When I talked to van Stolk last week, he told me why Jones is ready to step up in the marketplace and ramp up its marketing. Here are some excerpts from our conversation:
Tim Hanson: One thing that has really been interesting in the beverage space, from my perspective, is the difficulty giants like Coca-Cola
Peter van Stolk: Well I think there is, first of all, there are a lot of things going on, and as a smaller company, like most of these small companies that you follow, we have the ability to react to consumer trends on a fairly quick basis. ... [Small companies like Jones] can bring in new items and new products that react to the consumers' trends, and we are not trying to stay just to the party line that says, "This brand isn't right for the future." As things change, consumers' tastes change.
Hanson: Is the variety of flavors that Jones has a real advantage in terms of creating a big brand?
van Stolk: You can say what I think, but you can also look at Snapple. You don't have to look at me. You can look at Snapple. You can look at Arizona Iced Tea. You can look at Glaceau, which sold for $4.2 billion; they have 24 SKUs. It has nothing to do with Jones sort of making, defending, or discussing it; it is a reality of [how] to get to be a big player, because you have to have a share of mind.
Now this share of mind is three people [for whom] you have to have share of mind [to] be successful in the beverage industry. First is obviously the distributor in the DSD [direct store delivery] network; second is the retailer; and the third is the consumer. Those are the share of mind.
So how do you build share of mind? [First,] you build it by creating ... enough product distributors that they have the auctions that sell to different retailers. Two, you have enough product on the shelf, the holding power, so you can actually be seen when a consumer walks down the shelf, because of the competition that you are fighting for within the category. And third, the consumer has to be able to see, "Oh, that is the Jones set." They may pick the green apple, they may pick the cream soda, and they may pick the sugar-free black cherry. I really don't care, but I need to hold that space.
Hanson: Now, in terms of sort of building out the distribution, you lost the deal with Starbucks
van Stolk: [It] is all relevant to how big you are. So that thing, we have been in Panera for a long time. I think one of the things that we are very comfortable about with Jones is that we are geared up right now to [expand our] premium retailers and ... food service accounts. [Regarding the Seahawks:] ... One of the things that we wanted to do, and the reason why we went into the Seahawks, is very important for you to understand. It is the first time we have a premium, pure-can soda on fountain. So if we are going to expand our distribution in what is called premium food service, or QSRs [quick-serve restaurants], it is an important part of our component to have a fountain piece.
van Stolk: We are not talking about going to 7-Eleven, or not going to the Big Gulps and getting that stuff. We are talking about a premium QSR, which is the ideal fit in place. So what we wanted to do is by going into the Seahawk stadium, you have 67,000 people in there on a weekend, and how does Jones soda perform in that type of forum? So it is a closed test environment where we can test our ability to provide fountains. We can test our ability to deliver to the QSR, [which] is our goal.
We want it to be really important for us, so that is where we are looking at. We are expanding our distribution in these restaurants, Ruby Tuesday [and] Panera. We are in Barnes & Noble. We are in tons and tons of places, so Starbucks is a great account and you may be surprised to see [energy drink and Jones acquisition] 24C in Starbucks in Canada, so that is reality, you know?
Hanson: Now those QSRs, those are all bottles, correct? Not fountain yet.
van Stolk: That is correct, it is all bottles. That is one of the things, if you can offer a program to a retailer, right? Then again it comes back to this whole conversation about SKUs, and that is why I am so adamant that ... as yet, it maybe looks great for you or for whomever is talking about it, but it doesn't look great for a retailer, because a retailer wants to have one customer that is providing him, because let's just think of this [in terms of] common sense.
I am just going to talk common sense for two seconds. You own a restaurant ... the more checks you are writing to different vendors costs you more money. That is a reality. So if you as a QSR restaurant, with 40 or 50 or 100 accounts, can be serviced by one beverage company, your costs are cheaper, you are better [in] negotiations, you have a whole bunch of advantages, better distribution, better freight, better all the things that nobody looks at from the front page. All the things that are really important to the customer. Those things are what we have to do.
So if you think that a retailer is going to love to sell one product from here, one SKU from there, one SKU from there, one SKU from there, think about how many checks they are writing to different players. So when you can come in and sort of provide a retailer with all their requirements, you have a competitive advantage.
Hanson: Yeah, so you can act big, kind of.
van Stolk: Right ... So if you look at Panera, let's take Panera. They have our bottles, they have our organic teas, and they have our naturals. Now, if they didn't have our teas, they would have somebody else's teas, and so right there is a pure example of Jones saying, "We want to be a player with Panera. We want to meet their requirements, and we are going to listen to them, and we are not going to just sell them one flavor of soda and say how great our SKUs are in one SKU."
Hanson: Now speaking of different tastes, Jones is sort of notorious for coming out with some wacky flavors. I know before I came in here, my colleagues wanted to make sure you were going to bring back the turkey soda.
van Stolk: This year is going to be better.
van Stolk: Better; I will say it right now. This year we are doing something different we have never done. We wanted to show that we could think outside the box and prove to you and some other people that we just don't rest on our laurels with turkeys, so turkey is off the table this year, and we are doing something completely different for everybody this year. I am sure that when you get it, you will enjoy the humor on it, and you will also enjoy where the [proceeds to] charities go, and hopefully we can continue to provide resources for Toys for Tots ... because that is important.
Hanson: The last earnings report from Jones disappointed the market a little bit. Just for people who maybe own the stock or who are thinking about buying the stock, what are some key indicators that you look at, or things that the company measures, that can give outside shareholders some perspective on whether things are improving? What are you looking at to tell you that the business is working?
van Stolk: I think first and foremost ... what I am looking at is different than what anybody else is looking at. I am looking at that Dec. 31 of 2006. We were in 1,400 stores with cans, right? That is a reality. Now we are in over 15,700 stores. We have done that in a relatively short period of time, and we have done that in a relatively low cost to our shareholders. So I don't know; that is what I have, because if I don't get into the stores, I can't sell.
So there is no magic to this conversation. No CEO should say there is magic to it. ... [You] first have to get into the stores, how much did you spend to get in those stores? If you look at, in some cases, how much did we spend to market? So if you look at Jones Soda from my perspective, I [see] that I have achieved distribution with our cans within 25%-plus on the [all commodity volume]. I have not spent a lot of money doing it, because you can see that. ... The balance sheet is strong, and now that I am on the shelves, I can market [what] allows us to do the next [step].
The silliest thing that people do, in my opinion ... is they market before the product is on the shelf. It feels good and everybody gets excited, so I do a marketing campaign before I am on the shelf. I spend a lot of money, get people all buzzed about it, and then consumers go to find it, and they can't see it. And then I don't have any revenues to justify doing it again, and I look like a complete moron. That is real.
... [So] this year we had some hurdles and challenges and hiccups getting on the shelves within the premium selling season of the summer months. I understand that, and that has punched me in the stomach, and I feel that is not cool. I am not happy about it, but we are working hard on it. But we didn't blow our investment to do that. So we didn't spend all the money, if you look at our balance sheet, we didn't spend. We lowered our investment spending to get on the shelves, so our investment spending to get on [shelves was] some of the lowest in the industry.
So what people like about Jones is hey, we got on the shelf. We now have an opportunity to really move forward. I am disappointed that we didn't get on the shelf earlier. Some of those decisions I cannot control [such as] when the retailer is set. I wish we would have had more people set up earlier to do the open. I can't take that back, but we are now feeling comfortable where we are going.
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Tim Hanson owns shares of Whole Foods. Coca-Cola is a Motley Fool Inside Value recommendation. Whole Foods and Starbucks are Stock Advisor picks. Panera is a Hidden Gems PayDirt stock. The Motley Fool has a disclosure policy.