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Odwalla founder: Large companies have to buy innovation

Beverage Entrepreneurs Forum: This is the only business where you send a customer an invoice, and you end up owing them money!

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By Elaine Watson+

24-Jul-2014
Last updated on 24-Jul-2014 at 18:08 GMT

Big Time Tea Co (Little Me Tea) founder Melinda Hicks says the tea for kids category has legs, but building a new brand and a category takes time and money
Big Time Tea Co (Little Me Tea) founder Melinda Hicks says the tea for kids category has legs, but building a new brand and a category takes time and money

Launching a beverage brand is the easy part. The challenge is growing and sustaining it without running out of cash, steam or patience, delegates were told at the FoodNavigator-USA Beverage Entrepreneurs Forum.

Speaking at the event - broadcast live on Wednesday and now available on demand (click HERE to register) - Odwalla founder Greg Steltenpohl - now CEO of California-based Califia Farms - said: “I shouldn’t really be here because Odwalla started with $200 and no experience.

“[The fact] that this can turn into something that becomes valuable to a Coca-Cola is perhaps testament to the fact that it’s not that hard to get started… What is really hard is to develop and to sustain a brand. It’s not just about being passionate, as I think by nature entrepreneurs are, but you have to find a way to create value in the category and the channels you are competing in.”

The business model for larger companies kind of requires that they buy innovation

On the plus side, he said, small companies are by their nature more innovative and agile, and if they can find a way to stay afloat in the early years - particularly with the support of new financing models - they still have a chance of making it despite being minnows in a pool of sharks.

He added: “The business model for larger companies kind of requires that they buy innovation, but the fundamental problem with that model is that when large companies like Coke get hold of an innovative company, the corporate model doesn’t allow the innovation to continue for a sustainable length of time.

“I think that the big thing that’s happening in the food industry is that the business model for larger companies based on the legacies of their infrastructure, manufacturing systems, supply chains and economics makes it very difficult for them to address the fundamental changes that the consumer wants.

Greg Steltenpohl, CEO, Califia Farms: "In many cases the venture capital model is not the most well-suited to food companies."

“The bottom line is that the market is more ready [for innovation] than the industry is capable of delivering at this point.”

The venture capital model is not the most well suited to food companies

As for financing, he said: “Once you grow [to a certain size], usually outside capital has to be brought in, but I feel in many cases that the venture capital model is not the most well-suited to food companies.”

However, there are other ways to attract funding “without going prematurely to professional money-backers”, he said, from crowdsourcing to “web-based models that are springing up where the financing can come from consumers and enthusiasts that are interested in buying your product”.

At Califia Farms, meanwhile, he said, “We looked at connecting directly with growers and partnering with them as a source of capital - and that’s a form of ‘intrepreneurship’ that could be much broader in its application as there are so many fields of agriculture where owing part of the branded side could be very valuable to growers.”

You have to have deep pockets. Everybody wants a slice…

However, staying on the shelf once you make it there can be extremely tough, even when you have a product that is doing well and taps into what consumers are looking for, said Big Time Tea Co president Melinda Hicks, who has built a successful business selling ready-to-drink tea and juice combinations for kids that many parents are now putting in lunchboxes instead of 100% juice or soda.

Melinda Hicks: I joke that this is the only business where you send a customer, let’s say a distributor, an invoice, and you end up owing them money!

“In this business there is so much that is out of our control. You may have a great product, and a great network of people out there selling it," she said.

"But it can sometimes boil down to little minute things like a shelf tag doesn’t read right so a retailer isn’t ordering it, or a product goes out of stock and they scoot the other flavor into its place because they don’t want an empty shelf, and then they forget to order the flavor that went out of stock so it looks like you’re not selling.”

She added: “It’s tough… even these small little blips can really disrupt sales.  Also cash flow [is a huge challenge]. I joke that this is the only business where you send a customer, let’s say a distributor, an invoice, and you end up owing them money!

“The amount of marketing and mcbs [manufacturer charge backs] and promotions and things that you have to do to get your brand off the ground into those stores [is significant]. Everybody wants a slice… and it cuts really deep, so you have to have deep pockets … the amount of time it takes to even break-even is enormous.”

Large companies can’t move nearly as fast and almost have a disincentive to innovate

But that said, opportunities abound, said Steltenpohl, who noted that in a category such as dairy alternatives, there is still enormous growth potential, even for players that entered the category late.

At Califia Farms, for example, which sells several almond-milk and almond milk-based products, he said, “We weren’t the first mover, so we addressed the market through taste, quality, packaging and excellence in design.

Greg Steltenpohl: The business model for larger companies kind of requires that they buy innovation

“You need iconic brands to drive change in these categories that the consumer wants. You can’t just have a great ingredient, you’ve really got to have the business that can development the excitement that creates the magnetic attraction to those products.”

The question, he added, is: “How do we meet the needs of today’s consumers and form companies capable of growing and meeting those needs when the large companies can’t move nearly as fast and almost have a disincentive to innovate?”

The distribution challenge

One of the biggest challenges for smaller beverage companies is securing distribution without breaking the bank, said Paul Kilbride, VP sales at Epicurex, which sells organic coconut water brand Cocozia.

“There are a lot more promises and things you must do and a lot more money you have to spend to develop your relationships with the stores and the buyers.”

 Click HERE to register for the event in order to watch it on demand. 

Click HERE to read more highlights from the forum.

The six panel members were:

1 - PADDY SPENCE - CEO, Zevia

2 - GREG STELTENPOHL - CEO, Califia Farms ; founder, Odwalla

3 - HOWARD KETELSON, PHD - CEO, Arty Water  (artichoke water)

4 - MELINDA HICKS - CEO, Big Time Tea (Little Me Tea )

5 - PAUL KILBRIDE - VP Sales, Epicurex (COCOZIA ) 

6 - JONAS FELICIANO Beverages analyst, Euromonitor International   

The forum was sponsored by Sigma-Aldrich , a global life sciences and technology company with a broad portfolio of flavor & fragrance ingredients plus broad nutritional and food safety analytical testing capabilities; 

... and DSM , a global science based company with a broad portfolio of health ingredients for the food & beverage and dietary supplements sector from omega-3 fatty acids to green tea, oat beta-glucan, vitamins and carotenoids.

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