Brandweek recently published an excellent article concerning the beverage industry. “Soda Entrepreneur Jonesing for a New Opportunity” gave valuable insights on how one entrepreneur and his ideas might create new opportunities in the crowded, highly competitive beverage category.
In a nutshell: the article demonstrates how a perfect storm has come together to rock the beverage category for many wholesalers or distributors. Intense competition in every category–water, juice, soft drinks, bottled teas, energy drinks–for shrinking dollars. And then there is the issue of distribution rights…
Many superstar brands in today’s marketplace started out by getting distribution thanks to small to mid-sized regional wholesalers. Manufacturers would thank them by routinely dropping them to give the now-famous brands smaller wholesalers worked so hard to build to larger distributors. Or by selling out to global players like Coke. Therein lies the foundation to this story.
Gone: major revenue streams, profits and sometimes years of hard work for the middle man. Enter: Peter van Stolk, founder and former CEO of Jones Soda Co.
Whatever happened between Jones Soda and van Stolk is a matter of intense debate and conjecture. Van Stolk himself is quoted in the article as saying: “…it was just like a bad divorce.” Regardless, with the founding of his new company, Box B, van Stolk is now focusing on helping wholesalers develop their own beverage brands.
Given his track record for innovative product development and creative, van Stolk might generate some excitement in a currently unexciting atmosphere for consumer products. Apparently, some wholesalers think so, too. Five have currently signed van Stolk on to help them launch their own custom beverage brands.
Creating house brands is nothing new for wholesalers. Some have even enjoyed moderate success with their own beverage brands. However, tapping into the expertise of someone like van Stolk is new. “I made a lot of mistakes at Jones, but I learned how to make an emotional connection with consumers,” van Stolk commented for Brandweek.
Exactly what’s currently needed in the beverage biz.
“We’ve got some really cool designers who can do different styles and approaches. It’s not the same thing over and over again,” van Stolk said. So what can be done to bottled water now to jazz it up for a jaded consumer? He’s helped Steve Gress of Exclusive Beverage Distributors of New York to launch its own water brand. “Water Street” has debuted with VH20-vapor-distilled electrolyte enhanced water. Duane Reade and local retailers in NY have picked it up.
How successful will this private brand launch be? The jury is still out on this. But distributors like Gress are pleased. As Gress points out in the article: “It’s a lot more gratifying to own the brand versus playing the middle man…the margins are definitely better.”
This article raises many interesting questions:
- Remembering that wholesalers built brands like Vitaminwater, Smartwater, Red Bull and Monster into major brands, do you think they can do the same with their own house brands?
- What advantages do you think distributors can enjoy in producing and placing their own beverage brands on retail shelves? What about the disadvantages?
- What do you think of the idea of distributors outsourcing their product and design creative to van Stolk to develop their own beverage brands? What are the advantages? Disadvantages?
- Do you think there’s room in the marketplace for more beverages and more beverage brands? Or have we reached the saturation point (pun intended)?
I’d love to hear from you.
Ted, I’m really torn on this one. I like the idea of wholesalers taking control of their own destiny by producing their own house brands that cannot be sold out from underneath them. However, unless you are a regional retailer looking for differentiation, I think more house brands are going to have a tough time getting shelf space in a very competitive environment where choice is culled and margins are shrinking. I suppose there will always be a market for “what’s new” and niche products, but how many more ways can water be flavored or carbonated?
Paul,
Thanks for sharing your thoughts on my post. I appreciate it.
I know what you’re saying about “can the market take one more flavored or value-added functional beverage”? I have to tell you though, private label is hot. So hot that retailers want to push development of more store brand lines. So this isn’t as far-fetched as it might seem at first blush. In fact, I’d like to quote from a recent article I published on Chief Marketer’s site: “During the past year, store brand sales have increased by 10% versus 2% for national brands. According to Nielsen, while store brands comprise just over 10% of most retailers’ total product mix, they also account for over 20% of sales, with a better than two-to-one turn rate.”
In view of recent developments, wholesalers are smart to tap into their retail customers’ desire for more house branded merchandise. van Stolk is pretty astute and he sees a way of leveraging his past success and cashing in. Can’t blame him.
very nice…thanks…
This is like hell stuck. I can’t imagine why people after so much of dedicated hard-work on creating their own brands in county-level distribution, they want sell out their brands to big players, why don’t they think of their own brand to become a global player. When you have invested so much of your time, money, passion, and dedicated hard work in building a brand, don’t give up at any time, think big and make it work in much more bigger way.
Hi John,
You’ve raised a very good point and I thank you for posting it here. Simply put: many small to mid-sized distributors have a fairly short local and regional reach. They may not have the capability to do what you suggest. Unless they sell to retail chains or reach out to other distributors to try to strike a deal, their brands are likely to remain in the hands of a few locsl retailers. And that might meet with resistance as these players may prefer to develop their own brands.
That doesn’t mean for all their capital and time investment the brands these distributors develop don’t add to their top and bottom lines.
Interestingly, the large West coast food retailer, Safeway, has been warehousing and distributing some of its store brands to other supermarket chains in recent months. This is a first in the food business. We’ll have to see whether the additional volume and profit dollars are worth their investment.
It should be interesting to see the direction private label goes in over the next couple of years.
I appreciate your adding great comments to this post, John.