For some beverage manufacturers, a deal with The Coca Cola Co. or PespisCo may represent the culmination of one's career in the industry and a one-way ticket to retirement. But that was not the case for serial entrepreneurs John Bello, who sold the rights to his functional beverage brand SoBe to Pepsi in October 2000 for $370 million, and Greg Steltenpohl, who got $181 million for his better-for-you beverage brand Odwalla from Coke one year later. Not content to rest on their laurels after inking their multi-million deals, Bello and Steltenpohl instead have formed their own version of a beverage team to produce a new drink company called Adina for Life Inc. The company features beverage offerings: Adina Holistics, an herbal elixir launched in the spring of 2009; and Natural Highs Coffee Energy and Adina Tribal Blends, which are organic tea and coffee products that were launched in late 2007.
Like Odwalla and SoBe, Adina for Life taps into the growing consumer preference for better-for-you beverages--a trend that continues to provide life for the big beverages companies beyond carbonated soft drink sales, which have slowly dwindled in the United States since 2006. In 2008, U.S. sales of carbonated soda dripped an additional 3%, according to Beverage Digest. In response, beverage behemoths Pepsi and Coke have spent the better part of the last decade diversifying their respective product portfolios so that the rapidly changing beverage landscape doesn't leave the behind. The sugary caffeinated staples of the past are being replaced by drinks that have a more sustainable future in the increasingly health-conscious beverage market. Particularly popular are the drinks with fortified ingredients added. The $21.2 billion U.S. functional beverage market grew 8/4% in 2008 and has seen a compound annual growth rate of 12.5% over the last 10 years.
Since 2001, Odwalla and SoBe have enjoyed continued success, and the trend of better-for-you beverage company acquisitions continues. Coca cola has added Honest Tea and Vitamin Water to its portfolio in the past two years. Pepsi has bolstered its product line with brands such as Naked Juice and the all-natural sparkling fruit juice IZZE.
Investors Embrace Fair TradeAdina for Life was founded shortly after Steltenpohl's non-competitive period with Coke had ended in 2004 and after the Odwalla founder had taken an interest in Fair Trade movement during his extensive travels with his wife, Dominique Leveuf. During that period, the pair was introduced to an African from Senegal named Magatte Wade-Marchand, who had a number of traditional African recipes that she was interested in bringing to market. The three-person team of Steltenpohl, Wade-Marchand and Leveuf got the company up and running in 2005 with investments of more that $5 million following presentations to Keiretsu Forum, an angel investor network group that looks for socially responsible and financially attractive investments. Bello didn’t join the team until 2008, during the company's second wave of funding. The company initially featured beverages containing hibiscus and other African ingredients, though Steltenpohl and the team quickly found that the recipes were not adaptable to the western pallet on a large-scale, so they began reformulating and looking at new approaches for the product line.
Adina was founded on the sustainability principles incorporated in Fair Trade practices, but Steltenpohl, who is Adina's co-founder and chairman, found that the Fair Trade conversation was easier to have around the coffee category than it was for some of the other African ingredients he has been eyeing. In addition, Steltenpohl saw un-tapped sales potential in the Fair Trade coffee market give the category's leader--Starbucks--was dedicating only about 2% of its overall business to Fair Trade. These realizations led to the inception of Adina's product line Adina Tribal Blends, which consists of read-to-drink (RTD) organic coffee and tea beverages. The Tribal Blends line was launched in late 2007 in natural & specialty retail outlets. Along with the Natural Highs Coffee Energy brand, Adina's coffee beverages grew 90% in 2008 Steltenpohl reported.
The early success of the Tribal Blends beverages helped the company secure a second investment of $6.6 million from Sherbrooke Capital in April 2008. In addition to the funding, Sherbrooke, a Boston-based venture capital firm, helped bolster the management team by brining in Bello as acting CEO while also promoting Bruce Schroder to president and chief operating officer. Schroder has previously been involved in Starbucks' and Pepsi's joint venture in the Frappucino brand, which also represents Adina's biggest competitor in the RTD coffee category. Bello added a unique set of skills and brought more than 20 years of experience in the beverage business to Adina. "He has a lot of ideas about how to expand the market into a mainstream, mainline beverage environment," Steltenpohl told NBJ. "John is very savvy about how to create excitement and interest in small brands an sort of disruptors of the status quo in the beverage industry."
Once Adina had secured funding, it was left with the dilemma of staying true to its core values of supporting Fair Trade, organic and sustainability while also implementing aggressive growth strategies to compete with companies such as Starbucks and Pepsi. According to Steltenpohl, the expense side of the business has presented unique challenges to the company. When factoring in the 10% premium Fair Trade ingredients typically cost, not to mention the 10% to 15% premium associated with organic, Adina often pays as much as 25% more than its competitors are paying for ingredients. But, as Steltenpohl explained, such a premium is worth the investment because Fair trade and organic both align with a shift in consumer purchasing values that is well underway. "Investors are betting that this platform is going to catch on," Steltenpohl said. "Around the issues of sustainable sourcing--the human side, the labor side and the working- conditions side, responsible multi-national corporation are going to start moving that way because that's what the consumer wants. We're of the belief that if we have to pay more, then that's a good thing to do."
Still, sustainable practices and Fair Trade do not necessarily translate into a profitable business model. "It is challenging to get much support within the supply chain for Fair Trade. I think everybody just looks at their profitability first," Steltenpohl added. "If you can make it wildly successful, then they are happy to support and promote the product. If you can't, then it's a bit Darwinian out there."
Anatomy of a BrandThe management team implemented by Sherbrooke began putting its stamp on Adina almost immediately. The company expanded its product line in February 2009, with the launch of a functional herbal beverage that is described by Bello as "not a water, not a juice, but something in between."
Branded Adina Holistics, the line is based around the concept of incorporating Ayurvedic medicine and herbal extracts into a beverage. Bello said the reason he decided to get involved with Adina is that the company possessed a great concept--holistic beverages--but needed help with execution. "My fundamental belief in any consumer product, particularly beverages, is that it needs to be a concept that can be built out in a platform that is not specific to a fruit," Bello said.
Bello brought a number of concepts from SoBe to Adina for Life, including the utilization of an exclusive independent network of distributors to bring the company's products to market. This was something Bello had done with SoBe, and it was something Odwalla utilized because of it's refrigeration needs, but the practice had been all but phased out of the beverage industry over the past decade as Pepsi and Coke continued to acquire beverage companies and utilize their own network of distributors. "The distribution scenario has become somewhat muddled in the natural channel with third-party distributors being crowded out by Coke and Pepsi. One day [a distributor has] a big brand and the next day they don't," Bello explained, referring to brands such as Honest Tea and SoBe, which have been acquired and shifted to their parent company's network of distributors. "Our method to market is very direct using disenfranchised distributors," Bello added. "They get to share in the upside; they are stakeholders in the business." Adina for Life has also worked out agreements so that it's network of independent distributors will actually benefit if the company is acquired.
Two Styles, One goalBoth Steltenpohl and Bello have seen their share of companies rise and fall in the beverage industry over the course of their careers, and each executive brings a different skill set to Adina. Bello, who might be described as the classic CEO, possesses a knack for capitalizing on hot trends and has a no-nonsense, bottom line-oriented approach to business. His focus is admittedly more on the day-to-day operations than it is on the issues of Fair Grade and sustainability. Steltenpohl, on the other hand, is Adina's idealist. He is more soft spoken that Bello and possesses and appreciation for sustainability, Fair Trade and high-quality materials. He is the catalyst for staying true to the company's core values.
Investors hope that the combination of the two will produce the next breakthrough brand in the mass market, though both Bello and Steltenpohl understand that many unsuccessful companies have entered the market with similar aspirations. "Every day you see entrepreneurs get excited about the sex appeal of the beverage business. The barriers to enter the market are small relative to other businesses. It's not hard to get a bottle and a label," Bello said. "Success is the ability to sustain that over a long periods of time. It's a penny profit business. Many come and very few are chosen."
Steltenpohl and Bello each possessed different motivations for diving back into the highly competitive beverage market, but both share the same goal of producing a brand that is as successful as their previous ventures. The Holistics line is the first product by Adina that has been released under both Steltenpohl's and Bello's leadership. The new product features some of the same element s that helped turn Odwalla and SoBe into successful brands. All three brands use an animal as an icon: Odwalla utilized a bird, SoBe a lizard, and now a monkey at Adina. Steltenpohl also found in his time at Odwalla that some of the most esoteric drinks turned into its most popular flavors, so that led him to believe consumers would embrace different herbal extracts featured in the Holistics line, including aloe, chamomile, hibiscus, amalaki and eucalyptus. Cold brewing is another concept Steltenpohl brought from Odwalla to Adina, where it is being used to help prevent the antioxidant properties in the company's coffee ingredients from being destroyed.
Using strategies and tactics brought over from Odwalla and SoBe, Bello and Steltenpohl are attempting to once again build a brand that is unique and that consumers can embrace. "The beverage business is all about discovery; all the brands that have been brought up by the big guys were discovered by young people and influencers--they are all saying something different. There aren't wannabes," Bello said. However, to truly be successful, Adina's products need to be more than just concepts and be able to stand on their own, Steltenpohl added. "The risk is born by the brand, and entrepreneurs shouldn't thing that because they are doing the right thing, they will be celebrated by the industry."
Adina's goal for 2009 is to double it's sales. "Our long-term goal is to create another Odwalla or SoBe," Steltenpohl said. "We want to reach the consumer directly with a brand they can really relate to." Bello has similar aspirations. "Successful entrepreneurs need to deliver something new a t the right time," he said. "I had great success at SoBe and I already know how to play the instrument, so to speak. Big companies need little guys like us to create concepts that they can't."
