Arizona Enjoys its Place in the sun

By Sarah Theodore
Arizona Beverages Chairman Don Vultaggio used to dislike the phrase “new age beverage” because, he says, “new age means we won’t sell next week”. But over the years, Vultaggio has come to accept the term, perhaps because his company has proved it can stay new and inventive, and at the same time, keep sales growing.
Long after most of its competitors were swallowed up by large soft drink companies, Arizona has stayed independent, and during the past few years, has boasted double-digit growth. Vultaggio estimates 2004 sales are trending 40 percent higher than last year’s sales, and this year, Arizona iced tea surpassed Lipton and Snapple to become the top ready-to-drink tea in the country, according to Information Resources Inc.
Iced tea remains Arizona’s most popular product, but the company also has branched out into ready-to-drink coffees, fruit drinks, bottled water, and to a lesser extent, is involved in the beer business through Ferolito Vultaggio & Sons’ ownership of Hornell Brewing.
But despite the growth, the key to Arizona’s continued success seems to lie in its smaller roots. The company, based in Lake Success, N.Y., maintains a strong entrepreneurial spirit, and President and Chief Business Development Officer John Balboni says it feels free to try new, often expensive and risky, things.
“We push the envelope as hard as we can push it,” he says. “Sometimes we fail at those things, but there is no negative to failure. It’s almost like a badge of honor — we tried, we pushed really hard and maybe that one didn’t work but the next time it will be successful.”
During the past year, the company introduced new Arizona Infused Waters, dairy-based Cappuccino Shakes, No-Carb Green Teas, Arizona Botanically Brewed Teas, and Extreme Rx Energy Shot Energy Drinks, giving it a new product in nearly every segment of the alternative beverage category. The company just added new No-Carb Peach Green Tea to the line-up and is getting set to introduce Pomegranate Green Tea, using this year’s hottest flavor.
Product development, Vultaggio says, relies heavily on gut instinct rather than scientific market research. He and Balboni joke about “garbage can marketing,” referring to Vultaggio’s tendency to check out unusual sites for signs of what consumers are purchasing, and when, where and how they are drinking their purchases.
“I look at what’s on the road and in trash cans and see what people have consumed an hour ago,” Vultaggio says. “It might take me a week to walk four blocks because I am in and out of every store and I’m looking in every garbage can and I’m pulling down the bags of the guys drinking on the corner.”
Street sleuthing is just one source of inspiration. Other ideas, he says, have come from movies, television and other food categories. “We’ve kind of invented and reinvented over our 13-year history with Arizona,” Vultaggio says. “You read the paper, you listen to people, you hear reports and you try to anticipate trends. A lot of times you make mistakes, you think it’s going somewhere and it doesn’t. But we’ve had the good fortune of making some good decisions.”
The price is right
One of the more surprising decisions Arizona made recently was to put a price cap on some of its products. New age beverages are traditionally more expensive than regular soft drinks, but Arizona felt strongly that its products, at least the ones in cans, should be kept affordable, and pre-priced its 24-ounce cans at $0.99 to prevent retail mark-up.
“We had a catch-22,” says Vultaggio. “We came out with a great-looking bottle and oftentimes a great-looking bottle, from a price point of view, is abused at retail because a retailer says ‘that’s so good looking I have to charge more’.”
To address the issue the company introduced the pre-priced can at a price it believed provided the retailer with traditional margins, while offering the consumer value.
“We believe there is a good segment of the market that says, ‘I need value. I’m a working guy, and when I go out and buy lunch, I can’t afford $3 for a drink,” says Vultaggio. “So we [pre-priced] cans because cans are traditionally sold cheaper than glass. At the time we did it, it was unheard of in new age; price was up to the retailer. But because of our blue-collar background, we said we’ve got to take care of the blue-collar guy.”
But the move didn’t change the company’s use of expensive ingredients and its seemingly no-limits attitude toward its other packaging. Arizona has been testing the boundaries of beverage packaging — and likely the sanity of its co-packers — for years. When it rolled out Mississippi Mud beer and Blue Luna ready-to-drink coffees several years back, it chose jug-shaped glass bottles with handles. Last year, it introduced Arizona Infused Waters in hot-fill bottles with horizontal ribs and three customized vacuum panels in addition to both shrink labels and wraparound paper labels. The company designed holographic neck labels for its new no-carb line to give a sense of movement to the active-lifestyle imagery. And its Energy Shot energy drinks feature pointed, friction-fit overcaps that can be used for shots.
All of the company’s bottles, and even many of its cans, are shrinkwrapped, which provides UV protection and a far more extensive color palate than traditional package printing. The rotogravure label printing technique allows photo-quality images as well as vibrant illustrations.
The company has the same attitude toward ingredients. “Our concept of developing a beverage is a little different than the big guys. They’re typically driven by cost because they’re selling things at parity to cola. Some things are difficult to make at cola pricing,” says Vultaggio.
“We have some beverages that cost, from an ingredient point of view, $4 or $5 a case. In order to make it taste good, you have to have good ingredients, and good ingredients cost money. So we start with ‘let’s make it taste great’. We don’t say how much it costs because, candidly, that becomes important only at the end [when we ask] ‘can we afford to do it’.”
And telling them something can’t be done only adds fuel to the fire, says Balboni. “I’d say for every product and package, at some point in time during the development phase, whether it was the label design, the artwork, the structure of the package or the flavor, people have told us ‘that’s impossible, you can’t do it, it’s too expensive’. We look at it as a challenge. If all the experts are telling us we can’t do it and we’re successful in getting it done, we’ll really be ahead of the pack.”
The payoff comes not only in visibility and sales of the product, but Balboni says the extra investment also helps overcome the distribution challenges of a smaller company, which can often mean being locked out of college campuses and retail coolers by exclusivity contracts with big soft drink companies.
“Because of the limitations we have on distribution, it’s by making [the product] look fantastic and making it taste even better that you drive the business by consumer demand. Hopefully when you get out there, you’re going to get pull,” he says.
Profitable partnerships
Arizona brands are distributed by independent distributors in most markets. Ferolito Vultaggio & Sons operates its own distribution in New York City, Boston, Florida and New Jersey, and it’s involved in a pilot program in Chicago in which it is responsible for marketing and sales and its distribution partner is responsible for transportation and warehousing.
The company also has developed unique relationships with several retailers, creating co-branded products that combine the Arizona label with the retail label. It has created special shrinkwrap labels for 7-Eleven that promote the convenience store chain’s Indy Car sponsorship, and for other smaller retail chains as well.
Arizona also has used co-branding to play up its ingredient quality. It produces Kahlua ready-to-drink coffee products under license with Allied Domecq, but it also has used brand name ingredients on its Arizona branded products. For example, when it introduced its Piña Colada flavor in 1995, it used Coco Lopez coconut milk and used the Coco Lopez logo on the label.
“A brand is a safe haven for a consumer,” says Vultaggio, explaining the appeal of co-branding. “[They say] ‘I’ve heard of it, it’s good, reliable and safe. I’ll try it.’ An unknown is always a bigger stretch.”
While not co-branded, Arizona’s new line of Botanically Brewed Teas are made with organic cane sugar, and the company is using that distinction to test retail placement in several parts of the store, including the organic section, the regular tea section and even the produce section alongside other organic items.
The Botanically Brewed line includes black, green and red varieties. Red tea is new to the Arizona stable. It has a flavor profile similar to black tea and is naturally caffeine-free. Balboni says the new line plays well with today’s trend toward beverages perceived as “better for you”.
“More and more people are looking at those attributes — it’s got to taste good, but they’ve got to feel good about drinking that product. When you talk to people about black tea or green tea with honey, they feel good about that.
“We think eventually, over time, people have become more discriminating as far as taste and products for their health,” says Balboni. “That’s the sweet spot that Arizona is in today; that’s why we’re seeing the kind of growth we are today.”