For years, friends had raved about Calvita Frederick-Sowell’s homemade iced tea and urged her to start a business. After spending a rigorous 20 years as a general civil practice attorney, she realized it was time for a change. “Add to that the stories I had heard about some other entrepreneurs who had successfully brought their recipes to market, and it only increased my desire to want to bring my secret tea to market too,” she says.
So with $10,000 in personal savings and a special mix she had been making since her law school days at Howard University in the late 1970s, Frederick-Sowell started Magnolia Spice Teas (www.magnoliaspice.com), a ready-to-drink tea company, in November 1997. There were just two problems: she knew nothing about the beverage industry and even less about the basics of selling and marketing a business. But a phone call from the trade bureau of the RainbowPUSH Coalition, an organization to which she has belonged since becoming an attorney, provided some of the assistance she needed.
So Frederick-Sowell, 53, turned her kitchen into a testing lab and began working to transform her blend into a written recipe that could be mass-produced. She experimented with different types and quantities of sweeteners, additives, flavors, and other ingredients, including cinnamon, clove, licorice, hibiscus, and fruit extracts.
Frederick-Sowell wanted her line of teas to be made much like the way you make tea at home. To achieve that real home-brewed taste, she decided to work with a tea company to transfer her formula into tea bags that would ultimately be used in the production process. But opting not to work with a food scientist or beverage chemist, she had no one to professionally critique her taste profile—that is until she met Michele Hoskins, owner of specialty syrup company Michele Foods, through a close mutual friend.
Frederick-Sowell hired Hoskins as a consultant, working with her twice a week on product development, packaging, product names, and a logo, which she protected through a trademark. To obtain the business basics she was lacking, Frederick-Sowell enrolled in an entrepreneurial program offered by the Women Business Development Center, a local organization.
As with many new beverage makers, one of her biggest challenges was finding a co-packer that worked with small quantities. Frederick-Sowell needed a production run of only 1,000 gallons or about 17,000 bottles of tea, but many of the bottling plants she contacted would run no less than 1 million bottles. Then there was the issue of making the tea from tea bags, a process that was not patentable and was considered unconventional by beverage industry standards.
“Since our teas are brewed from real tea bags as opposed to the syrup and water concoction or pre-powdered mix used by much of my competition, no one would brew it for me at first,” she says. “I approached probably 10 to 15 bottling plants and all of them told me that they didn’t want to be bothered because if the tea bags broke during the process it would mess up their equipment and possibly shut down their production line for days. They said it just wasn’t worth it.”
Working her connections with the co-owner of the Hyde Park Co-op, an in-town grocery store, Frederick-Sowell found one co-packer willing to take a chance on her. Finally, after eight months of tasting, testing, and tweaking, she launched her first three flavors: Southern Style, Autumn Nectar, and Unsweetened Tea in November 1998. Jewel-Osco, a supermarket chain in Chicago and part of the Supervalu chain, picked up her product and by April 1999, the teas, retailing for $1.19 to $1.69, hit the shelves in all 200-plus stores.
Today Magnolia Spice Teas are available in about 20 states and several other stores including select Wal-Mart locations, Kroger, Giant, and Costco. The five-employee company earned about $500,000 in revenues in 2006 and Frederick-Sowell projects to make $2 million in 2007.
“I think the beverage industry is one of the most challenging aisles in the grocery store because the giants out there named Coke, Pepsi, Schweppes, and Snapple have 50 to 60 years of experience and unlimited capital, so they rule the category. It’s a miracle that we have survived for nine years,” she says. “But I think the reason we’ve been kept by major retailers is our unique taste profile.”
Water, water Everywhere …
In the summer of 2004, while out in California on business, public affairs executive Gretchen Cook-Anderson was struck with an innovative idea. But, unlike many entrepreneurial endeavors that are born from brainstorming sessions with colleagues or dinnertime talks between family and friends, hers evolved within moments as she stood in line at a Santa Barbara delicatessen.
Waiting to place her order, Cook-Anderson noticed a table full of pregnant women just a few feet away. A mother of twin boys herself, she smiled at the women who sat gingerly around the table, their bellies protruding as they laughed and talked. But when she saw what each of them was drinking, Cook-Anderson began thinking of a new beverage that she could bring to market that would specifically target pregnant women and nursing moms. “At that moment of seeing those women, each with a different brand of water, I realized that there must be something to this whole thing about pregnant women and increased water intake,” she says.
She immediately went online to see if there was a water product specifically for pregnant women and came up empty. Seeing the demand and lack of supply, she drew up a business plan and carried it to longtime
friend Angela Patterson to get her thoughts.Patterson, an attending neonatologist for Washington D.C.’s Washington Hospital Center, said there was one big problem: that she hadn’t thought of it herself. Both women were on board with the idea and ready to hit the ground running. Neither knew anything about the beverage business, but with Patterson’s 15-plus years in dealing with mothers and babies she felt she could—at least on paper—come up with a water-based formula that would contain all the vitamins and minerals beneficial to expectant and lactating moms.
With $200,000 in startup funds pooled from personal savings and 18 private investors, the two started Saphia Lifestyle Beverages L.L.C. in 2004. However, it wasn’t until early 2006 that Cook-Anderson, 38, and Patterson, 43, began the actual process of developing their product. In order to transform the initial formula into an actual beverage, they began working with Lavaughn Hill, a beverage chemist with more than 30 years of experience. “Working with a beverage chemist is so important because there’s an interaction of chemicals that takes place with vitamins and minerals, so you have to be very mindful of what those interactions are and how they can affect the taste and consistency of your beverage,” says Cook-Anderson, the company’s president and CEO. “You can’t just combine one vitamin with just any other vitamin,” she says.
When they were ready to solicit a bottling plant to make the formula in mass quantities, the two hit a roadblock. A small beverage business with no customers on their client roster, they wanted a production run of only 100,000 bottles or less. But they found that nearly all of the bottling plants they approached required a minimum production run of 500,000 bottles per flavor. More investigation led them to a medium-sized plant in suburban Chicago. The owner, a mother of two, believed in their product and agreed to work with the company.
After seven months of hard work, the partners began selling BlissBerry, PacifyinglyPeach, and LovinglyLemon on their company Website (www.saphiawater.com) on July 8, 2006. Cook-
Anderson says a buyer from the Motherhood Maternity chain heard about the company on a news report that aired in Philadelphia and called to place an order. “At first they only sold our waters in 100 of their 800 stores, but when the first order sold out in less than three weeks they called us immediately and put in a second order. Now they have the line available at all of their U.S. stores,” she says.
The company’s three-flavor line of low-calorie, nutrient-enhanced waters, which retail for $1.99 each, is now sold nationwide in Motherhood Maternity, Babies-R-Us, and Destination Maternity. Edamame Spa, a string of independently-owned maternity spas, also stocks the innovative water products, as do select OB-GYN offices across the country. A babe in the beverage industry, the seven-employee Saphia Lifestyle Beverages earned just an estimated $50,000 in revenues in 2006, but Cook-Anderson projects that the business will make between $250,000 and $300,000 in 2007.
HOLD THE FIZZ
Although carbonated soft drinks remain the largest beverage category in the United States with $67 billion in sales in 2005, carbonated soft drink volumes fell flat that same year, according to Beverage Marketing Corp. Meanwhile, Beverage Digest reports that sports drinks earned $6.8 billion in sales, energy drinks racked up $3.4 billion, ready-to-drink teas were brewing with $3.8 billion, and bottled water totaled $13.1 billion. Nutrient-enhanced waters were also a favorite in 2005 with $608 million in sales, according to BMC. The Nutrition Business Journal indicates that sales in this category are expected to reach $5.6 billion by 2010. And a new report titled The Future of Liquid Refreshment Beverages in the U.S. states “bottled water’s share of the non-alcoholic beverage market could advance from less than 22% in 2005 to nearly 29% in 2010.”
Industry experts call this emerging market the new-age beverage industry. For the entrepreneur who can cater to this shift in consumer tastes, the opportunities for ownership are plentiful.
“A lot of times, it’s very difficult to compete in a marketplace dominated by very large companies, but since consumers are now more open to new products, there is an opportunity for the new business owner,” says Gary Hemphill, managing director of BMC. “If you can develop a good product, get the right distribution, price it accordingly, have good product positioning, and essentially execute all of the nuts and bolts required, you can succeed.”
According to Liquid Brands Management (www.Liquid BM.com), a San Diego-based consulting company that helps beverage upstarts, hundreds of new beverage companies are launched every year. In 2005, there were 300 energy drink startups alone. Still, Jorge Olson, the company’s founder, says eight out of 10 new beverage businesses fail. “Most of them are going out of business because the owners just went out and bottled a beverage without doing any research, any targeting, and without taking sales into consideration first,” says Olson.
The owners of Saphia Lifestyle Beverages did their homework. So did beverage counterpart Magnolia Spice Teas. By initiating a plan, thoroughly studying the industry, and seeking professional help, these entrepreneurs have made their beverage companies strong contenders in the liquid refreshment market.
Liquid Profits: Steps to Starting A New-Age Beverage Company
To succeed as a newcomer in the beverage marketplace, you’ll need to know a few basics. Here are several key elements to help you get started:
Do your research. Before you start mixing ingredients or tracking down a manufacturer, study the industry. Know the difference between a bottling plant and a bottling manufacturer; the role
of a beverage chemist; and how and where to find ingredients houses. Success in the beverage market hinges, in large part, on unique products tailored to a specific consumer, so determine your target audience.Find financing. The cost of starting a beverage company depends on the type and amount of beverage you want to manufacture. Most spend upward of $50,000 to $100,000 to get rolling.
Manufacture your beverage. It begins with a flavor profile or the specific taste of your beverage. Most new beverage makers work with either a beverage chemist or an ingredients house to help them find a preferred taste. There are about 100 ingredients houses in the nation. You can find one by contacting a bottling plant.
Pick your packaging. Part of what successfully sells a new-age beverage is its branding or packaging. So find a name for your product, design a logo, determine what colors you will use, and settle on a size for your can or bottle. Don’t forget to trademark your creative works. Prices vary, but can cost up to $800 if you go through the U.S. Patent and Trademark Office (www.uspto.gov). You can also use a lawyer that specializes in trademarks. Fees start at $1,500.
Bottle the beverage. Most bottling plants deal in large volume. The minimum order is 5,000 cases at $8 per case, for the first production run. So, unless you have $100,000 to spend, Olson suggests starting with 1,000 cases until you obtain customers. It will cost you 10% to 20% more per case. There are beverage consulting companies like Liquid Brands Management that can help you find a bottler.
Get distribution. The only way to successfully sell your product is to get it in the hands of store owners. Create a distributor package and a retailer package. A distributor package is your pitch to the distributor. It includes such things as your pricing; product photos; sample products; promotional items such as T-shirts, stickers, and posters; and product specs—size of can, number of cans per case, and number of cases per pallet. Also, include how you will help the distributor sell the product. Once your packages are complete, make your calls to your list of potential distributors and retailers or visit them face-to-face with a package in hand. Also attend tradeshows such as the National Association of Convenience Stores (www.nacsonline.com). The cost to rent a booth is $10,000 to $15,000.
Market to consumers. Spread the word about your product. Create a press kit and send it to local newspapers, trade magazines, and television stations. Develop a Website that details your product and allows potential customers to make purchases online. Also, hold in-store samplings. If your budget permits, hire a public relations firm to help with your efforts.