Thirst for Expansion : Distributors Ride Wave of “New Age” Soft Drinks

Two years ago, brothers Bill, Bob and Chuck Groux were hawking Snapple brand iced teas and lemonades from stands on street corners, in front of gas stations and in the parking lots of convenience stores.

But theirs were not typical lemonade stands. Their Groux Distribution is now a rapidly growing competitor in the so-called New Age drink market, a segment that has caught the attention of beverage giants Coca-Cola Co. and Pepsico Inc., who are looking for a way to put some fizz back into flat soda sales.

For their part, the Groux brothers have graduated from selling 300 cases a month when they started Groux Distribution in March, 1990, to 80,000 cases a month. This year, they expect sales to top 450,000 cases worth $5.3 million. Next year, they are projecting sales of 1.1 million cases worth $14.6 million.

“When we started, Bill and I would sell all day, call the orders in to Chuck, who would load the van,” Bob Groux said. “Then all three of us would make the deliveries the next morning.”

Groux was working as a buyer for the 7-Eleven convenience-store chain when he heard that Snapple was preparing to move into the California market. An Orange County native, he knew that the area, with its demographics, would be a gold mine for a product that appeals to young, health-conscious consumers. He negotiated with Snapple, founded in 1979 in Valley Stream, N.Y., for exclusive rights to distribute in Orange County. Then he persuaded his twin, Bill, a former golf pro, and brother Chuck, a former bar manager, to join the business.

Today, Groux Distribution employs 50 people in 16,000 square feet of warehouse space at its Santa Ana headquarters. It sells through 3,000 outlets, including supermarkets.

Snapple, too, has grown since 1990. When the Groux brothers signed on with the company, theirs was only the second California distributorship; now there are 30.

“Groux epitomizes the Snapple strategy, which is to build the fortress from the outside in,” said Carl Gilman, vice president of sales and marketing for Snapple. The company focuses on getting its product into the mom-and-pop stores first and letting consumer demand build before negotiating contracts with grocery-store chains.

The Groux brothers may be the latest but were not the first to discover that Orange County is a mecca for healthful beverages. Thirteen years ago, Hansen Beverage Co. in Brea, which markets Hansen natural sodas through supermarkets, was one of the first players in what was then called the alternative drink market.

“We were the pioneers in the New Age market,” said Harold Taber, a former president of Coca-Cola’s Los Angeles division who was part of an investment team that bought Hansen two years ago. “Since then, everybody’s copied it.”

Now that market has been relabeled as New Age, it is growing rapidly, beverage analysts say.

New Age products are defined as those that consumers perceive to be good for them, said market analyst Michael Bellas, president of Beverage Marketing Corp., a New York company that does market research for the beverage industry. Included are natural sodas, bottled waters, flavored sparkling waters, sparkling juices, iced teas and the so-called sport beverages designed to replenish minerals lost in exercise.

The total New Age market, including teas but excluding bottled waters, is worth about $2 billion a year at the U.S. wholesale level and is growing by 10% to 12% a year, Bellas said. The total wholesale soft-drink market is worth about $47 billion a year.

“Traditional soft drinks have barely been up 1 percent,” he said. Sales have slowed significantly in the past three years, he said, citing a growing health consciousness among consumers and a drop-off in the diet category as factors in dwindling sales growth.

Coke and Pepsi quickly figured out that they were no longer the choice of the new generation of soft-drink consumers. Two weeks ago, Coke announced plans to launch Nordic Mist, a flavored sparkling water; and to expand distribution of PowerAde, its challenge to market leader Gatorade in the sports drink category.

Pepsi, meanwhile, is already ahead. In April, it launched Crystal Pepsi, a clear, low-calorie alternative to the standard brown cola. And it is conducting store taste tests of All Sport, another Gatorade challenger.

Both Coke and Pepsi have also begun to experiment with brewed iced-tea products, Snapple’s mainstay.

Companies already in the alternative-drinks market are gearing up for the competition. Hansen, which had 1991 revenue of about $25 million, merged in June with Unipac Corp., a holding company based in Irvine. With backing from Unipac, the beverage concern, still operating under the Hansen name, hopes to expand beyond its West Coast market area and go national, if not international.

Snapple also has its eye on the broader market. The company on Monday filed with the Securities and Exchange Commission its intention for an initial public stock offering. Snapple said it hopes to raise $55 million by selling 4 million common shares at $15 apiece. In its SEC filing the company reported revenue of $95 million for 1991 and nearly that much--$90.5 million--for just the first half of this year.

The presence of Coke and Pepsi in a market that smaller companies have had to themselves up until now isn’t necessarily bad, Hansen’s Taber said. “They’ll help bring awareness to the category, and the whole category will grow.”

Market analyst Bellas, however, predicts a shakeout. “The market can’t support this many iced teas and waters,” he said.

Undaunted by the growing competition, the Groux brothers are now launching a new venture called Groux Brands to develop and market their own line of New Age beverages. Groux Brands’ first product is a bottled water called Arctic Springs. A product called Nordique, developed to go bottleneck to bottleneck with low-calorie flavored waters, is due out next.

“From three guys delivering sodas ... out of the back of a van 2 1/2 years ago, we certainly feel that we have come a long way,” Bob Groux said.

Surge in Sports Drinks

Since 1987, nationwide spending for the thirst quenchers has more than doubled from $359 million to $737 million.

Wholesale figures for 1991 in millions of dollars:

Bottled waters: $2,620

Natural sodas*: $757

Sports drinks: $737

* Includes sparkling juices and flavored waters

Source: Beverage Marketing Corp.

Researched by CAROL SMITH / Los Angeles Times