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Shelve more tea, not cola
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February 16, 2000: 5:05 p.m. ET
Entrepreneurs get ready to make a market 'splash' with bottled tea brands
By The Applegate Group
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NEW YORK (CNNfn) - While it may seem impossible for a small company to compete against the beverage giants like Snapple, Nantucket Nectars or Coca-Cola, entrepreneurs are finding ways to get their new drinks on store shelves.
"We thought, 'When people make hot or cold tea, they tend not to put sweeteners in it, so why don't companies sell drinks the way people would make them at home?' " said Seth Goldman, co-creator and president of Honest Tea Inc., based in Bethesda, Md.
Two years after writing a business plan, the Honest Tea makers have their bottled tea on shelves in major health-food stores like Fresh Fields, which is their largest customer. (Although tea is not as popular as coffee, soda or beer, tea drinkers still sipped $500-million worth of specialty teas in 1998, according to the Tea Council of the United States, based in New York).
Funding by the fans
Goldman quit his job as vice president of the Calvert Group, a mutual fund company in Washington, D.C., to launch his tea business with money and guidance from Barry Nalebuff, a business professor at Yale University. Nalebuff also signed on as the company's chairman and CEO. The second round of funding actually came from fans who sent checks tucked into their fan mail.
"A woman who e-mailed me asking about where she could buy the product ended up investing $250,000," said Goldman, who received contributions of more than $1 million in one year.
Finding the perfect recipes resulted from many sleepless nights in the kitchen.
"We couldn't sleep, because there was so much caffeine in our system," recalled Goldman.
After concocting hundreds of blends, they bottled up their best in Thermoses and took the drink to health-food stores. Because 8 ounces of tea contains fewer than 20 calories, Goldman knew the product, which retails for $1.19 to $1.49 for a 16-ounce bottle, would appeal to health-conscious individuals.
"People who are interested in our product are into reading labels, exercise, and are conscious about what they eat," Nalebuff said. "We're much closer to water than we are to Snapple."
Their hard work seems to be paying off; annual sales reached $1.1 million in 1999. Still, many stores refuse to carry the product, unwilling to give up shelf space to a small tea company.
An alternative to wine
Sometimes, a beverage-industry veteran decides to bring a new drink to market. Michael Cimino, owner of Cimino and Daughters Inc., a family business that makes sparkling grape juice in San Rafael, Calif., came up with his product as an alternative to wine.
"I found that often, after a glass of wine, people at a party start looking for something else to drink," said Cimino, former CEO of Sky Vodka.
Cimino, who worked as a consultant and manager for wholesale wine companies, said he learned from the French champagne producers he worked for.
"I watched them blend pinot noir and chardonnay," said Cimino. "I thought if I could blend natural flavors with grape juice, I could do the same kind of experimenting."
Mixing batches in the kitchen sink, Cimino used his young daughters as taste testers; hence the company name. Cimino sold Uva Uva door to door; bottle, glasses and a corkscrew in hand. He recently landed a trial run at Costco and Sam's Club.
Selling with passion
"No one's ever going to sell it as well or with as much passion as you, the creator of the product," said Cimino, who has sold $250,000 worth of Uva Uva so far. His biggest challenge is being undercut on price by the grape juice giants, Welch's and Martinelli; those companies sell their sparkling juice for $1.99 a bottle. Cimino's brand sells for $2.49 a bottle.
"I know the market's there," said Cimino, who is not daunted by his competition. "The question is, 'How do you reach it, and how do you communicate with the end user?' "
Some people end up in the beverage business by accident. Chris Reed was a chemical engineer in the oil and gas industry, and a musician when he found himself out of work. His passion for ginger led to a thriving small business.
"I loved ginger; I've always recognized its tremendous healing power," Reed said. "I basically thought it was blasphemy that ginger ale didn't have ginger in it," said Reed, CEO of Original Beverage Co., in Malibu, Calif. The company makes Reed's Ginger Brew, a spicy ginger ale with real ginger in it.
While displaying his products at a trade show, Reed discovered that sales people for the big ginger-ale companies didn't know that ginger was the original herb in the soft drink.
Shoestring budget, long hours
"They didn't even recognize the real ginger root I had in my booth!" said Reed, whose father lent him the $3,000 he needed to start the business. He and his wife worked seven days a week to get the product off the ground.
"I asked one store owner if I could put a few bottles on the shelf," Reed recalled. "I gave him a cold one to drink. Eight hours later, they called and said they were sold out."
Reed now has 10 employees, 150 distributors, and sells $10 million worth of Ginger Brew a year at a variety of stores, including Trader Joe's. He attributes his success to doing the work himself.
"If you don't have the money, you have to be willing to do the work," Reed said. "Try to free yourself up to do the sales, because no one's going to carry the torch like the original founder."
--reported by Julie Neal
(Jane Applegate, a syndicated columnist and author of 201 Great Ideas for Your Small Business, covers small business for CNNfn. "Succeeding in mall Business" appears on Wednesdays.) 
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