After brief flirtation with idea of pursuing N Amer refranchising under prior ceo, PepsiCo seems to be backing away from notion under new ceo Ramon Laguarta, perception that got some reinforcement from remarks of just-retired PepsiCo North America ceo Al Carey at last week’s Beverage Forum in Chicago.  But might Keurig Dr Pepper be going in opposite direction?  We’ve picked up rumblings that at least preliminary discussions may have occurred on that front, with Honickman Group talking about picking up KDP’s old Mr Natural operation in NY and possible approaches in other cities like Chicago, where KDP also maintains control of its route to retail.  But nothing seems imminent, and neither Honickman Group or KDP is saying anything on the subject.

At Bev Forum, in q&a with Beverage Marketing Corp’s Michael Bellas, Carey made the case for status quo.  “I like the idea of having a big system where if you can find productivity, you can spend it back into brands,” he said, echoing view that prior ceo, Indra Nooyi, had often made for benefits of integrated system.  Currently, 80% of bottling is company-owned and “I don’t see that changing.”  (Al said he’s fine with having 20% of system in hands of franchised bottlers, most of them from families long with the blue system.)  Under pressure from Wall Street and activist investors who like results of Coca-Cola refranchising, Nooyi eventually came around to acknowledging that co was doing the math on potential refranchising, but since taking reins as her successor Laguarta seems to have backed off notion in his public comments.  Tho Carey only has marginal ties to co as of a few weeks ago, his comments seemed to be even more definitive in favor of status quo.

Meanwhile, we’ve picked up steady rumblings that Honickman Group is in discussions about picking up KDP-owned bottling operation in NY (the old Mr Natural Snapple operation) as way of fortifying its Canada Dry NY div, which frequently is passed over by emerging brands who’re eager to enter Honickman’s far stronger Philadelphia and DC operations.  (By contrast, its separate Pepsi-Cola arm in city is strong player that seems to be handily outperforming new Coke franchisee Liberty.)  From what we hear, Honickman team is becoming more insistent with owners of early-stage brands that they enter CDNY as condition of winning spot in Philly and DC, and have dangled prospect that CDNY would be greatly fortified if Mr Natural deal happens in coming year or two.  Any such move would have effect of unifying legacy CSD brands like Canada Dry with new-age brands like Snapple and Bai that currently move thru KDP unit.  (Another key KDP-aligned brand, Core Water, moves thru indie shop Big Geyser.)  Still, there are lotsa reasons nothing may happen.  For one, coterie within KDP is opposed to any such move.  For another, it’s presumed that, to whatever extent PepsiCo is pursuing discussions about refranchising, Honickman Group would have to be part of those talks, too.  PEP would be likely to insist that any addition of territory in blue system precludes upgrade on DPS side too.  But things are as fluid as we’ve ever seen ’em in bevs, so nothing seems certain.

Keurig team’s plans for DPS bottling system had been topic of great interest at time merger was announced last year, but in recent quarters has not been topic of any questions that we can recall from earnings calls.  Still, during analyst panel at last week’s Beverage Forum, Macquarie Group’s Caroline Levy suggested some degree of refranchising might be progressive step for KDP.  “Coke has the advantaged system in North America right now,” she figured.  “If you’re Dr Pepper you find yourself distributed in a number of disadvantaged Pepsi bottlers.”  That suggests possible upgrade in markets where KDP owns its own distribution like Texas.  “In Texas, why not go on the Arca model?” she said, referring to agile S American bottler Coke enlisted to take over that territory.  “I see opportunities for Dr Pepper to upgrade to a more advantaged model.”  Since Keurig/DPS deal closed, tho, KDP brass has shown no public signs that they’re pursuing that strategy.

The Beer INSIGHTS Spring Conference (presented by parent co Beer Marketer’s INSIGHTS) is coming up next week in Chicago, May 15-16 at the Ritz-Carlton in Chicago. Don’t miss an opportunity to broaden your beverage knowledge by hearing directly from first-rate speakers sure to provide provocative content on what’s working and what’s not in the marketplace today. Our lineup includes top execs from Anheuser-Busch, MillerCoors, Constellation, Mike’s Hard Lemonade, Diageo Beer Co as well as Nielsen, including co’s VP of Innovation, Kelly Nielsen.

Kirin Brewing owner is in hunt for kombuchas and other non-alc bev businesses, per Feb investor presentation reported on recently by Brewbound. Presentation indicates that Kirin Holdings plans to allocate upwards of $1 trillion yen ($8.9 bil) over next 3 years “for investment in creation of intangible value, growth of existing businesses, and the establishment and promotion of new businesses bridging pharmaceuticals and food and beverages,” with its Lion unit charged with forming a “competitive position” in international craft beer markets, as well as expanding “craft coffee, kombucha and other-non-alcoholic beverage businesses,” per the deck reported on by Brewbound. Both Lion and Kirin have robust NA divs overseas, website reminded. And recall also that Kirin was investor in much-watched launch of Nawgan brain-boosting bev in US, primarily as way to build interest in its Cognizen ingredient. “Kirin has chosen Lion to lead its global craft strategy, which is a vote of confidence in the capability and vision of the Lion business and the team,” former Pabst ceo Simon Thorpe, who’s just been named to run Lion unit in N Amer, told Brewbound . . . “Beverage baron” Lance Collins and his ex-model wife Linda Taylor have splurged $12 mil for 11K-sq-ft, 7-BR, 8-bath spread in “guard-gated” La Quinta development, Variety reported. Trade mag took that as further evidence that Palm Desert, “long considered a residential destination exclusively for the grey-haired . . . now attracts a younger, hipper crowd.” Among their neighbors there is grocery magnate and Aquahydrate investor Ron Burkle, who spent record $13 mil for Bob Hope estate in nearby Palm Springs . . . “HBO confirmed that a disposable coffee cup spotted by fans in last night’s ‘Game of Thrones’ was a mistake,” Bloomberg reported. “The network joked it should have been an herbal tea.”

Honest Tea cofounder Seth Goldman and the Coke system vet he enlisted to grow it within Coca-Cola’s VEB system following brand’s acquisition are lookin’ to be sizable winners in IPO of altmeat purveyor Beyond Meat, which has gotten nod as best-performing IPO in nearly 2 decades after shares closed first day of trading last Thurs at 163% of offering price. It’s been trading at above $70 in recent days. SEC filings indicate that exec chmn Seth owned just over 1 mil shares (2.1% of total) prior to IPO, meaning on paper at least he would seem to have easily bested his Honest Tea exit. Meanwhile, chief growth officer Chuck Muth, who runs 40-person team at Beyond Meat, owned 218K shares prior to offering, 250K afterward. These figures don’t include options.

Copacker and Calypso Lemonade marketer King Juice has recruited longtime Coca-Cola Enterprises and Heineken exec Bridget Lasda to serve as chief commercial officer, as new team under private-equity owner Mason Wells continues to build its own team to run Milwaukee-based co.  Her appointment, which we first spotted on LinkedIn, means end of 11-year run of div prexy Jeff Outlaw, who built extensive DSD network for brand and stewarded its entry into major grocery and mass merchandise chains.  Reached earlier today after several other approaches in recent weeks had gone unanswered, Outlaw declined to comment, but later emailed statement confirming end of “an incredibly fulfilling journey,” adding:  “The past year and a half being a part of the team assembled by Mason Wells has allowed me to stay affiliated with the brand I love, as well as learn from topnotch teammates.  I look forward to seeing the next phase for Calypso and am excited to be pursuing other interests both inside and outside of the industry.”  The teammates would include former Snapple chief Mike Weinstein, now on Calypso board, while the non-bev activities include writing hit country songs for Phil Vassar, Tim McGraw and others.  (Despite his last name, he doesn’t write in “outlaw country” sub-genre, tho.)

In memo to trade partners that distributor shared with us, ceo David Klavsons said Bridget would take over responsibility for all distributors and retailers domestically and internationally while leading brand to next phase of growth.  As for Jeff, he “has done an outstanding job building the distributor network and growing distribution nationally.  He has supported the transition from a founder-led business to new ownership and prepared Calypso for the next phase of growth.” 

Outlaw, who worked with founder Tim Kezman to build glass-bottle brand from a few thousand cases to 4 mil annually, has had diverse career that’s also included operating small beer and soda distributorships in Sun Belt.  By now, Outlaw would have had to have been among last remaining execs from Kezman regime, with Mason Wells enlisting former Glanvia exec Klavsons as ceo (he was a copack customer of King Juice) and key members of Outlaw’s team including natl accts mgr Bill Stineman, marketing chief Andy Sands and field sales chief Paul Burleson all moving on by now.  Thru deft flavor extensions, team under Kezman and Outlaw had turned what once was highly seasonal bev style into mainstay item, even in markets like Alaska, tho founder’s unwillingness to compromise on flavor with lower-sugar offerings has left brand a bit vulnerable to what we’ve called Great Sugar Freakout of 2018.

 “Crossing the chasm” it’s sometimes been called in tech world: challenge of navigating from early adopters to broader constituency.  In q&a with Bev Forum host Michael Bellas in Chicago last week, founder/chmn Mike Repole and his recently recruited prexy, Brent Hastie, offered absorbing glimpse into challenges of scaling a brand that already has gone further than any prior Gatorade challenger besides Powerade, but still has considerable pitfalls to navigate on way to holy grail of full exit to investor Coca-Cola.  The focus now is on maintaining agility while instilling greater discipline and recruiting team equal to the different set of challenges that lie ahead.  Along the way, Mike offered intriguing details about inception of brand, too.  Repole/Hastie relationship dates back a decade to when Hastie took over floundering Vitaminwater brand at Coke and reached out for advice on how to get it back on track; the pair had awaited opportunity to work together again, Brent said. 

By now parent co BA Nutrition is managing payroll of nearly 200 employees after recently completing pivot from KDP bottling system to Coke’s far more powerful one.  So Repole surely is still feeling quite a bit of pressure.  And as this article runs, owner of Repole Stable also will be coming off brief bout of depression, not having a horse in this past weekend’s Kentucky Derby after participating in 4 of last 8 derbies.  Alternative to being depressed at being left out, he told audience, “is most anxious, anxiety-filled, stress-filled week.”  So it’s “a no-win situation.”  Knowing Mike, he bounced right back.

In discussion, Repole freely acknowledged missing adrenaline rush of bev biz after exiting Glaceau to Coca-Cola for $4.1 bil.  He’d been #2 exec there, turning founder Darius Bikoff’s vision into practical reality, in process building team that later fanned out to all kinds of successful startups, much as P&G and Gallo people used to seed broader CPG sector.  “Ten years went by like 10 minutes,” Mike said.  He did other things (they included acquiring and then flipping Pirate’s Booty snack brand and, less successfully, launching short-lived eatery chain in NY called Energy Kitchen).  He was well aware that, for entrepreneurs, if the success rate first time around is 1%, second time it’s “zero percent.”  Still velocities of bevs are unmatched, even vs snack brands like Booty.  “You might go 30 days without snacks, you can’t go 3 hours without beverages,” he reasons.

Body Armor’s roots go back to dinner Repole had with fellow bev tinkerer Lance Collins, with whom he’d talked about collaborating some day.  Lance, who’s had unmatched eye for trademark, showed him a pair he’d landed: Core Water and Body Armor.  “I wanted nothing to do with Core water (Mike didn’t say why, but remember, he’d already built Smartwater brand) and Lance went on to tremendous success” with brand, now owned by Keurig Dr Pepper.  But he’d had conviction going back to 2010 that there was room for premium sports drink.  (Recall, Vitaminwater recruited athlete endorsers and in many ways was marketed like sports drinks.)  True, Gatorade has enjoyed “amazing run.”  But it’s using same formula as at inception in 1965.  So Body Armor represents more natural alternative for today’s athletes.  As its TV ads concluded, “Thanks, Gatorade.  We’ll take it from here.”

With Body Armor, Repole and Collins have been pursuing classic “landgrab” strategy of building aggressively ahead of demand, on national scale, in hopes that they can get brand to ignite.  Of course, with their own resources and access to capital, they can sustain effort far longer than typical entrepreneur.  Still, Repole says he was out-front with investors about challenge.  “I let everyone know this was a 1% chance,” he said.  Body Armor “would be the next billion-dollar brand or go bankrupt.”  After all, 50 challengers had attempted to dethrone Gatorade over the years “and every single one has been knocked out – 2 years, $20 million gone.”

One key has been agility and fresh thinking.  Brand was designed from beginning to be premium, with full shrink wrap, coconut water sourced from Indonesia and natural colors and flavors (tho it still doesn’t pass muster at Whole Foods).  Flavor development has been driven by what works best with coconut water base, yielding offbeat flavors like Strawberry Banana, the top seller, that’s more familiar from new-age bevs than sports drinks.  “So we are not necessarily just looking for orange and grape.”  Co is agile on marketing side too: most popular TV ad during NCAA tourney resulted from mad scramble (see below).  Broader idea, as Hastie noted, is to bring value back to category where dominant brands charge as little as 50-60 cents for 32-oz bottle.  “From a system point of view, it’s bringing good margins back.”  That also makes it easy to co-exist with Coke’s Powerade brand.  “To me, we’re in the same category, but Powerade is such a value brand, we’re such a premium brand, I don’t think we really compete with them,” Repole said. 

Taking over day-to-day reins from Collins, Repole had waited to launch light extension until core brand was on solid trajectory, but by now stevia- and erythritol-sweetened Body Armor Lyte is tripling in volume and building franchise, responding to consumers who want lower-calorie, lower-sugar option.  By contrast, Gatorade Zero seems mainly to be cannibalizing core brand.  Body Armor Sportwater extension was direct response to athlete endorsers’ requests, given that water is big part of what they drink.  Name of company “is BA Sports Nutrition, not Body Armor,” Mike reminded.  “It could be bars one day, protein, if it makes sense for the athlete we want to be there first.”  Asked about energy, Repole demurred.  “Right now we need to stay focused,” he said.  “Energy plays a role for athletes” and “is in our mind, but we’re just scratching the surface here, there’s so much we can do with Lyte and Water.”

As they work to scale Body Armor from $250 mil at retail to $1 bil – the level at which KO counts new brand as true success – Repole and Hastie recognize they need to change things up.  “There’s a strategy going from $250 million to $1 billion,” Mike said.  During first phase, you’re playing month to month, “losing $5-10 million a year, that’s not really a good business model.”  Hastie is drawing lessons in navigating that chasm by drawing on experience running Glaceau following Coke’s 2007 acquisition.  By then, it was close to $1 bil, “but it wasn’t ready to be a billion-dollar business.”  Working with recently hired coo Paul Lukanowski, a former Swire Coca-Cola exec, Repole and Hastie are working to bring in execs familiar with operating at that scale.  Just the prior weekend, they were interviewing category management people, as they continue to personally vet every new hire.  “For me, the most important thing is, when get to $1 billion, I don’t want to have to change one thing about the team,” Brent said.  At least one thing has proved easier with Body Armor than during Glaceau days, Repole noted:  “With Vitaminwater, we were always trying to figure out what’s the occasion, what’s the (cooler) door.”  Of course, that’s straightforward proposition with sports drink directly challenging Gatorade.

Repole hasn’t disguised his ambitions.  “I’ve been saying since 2012 we’ll be #1 by 2025, if not 2025 it could be earlier, it could be 2024,” he told Bev Forum audience.  Asked what key to success has been, he said without hesitation, surrounding himself with great people.  I’m sure there are a lot of very interesting stories about working for Mike Repole.”  (BBI readers: buy BBI editor a beer, and he’ll tell you a few!)  Bev entrepreneurs should be ready to “dedicate 20 hours a day, 7 days a week, with no vacation time” and put “personal life on hold for a number of years,” he said.  Even that brings “very small shot” at succeeding.  (His credo seems to be reflected in name of his investment vehicle, Driven Capital, and in now-retired horse called Outwork that was sired by another Repole Stable horse, Derby winner Uncle Mo.)

Luck/Trout Disco Spot Was Quick Drive to the Hole for Slamdunk   Most popular Body Armor ad during NCAA hoops tournament featured disco battle between Andrew Luck and Mike Trout, in keeping with campaign’s theme that Gatorade represents old-fashioned view of world.  “Andrew Luck and Mike Trout wouldn’t get into an outdated disco battle,” narrator intones as the pair try to outdo one another’s moves, “so why would they choose an outdated sports drink?”  Turns out, marketing chief Michael Fedele reflected today, that execution wasn’t even anticipated to air until later in the spring.  But Fedele supervised shooting of ad on Fri Mar 8, team edited it that weekend for unveiling to Repole and Hastie.  “We collectively made the final decision to run the spot on March 12 and launched it Mar 20!” Fedele told us today.  Ad was immediately trending on Twitter and was picked up by 17 different news and sports talk TV shows, he said.  That’s how nimble cos operate, Fedele said.

 Jones Soda turned in another qtr of flat growth, notching $2.8 mil in Q1 revenues, but touted continued progress on future growth vehicles such as its fountain program and Lemoncocco Italian-style refreshers.  The flat rev figure included 52% increase in fountain biz, 13% boost in Lemoncocco, offset by 18% decrease in 7-Select controlled brand offered to 7-Eleven chain as partners reduced limited-time offers in order to focus on 3 highest-velocity core skus, augmented soon by new flavor, Airheads Pineapple Cherry Blast.  Partnership seems to remain healthy, with partners re-upping for another 2 years and 7-E offering full shelf to Jones line (including exclusive watermelon flavor) in resets of 700 stores in Canada.  Special packs commemorating retailer’s 50th anniversary will go on shelf there in May.  With acquisition a year and a half ago of 1,100-store Sunoco chain, 7-Eleven is even more promising partner with which to be aligned, as ceo Jen Cue suggested.

In qtr, gross margin weakened a bit to 20.1% from 21.7% a year earlier, and net loss widened to $796K from $469K.  But Cue emphasized that seeds Seattle-based co is planting in growth segments are continuing to sprout, even as core bottled line headed into 1K+ Walmart locations late last month, all presaging a future lift in sales.  

On innovation front, JSDA is bullish about Ginger Beer launch, which should play well as both mixer and refresher, and has received encouraging feedback on ongoing transition to more natural ingredient and color base. Cue indicated that core line has been segmented now into Classic and Exclusive sublines, with Classic entries like Root Beer, Cream Soda and Orange aiming to reach all-natural status by next year, while the more fun-for-you Exclusive subline in flavors like Berry Lemonade will go natural “as much as possible” without necessarily achieving totally clean status.  Jones is seeking to reduce sugar content in both lineups, Cue said.

Lots more Beverage Forum coverage due in upcoming issues, readers!