Understand the business you’re getting into

I had no idea what I was doing when I launched BURN Energy Drink in 2002.

Sure, I knew how to create a brand, develop a product and bring it to market. But I didn’t know anything about the ready-to-drink beverage industry. I didn’t know how retailers and distributors worked. I didn’t know what they wanted, or what they cared about.

I thought because we had a great product with good pricing, customers would love it and stores would buy it. And if stores wanted it, surely distributors would be happy to deliver it. Makes sense, right?

Wrong.

Unfortunately, that’s not how the beverage industry works. Here’s why:

  • The big distributors have their big brands and their sales people are rarely more than order takers and shelf stockers. Why would they spend ten minutes trying to sell a retailer on a few cases of BURN when they could just write an order for 40 cases of Miller Lite in two seconds and be on their way? Answer: They won’t. Oh, and hey, Monster wants them to distribute their energy drink now, so they’re dropping BURN because Monster doesn’t want them distributing a competing brand. Sorry.
  • The little distributors usually can’t get into the big grocery, convenience and retail chains because those stores don’t want to add another vendor to their system. And the really little distributors are often running lean and, in my experience, just kept getting later and later on payments but still needed product to sell, which became a blackhole into which we threw money and time.
  • The retailers don’t care how good or bad our product is. They only wanted our money. They wanted money for their shelf space. They wanted money for incentives and sales. And they always wanted deals. But unfortunately, there wasn’t any shelf space available, so they also wanted a mini fridge or ice cooler. And then they just put other products in our mini fridges and ice coolers because our small mom and pop distributors weren’t delivering fast enough and they didn’t want empty shelves.
  • The big brands (Coke, Pepsi, Red Bull and Monster, in our case) didn’t want us in any stores, so they paid the retailers lots and lots of money to buy up all the shelf space. They weren’t paying anyone to keep us out, per se, but when they buy all the shelf space and there’s no where for us to go, the effect is the same. And when they threaten the retailers with the loss of key items like Coca-Cola if they don’t also place Dasani, Full Throttle, Minute Maid and everything else that Coke’s management says needs to move volume that month, then the retailer agrees to carry all of that because they don’t want to not have Coke in their stores. So they don’t need any more energy drinks because now they have all of the energy drinks from Coke and Pepsi and Monster and Red Bull and half of them don’t sell so why would they bring on any others? And besides, they don’t have any shelf space anymore even if they wanted to.

So, that’s the industry we entered. Bright eyed and happy go lucky, we thought a good product was all we needed. And then we lost almost half a million dollars over 6-1/2 years.

THE TAKEAWAY

None of us had worked in the beverage industry. We didn’t interview the people at any other brands or ask hard, honest questions of distributors and retailers in advance. So we spent a lot of money to bring a product to market and then basically had nowhere good to sell it and no one good to sell it to. We had no idea how the industry worked, and we couldn’t afford to compete. In hindsight, we had absolutely no business being in the beverage industry.

Before you jump in, make sure you know what you’re getting into. Consider:

  • How do the sales channels really work?
  • What does it cost to do business? Can you afford it?
  • Who are the real decision makers and gatekeepers, and what are they basing their decisions on?
  • Where and how are your end customers really buying the product? Are you able to get your products there?
  • Which variables can you control, and where must you rely on outside forces? And if you have to rely on outside forces, are their interests aligned with your goals?

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