Starting a Beverage Company

Every year abelei is approached by several entrepreneurs who are interested in creating new beverage products and brands. Some of these people are experienced beverage industry professionals with backgrounds ranging from product development to distribution, sales and business management. Others have no beverage or CPG (Consumer Packaged Goods) experience, but a great new beverage startup concept, some money, tenacity, and lots of energy.

The purpose of this blog is to discuss the fundamentals necessary to ensure the success of a new beverage brand. If you have the following fundamentals in place, you may have a good chance of surviving and prospering in the very competitive beverage industry. However, there are far more things to know and consider for which, if you have the budget, you should consult with people and companies with specific expertise. Though abelei flavors is not a full-service beverage development provider, it often directs startup companies to established providers of the ingredients, products and services necessary to get a new beverage product to market.

Financing Your New Beverage Brand

Industry experts agree that the first and perhaps most important consideration is, ‘how will you finance your new venture?’. And, before you may be able to answer that, you should have some idea as to the costs of…

• creating a unique beverage concept and brand image;
• developing a stable, tasty and scalable beverage product;
• and packaging, distributing and promoting your new beverage

Though estimated costs for all of those vary, depending on how many of the components you can manage well yourself, at a minimum you can expect to pay $20,000 to professionally formulate your beverage, and perhaps another $80,000 for your first, relatively small production run. Then there are distribution and various sales and marketing expenses that distributors and retailers will require you to bear. All told for your first year in business you will likely need between $500,000 to $1,000,000 of funding, with quite possibly another $3 - $5 Million for the next 2-3 years. During this startup time, your ROI may be slim to none and mostly consumed by various business expenses.

So, if you are not independently wealthy, where might you secure such funding? Basically, friends and family, banks, Venture Capital and Revenue Based Financing (RBF). For the latter two, you may want to click on their links to learn more about them.

Differentiate your Brand. Creating a Unique Beverage Concept!

Differentiation, the art and science of distinguishing your product from competitors to make it most attractive to target consumers, is a basic business and marketing principle. You may be able to succeed for a while as a me-too product in an explosive growth category but when growth cools in the category, a survival of the fittest principle (biggest, best-funded, most visible, best valued) normally determines long-term winners and losers. However, if your beverage is different from other brands of hydration in a way that large numbers of consumers highly value, its profitability, sustainability and salability greatly improve.

Develop a Stable, Tasty and Scalable Beverage Product

Developing a great product is essential and is often thought to be a relatively easy first step in launching a successful beverage brand. However, as with building most things, there is a lot more to it than you might think, especially if you have never created and produced a commercial beverage product.

In developing your beverage formula, you will need to consider how to incorporate, from practical and legal points of view, any functionality your beverage will claim, as well as the flavor profile, stability and shelf life, and scalability of your startup beverage. Achieving these objectives in a bottle can be quite challenging. The good news is that there are several product development companies and independent consultants that can help, and their fees are a relatively small piece of the total cost of getting a new product to your intended consumers. Assistance from such organizations can range from $20,000 - $40,000, depending on how much you want them to contribute to the project and what you are willing to give up in terms of freedom to buy your own ingredients, packaging and other essential support products and services. With any such service provider, you will need to clearly understand the costs and obligations, both short and long term, before you sign an agreement. In some cases, the development company may require you to purchase all ingredients, packaging, etc. through them at their prices and/or request an equity stake in your company. Though abelei provides basic development advice for no charge, it can recommend pay-for-service development and commercialization providers that provide various levels of expertise and service, including turnkey solutions.

Distribution - the Important Penultimate Step

Even if you have a unique, great-tasting, stable and scalable product, you won’t succeed if you cannot get it in front of intended consumers. Choosing your distribution channel(s), for instance, natural foods versus mass market, is an important early decision which will have a significant impact on subsequent decisions.

Even if your plan is to start out locally and slowly, which is an option, growing your sales significantly will eventually require partnerships with experienced distributors. Shopping for one or more distributors early in the process is strongly advisable.

Though distribution services and costs vary widely, you can generally expect distributors to markup your price to them by 15% to 30% to get your beverage into stores. Additionally, retailers will generally add a 35% margin to the distributor’s price to arrive at a final retail shelf price.

Don’t Forget the Promotional Budget

Promoting your new beverage will be a necessary and significant piece of your brand strategy. Most distributors and retailers will require you to absorb some promotional costs. Examples of these are TPRs (temporary price reductions), distributor promotional programs, retailer mandated programs and likely slotting fees, all of which vary depending on the distributors or retailers. Your own promotional ideas and efforts will be additional to these.

In the beginning, you may not have much of a discretionary advertising budget. Fortunately, in the digital age, there are several, relatively low-cost ways to promote your new beverage. If you are not familiar with the various digital promotional platforms and their costs and effectiveness, we strongly encourage you to consult with a savvy digital marketing professional, of whom abelei knows a few.

What abelei flavors Can Contribute?

abelei’s library of over 10,000 flavor formulas includes hundreds which are purchased each year for use in beverages of all kinds: water, juice, dairy, energy, sports nutrition, vodka, rum, whiskey, wine, cider, beer and others. We also have a team of creative flavorists, analytical chemists, and food, beverage and sensory scientists that can collaborate to create custom flavor profiles for your new products.

Nearly four decades of partnering with many startup beverage companies has led us to associations and partnerships with various consultants, product and service providers that can help turn your new beverage concept into a successful business enterprise.

If you would like to discuss how abelei can be helpful to your new venture, please either call or email Troy Gooding today!

If you simply need great, product-specific flavors to create your new beverage formula(s), please click here to complete and submit a request for free samples. Most samples are mailed within two business days of your request.