Entrepreneurs and startups are disrupting the beverage aisle – and the status quo – by changing the way consumers think about their drinks. Consumers now demand that their beverages do something more besides hydrate or quench thirst.
That’s led to an explosion of new options in the marketplace. At last count, there are some 5,000 different brands available to a consumer, which makes for a dizzying array for anyone trying to keep up with all the new players.
And competition is fierce. Very few of these brands, just 3%, will crack $10 million in annual sales. An even smaller percentage will generate enough momentum to cross the $350 million threshold and go mainstream.
That then begs the question: Which of the thousands of entrepreneurial players in the market today have the potential to be the next big household names?
It’s a question The
While the company continues to eye potential acquisitions and investments of all sizes (evidenced by recent deals with Monster and Keurig), VEB connects with entrepreneurs building businesses at far earlier stages and in new and emerging categories. “We created VEB to engage with a changing world,” says Mitchell. “Our job is to build a pipeline of brands that we can potentially acquire once they have grown and succeeded.”
VEB breaks down the players in the beverage market into one of five phases of development:
1. Experimentation: Companies with less than $10 million in revenue.
2. Proof of Concept: Companies with between $10 million and $50 million in revenue.
3. Pain of Growth: Companies with between $50 million and $150 million in revenue.
4. Scale to Win: Companies with between $150 million and $350 million in revenue.
5. Mainstream: Companies that have broken through to become billion-dollar brands.
Rather than waiting until a company breaks into the mainstream to consider an investment or acquisition, VEB identifies interesting companies earlier along the growth curve. Specifically, VEB targets companies that have reached the "Proof of Concept" phase since they have already beaten the odds and established themselves in the market.
VEB’s strategy is to take a minority interest in the company first and, then, if the company continues to be successful, The
“We are willing to take some risk and get in early,” he says. “But we also don’t want to take on too much risk.”
This strategy has already proven to be successful with brands like coconut water maker ZICO, Honest Tea, fairlife and Suja Juice, all of which were spotted early on by VEB and, with the help of Coke’s marketing, operational and distribution power, have now shown their potential to be even bigger. “We love the capabilities we can bring to bear for smaller brands,” says Mitchell, “but the key is that we are unlocking synergies that are driven by that brand’s needs, and not our own bias.”
Casting A Wider Net
The challenge for VEB, however, is keeping up with all the disruption in the market. “I know a lot of brands in the marketplace,” says Mitchell. “But no matter how many late hours I work, I can’t keep up with all 5,000 of them.”
That’s why VEB has more recently been teaming with other entrepreneurial-facing firms as a way to cast a wider net over the emerging brands in the beverage industry. These partnerships provide a good compliment to VEB’s own efforts by accessing brands in Phase 1 via extra capital and resources.
Two of the most prominent organizations playing key roles in that effort are L.A. Libations and First Beverage Ventures.
L.A. Libations was founded by three former merchandisers at
Sarti adds, “We are small and agile. We have our ears to the ground about what is happening in the beverage market and, as a result, early-stage brands wanted to trade equity for our knowledge and capabilities and retail relationships.”
Stepper, Sarti and Bolden eventually realized they were also interested in complementing their knowledge and expertise in selling third-party beverages to building brands of their own, something they began in earnest four years ago. Two early successes have been Aloe Gloe (pictured at right), a low-calorie, aloe-based drink that launched four years ago; and Arriba, a Horchata beverage. The unique model to build and invest in brands caught Coke’s attention and, eventually, VEB took a minority stake in L.A. Libations.
Another way VEB has extended its antennae into the world of beverage entrepreneurs is by developing a partnership with First Beverage Ventures (FBV). FBV is the venture-capital arm of First Beverage Group, a boutique financial services firm founded by Bill Anderson.
What makes the venture fund unique is that it only makes investments in companies that are tied in some way to the beverage market, says Tom First, the fund’s managing partner. "We don’t look at just liquids... we also invest in technologies and capabilities that drive growth in the beverage industry,” he says.
First, who happens to share a last name with the firm and the fund, founded Nantucket Nectars before selling it in 2002. He brings years of experience as a beverage entrepreneur, which he uses to choose which emerging brands the fund invests in. When the fund raised it first round of financing in April 2014, VEB became one its first investors, or limited partners, as a way to keep a close eye on which firms might have the legs to grow quickly.
“Health-Ade has grown exponentially,” says First. “VEB is excited about the space and enjoys watching Health-Ade’s progress.”
According to First, VEB’s work with emerging brands is compelling because the team doesn't just talk about the importance of connecting with entrepreneurs; they are actually executing. “Their reputation in the beverage entrepreneur community is really strong because many emerging entrepreneurs look at them as peers rather than as a big company,” says First. “They understand the industry and have found partners like us who give them capabilities that they may not have without our relationship.”
Mitchell is excited about VEB’s partnerships with firms like L.A. Libations and First Beverage Ventures because they help give
“We have amazing R&D folks and strong brand marketers at The