Monthly Archives: April 2017

kombucha marketing kombucha wonder drink brand

How to compete in the booming Kombucha Market

Insight on the booming kombucha market — An interview with Steven Lee of Kombucha Wonder Drink.

Steven Lee Kombucha market brand insight blogIn the tea business Stephen Lee is a household name. A pioneer. You could also say he’s the father of Oregon’s booming Kombucha market.

Lee first tried the popular elixir of fermented tea on a business trip to Russia, back when the U.S. and the USSR were coldly pitted against one another.

“When I first tried Kombucha in Russia I thought it was one of the most amazing things I’d ever experienced,” Lee said. “There was no question in my mind. I knew it was going to be a phenomenon.”

So Lee brought a SCOBY back with him and started brewing his own kombucha in his kitchen. But it would be many years, and several start-ups later, before he would jump into commercial kombucha production.

Over the years Lee built and sold five different tea companies. He literally wrote the book on Kombucha and  recently sold Kombucha Wonder Drink to Harris Freeman, America’s largest private label tea packer.

I sat down with Steve to talk brand building in the kombucha market, business creativity and his long list of successful entrepreneurial ventures.

 

It all started with Universal Tea Company in the early 1970s with $2500 and a basement full of herbs, spices, teas and dreams…

SL: When we started Universal Tea Company back in 1972 there was there wasn’t much competition… Lipton, Celestial, Bigelow and Twinnings. We were selling bulk to natural foods stores, but we really hit on peppermint… We were bringing peppermint in from Eastern Oregon — It’s the finest peppermint in the world — and selling it in bulk. We actually bought a wheat combine for $800, reversed the airflow, got a tractor-trailer license and began processing and hauling. We sold hundreds of tons of mint to Lipton and Celestial Seasonings.
tea and Kombucha market

JF: How did that transition into Stash Tea Company?

SL: We sold universal Tea Company to our bookkeeper for $45,000 in 1977. It had taken us five years to figure out what we wanted to do with Stash Tea, because everything we tried failed. We finally decided to sell tea bags to the food service industry and through mail order. It was a slow build over 21 years. We did everything as inexpensively as possible.

JF: From what I heard, you had some very innovative marketing programs.

SL: Yes. We had more than 100,000 people on our mailing list. We used gifts, discounts and eventually free shipping to create loyal customers. By the late 80’s mail order accounted for 10% of our revenues, but 35% of the company’s total profits. Eventually Fred Meyer (the grocery chain) called us, and asked if we’d be interested in selling our tea in their stores here in the Northwest. So they were our first retail account.

By 1990 Stash was the second largest purveyor of specialty teas, behind Bigelow. Lee and his partner, Steve Smith, sold Stash tea in 1993 to Yamamotoyama, the oldest tea company in the world.

JF: What did you do differently after that, when you were starting Tazo?

SL: Well, we started Stash tea with $2500. Tazo was capitalized with a half a million. Plus, we had 20 years of experience under our belts. We had a lot of courage and a lot of confidence. We just marched right out there with it. We knew where to go. Who to contact. How to be creative…

branding blog on tazo teaWe got a very talented team of people together. The guys at the design firm and a copywriter worked with my partner, Steve Smith, and they were just brilliant together. Such a creative force!

There are a lot of people who get involved in the brand building process early on who set precedents. The name, for instance… With Stash, from the day we came up with that name, we had to back-peddle. “No, we’re not about marijuana.”

With a name like TAZO, and the right creative team, anything could happen. The writer said, “it’s kinda like marco polo meets Merlin on the crossroads of existence.” That was the beginning of the whole storyline. They pulled that one outta their hats.

Steve Sandoz, the copywriter on the Tazo project, once told a reporter that Tazo was “the name of the whirling mating dance of the pharaohs of ancient Egypt and a cheery salutation used by Druids and 5th-century residents of Easter Island.” Proof that sheer creativity can pay tremendous dividends when it comes to building a brand.

JF: It also helped that the specialty tea category was booming by the time you started. Didn’t Republic of Tea pave the way for Tazo?

SL: They certainly did. There were no longer just five or six tea companies out there. There was some real innovation happening and consumers were aware of better teas.

JF: Tazo launched with a product that cost almost twice as much as Stash. Was premium pricing a big part of your strategy, or was it just that the ingredients were more expensive?

SL: Our strategy was to launch with a product that was made of much higher quality ingredients, and that dictated the retail price. We made no more margin. 40 to 45% gross margin.

early origins of Oregon's kombucha marketIn 1998, Steve Smith and Steve Lee noticed that Starbucks was piloting a brand of tea called Tiazzi, which they perceived as an infringement on the Tazo brand. A polite “cease and desist” letter led to a meeting in which Starbucks offered to buy the Portland company. The sale closed for a reported $9.1 million. Only five years from founding to acquisition. Tazo grew to be a billion dollar brand before being replaced by another Starbuck’s brand, Teavana.

JF: So at that point you had the exit that every entrepreneur dreams of. You could have done anything… What drove you to start all over again?

SL: That’s what I do. My forte is getting things started that inspire and motivate me, then surviving through tough times.

JF: (laughing…) That’s your entrepreneurial strategy??? Get it started and then hang on?

SL: Yeah. I’m attracted to esoteric, romantic categories that inspire me. Tea is very romantic. I was very inspired by that first taste of kombucha that I had in Russia.

SL: The first domestic commercial kombucha that I knew of was a brand called Oocha Brew, here in Portland, that started in 94. That was before GT Dave. I was ready to invest in their company. Unfortunately for Oocha Brew, they learned very fast that when you create a raw kombucha you have to be very careful… If it’s not handled properly all the way through the distribution channels to the store and all the way home into the fridge there’s a high risk of being too high in alcohol. In 1998 they sold a large quantity to QFC stores and the bottles all started exploding. The caps were coming off. That was enough to bankrupt them.

SL: GT Dave began in ’95, grew very slowly until he got some funding in 2003. At that point, Synergy quickly became #1 in the kombucha world with a raw product, and he never looked back.

We started developing Kombucha Wonder Drink in 1999 and launched in 2001. We had a lot of confidence then too, because all the retailers that I talked with said, “oh yeah, if you do kombucha we’re all over it.” So getting it in the stores was easy for us, but moving it off the shelves proved very difficult at first. What we discovered was, even natural foods consumers didn’t know what it was. We did a lot of sampling, and it was a real love/hate thing. Some people would just gag.

JF: An acquired taste…

SL: Yes. Even though our product was a little more palatable than some. Even now, less than 10% of American consumers are aware of what kombucha is. So it still has a long way to go among the so-called “early adopters.”

We determined from the very beginning that the way to go was shelf stable. Our premise is, most all the benefits of kombucha are in the acids. Those are not affected by pasteurization. But in two years time, in 2003, we were still struggling with consumers accepting the taste. It was a slow process.

kombucha marketing kombucha wonder drink brandJF: Was that a strategic error, not doing raw kombucha? Were you kickin’ yourself then?

SL: There was a five year period there of self doubt and struggle. We grew every year, but it was not like what was happening in the raw segment. The two other founders left… Didn’t want to do it anymore because the kombucha market wasn’t growing like it had with Tazo or Stash.

We thought we saw the market, but it was tougher than we expected. Then in 2010 there was the mother of all recalls, when all unpasteurized kombucha brands got yanked off the shelves. Even Honest Tea had a raw kombucha that got recalled. CocaCola had a 1/3 interest in Honest Tea at the time, but they had no interest in doing anything with raw kombucha, so they just let it die. It never returned.

In order to get back on the shelves Synergy and all of them had to change the way they made their kombucha. They had to filter out most of the bacteria and prove that they wouldn’t exceed the .5% alcohol limit. We never had a problem with that, with our brand.

JF: So where’s it going now? In Oregon the kombucha market seems to be booming… every time your turn around it seems like there’s a new brand of kombucha popping up. You have Brew Dr., Eva’s, Hmmm, Lion Heart, and dozens of others just in Oregon. Pepsi bought Kevita. Coke’s investment arm has an interest in at least one kombucha company…

Kombucha market Kombucha Wonder DrinkSL: Yes, everybody’s going to have a kombucha. Good tasting, functional drinks are rising by leaps and bounds right now. There are different sodas with less sugar and different sweeteners. There’s Kefir. It’s changing rapidly.

SL: Our trade association, Kombucha Brewers International has 80 members. And that’s not all… there are well over 100 brands. It’s an easy product for people to launch. You can brew kombucha in your kitchen, go to a couple farmer’s markets, become enthusiastic, find and a couple local stores, and you’re in business.

JF: Sure, the kombucha market is booming, so it’s easy to launch. But it’s not, necessarily, easy to succeed in. Just because they can brew it doesn’t mean they can build a brand, like you did.

SL: That’s true. It’s too hard for too many people.

JF: Even now that’s it’s a $600 million market it’s a relatively small pie. I’m sure it’ll get to a billion dollars soon enough, and it’s going to continue to grow, but the question is, is it growing fast enough to support all the new competitors who are jumping into it?

SL: The answer is no. But time will tell. Everything’s going to happen in kombucha market. Everyone is going to experiment and there will be every form and flavor possible. But there’s always a falling out of brands. Phenomenon or not, only five out of 100 startups make it. The shakeout is happening simultaneously as more brands are launched.

But Steven Lee has launched his last company. His future now is in writing. He recently wrote a book about kombucha for Random House, and he plans to use those connections to do something else that inspires him. Something romantic.

“Once I’m done with Kombucha Wonder, I’m going to go write children’s books,” he said.

Keen branding

If you’re thinking about entering the Kombucha Market or if you have an existing natural foods company, BNBranding can provide all the insight and creative inspiration you need. Call me. 541-815-0075.  Or view our natural foods portfolio.

marketing characters Brand Insight Blog

Marketing Management & Leadership – Who’s really running the show?

BNBranding logoMarketing is full of colorful characters… Data nerds, creative prima donnas, wordsmith poets, actors, spreadsheet managers, order takers, MBAs, planners, directors, programmers, guru tweeters and on and on. Successful marketing management hinges on how you handle that challenging mix of characters, personalities and skill sets.

marketing management characters Brand Insight BlogYou have to choose carefully, decide who should lead, and practice good casting.

If you put the wrong person in the leading role, you could be in trouble. And if the bit players are not well directed you could end up spending a lot of money for very little return.

It’s a common problem. Finding the right advisors is always difficult, especially when the owner or CEO is inexperienced, insecure, or just not very well informed about marketing.

In many companies there is one character lurking in the shadows who steals the show and becomes the defacto marketing director. Even though she may not have a lick of marketing experience, she controls the decisions that make or break the company’s marketing programs.

Her influence is disproportionate to her skill or experience.

untrusted marketing effortsIn mythology, screenwriting and literature, this character would be referred to as a “shapeshifter.” From a marketing management perspective, she is trouble.

Shapeshifters are two-faced. They are pretending to be something they are not and it’s not unusual for them to change alliances frequently. These characters add uncertainty and tension to any story, and they’ll do the same for your marketing efforts. They’re not to be trusted. (Example: Severus Snape in Harry Potter.)

 

In real life business the shapeshifting character could be a secretary, an outside consultant, a hot-shit sales person or even the spouse of the owner. It’s always someone who has the ear of the CEO, and it’s usually someone who’s been around the company for a long time and “really knows the customer.”

When CEOs abdicate responsibility to a shapeshifter, things get messy. The brand story gets convoluted. Efforts get duplicated. Time is wasted. Morale throughout the company plummets. Money gets thrown at problems that don’t even exist. And, inevitably, the marketing programs perform quite poorly. There is no curtain call.

Here are four characters that I frequently find elbowing their way to the front of the marketing management stage:

Social Media "guru" brand insight blog

The Social Media “Guru.”

Back in the 90’s many business leaders mistakenly equated sales with marketing. So marketing departments were commonly run by sales guys.

Now it’s the social media specialist who often becomes the defacto marketing director.

But anyone with a cell phone and opposable thumbs can dub themselves a social media guru. She might do a good job of “getting your name out there” on the various platforms, and she might even generate exceptional engagement with her friends, but that’s not the whole picture.

I love this analogy from Peter Shankman, from the Business Insider: “Being an expert in social media is like being an expert in taking bread out of the fridge. He may be the best bread taker-outter in the world, but the goal is to make a great sandwich, and he can’t do that if all he’s ever done is take bread out of the fridge.

The Kid with a Drone and a Title.

Drones are all the rage right now. Many people seem to think that those epic aerial shots of their building and parking lot are all they need for TV commercials and a “killer” social media presence.

BNBranding's brand insight blogI even know one college kid who has a drone and the enviable title of “director of marketing.” And it’s not a small company. We’re talking hundreds of thousands of dollars in his marketing budget.

Hold that joy stick just one doggone minute. What’s missing from that equation?

Just because he can fly a drone without killing innocent by-standards doesn’t mean he can pilot a comprehensive marketing effort. If that same kid knew how to run the latest, greatest spreadsheet program would you make him CFO?

I don’t think so.

Effective marketing management is is not possible unless you have someone who understands the big picture of marketing, and the longterm process of brand building. You can’t rely on a young specialist to manage the whole she-bang.

The Wife/Secretary/CMO

This is a common scenario in family-owned businesses… The owner/CEO uses his wife to “do the marketing.” Which means she’s doing an occasional social media post, some fliers, and website updates.

Sometimes it’s the administrative assistant who fancies herself a marketing person. Since she controls scheduling and information flow to the CEO, she’s in the position to also control everything he sees regarding marketing. She can easily undermine the best efforts of the actual marketing staff or any outside agencies, especially when it comes to subjective decisions on creative issues. So it’s a recipe for disaster.

So here’s some advice for marketing management…

If you’re a business owner make sure you find a genuine expert in marketing management to be your leading lady. Get a generalist who knows how to keep all the other performers performing. Once you decide who that’s going to be, structure your business so that person has real authority, and don’t let anyone undermine that.

If you’re an outside agency providing marketing services, watch out for the shapeshifter who threatens to sabotage your work. Identify her early. Either make her your ally and work with her, or convince the CEO that she doesn’t belong in his cast of marketing characters.

If you’d like help leading your marketing efforts, call me. We’ll make your life a whole lot easier. 541-815-0075

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