BMI Archives Entry
By a voice vote, Philadelphia City Council indicated it has enough votes to pass 1.5-cent-per-oz tax on soft drinks when it votes officially by next Thurs. That's half of amount Mayor Jim Kenney originally proposed, but he softened request after some pushback from Council members. As tax was reduced, it was also expanded at same time to include diet drinks, described "an effort to spread the tax burden up the income scale," per NY Times. When passed, it will cost folks in Philly an extra 30 cents per 20-oz drink, or $2.16 more per 12-pack. While health advocates see Philadelphia tax as huge victory, it's not clear how they'll feel about juices with added sugars being exempt from tax, "as long as they have 50% juice," noted Times. SF, Oakland and Boulder are among cities prepping to intro similar tax plans later this year. "There has been much discussion around the world and within the US to adopt soda taxes," said Kelly Brownell, dean of Sanford School of Public Policy at Duke University. "Philadelphia has now created an entirely new level of momentum." Philadelphia officials seem well aware they're playing on bigger stage. "I think there will be strong conversation" in other cities about taking similar approach to taxes, said City Council prexy Darrell Clarke.
Mayor Kenney succeeded by focusing on financial need of city rather than arguing merits of health debate. He targeted soda sales "as a big untapped source of revenue that could be used to pay for popular initiatives, including expanded pre-kindergarten, and renovations of city libraries and recreation centers," recalled Times. Yet at last minute before 8 pm vote, Philly's finance dept acknowledged to council that "some soda-tax revenue would also be used to plug a budget shortfall." That didn't sway vote. "It was always about revenue," said mayor's rep, Lauren Hitt. This debate was both loud (with rallies outside City Hall) and expensive (to tune of $3-4 mil based on varied reports) and likely won't end when tax officially passes next week, with court challenge looming. As tax foundation pointed out last week, 3-cent tax "would be an excise tax 48 times larger than the current beer excise tax" in Pennsylvania. With 1.5-cent tax, soft drink industry will still be facing tax 24X higher and not likely to let that stand without legal challenge.
While opponents have painted soda taxes as redistributive push by liberal-leaning locales, Center for Science in Public Interest noted that Conservative govt in UK in Mar proposed soda tax to be implemented in 2018.
Abrupt exit of distributor Great State Beverage and its Blue Coast unit in Boston has thrown wrench into DSD plans of early-stage brands in key early-adopter market (BBI, Apr 12 and 13). Move left Polar Beverages as sole major shop open to new brands, but it's looking like several key brands either rejected by Polar or leery of entering giant bottler are opting for Dari Farms dairy operation as alternative. Also in mix is Good-O's New England Beverage operation. There are rumblings of other players coming into market to fill key void within network of NIDA indie distributors alliance, but none would offer immediate solution to brands that were suddenly orphaned as peak summer selling season approached.
Word is that Purity Organic and Hint Water have segued to Polar Beverages but Sparkling Ice, Voss and Icebox Water are moving to ice cream distributor Dari Farms. It's still unclear where other key Blue Coast brands, including Reed's portfolio and Hubert's Lemonade, are headed in wake of Great State exit. Operated by Dave and Dennis Silva, whose dad founded co, Dari Farms claims to offer full DSD coverage of 5K accounts in southern New England, including Conn, Mass, RI and southern NH. Tho bevs sometimes haven't fared well in the frigid precincts of dairy fleets, Dari boasts of "tri-temp" logistics system that "allows for our sales rep and driver teams to order and merchandise frozen, refrigerated and room temperature products off the same truck on the same delivery," per Web site, which lists as current brands mainly refrigerated items like Naked, Tropicana, Simply Orange, GT's Kombucha, Evolution Fresh, Mamma Chia and Suja, but also smattering of shelf-stable items like Aloe Gloe and Long Island Iced Tea. It also moves items like Armour meats, Philadelphia cream cheese, Drake's cakes and Herr's salty snacks. As frequently chronicled in BBI, dairy players often have struggled in efforts to broaden portfolio, tho NY's Dora's Naturals stands as one example of houses that have successfully made transition. No immediate response to calls to Polar and Dari Farms asking what's up, and most brand owners demurred on account of delicate negotiations they've been undertaking.
As reported, some had been hoping that Good-O Beverage, long-established Honickman affiliate that tilts toward ethnic brands but has been operating New England Beverage unit for a few years, would step up Boston presence. Sources say Good-O did in fact reach out to brand owners for help in financing Boston expansion but abandoned plan after not finding enough takers. Good-O exec Joe Pignatella told BBI yesterday that he doesn't know about that, but can assure prospective brand partners that "we deliver to Boston and will continue to be there."
Other rumors include return to market by Burke Distributing, which has Red Bull operation in city and launched separate all-other NA shop around same time Blue Coast opened its doors, only to abandon effort a few years in. Ted Landers, who retired after selling Boston-area DSD shop years back, is said to have considered re-entry, and there also has been rumor that Northeast Beverage might be on verge of allying with or acquiring Bayside to broaden footprint to Boston metro. But we can't substantiate any of these theories and, meantime, NA brands have been scrambling to find landing place in New England's biggest metro. Great State consolidated its Bud beer operation with another NH house while exiting NAs, div that had been severely weakened by earlier migration of Vita Coco to Polar. Most expected Great State to weather storm, and 2 of its 3 owners are said to have wanted to stay the course, but word is 3d owner wanted out at time he was dealing with personal issues.
As an account of Boston Beer, it's absorbing read, written with dramatic flair and pulling in insights also from Koch's earlier career as an Outward Bound instructor (hence avalanche reference). Entrepreneur seems to deal forthrightly with such painful developments as split with cofounder Rhonda Kallman and recall of glass bottles found to have inclusions in them. He makes convincing case that sales function is severely underrated in nation's business schools - as he notes, he's memorably argued that sales is to marketing as sex is to masturbation. Inevitably, one could quibble with Koch's interpretations of some issues - his defense of longstanding charges that he gamed system in having his beer voted "Best Beer in America" at early Great American Beer Fests, reasons behind his launch of controversial Oregon Beer brand or the way once-terrifying #2 rival Pete's Wicked Ale is dismissively lumped in with likes of Bad Frog and Lucky Kat as just another "fly-by-night" challenger (kinda the way Keith Richards essentially writes his bandmate Brian Jones out of Rolling Stones' history in his memoir, Life). Back in 1990s, when Pete's was comin' on strong, BBI editor distinctly remembers Koch envying renegade excitement of a brand name like "Wicked" compared to his own brand, named for long-dead white American male. Such quibbles aside, it's an excellent book.
Coupla lessons that resonated strongly with BBI editor were "String Theory" and "The 'F--- You' Rule" (our abbreviation). "String Theory" stemmed from an insight Koch drew dispensing supplies to Outward Bound parties, where he noticed that patrols that were lavishly outfitted with alpine cord tended to run out of it but those not given enough husbanded it well enough to have some left over to share with others. Similarly, Boston Beer started in biz without an office, office phone, computers or other accessories that might have made Koch and his cofounder feel more like they were "playing company." Later in book, when the stakes have risen considerably higher to encompassing entire breweries, Koch learns to class prospective investments as "need to have" or "nice to have," ruthlessly dropping nice-to-haves from consideration. (His key misstep on that front: early on, after it becomes clear that planned multimillion-collar brewery investment in Boston might sink the company, he's forced to scuttle plan at near-total writeoff of equipment he'd purchased. Instead, he somewhat controversially goes on to rely on outside contract brewers as he ramps up.)
"The 'F--- You' Rule" details Koch's belief that organizations are only healthy if any employee feels empowered to say "F--- you" to the boss. Again, the lesson was inspired by a near-disaster at Outward Bound after the course director ordered a group of beginning paddlers to navigate a whitewater stretch en masse rather than one by one. Not wanting to contradict the leader in front of the group, Koch refrained from expressing his misgivings, and soon the entire patrol of 8 boats had capsized. So Koch inaugurated the rule to avoid a corporate culture where important facts are undiscussable. "It's simple. At Boston Beer Company it's okay to say 'F--- you' to anybody in the company - including me - if that's how you really feel. But you can't only say 'F--- you' . . . You also have to explain to the person why you said it," what that person did to evoke it and hear their side of the story. "Finally, there's no point in saying 'F--- you' to a person who is not capable of fixing the problem" because the encounter needs to lead to a collaboration to solve it. Koch claims to recall half a dozen times the rule was invoked on him, citing as example a top sales exec, Lewis Goldstein, who'd moved to marketing and seemed unhappy for reasons no one was willing to express to the ceo. "I decided to do Lewis's performance review myself and try to get Lewis to say, 'F--- you, Jim.' I didn't succeed at that, but I got close. When Lewis told me to 'Lick my ass," I knew I was making progress. Then, as required by the F--- You Rule, he told me why." Koch learned that his constant disparagement of marketing as a discipline was demoralizing the marketing team, a consequence he somehow hadn't anticipated. So he dialed it down. (Editor's note: Goldstein went on to marketing jobs at Snapple and then, ironically, body care brand Kiss My Face. What did he say to the boss there? He's now cmo of Organic Valley.)
"Based on our learnings, the initial execution of our Kold system did not meet consumer expectations," co notes on Web site set up to process refunds. "Understanding that the success of any of our products is fundamentally rooted in the trust and support of our consumers and their willingness to embrace our innovations, we are offering consumers a refund for the full purchase price." Statement said Kold pods would be offered at discounted prices while supplies last.
As for KO, it offered up statement saying Kold partnership "provided a great opportunity for innovating and learning about new technologies that can deliver our beverages to consumers. Through it, we've gained valuable insights into what people want and expect from an in-home, single-serve cold beverage system. We will apply those learnings as we continue to explore innovation that will enable people to enjoy our brands in new ways." As noted at time of deal late last year, JAB paid premium that was unprecedented in bev history to acquire Keurig shares, allowing KO to exit investment on even basis. As one observer had noted in Dec, Kold appeared to have sold fewer than 100 units in its first 5 weeks of availability, after co had offered goal of selling hundreds of thousands of units in first year. System was derided as being clunky and overpriced.
Since acquisition, Kelley, once a rising star at Coke, has been shifted to role as board member and vice chmn of Keurig; he also continues to hold equity stake. He was replaced in ceo role in Mar by Bob Gamgort, former Mars and Major League Baseball exec who'd spent past 7 years running Pinnacle Foods. Liaison to Keurig and Kold on Coke side has been Deryck van Rensburg, founding prexy of KO's VEB incubation unit, who continues as prexy of Coca-Cola Ventures overseeing other alliances, such as that with dairy producer Fairlife Farms.
More aggressive stance is being pushed by founder's daughter, marketing chief Natalie Sexton, after whom brand was named by her mom Marygrace back when Natalie was an infant 26 years ago and was getting pulled in red wagon thru her dad's citrus groves, as co website reminisces. After finishing college and concluding year of Christian missionary work, daughter signed on 3 years ago, followed more recently by kids of Marygrace's bros, who came aboard in early days. That's added millennial cohort to mgmt team. Under Marygrace, Natalie's has grown organically, with no debt or outside investors, but as marketing dir her daughter believes co needs to make more noise at time juice category is awash in well-financed new entries. She's recruited pr shop, revved up demo programs to 50+ sponsored events each year (using cadre of in-house brand ambassadors) and is cautiously mulling addition of marketing agency. Key hire among expanded sales and marketing teams was DSD vet Mike Ward (BBI, May 17), a vet of cos like Jones Soda and National Beverage who's working to broaden distribution and develop more retailer-specific promo calendar. Brand has been plying range of activities from bloody Mary fests to this weekend's huge Barbecue Block Party in NY, which brought exec to city. (BBI editor met her in café area of Agata & Valentina store where she'd set up shop for day, somewhat to consternation of store staff.) Tho brand moves thru broadliners now, targeted DSD is a possibility down the road. Last year Ft Pierce, Fla-based co did estimated $30 mil in sales in all channels.
On innovation front, co is taking contrarian approach. With green juices all the rage, it's gone red, launching fresh Tomato sku as alternative to paste-based, salt-laden conventional tomato juice brands like V8. Then there's label revamp: on assumption that millennials want cleaner labels, Natalie's now puts # of ingredients right on center panel - 2 in case of Tomato (tomato and lemon), never more than 4 (as with Lemonade Tea, vs 8 or more ingredients even in offerings from brands like Honest Tea). That's stark contrast to numerous cold-pressed rivals that run lengthy list of ingredients down front panel - and contain even lengthier list, from junk juices to stabilizers, in small type on nutrition panel. For now, at least, Natalie's is sticking with conventional plastic bottle as economical but authentic pack, tho Sexton acknowledges there's lotsa debate on topic within co. Tricked-out juice truck will be making rounds of weekend events on East Coast and Midwest this summer to explain ingredient story, with staffers working retailers on the weekdays in between.
Tho brand has built its strongest base in foodservice, it's making retail a priority now, lately riding expansion of Publix chain into Va. After carrying just basic OJ and grapefruit sku's for 15 years, grocer in recent months has added another 3: Orange Beet, Tangerine and Lemonade. Other key retail banners have been Kroger, Roche Bros, Foodtown, Market Basket, Ingall's and, most recently, Hannaford Bros. Brand has long had its 16-oz bottles in grab-and-go coolers of Whole Foods' Fla stores and Ward is aiming to finally broaden that other regions. As they try to consolidate gains in Carolinas, mother and daughter are both operating out of NC now, not co's Fla base.
Natalie doesn't deny that her new approaches and outspoken mien have sometimes caused dissension with old guard, accustomed to calling it family-owned co, rather than certified woman-owned co, as it is now, or emphasizing all-natural ingredients rather than adopting new positioning based more on short ingredient list. Nor is she intimidated by all the buzz that HPP juices have garnered, asking how cold-pressed juice with shelf life of 2-3 months can be improvement on "gourmet-pasteurized" Natalie's products with 26 days' life. Indeed, desire not to tamper with production process has reluctantly put attack on West Coast into future some time, tho Sexton made it clear she relishes eventually challenging tarter Calif citrus juices with the more rounded, flavorful version from Florida. Brand info at OrchidIslandJuice.com.