Squeezing Into His Niche

DANA POINT — Three years ago, Stephen Vangelos was concocting fruit drinks in his kitchen. Today, he runs a growing beverage business from the dining room of his Dana Point home.

Hey, it’s progress.

Vangelos is president of the Laguna Beverage Co., a small enterprise that is carving out a niche in the cutthroat noncarbonated beverage market by pitching its products to local eateries, hotels and coffeehouses.

The company, which makes bottled juice blends, lemonade and tea, will log between $400,000 and $600,000 in sales this year, and its 29-year-old president is optimistic about the future.

“It’s a struggle, but we’re doubling up on our production every single month,” said Vangelos, who launched the business with $35,000 in savings, cash advances on his credit card and a $25,000 investment from friend Ronald La Russa, who is now the company’s vice president. Today, the beverages are sold in about 350 establishments, including the Ritz-Carlton hotel in Dana Point, Farmers Market in Fashion Island and Diedrich coffeehouses throughout Southern California.

Vangelos said he shot for the “high end” market because his company is too small to compete against Snapple and other major producers in supermarkets and liquor stores.

“We don’t have the advertising or marketing budget that could really make a difference,” he said.

Area businesses say they stock Laguna Beverage’s drinks because they like the product and want to help a company that started in Laguna Beach.

“You support the locals,” said Sid Fanarof, owner of five Z Pizza restaurants along the coast and one of Vangelos’ first customers. “I love to help a struggling guy starting out. I know what it’s like.”

And Vangelos said he has had plenty of struggles. When he first started peddling his product, he would carry his infant son with him because he couldn’t afford day care.

“I’d have a cooler in one hand and my kid in the other,” he said. “If someone would have followed us around the past two years, they probably would have had a heart attack.”

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Today, Vangelos and La Russa remain on fast forward, waiting tables at night and hustling each day to force life into their toddling business.

When they aren’t sweet-talking distributors or making their own deliveries, the men are holed up in Vangelos’ tiny dining room, which is crammed with desks, cabinets, a computer, fax machine and stacks of bottled drinks. The company telephone rings steadily, but because of a loose connection to the earphones, the receiver must be smacked against the desktop before any business can be conducted.

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Such inconveniences seem inconsequential to Vangelos, a one-man public relations agency with effusive praise for his products. Despite the sea of teas, juice blends and various flavored waters already on the market, Vangelos seems confident that his company will find its niche.

“We don’t have visions of becoming a Coca-Cola or Snapple or anything,” he said. “The market we’re going after is people who are conscious about their bodies, who care about their health.”

Vangelos said his drinks contain 25% fruit juice, a higher percentage than most juice blends, and only natural ingredients. “It’s not too many times you see whole raspberry seeds in the bottom of a bottle like that,” he said, proudly hoisting a bottle of Guava Raspberry into the sunlight for display.

The company also sells Mango Passion Fruit, Pink Lemonade and Laguna Peach Ice Tea. Soon, a diet tea drink will be added to the product line, followed by “Pressed Apple,” a 100% fruit juice.

But industry watchers say Vangelos has entered a ring already crowded with heavyweights. Southern California is a home to three of the industry’s bottling and distribution giants: Coca-Cola Enterprises, Pepsi-Cola and 7UP Royal Crown Bottling Co.

Coca-Cola distributes Frutopia, a fruit-based drink; Pepsi distributes Ocean Spray and Lipton; and 7UP RC sells Mystic, a noncarbonated line that includes tea and juice blends, and will soon begin distributing Arizona Tea in the Los Angeles area.

“In Southern California you’ve got one of the most competitive markets in the country, if not the world, because you’ve got three of the best bottlers in the world operating there,” said John Sicher, editor and publisher of Beverage Digest, an industry magazine based in Bedford Hills, N.Y. “Whatever retail channel you’re talking about, assume that Coke and Pepsi have heard of it.”

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The specialty drink industry has been growing steadily for years, said Nick Christy, associate editor of Beverage World trade magazine in New York City. Sales have climbed from $117 million in 1985 to an estimated $5.8 billion last year.

The fastest growing segment of the industry is the ready-to-drink teas, Christy said, while sales of sparkling waters have headed south. Teas snared an estimated 28.3% of the specialty beverages market in 1996, up from 21.1% in 1991, he said.

The growth also has attracted “a lot more players in the field,” he said.

One of those players is Jim Turner, owner of Dr Pepper Bottling Co. of Texas, which just bought 7UP Royal Crown Bottling Co. of Southern California. Small or not, Turner considers Laguna Beverage Co. a competitor.

“We’re going to aggressively go after those businesses with those types of products, just like we do with our carbonated lines,” he said.

Eventually, Turner predicts, the smaller companies will be “washed out” of the market. “We’re big enough that we can get very, very competitive from a price standpoint,” he said.

Even when a company does make it to the top, it can still take a tumble. Witness Snapple Beverage Co., the trail blazer in the alternative beverage industry. Quaker Oats Co. bought Snapple in 1994 for $1.7 billion. Then sales slowed. “Unfortunately,” a Quaker spokesman said, ‘the synergies did not materialize. . . .” This year, Quaker sold Snapple to Triarc Cos. for $300 million.

Such industry ups and downs don’t phase Vangelos, who said he’s not aiming to become a “super power” anyway. He just wants to make the best drink on the market.

“We’re not reinventing the wheel or anything,” he said.

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Juice mixing is nothing new for Vangelos, who as a boy sold lemonade on the street before advancing to the golf course where his father hit balls. “They’d try to kick me off,” he said, “but I’d come back.”

Later, at parties, Vangelos was the guy in the kitchen mixing drinks. ‘You know how someone makes margaritas at parties?” he asked. “I used to make different kinds of juice concoctions at parties.”

Vangelos, who grew up in San Francisco and moved to Laguna Niguel at 18, took his first stab at a juice business about 10 years ago. But at that point, he said, he lacked both the money and the know-how to launch a company.

Three years ago, after earning a degree in political science from Cal State Long Beach and working as a sales and marketing coordinator for a local food broker, he decided to try again. La Russa, then a San Francisco real estate appraiser, signed on six months later, after sipping Vangelos’ drinks at a family barbecue.

“I’ve definitely taken a cut in salary recently,” said La Russa, 31, who has moved to Laguna Beach. “But I think it will pay off.” Quipped Vangelos: “We used to have pretty decent jobs, Ron and I, before we started all this.”

For more than a year, Vangelos researched the industry. It took about eight months to concoct formulas for the beverages, obtain a trademark and design a label. Vangelos and La Russa sold their first bottle in June 1996.

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The entrepreneurs, armed with a cooler and price sheet, generally show up at businesses and offer drinks to whomever is working. Sometimes, Vangelos said, they bring along a competitor’s brand so the potential customer can make a comparison.

“The juices sell themselves,” said Vangelos, who ships ingredients from Hawaii, South America and Germany to a bottling plant in Los Angeles where the drinks are mixed.

Laguna Beverage customers say they like both the product and its eye-catching label, which features an image of an oil painting by Laguna Beach artist Kiki Davis that shows a wooden chair at the seaside.

“I really like their product, particularly their lemonade,” said Arlene Mastandrea, manager of the trendy Cafe Zinc in Laguna Beach, which was Vangelos’ first customer. “There’s more juice in it, no artificial coloring, that sort of thing. . . . The packing is great and I like to support a local company.”

What Vangelos needs now, he said, is the money to hire a marketing specialist to help the company expand.

Eventually, he predicts, everything will fall into place and he and La Russa will be able to rise above their current status of “beverage moguls by day and waiters by night.”

“After a while, hopefully, it’s gonna take on a life of its own,” he said.

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Laguna Beverage Co.

Founded: 1994 by Stephen V. Angelos

Vice President: Ron LaRussa

Employees: Two (Angelos and LaRussa)

Headquarters: Laguna Beach

1997 projected sales: $400,000-$600,000

Products: Fruit juice, fruit-juice blends, iced tea, lemonade

Available at: Sports Club Spectrum in Los Angeles, Manhattan Beach, and Irvine: Diedrich Coffee locations in Los Angeles and Orange counties: Ritz-Carlton hotel, Dana Point; Irvine Ranch Farmers Market at Fashion Island and Mission Viejo; Z Pizzas

Source: Laguna Beverage Co.