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Why do good drinks fail? Build your beverage empire
I see more than 300 new beverage companies per year. Some drinks are great! So why is it that 99% of these drinks fail?
Great new drinks fail primarily because entrepreneurs were not prepared with the right knowledge and strategy.
To create a successful beverage product it takes marketing, distribution, and adoption. Marketing targets the right consumer in the right way to ensure the product was developed correctly from the start. Distribution will ensure the product is in the right place: it could be a convenience store, supermarket, natural food store, or restaurant. Adoption is where the hard work shows and the empire begins. Adoption by the consumer gets repeated sales in the retail store and allows you to grow exponentially.
Marketing is the start and the end of the road for beverages. If you develop your product from day one using a sound marketing strategy it will be hard to miss the target. The number one mistake in the industry takes place here. Companies start with just the idea, maybe the formula or the name or package, and launch a product. In reality it should take a much different approach. It starts with the idea, then it stops and goes all the way to the end of the sales process and then works its way back to the product again. In the process we’ll find the target consumers, right retailers, distributors servicing these retailers, pricing, packaging, positioning, everything. In short, listen to the consumer! This easy exercise of starting with the consumer will avoid most mistakes and heartaches.
Once we find who the perfect consumer is for the product we can start the exercise. You’ll have to ask yourself who this person is, male or female, age, type of job, income, and go as far as imagining who this consumer looks like and how they will reach out for the product. How big should the bottle be? What color? What taste and function? Once we have this we’re golden! We can now reverse engineer the beverage. We start by finding out where the consumer buys, how much they’ll pay, how they like to be promoted and sold, can we do sampling? Should we do advertising? After we know how we’ll promote the beverage we’ll jump into distribution. What types of retail accounts should we target? How will we market to these retailers and open the accounts? What types of distributors service these accounts? How can we contact, sell and support these distributors so they can service the retailers we help open? Now we’re ready! Let’s start with beverage development.
Distribution is the hardest part of the equation. It is the job of the beverage company to sell products to the distributor, the retailer, and the consumer, not just the distributor. Distributors in the beverage industry are local to one town or city. A large distributor is usually a beer distributor in a large metropolitan area servicing 2,000 retailers. Targeting them is best by phone and then in person. Distributors require territory exclusivity across all channels of distribution and will not commit to minimum purchases unless you already have existing sales you’re handing over to them. I know, it’s not the best deal, but it’s the beverage deal!
Adoption is the final step in the equation. By now we already opened a distributor, we already worked with the distributor to open accounts, maybe 200 or 300 accounts and we executed our promotional strategy. The best results come from in-store sampling events at point of purchase. Now we’re working to get adoption. Talking to customers in stores and communicating our best selling proposition. Why we’re better, why they should buy it and all the benefits they will get from this wonderful beverage. Adoption comes next and with it “store turns”; the pleasure of seing the same consumers coming back the retail store every week and buying the product every day. An excellent target is to have at least 2 cases sold per store per month for the first 6 months with a long term target of 4 cases of product per month (each case having 24 bottles or cans).
As you can see it takes more than a great tasting beverage to create a beverage empire. Actually, making a great tasting beverage is the easiest, less expensive and fastest part of the whole beverage process.
The beverage industry tops $100 billion per year in the United States alone. The beverage industry is made up of several categories, including:
*** Carbonated soft drinks
*** Bottled water
*** Wine and spirits
*** Functional drinks (such as sports drinks)
*** Ready To Drink (RTD) teas
*** New Age Beverages
As you can see, New Age Beverages are just one category within the market. While it might seem that the old favorites of soda, beer, water and wine are too ingrained in the marketplace to leave room for opportunity, statistics show that just the opposite is true. Sales figures show that people are turning to new forms of refreshment, and drinks that can give them more. New Age Beverages are only a fraction of the overall industry, but this is the category, almost the only category, that is growing and showing greater potential for future growth.
New Age Beverages Are Growing at 50 Percent per Year
The New Age Beverage category has been growing tremendously in recent years, seeing up to 50 percent growth per year. Sales and projections continue to show that New Age Beverages are a solid business to be in—one that grows even as some perennial favorites start to dwindle. As those products fade they are being replaced by something bigger, something better, and something consumers just can’t get enough of: a whole new category of New Age Beverages that includes energy drinks, vitamin water, high-end water, iced coffees, natural sodas, energy shots and many more. With companies like Fuze, Red Bull, Monster, Rockstar, Izze, Fiji Water and others leading the way, it’s easy to see how profitable a path exists. All that new beverage developers have to do is find their way along that road.
The New Age Beverage market has grown to be a serious competitor in the industry. New Age Beverages are one of the only categories enjoying double-digit growth. In truth, it is the New Age Beverage market that is sustaining big beverage companies like Coca-Cola and Pepsi as their carbonated drinks see declines or miniscule growth.
How Can Your Beverage Company Succeed?
Success depends on your personal definition but for clarity’s sake let’s set three levels of success: Level No.1is not going out of business, Level No. 2 is growing a good regional company and Level No. 3 is building a beverage brand with national sales that will eventually be acquired by one of the big fish in the business (hopefully paying up to 10 times gross sales as they’ve done with others). In the end you will have successfully built your beverage empire!
Success No. 1: Let’s Stay in Business
There are around 300 new beverage products that actually have some money and make it to production each year. There are another few hundred that never make it off the ground. I personally see around 100 beverage projects per year. Most of them go out of business for one reason: they don’t sell. What do I mean? They don’t have a good sales strategy? They lack the funds to execute in supporting distributors? No. They never focused on sales. How can that be? you might ask. In this industry the monetary barrier of entry is very low—around $200,000—but the second barrier, the sales barrier, is very high. Most companies, even well-funded ones with $4 million or more fail at the simple task of selling to a distributor and opening 100 or 200 retail stores.
To stay in business you need to go out and open stores. That’s it. Not just get distributors, not just attend trade shows—you need to go out and get dirty and open accounts, one by one. When I see business plans I always fast forward to the “good part.” How many stores will they open, how fast and how will they support them.I’d estimate that 99.9 percent of business plans that come across my desk fail to even mention this aspect of the business.
Success No. 2: Grow a Great Regional Company
A great regional company sells less than $4 million a year and uses beverage distributors to reach their goals. For New Age Beverages this means you need around 20 distributors across a few states. Beverage distributors in the United States only tend to one city or part of one city. There are no giant distributors. The great regional company will have management focused on promoting product in the stores and making sure distributors are happy. The beverage has appeal and repeat buyers. You only need around five loyal customers per store to reach this level of success.
Success No. 3: Build a Beverage Empire
Going from a great regional company to one worthy of acquisition will require two things: multiplication and adoption. Multiplication means you can do exactly the same thing you did regionally at a national level. This will require funding and organization. It will also require a professional CEO or COO, not just a high-energy visionary entrepreneur. Adoption by consumers is the real game here. Yes, you can have a great channel of distribution pushing product all over the country. You may even have mass advertising and a great budget for promotion, but without adoption—without repeated turns in the stores—this level of success will be nearly impossible to achieve. We need sustainability at point of purchase (repeat buyers at stores) for this level of success to be achieved. This creates the proverbial tipping point!