Entrepreneurs have been a driving force in the beverage industryfor more than a century. In 1886, John Pem- berton began marketingCoca-Cola as an over-the- counter medicine, and in 1929 CharlesGrigg developed Bib-Label Lithiated Lemon-Lime Soda, today known as7UP. The beverage industry has always provided oppor- tunities forentrepreneurs, but in the current market, the cost of purchasingnew ingredients and technologies and the intense competition makethe odds of a successful new product introduction less likely thanin the past.1
New beverages are developed every year. In some years, more than3,000 new beverage products are brought to the market, but many donot succeed. Entre- preneurs who attempt to succeed in thisindustry must be aware of the changing consumer tastes and industrytrends.
Caffeinated Products: Coffee, Soft Drinks, andWater
Specialty coffee outlets in the United States experiencedexplosive growth during the 1990s, growing from only 200 in 1989 toapproximately 10,000 by 2000.3
The most well-known name in the gourmet coffee in- dustry isStarbucks, but few people realize the company began in 1971. Thecompany was started by three en- trepreneurs in Seattle’s PikePlace Market. The focus was on coffee and equipment, includingfilters, grinders, and pots—no scones, no cappuccinos. By 1987,there were only six Starbucks outlets, but another entrepreneur,Howard Schultz, saw the potential of Starbucks after traveling toItaly and seeing the many coffee bars there. Schultz raised $3.8million and bought the company. The company went public in 1992 at$17 per share and within five months the stock price had doubled.4By 2001, Starbucks had expanded to 3,500 stores in North Americaand 800 stores overseas.5 By 2004, it had 7,569 stores worldwide.6Starbucks is also equipping its stores for high-speed wirelessInternet access, so customers can surf the Net on their laptops orPalm Pilot. The longer people linger at the stores, the more likelythey are to order another latte.7
Many entrepreneurs are not willing to let Starbucks own the coffeemarket, though. Caribou Coffee Com- pany was started byentrepreneurs after they had climbed mountains in Alaska in 1990and saw a herd of caribou in the valley below. By 2004,the company was the nation’s second largest specialty coffeecompany, em- ploying more than 3,000 people. The Caribou Coffeeoutlets look like Alaskan lodges with fireplaces and woodencabinetry.8
A recent trend toward caffeinated soft drinks began with Jolt. Joltwas introduced in 1985 by C. J. Rapp, president of GlobalBeverages. Jolt became a moderate success and a fixture in themarketplace at a time when most other companies were takingcaffeine out of their products. Although similar products enteredthe mar- ket after Jolt, there were few other successes.9 How-ever, by the late 1990s, caffeinated soft drinks were common andother companies were introducing simi- lar products.10
By the mid-1990s, an entrepreneur had developed another successfulidea. A college student, David March- eschi, who used to pullall-nighters cramming for tests, developed the idea for caffeinatedwater. Although other students drank coffee or soda to stay awake,Marcheschi did not like the taste of either. He wondered why some-one couldn’t caffeinate plain water. A few years later, hementioned his idea to a friend whose father owned a beveragecompany and within a few weeks, the formula beveragecompany and within a few weeks, the formula for Water Joe wasdeveloped. In 1995, Marcheschi formed a partnership with NicoletForest Bottling and the product was launched.11 A small articleappeared in a local paper, and then the Milwaukee Sentinel ran afront-page story that was picked up by the Associated Press.Articles about Water Joe spread rapidly across the United States.12By the end of 1996, Water Joe was ship- ping 400,000 bottles eachweek and annual sales were about $12 million.13 By the year 2000,Water Joe had be- come a subsidiary of Artesian Investments, a16-year-old company in Green Bay, Wisconsin. The national accountmanager for Artesian Investments states, “What we’re giving peopleis a healthier alternative.”14 As of 2003, Water Joe had expandedinto Germany and was being introduced in the UnitedKingdom.15
Other creative entrepreneurs decided to sell similar products overthe Internet. The founders of Thinkgeek. Com sell a “Case O’ BuzzWater.” Each bottle of water has the same amount of caffeine as twoextra large cups of coffee.16
Herbal Drinks and Green Teas
Herbal drinks first become popular in 1970 when Mor- ris J.Siegel founded Celestial Seasonings, Inc., which markets herbalteas.17 Siegel has been described as a hip- pie with a penchant forherbs, and this persona has had a positive effect on the company.The culture of non- conformity led to a great deal of creativity,and by the mid-1990s, Celestial Seasonings was the leading spe-cialty tea maker in the United States.18 By 1998, Celes- tialSeasonings had jumped into the fastest growing segment in the teaindustry—the green tea category. The market for green tea increased53 percent in 1997 and showed no signs of slowing. Much of thegrowth in sales was attributed to research reports indicating thatgreen tea may lower the risk of certain types of cancer and bal-ance cholesterol.19 By the end of the decade, Celestial Seasoningshad teamed up with the company that intro- duced Arizona Iced Teaand launched a line of ready-to- drink teas in a smart retro bottlethat looks like the melding of a glass bottle and a tincan.20
In 2000, Celestial Seasonings merged with the Hain Food Group. Asof 2004, Celestial Seasonings was sell- ing 1.2 billion cups of teaper year. Morris (Mo) Siegel retired to climb the last section ofthe Colorado moun- tains he had not yet climbed.21
John Bello, cofounder of SoBe Beverage Co., says his company is“taking the concept of herbal remedies to the mass market.” SoBe’sproducts include a variety of teas containing plant extracts thatimprove alertness. One of the company’s “energy tonics” allowsdrinkers “to perform all day and all night.” Other teas includeechi- nacea, selenium, or bee pollen for additional therapeuticpurposes.22 A new marketing approach was imple- mented for some ofits products in 2000. Six of its products—Energy, Lizard Fuel,Lizard Lightning, Elixir, Green Tea, and Lemon Tea—were marketed inpaper cans. Each octagonal paper can was adorned with the radicalSoBe lizard. The colorful labels come in pink, or- ange, tan andbright yellow.23 As of 2004, SoBe bever- ages were availableinternationally. The company was selling its product in Canada,Mexico, the Bahamas, the United Kingdom, Barbados, andGuam.24
Richard Keer, president of The Natural Group, an im- porter ofall-natural nonalcoholic beverages, has re- cently begun to marketa product called Ame, a drink made with fruit juices, easternherbs, and spring water. It is available in red, white, and roseand is packaged in 250-ml and 750-ml bottles. The company alsosells Nor- folk Punch, a nonalcoholic beverage based on an ancientmonastic recipe of 35 different herbal extracts like fennel,rosemary, and peppermint.25
Juice Bars and Smoothies
Proponents of smoothies contend that the beverage is one of themost promising new beverage items since spe- cialty coffees. Theterm smoothie is a generic term for a blender-made concoctiontypically made from fresh fruit, fruit juices, ice, and sherbet oryogurt. Optional add-ons include calcium, protein powder, beepollen, or the herb gingko biloba. Smoothies are often sold atjuice bars and are marketed as a lowfat, high-nutrition meal in acup.26
One company, Smoothie King, has been in existence for 24 years,since long before the great demand for the product developed.Richard Leveille, vice president of franchise development, callsSmoothie King’s products the first and best available. Its productis not yogurt- or sherbert-based, but primarily fruit-based.Smoothie King makes daily deliveries to the Dallas Cowboys camp,and during spring training it delivers 200 to 300 smoothies a dayto the New York Yankees in Tampa.27 By 2004, Smoothie King had 340units in 34 states and also had three international units.28
Another company, Jamba Juice Co., was establishing itself as aleader in the juice bar segment. Founder, Kirk Perron, establishedhis first juice bar when he was 26 years old. Perron states thathis company did not “invent smoothies or squeeze-to-order juices,”but his company was the first to “unlock the code and create asensory ex- perience in those products.” Jamba Juice sells itsprod- ucts in an atmosphere of hot pinks, purples, greens, oranges,and natural woods.29 By December 2004, the company had 430 units,with locations in airports and oranges, and naturalwoods.29 By December 2004, the company had 430 units, withlocations in airports and on college campuses.30
Duiscussion Questions
Using demographic segmentation, segment the market for
a. Water Joe
b. Celestial Seasonings tea
c. Smoothies
d. the green tea industry
Using benefit segmentation, segment the market for
a. Water Joe
b. Koppla
c. Smoothies
d. the green tea industry
The rapid growth of Water Joe fueled thecreation of the caffeinated water industry in1996. How long do you expect the rapid growth of this industry tocontinue?
Identify potential market segments for Ame and the energy tonic,the products of SoBe Beverage Co.
What impact do entrepreneurs have on the beverage industry?
What national trend would be beneficial for Celestial Seasoningsbut detrimental for Water Joe?
