Most of the sales reps, eager for new selling channels, were gung ho for the supermarket strategy. Behind the scenes, they were lobbying Woodruff with a steady flow of e-mails and phone calls. But he arrived at the sales summit unconvinced. His sales had trailed the more developed West Coast market's for a couple of years. "I felt there were more customers I could get on board, more places I could wow, before I became a supermarket brand," he says.
The Decision Shinner and Portman heard out Woodruff one more time. He laid out his case against Mighty Leaf's becoming mass market: the move was premature, too costly, and ultimately would put the brand's well-cultivated cachet in jeopardy. But even though he made his case forcefully, Shinner and Portman just as convincingly pushed back. Mighty Leaf, they argued, was firmly established in the upscale sectors of hotels, restaurants, and specialty stores. Supermarkets were the next logical frontier. Shinner and Portman were ready to take the plunge. "There's a constant balance between maintaining your brand's halo and making your product accessible in more locations," says Shinner. "But with the right nurturing, they're not mutually exclusive."
Shinner and Portman began talking to investors. In May 2007, confident they would be able to raise funds, they hired their first national sales director, Rich Clark, the first of two salespeople Mighty Leaf wound up poaching from herbal-tea giant Celestial Seasonings. Clark, formerly a Celestial sales manager, would lead the ground game, hitting up supermarket buyers for the chance to make a presentation. Because buyers are responsible for hundreds of products at any given time, just getting an appointment can be a coup, and it's usually a positive signal about the chain's willingness to give a new product a go. Many buyers were already familiar with Mighty Leaf, either through seeing it in restaurants or at trade shows, or through word of mouth.
In the fall of 2007, Clark sent some samples to Derby Brackett, then a buyer for Ukrop's, a small Virginia grocery chain based in Richmond. Brackett had been looking to add some more expensive tea brands to the chain's existing specialty selection of Twinings, Bigelow, and Celestial Seasonings, and she liked what she saw in Mighty Leaf, especially the attractive packaging. "The same thing that happened in coffee five years ago is now happening in tea," Brackett says. "We have to go upmarket."
Brackett agreed to test Mighty Leaf in an upscale outlet Ukrop's operated in Richmond. If it did well there, she would put it in almost all of the chain's 29 stores. The trial was a success. By November, however, Celestial had already launched its own whole-leaf line, called Saphara. Shinner and Portman decided to accelerate their plans. Instead of trying to reach 6,000 supermarkets within two years, they would do it in one. "You start to worry about the entire category being saturated or other companies taking advantage of this opportunity or blocking space on the shelf," Shinner says. "We felt it better to take advantage of that opportunity rather than waiting till '09."
Meanwhile, Woodruff tried to assuage his customers' concerns about Mighty Leaf's going downmarket. "It was a couple of sleepless nights and a lot of worried conversations," he says. He lost some customers but gained new ones. In the end, he didn't lose any business on the whole.
The final piece of the puzzle -- financing the expansion -- came in December 2007, when San Francisco private equity firm VMG Partners bought roughly a 20 percent stake in Mighty Leaf for an undisclosed sum. The firm's principals had helped launch Vitaminwater into the mass market in 2003, where it fended off copycats from Dasani and Aquafina. "Just because a big guy comes in, it doesn't mean that the entrepreneur cannot compete and get his fair share," says VMG partner Mike Mauze.
Mighty Leaf won its first supermarket account in February 2008, and by October, it had landed in most Kroger, Publix, Safeway, and Stop & Shop stores. Sales were up 25 percent and were expected to hit $20 million for 2008. Within a few years, Shinner says, supermarkets should account for at least 40 percent of revenue.
Mighty Leaf's mass-market debut has so far gone smoothly, but the economy's deep funk threatens to throw a wrench into the company's ambitious plans. Consumers are retrenching, hotel vacancies are rising, restaurants are closing, and gourmet grocers are struggling. Will supermarket shoppers still be willing to shell out $8 for a box of Mighty Leaf in the depths of a sharp recession? Shinner and Portman are betting yes. Even in an era of belt tightening, they insist, consumers still want to splurge on the little things. Says Mauze: "It's still 50 cents a serving. It's still a simple luxury that the consumer can afford."
The Experts Weigh In
Carpe Diem
The moment is right to move into supermarkets. People have always consumed tea, but there has never been this amount of focus on the health benefits of tea. There's an opportunity for a new player to emerge very quickly. It's wide open. People may turn away from a specialty outlet such as Whole Foods or Trader Joe's, but they are always going to shop in supermarkets. Where Mighty Leaf needs to engage the consumer is with the story of how its tea got to the shelf. This year might not be as conducive as a year ago or a year from now, but if Mighty Leaf goes into it with a longer-term view, it will be OK.
A Tough Sell
All retailers are competing to demonstrate that they offer great value. I don't think they are going to be eager to be the home of the $8 box of tea bags. A lot of the premium grocery stores have tried to reposition themselves. They used to be about high quality. Now they are about quality for value. There will be a lot of pressure from the larger retailers to offer promotions and discounts. But now that Mighty Leaf has gone into supermarkets, there's no turning back. You generally get one crack at it, so it has got to work. Ideally, they would find a way to promote the tea other than on price.
Slippery Slope
Brands are fragile. Any time you play with the customers' perception of who you are, you confuse them, and confused customers don't buy your products. As Mighty Leaf moves downscale, for every two customers it may attract, it risks losing another upscale customer. The problem is exacerbated by lower margins in supermarkets. It's a slippery slope. There are limitations to what a luxury brand can do in volume. It doesn't mean Mighty Leaf can't grow. It should just be doing it under a different brand. When Mighty Leaf is everywhere, it won't be a luxury brand anymore.
