The executive director of one of Europe’s biggest investment funds managing $1bn in assets insists that big brands like Pepsi and Coke are not cracking innovation and lag behind young beverage entrepreneurs.
Eric Melloul works for Verlinvest, a Belgium-headquartered fund with interests in brands including Vita Coco and Sambazon, and previously backed Remy-Cointreau and Glaceau Vitaminwater.
Speaking at Zenith International’s Innobev Global Soft Drinks Congress in Lisbon (April 7-9), Melloul insisted that the biggest brands are “losing their stronghold on us”. In this, the first of two articles, we round-up his insights from Lisbon on whether now is a good time to start a beverage business, starting with the pros.
“Despite what all my friends at Coke, Pepsi persist in telling me, those guys are still not cracking the innovation game. It’s hard when you’re focused on a big brand to deliver small brands, but it will be years before they can catch up with the young entrepreneurs,” Melloul said.
Quit your day job, start a beverage business?
“Is now a good reason to launch a beverage business? I would say it is. If all of you decided to leave the comfort of your day jobs and start a beverage business – you’d want to do it now,” he added.
“Consumers are there, and increasingly they are fragmenting. Each one of us now is deciding on drinks for different occasions, different types of the day, different times of the day. And I would argue that the big brands are losing their stronghold on us,” Melloul said.
“Consumers are going to want a brand that looks like them and has been designed for them. So we think there are plenty of opportunities out there to design the right brand for the right consumer,” he added.
Melloul said that health, convenience, indulgence, pleasure and premiumization – were important drivers of innovation and successful entrepreneurship for Verlinvest, as well as local drinks.
“I think we’ll see a return to local drinks,” he said. “I spend a lot of time in Asia, and I tell you, the top brands in Asia are not Coke and Pepsi. The No.1 brand in China is Wahaha, a small little red can made with herbs – it’s about 4.5bn sales, Coke is only 3bn sales.”
“So we need to watch out, especially in a big emerging market, for local drinks,” Melloul added.
Citing distribution as the main barrier traditionally facing successful beverage entrepreneurs, Melloul said it was becoming less of a bottleneck.
Dynamic distributors want new brands
“Every day I meet independent distributors in Europe, Asia, America. These guys are very dynamic, they don’t necessarily want Coke and Pepsi necessarily, they want new brands…In some cases we give them equity in a company so they can push a brand,” he said.
“It’s hard, especially in Europe – with Coke, Pepsi, Orangina and others locking-in the market – but there are some good independent distributors out there,” Melloul said.
Describing online distribution as “intriguing”, Verlinvest’s executive director said it was beginning to offer a way around distribution lock-ups.
“For many years my beverage friends told me: ‘Online is never going to emerge as a major channel for beverages.’ Well, it’s changing. Today, Ocado is doing a great business in the UK with beverages,” he said.
Melloul also touts guerrilla marketing as a practise that offers entrepreneurs a big advantage, since it allows brands to launch with circa. $200,000 in the US, marketing via digital channels.
Guerilla marketing not gorilla marketing...
“With Vita Coco – we talked to Madonna and Rhianna, two big stars. This cost nothing, because they were already drinking the product. We convinced them, against some stock, to become brand ambassadors,” he said.
Need another good reason to become a beverage entrepreneur? Well, valuations for young, entrepreneurial beverage brand are going through the roof, according to Melloul.
“Successful independent beverage companies are commanding 3-4x revenue – we’re not even talking multiple of profit, but revenue…so powerful trends militate for helping entrepreneurs build their brands today,” he said.
However, Melloul warned delegates at the Zenith event that would-be beverage entrepreneurs still face significant headwinds. Check out what these our in this companion article, where Melloul says his definition of a good entrepreneur is a "paranoid entrepreneur" .