Reed’s last night reported continued progress on alleviating

production bottlenecks that sharply constrained its growth in 2015, tho it still projected flat first qtr as brands

work their way back into some retailers’ shelf sets.

Coming off difficult summer in which wheels came off production network, Reed’s Q4 sales rose 13% to record

$12.4 mil. Gross profit surged 25.5% to $3.1 mil, with margin growing by 2.5 points to 25.4%. Delivery and

handling expenses dropped 14.9% to $1.1 mil as co had less need to ship product extensive distances from

locations where capacity was available, sometimes in less than full loads. Net loss in qtr narrowed to $500K from

$1.2 mil. For full year, net sales rose 5.8% to record $45.9 mil, despite estimated $7 mil in lost sales during peak

selling season in Q2 and Q3 due to production glitches. Before issue surfaced, co was scoring 30% gains, mainly

on strength of Moscow Mule cocktail craze of which Reed’s Extra Ginger Brew has been key beneficiary.

On investor call last night, founder/ceo Chris Reed described triage scenario where available production capacity

was focused on maintaining availability of eponymous Reed’s brand, which saw core Reed’s Extra Ginger Brew

sku enjoy 19% growth for full year. The #2 priority was Virgil’s, which slipped 5%, and #3 was Culture Club

Kombucha, down 12%. The private-label biz, despite some wins on kombucha side, was flat. Overall case

volume rose 9.1% to 3.9 mil cases. Non-bev biz, including ginger candies, dropped 20%, hit by Calif lawsuit that

absorbed $108K in legal fees and required switch of alternative suppliers. Still, Q4 results suggest that co is “on

the way to recovery” from the supply issues, cfo Daniel Miles said, with upgrade of co’s LA plant anticipated to

be concluded soon and pair of copackers in place on East Coast.

During call, Reed and cfo Daniel Miles blamed unidentified copacking partners for much of production shortfall,

saying copacking partner of 23 years had “monthlong meltdown” when big filler went down, even as new

copacker brought on to boost capacity delayed startup from Apr to Jun, then suffered hiccups until nearly end of

Q3. Meanwhile, co has been undertaking upgrade of its own LA plant that will triple line speeds but in meantime

has required some East Coast production to fill West Coast shortfalls. “Perfect storm,” Chris lamented, with

deliveries to some key customers plunging 50%. On call, Reed threatened at a couple of points to construct his

own plant on East Coast if co doesn’t succeed in negotiating $1 per case cut in copackers’ fees, which would

translate into savings of $2-2.5 mil at current run rate of 200K+ cases per month. Building a plant would also

offer advantage of incorporating capabilities that copackers don’t have in areas of kombucha and other probiotics

as well as special holiday packaging, such as stopper-top bottles, that have proved lucrative sidelight for REED at

slow time of year. Difficult to gauge how realistic that $1 target is, nor how serious co is about embarking on

another major capital project. As for LA plant, that should be online by end of Q2, eliminating $1 mil in shipping

fees from East Coast.

On product side, Reed continued to laud Stronger Ginger Brew for stoking growth, filling hole as ginger beer

suppliers engage in arms race to offer more potent recipes. “Most exciting new product in the history of the

company,” he enthused. Co continues to cobrand it with Absolut Vodka – including in gift pack featuring 750-ml

bottle of each – and is looking to secure new distribution from spirits houses to support other collaborations.

Brand has expanded into Caribbean and S Africa. It recently picked up Rite Aid’s 4,600 stores for its branded

sodas after getting foot in door with private-label items from its Sonoma Sparkler unit. As for kombucha brand,

Reed promised details on big relaunch later this spring.

Fountain Edging Closer to Real-World Test On call, founder Reed continued to talk up huge upside of all-

natural fountain offering co has been testing, at time fast-casual restaurant operators have grown restive with

current offerings – even from brands that are all-natural in their packaged versions at retail – that require

preservatives. Under prodding from investors it was clear that co hasn’t yet received commitment to test offering

in actual restaurant, with bag-in- box running on 3 kinds of equipment within Reed’s LA plant, and 4th system

coming in shortly. Given stigma attached to conventional sodas, equipment is designed to resemble craft beer

dispensers. At recent Expo West, where co emphasized fountain offering, Reed and colleagues assured BBI that

non-returnable bag-in- box would offer shelf life of 30-60 days after first dispensing without preservatives. Tho

some in biz have wondered how it’s possible to avoid using sodium benzoate, Chris said that’s issue that non-

CSD players like Jamba Juice have grappled with, and that Reed’s system so far is proving highly workable.

Items are offered in gourmet flavors like Orange Passion Mango, some of them mid-calorie offerings with 60% of

normal calories thanks to stevia/erythritol sweetener blend. Recall that project was initiated in late 2014 by

unidentified restaurant operator (believed to be Panera).

As

e-letter that aspires to terseness, Beverage Business Insights often drops word “the” from our sentences. But that

word has taken on great significance at Mountain Valley Spring Water, which put it at center of rebranding

intended to build broader consumer base. At Natural Products Expo West, co showed new packaging and

collateral that transforms brand name to “The Mountain Valley” to make sure that consumers understand that

water comes from actual source, in Ouachita Mountains, also noted prominently on label now. (That’s in Ozark

Mountains in Ark, where co is based.) “The” also is intended to suggest “the one and only,” noted co exec Bob

Montalbano. Co’s marketers also sought to better differentiate its still and sparkling versions via color-coded

bands on lower part of barrel and neck of its green-glass bottles – red for still, blue for sparkling. And they’re

refreshing PET line as they expand its distribution and pursue greater food-service opportunities, key priority

under new private-equity owners of co.

Walmart threw a panic into

Dean Foods shareholders with disclosure of plans to build massive milk-processing plant in Ft Wayne, Ind, to

supply about 600 of its stores in Ind, Ill, Mich, Ohio and northern Ky. Walmart had disclosed plans in regulatory

filing on Fri but it wasn’t widely picked up until yesterday, prompting 12% slide in DEAN shares, Reuters noted.

DEAN responded with statement assuring investors that move could lead to loss of 100 mil gallons of “very low-

margin private-label fluid milk volume” starting in late 2017, but that it didn’t expect any impact on supply of its

own national brands nor any material impact on results, Reuters reported. And Walmart confirmed that Dean

Foods would continue to supply white and chocolate milk for its Great Value and Member's Mark private-label

brands. Walmart move puts it on more even playing field with grocery rivals like Kroger and HEB that maintain

their own dairy supply.

Former Coca-Cola rising star

Brian Kelley’s 4-year Keurig adventure is drawing to a close. Co that’s in process of being absorbed by JAB

Holding co said it’s recruited Pinnacle Foods ceo Robert Gamgort as new ceo, effective end of Apr. Gamgort

will replace Kelley, tho Brian will retain board seat. Pinnacle shares slid 10%+ in early trading today on news.

In statement, Gamgort said, “I see a significant opportunity to build upon Keurig's unique combination of brands,

partners and technologies by accelerating innovation and expanding penetration of single-serve systems to

continue winning in the consumer market.”

CSD pricing, which had

slowed to +1.7% avg last 12 wks, increased to +3% for latest 4 wks thru Mar 12 in Nielsen all-channel data

reported by Morgan Stanley’s Dara Mohsenian. Each of top-3 suppliers had avg price gains of over 3% while

private-label brands edged up modest 0.4%. CSD volume decline accelerated to -4% (vs -2.4% for 12 wks), with

each top supplier losing volume. Coca-Cola volume was off 4.3% (vs -1.5% for 12 wks) on avg 3.1% price

increase last 4 wks. PepsiCo volume dropped 5.7% (vs -3.6% for 12 wks) as avg price increase more than

doubled to +3.4% last 4 wks. Dr Pepper Snapple volume slipped 3.5% with avg price increase of 3.3% last 4

wks. Private-label volume decline slowed to -1% (vs 2.8% for 12 wks).

Red Bull Stumbles while Energy Gains Continue Energy drink volume increased 6% for 4 wks thru Mar 12,

generally in line with category gains for 12 wks. Avg pricing slowed a bit to +0.5%, down from 1% avg increase

for 12 wks. Red Bull volume was down 0.6% last 4 wks even as avg prices edged down further to avg of just

0.1%. Monster Energy meanwhile gained 6% on solid 4.1% price increase last 4 wks in all-channel stores.

Rockstar picked up 10.4% (vs +14% for 12 wks) with small (+0.7%) price hike last 4 wks. PepsiCo (Amp)

volume gain accelerated to 12.4% last 4 wks on 0.6% price increase. With nearly a 12% drop in avg prices,

private-label energy brands surged 37.6% last 4 wks.

Sports Rebound; Flat Pricing Sports drink volume gains doubled to 10.9% last 4 wks as avg prices were flat.

PEP’s Gatorade volume gain nearly doubled to +10.5% (up from +5.4% for 12 wks) on avg 0.8% price drop last

4 wks. KO’s Powerade volume shot up 10% as well (up from +3.7% for 12 wks) on avg 1.2% price decline.

Volume for private-label sports drinks surged (+22%) last 4 wks even with avg price increase of 8%.

PEP Water Volume Surging on Lower Prices Bottled water volume accelerated to 11.2% gain last 4 wks with

avg price drops of 0.6% in all-channel data. Nestle Waters volume improved to +5% (up from +2% for 12 wks)

with slight (+0.4%) price increase last 4 wks. Coca-Cola volume accelerated as well, up 9.2% for 4 wks vs 7.2%

gain for 12 wks. KO prices up 1.1% last 4 wks. With boost from avg 5.9% price decrease, PepsiCo waters rolled

up an 18.8% gain last 4 wks. Private-label waters up double digits too (+15%) on avg 4.9% price drop.

It’s official: Starbucks will join the RTD

cold-brew frenzy this summer. SBUX channel development chief Michael Conway made terse announcement

from podium at co’s annual meeting in Seattle this afternoon, as part of broader presentation about opportunities

outside roaster’s brick-and- mortar stores. Exec offered no details on formulation, production style, shelf life or

flavor range aside from describing it as premium and smooth-tasting, and throwing up slide of what seems to be

tapered-neck glass bottle. It’s presumed launch will be in partnership with long-term ally PepsiCo, which has

helped build $1.5 bil brand at retail. No word from Michael on anticipated Teavana RTD, tho there’s been

speculation that may have gotten back-burnered behind cold-brew launch viewed as bigger near-term opportunity.

In presentation, Conway also offered some news on pod side: SBUX has extended deal with Keurig Green

Mountain and this summer will add new platform, Caffe Latte in 3 flavors with pair of seasonal entries with

Pumpkin Spice and Peppermint Mocha. And this summer, co will launch espresso capsules compatible with

Nespresso machines in Europe, starting with UK, France.

Andy Schamisso had decade-long run as founder/operator of first bottled white tea brand, Inko’s, before

selling out 2 years ago to team assembled by former Coors and Pabst exec Kevin Kotecki. While he plans his

next bev foray, Andy has penned admittedly snarky essay on his hard learning about brokers and retailers. He

posted it on LinkedIn ahead of recent Natural Products Expo West as a kind of cheat sheet for show. For those

who might have missed it, we’re reprinting it here, with Andy’s permission.

The Brokers

As a manufacturer, you need one, right? You’re just starting out. Money’s tight. A broker is a logical option.

They have the contacts. They know how to run the programs. All you have to do is be smart and strike a

good deal with them. “Five percent commission, WITHOUT a monthly retainer,” you demand. Then

you pat yourself on the back because you struck a good deal. You now have a sales staff without paying

for a sales staff and you got no out-of- pocket. You, sir, are a genius!

Acme Brokers, LLC, is your small outfit. You’ve seen them around at trade shows. “You got a great product but,

trust us, you are going to need our expertise,” they say. “We are very smart. We’ll watch out for the OIs

and MCBs.”

You’re sold!  These guys know what they’re talking about (OI’s? MCB’s? What the what?) and you need

someone that has your back plus, no monthly retainer!

What you don’t know is, like Eminem says, they all talk like they got something to say but nothing comes out

when they move their lips, just a bunch of gibberish.

So the POs come in, the product goes out and 30 -- hell, let’s be honest-- 45 (90?) days later you get a check for

$10 off a $20,000 invoice.

“What the flying frankfurter?” you ask.

“Outrageous,” says your broker. “We’ll set up a meeting. In the meantime, please cut us our commission check?”

Indeed, they want their 5% off the invoice (not off the monies you received). Well, you’re not going to stand for

that, right? So, you waste time fighting with them. They concede and, in the back and forth, they forget

to question the deductions.

You take up the cause with the buyer yourself. More time wasted. Eventually, you get 20-30% of what you’re

really owed because “that’s what your broker negotiated.” You fill the next PO because what are you

gonna do? You gotta stay on the shelf.

So, goodbye Acme. It’s time for a new broker. A bigger, well-established, shiny one. Let’s call them: “Trust

Brokers Incorporated.”

Now Trust are keyed in. They make calls to the big guys and gals. They have the best, well-known manufacturers

in the biz and that gives them leverage. Buyers pick up when they call. Fuhgeddaboudit.

Right away, they get you into Whole Joe’s and now you’re working a truckload deal! Thank the good lord.

Things are finally starting to happen. Seven trucks followed by another five and then three more.

Your copacker is taking you out to dinner. Your investors want to kiss you. It’s all good!

Thirty days later, you get a banker’s box from your distributor and you think, man, we’re doing so good, they’re

sending us a present!

You open the box, and there is your check. But what’s that underneath? Two hundred pages of deductions. That’s

what.

So you take a close look at your check and it’s for $900 with $130,000 in deductions (ONE HUNDRED THIRTY

THOUSAND DOLLARS). Some “truckload” deal, huh?  

Double dips, wrong pricing, 40 points taken on CHBs, something called an “Over Pull Supplier Bill,” phantom

overstock deductions, open stock purchases at deal pricing, scans for duplicate periods and arbitrary

percentage deductions that you can only guess were created by picking a number out of someone’s a . . .

um, hat (“we have a winner-- 38.967% off invoice!”).

Now your copacker wants his money. Your investors want to kill you. You take yet another hit on your own

compensation and, oh yeah, your new shiny broker wants their commission.

Wash. Rinse. Repeat.

The Buyers

Having your best intentions in mind, your broker has arranged a great deal with Whole Joe’s in Florida. You’re

not only going to intro BOGO (buy one, get one) at their new store in DBF (Delray Beach, Florida) but

you’re gonna OI (off-invoice) and MCB (manufacturer charge back) at an EDV (every day value) of 2

for $3 for the entire summer and, in return, you’ll be in all Florida stores with your EDLP (every day

low price).  Well ROTFL, I’m over the moon with all these exciting acronyms.

Fast-forward a few months and you’re having your first meeting with the regional buyer. He’s an intimidating

fellow with an intimidating nickname and he wants to know why your product isn’t selling more.

Gulp.

Fair question, you guess. Numbers don’t lie. So, before the meeting, you ask your local tanned-like- leather broker

(the one who’s real tight with Mr Big Stuff) what’s the deal?

“Um, I don’t know, but let’s kill him with kindness,” she suggests. 

Your thinking: “Kill him with kindness? Didn’t I kill him with all those acronyms we put in place?”

Turns out you weren’t selling more because the buyer didn’t realize you had deals in place and while he was

buying at a sweet discounted price from you, he didn’t pass it on to your (and subsequently his)

customers. No one told him.

Oops.

He and Ms Louis-Vuitton Skin think it’s all very funny. They have a good laugh and tell you, “Don’t worry, just

extend the deal and we’ll get it right this next time.”

“Sorry, I can’t extend the deal,” you say, almost like a question.

Two months later, you’re out of that division. Why? Weak sales. Why really? You have the nerve to want some

sort of make good on their —how should I put this mildly? — screw job.

You tell yourself that Florida is just a unique whacky place and you’ll focus on the divisions in your own

backyard up here in the normal Northeast, where, according to your scan data, you’re selling 2 cases per

store per week.  Not too shabby.

But cold blows the wind in your backyard even though it’s July. Your larger competitor, Organic Tea, was just

bought by one of the big guys and your meeting with the regional buyer begins with her saying,

“Organic Tea is my favorite.”

Uh oh.

“MCBs! OIs! EDLPs! BOGOs!” you exclaim. “Two cases per store per week is not enough! Let’s really get this

baby cooking. Let’s give it all away!”

Two months later, you’re out. Why? Weak sales. Why really? Organic Tea has the one acronym that your buyer

loves and you can’t afford:  AEP (all expenses paid.)

####

I hope the above slice of personal history, albeit snarky, imparts to you some cheat-sheet practicality to keep in

your back pocket. To wit: Does this person know what s/he’s talking about? What do I really net off

these deals? Am I throwing the baby out with the bath water? Can I get that in writing? Should I even

be in this store?  Is s/he representing me best?

You know, stuff like that.

Hope you had a great show. I miss the fun!

Calif jury yesterday reached verdict in long-

running suit by POM Wonderful marketer Wonderful Co vs Coca-Cola alleging that co intentionally deceived

consumers into thinking there was significant amount of pom juice in its Pomegranate Blueberry juice drink.

After 6-day trial, jury agreed with Coke that it was complying with law by describing entry as “flavored blend of

5 juices,” even if pom, blueberry and raspberry ingredients together comprised less than 1% of pack’s contents.

Some 99.4% of contents were apple and grape juice, often described as “junk juice” by those in biz of

formulating bevs. Dale Giali, partner in LA firm Mayer Brown, told FoodNavigator-USA e-letter that verdict

“demonstrates that there is a difference – sometimes a big difference – between a lawyer-driven theory of

deception, on the one hand, and what consumers actually take away from a label, on the other.” Case had been

greenlighted by Supreme Court a coupla years back . . . David Segal, who as student in Quebec founded David’s

Tea in 08 with fashion magnate cousin Herschel Segal, has cut ties to Toronto-based publicly traded co.

Securities filing said simply that Segal “was resigning from his position as Brand Ambassador to dedicate more

of his time to exploring other entrepreneurial interests,” effective last Fri. Now 35, Segal remains 3d-largest

shareholder with nearly 10% of co shares. “Though he operated as more of a behind-the- scenes player than the

public-facing voice of the brand, Segal was credited as the visionary behind the company’s sleek store design,

product packaging and development and its seasonally rotating assortment of tea blends,” Financial Post noted . .

. Bug Juice Int’l and Ohio Beverage Systems have recalled bevs that suffered mfg deviations that could result in

contamination by plastic or metal shavings, the 2 cos said. No injuries have been reported so far in conjunction

with either incident. Bug Juice issued recall for 46K cases of items produced in Feb at copacker. Ohio Bev

Systems recalled 7 flavors amounting to nearly 6K cases of its Quenchy fruit-flavored drinks due to equipment

malfunction, Scripps’ NewsNet5 reported. It’s not immediately clear whether the 2 recalls are related.

Count Joey Grassia among traumatized casualties of retail biz, after difficult experience with nutrition bar called

KUTOA that he launched. “I’m boycotting retail,” he immediately declared to visitor at Expo West booth of his

new, primarily online bev play, Steamm. “It’s a broken system.” If so, Joey may have found good workaround:

arresting 2-oz cobalt-blue glass shot bottle containing real espresso that’s “solar roasted & pulled in San

Francisco.” Styled in collateral materials as “first-ever bottled espresso delivered to your door,” Steamm is

packed in elegant but durable blue cardboard presentation boxes and shipped to consumers at 6 bottles for $20, 12

for $36 (with about 10% discount for subscribers). The shots are 100% organic, contain no milk or sugar but

slight touch of organic stevia, and carry solid jolt of 130 mg of caffeine. Each shot of espresso is steeped in raw

Peruvian cacao for flavor note and to add antioxidant content. Current selection uses beans grown organically at

Finca Nueva Esperanza in Concordia, Mexico. Co is punning partner of UN Foundation’s vaccination program

Shot@Life, which is currently focused on polio immunization.

In chat at booth and follow-up, Joey listed usual reasons for preferring online channel: none of ups and downs of

dealing with distributors and retailers, plus you get to know a lot about your customers. Steamm sells its items

straight from its own Web site at Steamm.com rather than thru 3d parties. Grassia himself boasts a few years of

immersion in tech world, including coupla years at Facebook (where he worked with CPG partners like Red Bull

and Monster energy brands) and helping launch agency Dapper Goat Social Media in Austin. Steamm hasn’t

completely limited itself to online format: this week it’s testing keg deliveries for local offices in Bay Area. (For

those customers it’s going with organic cane sugar in recipe.) Note that another Expo West exhibitor, Forto,

similarly is doing creative take on espresso shots – its shot-size pack is plastic and molded to resemble takeout

coffee cup – but is fully committed to retail, including challenging c-store channel.

Odwalla cofounder Stephen Williamson pointed proudly to sturdy – one could argue overbuilt – display tables at

expansive booth of his latest initiative, Forager Project. Welded it himself, he noted with satisfaction, adding that

he doesn’t see why other principals don’t more often take similar hands-on role at their companies.

In some ways that sums up ethos of SF-based co that Williamson founded 3 years ago with his stepson, John-

Charles Hanley, and where he serves as chmn. Forager Project is taking deliberate approach to creating products

that never stray far from their fundamental ingredient building blocks, with straightforward branding approach

and as little as possible allowed to go to waste. Indeed, key intro at Expo West wasn’t on bev side but snack side,

with line of bagged chips produced from nutrient-rich vegetable pumice left over from producing bevs that

otherwise was being discarded. That line, JC noted, had hit stores a few weeks earlier, garnering joint displays

with the bev line and outselling conventional chip brands on Super Bowl weekend in some stores.

By now HPP-produced bevs packed in 16-oz bottles are becoming a familiar presence in western US markets,

where they can be found in Whole Foods and Vons stores, as well as in Earth Fare stores in Southeast. They

include trio of Greens items, pair of Roots items (Beets and Roots, latter with carrots, beets, oranges, sweet

potatoes) and Avocado & Greens sku. But nutmilks have grown to nearly as large a part of portfolio, comprising

5 sku’s, all cashew-based: Nuts & Vanilla, Nuts & Chocolate, Nuts & Coffee (using cold-brewed coffee), and 2

probiotically enhanced entries, Strawberry Banana and Banana Date. They’re positioned as upgrade over the hot-

filled, gum-laden items that have proliferated in dairy cases. Forager’s have “more solids, are clean, minimally

processed,” JC told BBI. “We’re comfortable having the customer shake it first.” The items eschew fancy or

punning names of rival brands in favor of straightforward listing of key ingredients. They go out at $6.99.

At Expo, in separate conversations, Forager Project principals all emphasized that co has evolved from “think

before you drink” purveyor to broader position as a way to eat, with the chips viewed as first expression of that

broader scope. “We intentionally never called it Forager Juice, just Forager,” JC explained. “We’re not just a

beverage cooler brand,” said recently recruited chief revenue officer Matt Collins, a former MetroMint and Zola

exec. Forager “is about creating a way to eat – food matters,” Williamson said. It’s point of pride that, from

start, co’s array of veggie bevs carried ingredient panel that actually leads with a vegetable, not some other

ingredient, as well as carrying less sugar in recipe. (Polar opposite would be Minute Maid Pomegranate

Blueberry item with less than 1% of those ingredients – see Bev Droplets below – but even some HPP rivals have

filler item as main ingredient.) As Forager plotted move into nutmilk realm, it “fell in love” with cashews,

Stephen noted. The 5 single-serve entries are formulated from blend of cashewmilk first and then almondmilk,

even as all-cashewmilk multiserve pack has been accepted into 9 of Whole Foods’ 11 divs. The Organic

Vegetable Chips, which meld veggie residue with ancient and sprouted grains, are positioned as “the tortilla chip

re-imagined,” offered in Greens (“kale chip for the masses”), Roots and Beets flavors, priced at $3.99 per 5-oz

bag. Line has been greenlighted in Whole Foods’ Calif stores and Vons.

Over past year or so, Williamson and Hanley have built out team to support rollout. Forager just went national

with Presence Marketing last week, said Collins. Hanley, who serves as coo, brings just a few years of

professional experience but he grew up around his stepfather’s Odwalla adventure and came to Forager Project

from a year at private equity shop First Beverage Group. With another Bay Area brand, superfruit player Zola,

enduring period of uncertainty (since resolved with recent acquisition), Forager was able to recruit some seasoned

Zola execs for its expanding team, including Collins as chief revenue officer and Ryan Stover as dir of sales

West. Other key members of team include 14-year Evolution Fresh vet Susan Heiser as dir of natl sales and

Odwalla vet Maude Manoukian as cmo. Scott Stark, dir of sales East, brings entrepreneurial bias after starting

produce distributorship and tomato sauce co while young.

Co is relying on hybrid distribution approach melding broadliners UNFI and KeHe with DSD houses in key

metros, including Dove in Northern Calif and High Touch in Southern Calif. Tho it’s been focused primarily on

western states, it’s been coming on stronger in NY via Rainforest house and is just expanding into New England

via Bayside.