Chris Reed isn’t your typical CEO. He’s a tie-dye aficionado who sports a ponytail, eats vegetarian, and enthuses ceaselessly about the benefits of yoga, Ayurveda, and meditation. He comes off more like a freewheeling Californian—maybe a wave chaser or an amateur home grower—than a kid from Queens who runs a multi-million-dollar business.
But when you ask him about the inspiration for his soda company, Reed’s, you uncover a side of him that is ambitious and openly profit seeking. “I’m a renaissance man. I’d rather not make money for other people when I can make it for myself,” Reed says unabashedly. Last year, his company brought in sales of around $13 million outselling established brands like Izze (owned by Pepsi Co.), RW Knudsen, and Hansen within the natural foods category, a group of about 3,000 markets that includes Whole Foods and Trader Joes. It is now the number one player in natural sugar/fructose sweetened soft drinks.
In January of 2007 Reed’s went public and experienced a 24 percent increase in growth that year. Now, after 18 years in business, the company is looking to branch beyond just natural foods, and go mainstream.
A self-made businessman with no formal business background, Reed started out wanting to be a rock and roll guitarist. He tried working the music circuit for a few years, playing rhythm and lead in a band, before he reluctantly decided to get serious and go the conservative route, trudging off to study cryogenic engineering at the Rensselaer Polytechnic Institute. After the oil and gas industry crashed in the mid ’80s however, Reed came to terms with the fact that he just wasn’t cut out for the life of an engineer.
At 29, he packed up and moved to Hollywood to study guitar at the Musicians Institute. Simultaneously, he started working for a friend who owned a 1-800-DENTIST outlet. At first he just answered the phone. Eventually, he started selling to the dentists, displaying an unexpected aptitude for bringing in dollars that prompted him to consider starting his own business.
While Reed already possessed a deep-seated interest in Ayurvedic and Chinese medicines, many of which incorporated ginger, the inspiration for creating his eponymous brew only came while he was traveling across India in 1988. There, the roadside sugarcane juice vendors often infused their drink with ginger or lime and it was during this trip that Reed settled on ginger brew as the best vehicle to get ginger to the American public.
Back in the States, he did some research at UCLA and found that before soft drinks were commercially made, they had been brewed at home. So, he decided to brew his own line of natural soft drinks, and began experimenting with recipes in his Venice Beach kitchen, tinkering for almost two years before he settled on a spicy-sweet concoction.
With the aid of a loan from his father, Reed launched his first batch of ginger brew for less than $5,000 in the summer of 1989. He sliced 90 pounds of fresh ginger by hand, brewed the product at a small brewery with no bottling operation, bottled it on his own, slapped on labels with a stick of glue, and loaded 36 cases into the back of his VW bug for distribution at four local stores.
“I’ve always been fairly entrepreneurial,” he says. “Even as a child I used to wash cars for eight to ten bucks an hour — something none of the other kids were doing.” He defends his lack of formal business training, recalling a decision he made to launch Reed’s ginger brew in flagrant disregard of the results of a market-research survey. “The results came up saying that brew is an old fart drink. Everyone associates it with being sick or assumes it’s only used to mix with drinks. But you can do all the marketing research in the world, and you still won’t always be successful. There are a lot of textbook results that don’t ring true. We don’t sit down to analyze the market for what to do next. We follow our gut instinct.” In this case, it appears Reed was right.
The Right Herb at the Right Time
Reed’s growth over the last few years can be attributed largely to the burgeoning natural foods market: the industry grew from sales of $2 billion in 1990 to about $55 billion last year. “The explosive growth dragged us along with it,” recalls Reed. “There was a deep need for more items.” He put out six ginger brews between ’85 and ’96: Reed’s Original, Extra, Premium, Raspberry, Spiced Apple and Cherry Ginger Brews.
Much of this explosive growth in the natural foods market can be attributed to consumer trends. “People are naturally picking a more health conscious lifestyle. Consumers are more educated, making health foods more popular. Some of the health foods stores attract more educated customers and it is here that this trend caught hold,” explains Dan Fabricant, Vice President of Scientific and Regulatory affairs at the Natural Products Association. “In terms of sales trends, you can see there’s a large uptake in health food and beverages.”
Indeed, ginger is believed to have many therapeutic properties. In addition to its antioxidant effects, it can be used to ease nausea, inhibit inflammation, and alleviate gastrointestinal distress. “Ginger is like the king of the earth,” enthuses Reed. “Lots of herbs are very specific to specific conditions, but ginger is appropriate for most people most of the time.”
The health benefits of ginger are a selling point Reed pushes emphatically in his marketing efforts. Schweppes and Canada Dry, he cautions, don’t contain any fresh ginger or even the actual root (rather, they contain an extract of ginger); his company on the other hand uses 1.5 million pounds of fresh ginger a year. “You drink my stuff and you know you’ve got a really good dose of ginger, not just the flavor.”
Especially among highly educated shoppers with more disposable income, customers seem to respond to this authenticity. According to the latest report from SPINS, a natural foods industry trade publication, Reed’s lays claim to a large chunk of the natural beverages market, with ownership of the top four natural sugar/fructose sweetened soft drink products: Reed’s Extra Ginger Brew, Virgil’s Root Beer, Reed’s Premium Ginger Brew, and Reed’s Original Ginger Brew.
The Whole Package
In its attempt to go mainstream, Reed’s aims to set itself apart through innovative marketing efforts. A recent initiative is its attempt to put its brew on tap, just like beer, in Southern California grocery stores, so supermarket goers can pull a free cup of the draught to try. “It’s creative, innovative, and cheap. We went public because of this program,” enthuses Reed. “Every supermarket chain I’ve ever shown this to gets excited, and we demo our product to a small city’s worth of people every week.”
Reed’s is also the only soft drinks business in the world to package its brew in a five-liter keg — a selling point for both the thrifty and the environmentally conscious. The company packages its spiced apple brew and top varieties of its ginger brew in champagne-like bottles to compete with brands like Martinelli’s, an attempt it says proved highly successful in California supermarkets. In addition, the company offers a one-liter swing-lid bottle, fashioned after that offered by European beer maker Grolsch. “We’re creatives. We do unique packaging that other people don’t,” says Reed.
Beyond the packaging, another big marketing initiative is Reed’s move to co-brand with other large companies such as Dewar’s. A few nightclubs, like the Borgata Casino in Atlantic City, New Jersey, now offer cocktails that incorporate Reed’s ginger brew. “We’ve brought ginger ale into the 21st century — made it hip, modern,” says Reed.
While other drinks in the natural beverages industry also offer health benefits, Reed maintains that his is one of the few brands to retain the essential characteristics of a soda, giving him an edge over companies like Honest Tea and Glaceau (which produces Vitaminwater) that don’t resemble sodas at all. “Unlike with beer or ice cream,” he says, “with soft drinks there’s a super premium that has completely divorced itself from the underlying product. Companies couldn’t figure out how to make a better cola or fancier soft drinks, so they just made better packaging. That’s where we come in.”
Marketing expert Seth Godin, however, thinks Reed’s success boils down to the fundamental fact that its product is good. “It’s so easy to think that marketing and the product are two different things, but they’re not. Their product is different, it’s spicy. People talk about the drink for what it is — and not because they’ve changed their bottle.”
Beyond Whole Foods
Although experiencing healthy growth, the natural foods market is still only 5 percent of the national retail food industry. “Reed’s is doing well, but will they be able to cross over? That’s the question,” says Honest Tea CEO Seth Goldman, whose company wooed Coca-Cola into buying a majority stake in February.
“Despite our 66% annual compound-growth rate,” Goldman says of Honest Tea, “we still aren’t reaching all the people we want to reach.” He knows that for his company to act as an “agent of change,” turning the public on to healthier eating habits, it needs to widen its reach, something that can most expeditiously be done with the resources of a company like Coke.
Widening distribution is a clear goal for Reed as well — “it’s the whole reason for us going public” — and his company has been running a test market in Southern California over the last two years on the viability of taking its product mainstream. There are plenty of opportunities for growth, with the company taking advantage of new, larger distributors — like Manhattan Beer Distributors (the largest Coors distributor in the country) — convenience stores, delis, cafes, club stores (like Sam’s Club and Costco), and of course grocery stores.
Reed explains that while grocery stores have been competing with places like Whole Foods for some time by including a natural foods aisle within the store—his product has been in two to three thousand of these specialty sections around the country—his goal is to move into the mainstream aisle with other soft drink producers. “There’s a huge opportunity for us in grocery,” he says. And he has recruited Neal Cohane, former senior account manager for Pepsi, to chase these chain accounts specifically.
While entering the mainstream is an understandable ambition for any niche company, Gary Hemphill, managing director at the Beverage Marketing Corporation issues a caveat. “These companies can’t get caught up competing directly against the giant companies. They certainly can’t compete against them on price.” His advice is that companies like Reed’s should “play up their uniqueness in their marketing. That’s their value in the marketplace.”
But when questioned about whether he thinks branching out could dilute his brand, Reed shakes his head in an emphatic no. “When we say we’re number one in places like Whole Foods and Trader Joes, supermarkets will love us,” he says confidently emphasizing that they’ve recently been picked up by Kroger, Fred Meyer and Smith’s among others.
Reed is also training his eyes overseas, with distribution deals in Singapore, France, England, Wales, Scotland, Ireland, Belgian, Holland and Japan. Next on the ginger man’s map? China.