- Coca-Cola has sold off drink brands that it paid millions for, like Zico and Odwalla.
- Former employees said Coca-Cola and its venture arm didn’t give the brands the resources they needed to succeed.
- James Quincey, Coca-Cola’s CEO, has signaled that the company will take fewer bets on small brands.
- See more stories on Insider’s business page.
Coca-Cola had a problem. Consumer tastes were changing, and it needed to sell things besides Coke and other sugary sodas.
To jump-start the process, it launched its Venturing & Emerging Brands arm in 2007, building it up to include hundreds of employees, dozens of high-dollar acquisitions, and the marketing muscle that the century-old company could provide.
Fourteen years later, some estimated that VEB’s head count was down to just three people, Coca-Cola had few successes to show for it, and dozens of beloved brands had been shuttered.
Insider spoke with five former employees who worked at the VEB arm and were frustrated with the management of these smaller brands. Coca-Cola declined to comment for the article.
Early signs of success
When Coca-Cola started VEB, it wasn’t because the company didn’t know what to invest in. Rather, it “didn’t always have the right models to win in a fast-changing marketplace,” the company said in a statement issued in 2017 on VEB’s 10th anniversary.
“A third of industry growth every five years was being generated from creation of things like energy drinks, enhanced waters, protein drinks — we were in many of these emerging categories, but we wanted to focus on ways to get in even earlier,” Matthew Mitchell, the vice president of VEB at the time, said in 2017.
Prior to the founding of VEB, Coca-Cola had already brought brands such Odwalla and Vitaminwater into the fold. VEB was a way for the company to better manage smaller brands. The arm’s stated goal was to give those smaller labels “the ability to move quickly, failing fast when necessary.”
In its early years, that approach notched some wins for Coca-Cola. Perhaps the most notable is Honest Tea, which the company acquired in 2011. Sales grew to $600 million in 2019 under Coca-Cola’s ownership.
The VEB model even got attention from other big food and beverage companies that wanted to replicate it. One former employee said the unit fielded queries from companies such as General Mills and Diageo, the maker of Johnnie Walker and Captain Morgan, that were trying to get details about how VEB ran. “Most of those players called us and asked, ‘Can you tell us how to do this,'” the employee said.
Zico versus Coke
But by the mid-2010s, there was evidence that not all of Coca-Cola’s small brands were given the resources they needed, much less the chance to “fail fast.”
In meetings with regional bottlers and national retailers such as Walmart, representatives for different brands would lobby to promote their brands on store shelves. Coca-Cola’s biggest players, such as Sprite and traditional Coke, dominated these meetings, while representatives for VEB brands often got bumped until the very end — if they got any airtime at all.
The result: Brands such as Zico were often sidelined by Coca-Cola mainstays — which include Diet Coke, Fanta, and Sprite — when Coca-Cola’s bottlers decided how to allocate production time, or when retailers decided which beverages to put on their shelves. Coca-Cola bought Zico, the coconut-water brand, in 2013.
“A lot of times, you’d find yourself being No. 11, 12, or 13” on a meeting agenda, one former employee who worked on VEB brands said. Most of Coca-Cola’s sales staff were evaluated by their sales of the company’s 10 largest brands. Few were incentivized by their goals or sales targets to increase the distribution of Zico and other VEB brands, the source said.
Less than a decade into its existence, VEB started to go after brands that insiders said didn’t meet the “venturing and emerging” promise of the arm. From its founding, VEB had focused on small brands that it believed had an edge over rivals when it came to health, specific use cases such as exercise, or something else.
But in 2015, it acquired Tum-E Yummies, a fruit-flavored drink for kids that Walmart frequently sold for $1 each, as well as Peace Tea, a brand of iced tea that retailed for $0.99 a can.
Both brands sold well, but they were oddballs in meetings with retailers since they didn’t have a clear edge over rivals when it came to health or other benefits. “Those brands had great volume, but I don’t think they fit the VEB culture,” one former employee said.
In other instances, the problems started with product development. Another former employee said Coca-Cola stuck with new flavors, such as jalapeño-mango Zico, even after it became apparent that they weren’t selling. “They did not adapt to the market,” the source said.
Zico’s founder, Mark Rampolla, who bought the brand back from Coca-Cola earlier this year, told Insider that the beverage giant should’ve focused less on new flavors and more on expanding distribution for its coconut water.
Success with Honest Tea
Not all of Coca-Cola’s efforts with small brands were troubled. Honest Tea, which the company has owned in its entirety since 2011, booked an estimated $600 million in 2019, up from the $71 million it reported for 2010. It has even moved out of the VEB portfolio and into the main stable of Coca-Cola brands — a milestone Coca-Cola insiders refer to as graduating. And while the brand is still a small slice of the $37 billion in revenue that all of Coca-Cola posted for 2019, executives said Honest has a path to becoming a billion-dollar brand over the next few years.
The brand got its start with bottled organic tea, but under Coca-Cola, it has branched into new areas, such as sports drinks and lemonade.
Part of that success has been consistent leadership at the brand, said Seth Goldman, Honest Tea’s cofounder. After Coca-Cola’s acquisition of Honest, Goldman stayed on, holding roles both at his brand and later at VEB itself before leaving the company at the end of 2019. Goldman has also held roles at Beyond Meat since 2015.
Goldman said he stayed involved in decisions around Honest even after he took a broader role at VEB. And today, more than a year after leaving Honest and Coca-Cola entirely, he still takes calls with Honest’s leadership, providing his perspective on choices that the brand is making.
Goldman believed a key determinant of success for small brands that join a huge organization such as Coca-Cola is whether a founder stays engaged.
“If not, it’s easy to lose the independent thinking that gave the brand life, and it’s easier for the brand to get lost in a corporate swirl,” he added.
At other VEB brands, the founders didn’t stick around. Zico’s Rampolla left shortly after Coca-Cola completed that acquisition. And Greg Steltenpohl, Odwalla’s founder, left the company before it was even acquired by Coca-Cola. After trying to revive the smoothie brand for years, Coca-Cola discontinued Odwalla sales last year.
A new CEO with less taste for small brands
Coca-Cola’s approach to acquiring and scaling up emerging brands has also changed along with the company’s top leadership.
Multiple former employees said former CEO Muhtar Kent was a major supporter of VEB’s model of maintaining a separate unit for Coca-Cola’s emerging brands. Kent kept up with VEB and sought out employees from the unit at company meetings or events with hundreds of people just to hear the latest. “He had no agenda other than his incredible interest in the work we were doing,” a former employee said.
But Kent left the company in 2017. James Quincey, Coca-Cola’s current CEO, has since focused on other ways of expanding the business, such as the company’s $4.9 billion purchase of Costa Coffee, a British chain.
Quincey has taken a more brutal approach to Coca-Cola’s smaller brands than his predecessor. In July, he told analysts during an earnings call that Coca-Cola’s wide range of smaller brands was “the result of lots of experimentation and exploration, which is a good thing.”
“But we are looking at an incomplete task of weeding out the ones that work,” he added, saying that brands that “stayed small for some good period of time” were at risk of being cut. A few months later, Coca-Cola announced plans to get rid of 200 brands. In addition to Zico, Coca-Cola cut older brands whose sales had slipped or were too small, including Delaware Punch and Tab. Its most recent cut came on Friday when the company said it would discontinue a Coca-Cola-branded energy drink in North America just over a year after launching it.
VEB, like many parts of Coca-Cola, has also been hit by multiple rounds of downsizing over the past few years. One former employee said the head count at the division stands at three, down from the hundreds it used to employ. Some have taken buyouts or have been laid off, while others have been reassigned to different parts of the company.
Nick Johnson, an analyst who covers Coca-Cola for Morningstar, said the company’s recent culling of brands plus Quincey’s appetite for making a smaller number of bets could leave the company with a shallower bench of emerging brands — and, by extension, he added, fewer options for advancing its “total beverage” strategy.
“It’s hard for me to say they overdid it,” Johnson said of the cuts, adding that the pandemic continues to make planning difficult. “But I would not be surprised if that is the prognosis in a year or two.”
Reviving that pipeline would be tough without a team focused specifically on emerging brands, a former employee said. “You need a team of people who look at what’s happening in the neighborhood,” the employee said. “It allows you to find nascent consumer demand in a low-cost and effective manner.”