And yet for as many success stories as there among new and emerging brands entering the beverage segment, there are many, many more failures – painting a discouraging picture for some entrepreneurs. According to industry veteran and Health Brand Builder’s Alliance Leader James Tonkin, there is a staggering 92% mortality rate in the beverage segment in the first year following a launch and among the handful that celebrate their first birthday, only about 50% will mark a second one.
Despite these grim statistics there are successes, and in this episode of FoodNavigator-USA’s Soup-To-Nuts Podcast, Tonkin shares insights he has learned from his 40-plus years working in the space. Drawing on his experiences with thousands of brands, including major players such as Suja and Zico, Tonkin lays out what it takes for young brands to not only find their footing – but quickly climb to the top.
Three qualities of winning brands
When evaluating whether to work with a brand and entrepreneur, Tonkin says that are three factors that he considers. And while he cautions they may not guarantee success, he says they are good indicators as to whether a company has the relevance and chops to make to at least $5 to $10 million in sales.
The first factor, he says, is the management.
“Who is the entrepreneur or group of entrepreneurs who are behind the brand? What is their background and experience? What is their motivation for bringing the product to market? Is it a personal story? … And what kind of expertise do they have,” Tonkin said.
Factor two: Is a brand truly relevant and is there sufficient white space?
The second factor Tonkin says he considers when evaluating a brand’s potential for success is whether the product or service it offers has a real or perceived relevance.
“Most of these new brands and entrepreneurial companies that get developed often times are very off-the-radar kinds of things and being able to adjudicate whether the relevance of that new idea or product or service really has about a potential uptick in the marketing and can really take ahold of that white space” of it there is white space because there is insufficient demand, Tonkin said.
Some of the factors that Tonkin uses to evaluate a company’s relevance include if there is an audience for the product, if it is priced right, if it is packaged correctly and if it has a steady supply chain that can support a growing brand.
As for whether there is sufficient white space to support a new brand launch, Tonkin said companies need to take the time to evaluate the full picture and the players before they make a move.
“The adjudication of the white space you are headed towards should not be a rushed process. There are many things to understand and the good news is there so many great data collectors that have the ability to bring to market if people will both take the time and spend the money to read that,” Tonkin said.
Some of the data companies should consider is how large the space is, who is already playing in it and if the space will grow with additional players or simply become more crowded, he said.
Three areas where Tonkin says the white space is being appropriately filled and where the introduction of new products and players are increasing the size of the price rather than simply fragmenting it, are water, protein-based beverages and kombucha.
Factor three: How is a brand funded?
The third factor that Tonkin says he considers when evaluating a brand’s potential is how the company has been funded to date.
He explained that he looks at whether companies are individually funded by the founders and if so if they are creating a marketing, distribution and funding strategy that complies with all the regulations and would be easily navigated by future investors if there becomes a point at which additional funds are needed.
If a company does not have a tidy ledger, it can be a turn off to potential investors who might not want to come in and completely overhaul the business model, he added.
Locate your nearest exit, even if you don’t need it
If a brand or product checks all three of these boxes and appears on all levels to be a solid investment bet, Tonkin then considers what the company’s exit strategy – even if the entrepreneurs have no intention of leaving their brand in the near or long term.
He explained that if entrepreneurs think they might want to sell at some point, it is easier to get their product in front of potential investors before they want to exit or before they need money so that when it comes time to pull the trigger the foundation is laid for a deal that will benefit all parties.
If entrepreneurs have no intention of exiting, Tonkin emphasizes that having even just a hypothetical exit plan or long-term goal can also serve as a goal post that helps keep brands focused and could save them from falling to the wayside.