Between Coke & A Hard Place - small companies vying for market share in beverage industry

Brandweek, June 22, 1998 by Gerry Khermouch

Others, such as Arizona and Geyser, have switched from 24-unit cases to 12-unit cases for some of heir higher-priced packages, upsetting convention but requiring retailers to tie up less of their money in inventory while still stocking a variety of flavors. As Arizona sees it, it also solved two other problems: 24-unit cases of 20-oz. bottles were so heavy that clerks sometimes avoided restocking shelves, and those cases carried too high a register ring for warehouse club stores touting low prices.

"I was criticized and scorned" for the switch said Arizona's Vultaggio, but it paid dividends. Most notably, retailers now do not have to invest $300-400 to stock the Arizona brand.

Like a few others, Vultaggio has started shipping directly to major national chains, while paying the local distributor a percase "merchandising allowance" of about $1.50 for this circumvention of the three-tier system. The payments, also known as "invasion fees," essentially reward distributors for doing nothing, which might seem paradoxical for a supplier famous for its fractious dealings with distributors. But it also provides the single Dint of contact that big chains want while not allowing a handful of non-performing wholesalers to undermine major chain-wide promotions. With the big chains, "you can't get a national ad unless you can feed every one of their stores," Vultaggio said.

The direct approach also helps avoid the price gouging on new age brands that Vultaggio claims is endemic among third-tier bottlers trying to make up for the hit their margins are taking from Coke and Pepsi in carbonated soft drinks. Vultaggio said he has written more than $3 million in such checks so far this year.

The alternative can be what Marcheschi ran into with Jones Soda: paying a slotting fee to Ralph's to win access to 300 stores, only to find distributors actually shipped it into only four stores.

Alt-bev suppliers also are getting more resourceful in steering retailers from promotions requiring heavy upfront costs to those in which supplier funding is better tied to sales volume. "For a smaller brand, an ROP ad can cost $8,000 to $15,000, but if you sell only a few thousand cases, you can't recover that," said Water Concepts' Brumfield. Instead, he might suggest temporary price reductions, although that is not always acceptable to retailers.

For truly distinctive or hot products, the slotting still occasionally might be waived. Several industry execs said Pepsi's Starbucks Frappuccino drink won that consideration from some chains, given its hot brand name, compelling package and high-end take on a subsegment that had not fared well under other marketers.

For those who find the chains too tough to crack, there is always the so-called "up and down the street" market, independent delis and convenience stores, the "grass roots" that Bello referred to. That's where Snapple and Arizona first were able to spur strong consumer interest in the product, making the chains more receptive to taking a chance themselves. The price of entry to that channel can be as little as a free case here or there, or even just the sense of obligation of a retailer who relies on that supplier for more important brands.