Soda Entrepreneur Jonesing for a New Opportunity

It’s a common story in the beverage industry. An independent distributor works like hell to make a brand like Red Bull, SoBe, Snapple and Vitaminwater a hit. Then, once the middle man achieves success, the brand gets pulled away and given to a larger distributor. Either that or the brand strikes a deal with Coca-Cola or PepsiCo who have their own powerful distribution networks.

Now the small distributor has lost one of its top sources of revenue. Plus, it smarts because these “up-and-down-the-street guys” had done so much work to build the brand.

Enter Peter van Stolk. The former president and CEO of the Jones Soda Co. created a new company called Box B in June. (The name comes from the choices on a sushi menu.) What Box B does is create brands for the distributor that they can own.

The idea is a bit of a gamble for such an image-driven category. According to the Nielsen Co., the share for nonalcoholic private label beverages fell 1.1 percent last year to 23 percent for the 52 weeks ending Oct. 31.

But van Stolk—who recently bought himself out of a contract with Jones Soda Co., the company he founded in 1987 (“I walked away from my severance…It was just like a bad divorce”)—hopes he can spread private label in the category. He currently has five clients that have tapped him to create such custom brands.

Steve Gress of Exclusive Beverage Distributors in New York, for example, helped build the Vitaminwater and Smartwater brands in New York. Now Coca-Cola is reaping the benefits of his hard work.

In June, Gress launched his own water brand, with Box B’s help, called Water Street (after the street located in the financial district). The label reads “VH20-vapor distilled electrolyte enhanced water.”

The product is currently available in Duane Reade and other local retailers. “We wanted to come up with our own brand and build something ourselves with a New York spin without being too in your face with it. Peter came up with the look. We thought it was brilliant and ran with it,” Gress said.

Bill Sipper, senior partner at Cascadia Consulting, a food and beverage consultancy, said distributors are smart to push their own brands. “If you look at someone like an Exclusive Beverage, they build it to 40,000 cases a month, and they think ‘This is a home run,’” he said. “Then the brand says, ‘We want 80,000 so we’re taking it to [competitor] Big Geyser or Coca-Cola.’ Owning your own brand balances out the risks associated with building other people’s brands.”

Compared to losing brands like Red Bull, Monster energy or Muscle Milk “for a measly buyout,” creating your own brand is very alluring, said Gerry Khermouch, editor, Beverage Business Insights. Still, expectations should be tempered: “It’s doubtful any of these has the upside of a Fuze or a Vitaminwater.”

Wholesalers have a long history of launching their own brands, sometimes with modest success. Khermouch said Polar Beverage is working on a canned iced tea called BlackJack for its New England territory, and Folsom Distributing in the Midwest is seeking outside distributors for its Blutonium Energy brand. “Of course the granddaddy of efforts like this, and by far the most successful exponent to date, is AriZona Iced Tea, launched by a pair of beer and malt liquor distributors in Brooklyn,” said Khermouch.

But, Box B presents the unique opportunity to tap the expertise of someone who has successfully built a national brand known for its creative approach. Some of van Stolk’s greatest hits include Jones Soda’s regular flavors like root beer, cream soda and FuFu berry. Each uses photos on the labels provided by consumers. Then there was WhoopAss energy drink, and the holiday flavors like Turkey & Gravy soda for Thanksgiving and Love Potion #6 for Valentine’s Day. “I made a lot of mistakes at Jones, but I learned how to make an emotional connection with consumers,” van Stolk said.

Van Stolk’s second distributor-owned launch was Palmetto Pure water in South Carolina. The other three rollouts are still under wraps. Distributors “love the concept. They’ve seen so many brands over their histories,” said van Stolk. “We’ve got some really cool designers who can do different styles and approaches. It’s not the same thing over and over again.”

He recommends that they start with a flat base—namely bottled water. Then they can choose from an a la carte menu. Do they want it to be enhanced? Flavored? Vitamin-fortified? He then works with the production facility closest to the distributor for the most convenience. And the pay arrangements are flexible. “Some want to pay up front; for some it is pay as you go. It depends on the client,” he said.

The question remains as to whether this is a business that can be sustained. John Sicher, editor, Beverage Digest, points out that “private label is very much a function of the economy. It is probably at its peak now, and as the economy improves, brands will start doing better. I’m not sure if private label will be the place to be in the next few years.”

Still, currently van Stolk likes the variety the endeavor affords: “I don’t think there is the right brand opportunity for me out there yet. I want to make sure I have a shot at it. I’m not locking myself into one thing.”

Whatever van Stolk’s motivation, distributors like Gress are pleased. “It’s a lot more gratifying to own the brand versus playing the middle man,” he said. “[Plus], the margins are definitely better.”