.
Van Stolk has seen scores of beverage products come and go. "Sure, the beverage industry is competitive," he says, "but there aren't a lot of smarts." In the conference room of his Vancouver, British Columbia, company, a large bookcase is filled with the hundreds of juices, sodas, iced teas, and bottled waters whose makers used to come knocking on van Stolk's door, seeking Canadian distribution.
All that clutter is a sign of the trendy times for "New Age" beverages--a catchall phrase for the fashionably bottled chaos you see at the 7-11. Although the New Age category grew wildly in the late 1980s and early 1990s to become a $6-billion industry today, that growth is beginning to slow as powerhouses like Snapple and Clearly Canadian fizzle. Watching from his distributor's vantage point, van Stolk observed that you can build a viable business around creating New Age beverage brands, as long as you don't try to sustain them. When their time has passed, let them go, and be ready with the next one. Van Stolk believes he can turn his former distribution company into a creator and developer of soft-drink brands.
The Theory. As a distributor, van Stolk knew that one key to successfully launching a new brand was getting the right distribution. "Most beverages are created with the consumer in mind first, then production, then distribution," he says. "That's why there are so many losers. It doesn't matter what consumers want if they can't buy it." He also knew that distributors would take on a new beverage brand if it generated incremental sales for them--meaning it didn't cannibalize the brands they already carried.
Analyzing the strategies and performance of what he calls the "Big Five" New Age brands--Sundance, New York Seltzer, Koala Springs, Clearly Canadian, and Snapple--van Stolk saw commonalities, the most important of which was that when they were introduced, each of them did constitute a new beverage category. Sundance, for example, was the first of the carbonated fruit beverages, and Clearly Canadian began the short-lived clear-beverage craze. As new categories, each of the Big Five offered distributors incremental sales. The "me-toos"--like the 400-plus new iced teas introduced in 1995--didn't. "If I'm selling Arizona or Snapple," he points out, "another iced tea will just cut into the sales of my main line."
But even wide distribution of a product doesn't guarantee success for the company that produced it. Each of the Big Five had sales that rose quickly to a head and then went flat. And the decline of one hit beverage roughly corresponded to the rise of another. From that van Stolk concluded that New Age beverage success had little to do with product quality. Sure, the product had to be good, but beyond that "it's all fashion," he says, "like yellow power ties or acid-washed jeans."
Furthermore, van Stolk decided, the owners of the beverage hits eventually became their own worst enemies. Having ingratiated themselves with distributors, they abused that relationship by trying to grab more shelf space through line extensions. A fatal move, according to van Stolk. "Twenty percent of your flavors will generate 80% of a company's sales," he explains. "Snapple's Lemon Iced Tea is still its number one flavor. And it will sell 10 times more than Mucho Mango Muck." But when reordering, retailers don't restock the key flavors that sell, because they want to move their leftover inventory. The consumer comes in looking for a Snapple Lemon Iced Tea, sees everything but, and buys someone else's lemon iced tea instead. Snapple thinks it's leveraging brand equity to build market share, says van Stolk, "but it's really speeding up the demise of its products' shelf life."
In a business in which so many have made, and then lost, so much, van Stolk thinks he's found a better way to achieve long-term success. The rules, he says, are these: First, never fall in love with your brand, because it isn't going to be around forever. Throwing marketing dollars at a struggling brand merely forestalls the inevitable. Second, never name your company after your brand, because "that limits your company to the life line of your brand," he says. "That's why New York Seltzer is no longer in existence." And that's why van Stolk's company--producer of Jones Soda and Wazu bottled water--is called Urban Juice & Soda. And the third rule: Use a brand's power to create your next brand.
Rule three means that van Stolk proposes to build a company that's known not for the brands it markets but for its ability to create a continuing succession of marketable brands. Each new product from Urban Juice & Soda will constitute a new category. Not a line extension. Not a new flavor. A totally new identity. Van Stolk will create the product, build distribution, and if and when a buyer is interested, sell the brand. Meanwhile, van Stolk will be developing his next category-creating product.
Product Development. The grand assumption in van Stolk's theory is that Urban Juice & Soda can consistently produce a string of product hits. For inspiration, he has turned again to previous New Age hits, noting that their success has usually mirrored trends in the fashion world. Koala Springs, for instance, hit in 1987, after Crocodile Dundee had become a big box-office hit, at a time when America loved all things Australian. Arizona Iced Tea arose amid the Southwest chic of the early '90s.
So van Stolk began scanning Details, GQ, House & Garden, and the like, where he noticed numerous classic comebacks: three-button suits, Hush Puppies shoes, Day-Glo colors. He concluded, therefore, that his first product should be a "retro classic" soda: it would come in traditional flavors like grape, orange, and lemon-lime, but with a '90s edge. Old yet new, hip yet square, a blend he felt would appeal especially to the Generation X crowd. Even the name he chose for the drink--Jones Soda--was conventional but smacked of heroin chic (as in "I've got a jones for a Jones").
For a second product, van Stolk sought to create a "foundation brand"--a nonsexy perennial product to provide a natural sales base for his company's efforts. Thinking nothing could be more natural than water, he introduced Wazu bottled water simultaneously with Jones in November 1995. His next, already-conceived product awaits the right time for its introduction.
How will van Stolk recognize the right time? He admits that a lot of timing is luck. But he says there are overt signs that an established brand is headed south: when formerly cocky suppliers suddenly start giving distributors free promotional cases or when the market becomes inundated with copycat products. "As a category gets saturated the lead brand falls," he says. Hundreds of clear clones emerged in 1993, followed shortly by the decline of Clearly Canadian. And all those me-too iced teas do not bode well for Snapple or Arizona. "Something is coming," he says. "Whether it's Jones or something else, it's time for the next big thing."
Competitive Edge. By not using the Jones name to launch his subsequent brands, van Stolk concedes, he's sacrificing much of the time and money he's invested in the process of creating Jones. So, for his strategy to work, van Stolk not only has to be able to create a continuing string of winning products but also must create them at a significantly lower cost than competitors can. Which means that van Stolk has to save money in every possible area.
Sales venues that charge slotting fees, such as supermarkets, are definitely out. "I can't play that game right now," he says. "Even if I could pay for the space, I'd have to create the pull, and that takes marketing dollars." So until he can afford the fees for Jones, van Stolk has targeted bagel shops, cappuccino bars, and Chinese restaurants, as well as such nontraditional venues as tattoo parlors, snowboard shops, and navel-piercing establishments--"anywhere Coke and Pepsi won't go or can't go," he says.
Van Stolk has also identified cost efficiencies in his production process. He took a lesson from Clearly Canadian, with its beautiful but expensive blue-glass bottle. "My gross margin today at zero efficiency is better than Clearly Canadian's was at its 1992 peak with revenues of $150 million," he boasts. For Jones Soda, van Stolk selected a standard bottle and an inexpensive paper label. To make those stock materials sexy, he chose vibrant artificial colors for his sodas and contrasted them with artsy black-and-white labels with 101 distinctive photos--from eight balls and stop signs to goatees and pierced navels--which he rotates in an effort to keep them fresh in the consumer's mind.
For marketing and product design, van Stolk also takes a grassroots approach, doing everything in-house or freelance. Design costs for Jones totaled $40,600; for Wazu, $20,000. Bootstrapped though the product was, Wazu's design won six awards from the International Bottled Water Association in 1995. "And that's by spending less than 1% of what Perrier spent on its shrink-wrapped bottle," he crows. The big guys, van Stolk is fond of saying, just don't get it. "Pepsi spent over $30 million on the national launch of Crystal Pepsi," he says. "It lasted six months. Your product has to have soul. You can't buy a soul."
Instead, van Stolk plans to borrow one. He calls it "grounding" the brand, which means associating Jones with things that are already cool to the hip Generation X demographic he's targeting. His efforts range from sponsoring "raves" (all-night dance parties) and midnight in-line-skating parties to getting Jones placed on the sets of the TV shows The X-Files and Spin City and the forthcoming movie Copland. "It's all word of mouth. That's your brand," he says. To encourage word of mouth, van Stolk plans to use on his labels photos that his customers have sent in, and he hopes they'll tell their friends to do the same. "I can't tell you Jones is cool," he says. "You have to hear it from someone you think is cool."
The Payoff. Van Stolk says he'll know he's doing his job right when he starts fielding offers from larger food-and-beverage companies to buy Jones. The precedent is certainly there; Snapple, Mistic, and Koala Springs were all sold to large multinational food-and-beverage companies, and Coke recently purchased Barq's Root Beer. So if Jones is the hit van Stolk expects it to be, there should be plenty of interested buyers to complete his strategic plan.
After product-introduction disasters like OK cola and Crystal Pepsi, Coke and Pepsi "won't be creating more brands," van Stolk argues, "they'll be buying them." And in his case, he says, "they'll be buying my ability to catch the attention of the consumer in a focused market. The cost of acquiring Jones will pale in comparison to launching another Fruitopia." Van Stolk doesn't expect to see any offers until Jones achieves sales of at least $50 million. "Before that," he says, "you're not even a blip on their radar."
The Bottom Line. Experiments have their price. For the past three years Urban Juice has posted a net loss. "We went from being a distribution company with no up-front costs to producing a product," explains van Stolk. "Timing is everything. If I miss the boat, I'm turfed." And the key to that timing is money, so far $3.4 million worth, which came in the form of a public offering. Tiny though Urban Juice & Soda yet may be, it's been publicly traded since May 1993. Van Stolk expects Urban Juice & Soda to see 1996 revenues of $2.5 million. But for 1997, he's projecting sales of 1.1 million cases of Jones and Wazu combined, worth more than $10 million. The key, he says, is signing up 200 distributors, including those in offshore markets, by the end of this month. Jones is currently available in the Northeast and on the West Coast of the United States, as well as in British Columbia.
"If I tank," van Stolk says, "it's not because Jones is wrong, it's because I don't execute it well." And then there's the challenge of creating a whole series of next big things. "The question is," he says, "Am I smart enough to do it?"
Christopher Caggiano is a staff writer at Inc.
COMPANY: Urban Juice & Soda, in Vancouver, British Columbia, makers of Jones Soda and Wazu bottled water. (UJS on the Vancouver Stock Exchange)
CONCEPT: Transform a beverage distributor into a beverage-brand creator
PROJECTIONS: $10 million in sales in 1997, $21 million in 1998
COMPETITIVE ADVANTAGES: Ten years of distribution experience; experience with shoestring budgets
HURDLES: Catching the beverage fashion wave at a lower cost than anyone else
NAME: Peter van Stolk
FAMILY: Married, one daughter
PERSONAL FUNDS INVESTED: From van Stolk, $30,000; from other senior managers, $63,000
EQUITY HELD: 15%
PREVIOUS JOBS: Beverage distributor, ski instructor, marketing director for ski shop
|Net profit (loss)||($1,094,000)||($1,672,000)||$817,000||$1,659,000|
Feedback: What the Experts Say
Is van Stolk wacky?
Many think so, and they find heretical his suggestion that brand equity isn't always sustainable. "Most smart companies try to build a brand as though it will be around forever," says Jim Mullen, president of Mullen Advertising, in Wenham, Mass. To Mullen, brands that are vital and living retain their value. "Tide has been around for 75 years," he says. "The actual contents have changed innumerable times, but the name has always meant cleaning power." Marc Johnson, president of Mad River Traders, in Stowe, Vt., agrees that it is possible to sustain a good idea, even in the highly fickle New Age beverage category. "It's not that it can't be done," he says. "It's just that no one has done it so far." Continual product and marketing innovation is the key, says John Blair of John Blair & Associates, a marketing consulting firm in Chicago. "And if you can't sustain it," he adds, "how promising was the idea in the first place?" "Enthusiasm and dedication are vital to launching a brand," says Russell Hopkins, president of the Beverage Network, a distribution consultancy in Skokie, Ill. "If word gets out that these are flashes in the pan, distributors won't put their resources behind them," he says.
Can van Stolk market successfully on a shoestring?
"Creating pull on a bootstrap basis is nearly impossible," says Jack Trout of Trout & Partners, a marketing-strategy firm in Greenwich, Conn. Without the proper resources, he says, even the best ideas won't get off the ground. And even if Jones becomes a hit, van Stolk will have to pump money into marketing and promotions to keep it going. Johnson concedes that "his packaging and imagery are terrific. From that he'll get people to try his product. But will they buy it a third and fourth time?" Mullen suggests that van Stolk continue the alternative distribution, invest in promotions, and build a cult following: "Make it important to a small group of people, and they'll make it important to a larger group."
Can one person generate a stream of hits?
Only if he's incredibly lucky. "Who's going to have a series of clever ideas in a seriously glutted market dominated by Godzilla and King Kong?" asks Trout. Even if 10% of his ideas worked out, van Stolk could consider himself extremely successful. And you're only as hot as your last hit. What happens when one of van Stolk's ideas fizzles? "Two losers back-to-back and you're out of business," Trout says.
If he builds them, will anyone come?
It's possible. Trout thinks an independent beverage-product-development company isn't a bad idea, especially since Coke and Pepsi don't seem to be very good at developing products themselves. "These guys are approached with a lot of ideas," Trout says. "For something to catch their interest, it would have to be dazzling." To increase the appeal to potential buyers, Blair says, van Stolk has to build a brand of choice for a select group of consumers and show that there would be cost efficiencies and upside potential for the buyer. "What can they do with the brand that van Stolk can't?" he says. "That's how you get the premium price."
For more information on building a brand, check out the " The New You," by Max Carey Jr. (August 1991). Carey stresses the importance of developing brand identity, whether you run a product-based or a service-based company. For some historical context and interesting case histories, try Managing Brand Equity, by David Aaker (Free Press, 800-223-2336, 1991, $29.95). It's a bit on the dry side, but it gives a good overview of brand management. For a somewhat less academic take, there's the classic Positioning: The Battle for Your Mind, by Jack Trout and Al Ries (Warner Books, 800-222-6747, 1981, $5.99). Eminently readable, if not downright breezy, this is one of those rare business books that's actually fun to read.
BEVERAGE NETWORK, Russell Hopkins, 4437 Concord Ln., Skokie, IL 60076; 847-673-4614 48
JOHN BLAIR & ASSOCIATES, John Blair, 100 E. Walton, Chicago, IL 60611; 312-587-8887 48
MAD RIVER TRADERS, Marc Johnson, P.O. Box 567, Stowe, VT 05672; 203-661-4105 48
MULLEN ADVERTISING, Jim Mullen, 36 Essex St., Wenham, MA 01984; 508-468-1155 48
TROUT & PARTNERS, Jack Trout, 2 Pickwick Plaza, Greenwich, CT 06830; 203-622-4312 48
URBAN JUICE & SODA, Peter van Stolk, 2055 Boundary Rd., Vancouver, B.C., Canada V5M 3Z1; 604-654-6050 48