Executive Interview: Q&A with James Tonkin

James Tonkin describes himself as a “private sector brand management and development professional.” Over his 33 year career, he has worked with such brands as 7UP, A&W Root Beer, Crush, and Clearly Canadian and evolved into more natural offerings such as Essentia Water, Inc., and Hound Hydrators Pet Water for PETsMART. He is widely considered the ‘go to guy’ for anything beverage related.

You have been in consumer product marketing for 33 years. How did you find your way into the natural products industry?

Kind of a funny story and just some idle curiosity really. As a former soft drink bottling executive in northern California, I was always looking for new avenues of distribution and sales verticals, even back in 1982. I heard a bit about a new start up trade show that was inviting a lot of fringe players in the natural foods industry (hardly an industry back in those days) to a ‘convention of sorts’ in Anaheim. I said, what the heck, let’s go check it out. So I did and have been coming to Expo ever since, now on both coasts. I have found the ride to be both stimulating and exciting, as my practice has grown strongly from the old days of producing and selling soft drinks, to launching some of the most sophisticated and forward thinking functional and nutraceutical foods and beverages in the market today… I credit in part my exposure to more healthful and ‘good for you’ products that stemmed from the natural products trade.

You have been involved in beverage innovation for a number of years. How has this product category evolved over the last decade?

Clearly the natural and more healthful beverage and food categories have grown exponentially over the past 10 years or so. I believe it is a function of education of our general population as to the negative effects of eating/drinking foods and beverages that have either negative or no value to our bodies, minds and or spirits. What I’ve seen is that as education continues to increase, supporting the newer’ healthier for you’ offerings from manufacturers to consumers, (through traditional advertising and peer to peer exchange), the need, perceived or otherwise, to consume better products has come into its own. This need for ‘value-added’ products is paramount in the mind of the ‘saavy’ consumer today. The double digit growth of retailers like Whole Foods and Wild Oats in the natural verticals, coupled with Trader Joes’, Sutton Place Gourmet/Hay Day and Bristol Farms in Specialty has proven this premise. Without consumer desire to eat and or drink different and often times healthier and unique beverages, many of the imported Asian and European drinks would not have made their way into our markets. Just go browse the shelves at Trader Joe’s, and you will see what I mean. Many of these products attach higher cost (purchase and selling price), but consumers are not dissuaded in the least from spending more, to get more. That is the basis of the ‘value- add’ premise…

Leaving the esoteric for a moment, the growth in the bottled water arena, coupled with the over 6 year decline in the soft drink market, has spurred the development of even more products to market. The energy craze is not one that excites me at all, and I categorize it in the same boat as soft drinks… younger generation and fringe blue collar purchasers, finding another way to get their daily hype, circumventing soft drinks, caffeinated drinks or coffee/tea. Frankly I am amazed that the category keeps on growing, with more and more copy-cats coming in every week… but as you know, the vertical is owned (60%+) by Red Bull, and that is unlikely to change, leaving very little to others to make a profit or have sufficient sales to sustain efforts ( that is why the turnover is so great, margins are high, costs relatively low) but no one has the muscle or money to overtake Red Bull.

What have been the biggest challenges you have faced in introducing “better for you” beverages?

The obvious challenge to introducing any new beverage that is out of the mainstream or new to consumers,, is garnering enough investment capital to throw against a sustained marketing, sales and education platform. As most new companies come to market, I find it amazing when looking at business plans (as I do 30-40 times a year), that never is enough money allocated to marketing/sales/education. Most investors are interested in ROI first and foremost, so revenues are usually inflated, expenses kept at conservative and usually unrealistic levels, and the result is the mortality percentage we are used to seeing in the new products world - over 90%!! To introduce a new food/beverage, very careful market research, expense planning, strict allegiance to the execution of marketing thrust budgets and sustained ongoing flow of sales support dollars, helps to gain market presence, but that is only half the battle. Companies must sustain this level of promotion and influence in resource allocation including public relations, to event marketing, to price and retail sales support to consumer education. This indeed is very difficult to do, because new companies have an adverse paradigm that will not allow them to overspend against the ‘push’ side, as investors want the return first, after proof of concept. ‘They’ don’t understand that it takes a lot of ‘push’ to make a return, and given the competitive arena of food and beverage today, it is no wonder that small companies cannot compete against the Fortune 100 players, after all they worked hard to gain their position, and are not going to relinquish it easily!

Don’t smaller companies tend to innovate quicker? How does that translate into the beverage marketplace?

Beverage innovation, not too different from food innovation in an entrepreneurial or start up private company, means speed to market. Most small companies do not have the luxury of time or endless financial resources. They must then, by design, have a foreshortened timeline in which to conceive, plan and execute the launch of a new product. The fun part is knowing this, and being able to apply risk resources, oftentimes ‘one’s own’ to the task, and due to the limited funding situation, out comes a finished product for market, much shorter than the typical 18-24 months most established corporate entities employ. The traditional timeframe used by corporate beverage companies (Coke/Pepsi) is minimally 18-24 months… the smaller more flexible companies, where innovation lies, can do the same thing, without a lot of the focus work and ‘proof of concept’ in 6 months or less often times… that is why the ‘big boys’ are looking to buy products already developed. Research is garnered from ‘beg borrow and steal’ dimensions, money is stretched thin, as frequently are personnel resources. This in my view promotes enthusiastic decision-oriented results that are quick, firm and, right or wrong, definite. Big Brother does not have the flexibility oftentimes to follow this format, with budget and management approval processes, checks and balances and CYA mentality…which in turn limits creative genius and the eventual outcome of mediocrity, instead of brilliance and true innovation!

What is the size of the functional beverage market? I’ve seen a figure of $428 million with a twenty-fold increase between 2000 and 2004. Can you predict how it will grow over the next five years?

You can do the same research as I to gain insight as to the size in dollars and SKU’s of the functional marketplace (see Nutrition Business Journal). Suffice it say, it is definitely growing at a disproportionate rate to most other areas of the food and beverage industry. Consumers are now demanding better and more clinically and scientifically supported foods and beverages, as the Baby Boomer and Senior populations now are taking over as the majority of US purchasers. This sheer mass of Americans will drive the development of new products in the years to come and as functional and nutraceutical foods and beverages gain more momentum and strength, we expect to see many new products come to market, espousing efficacious dosage, GRAS ingredients, science based or backed claims, and more variety~

Have there been regulatory issues in the category?

Yes. The unfortunate part of regulation is that so many in the industry, from the manufacturing segments through the marketing entities, try to circumvent, shortstop, deviate from and or completely ignore regulations, which frankly were set in place to protect consumers, rather than to penalize manufacturers and marketers. With the GMPs and a bit of morality (wouldn’t that be refreshing), consumers again will take center stage as the target, versus ‘its all about me or the company and our P & L or bottom line!’ The regulatory issues are sometimes very tenuous and restrictive, but that is why we have lobbyists, industry organizations and advocates, to amass a voice for change when it is required. If we don’t respect the laws on the books, we can only encourage more fines, cease and desist orders from the FDA for example, and continue to litter the pavement and business landscape with the criminal behavior that gives this industry such fits. In my view, self-policing, and communal adherence to regulation and respect for our system of government (though flawed in certain ways, it is still the best in the world), will work. So, I am not for more regulation, just adherence to many of the thoughtful rules and regulations that are already on the books today. We need them and should use them to protect us all, and mostly our consumers, who without them and their intrinsic trust in manufacturers and marketers, we would have nothing to smile about!

What have been the biggest innovations over the last five years?

Innovation over the past five years has been staggering. In the packaging arena for instance, more convenient, ‘grab and go’ containers have taken the landscape by storm, and are gaining popularity with consumers, even with sometimes higher pricing. This in itself is amazing. Consumers are willing and anxious to pay more for product due to its package and convenience factor, not to mention that they will pay more for the ‘buzz’ factor, or perceived benefit! Take Red Bull and most of the energy drinks for instance. (Although those of us that take health to higher limits cannot understand the excitement.) Yes, the product works but so what… so does smoking paote buttons, but what are the consequences if abused, what is the social consciousness on consumption of same… these are important questions, and should be on the minds of such creative food and beverage mavens. I just can’t believe that with all the exciting products and opportunities, the buzz focuses on energy drinks.

Other innovation has come in the heat and cold delivery systems… for example, the heated coffee can, just click a button and voila, hot coffee a la Wolfgang Puck et al… or take the ItoEn Tea’s Tea product, sold in a ‘hot and or cold’ refrigerator/heater… two cold shelves, one warm, buy your tea whichever way you like it, served once again, in traditional P.E.T bottles… amazing.. The pouch continues to make a try at sustaining itself in the marketplace, but Americans are not having it yet, not like Europeans and Asians, or American children to some degree (Capri Sun)… Foods and their preparations are being elevated yet higher, with make your own pizza’s - crust, and ingredients, more and better microwavable food products, and of course, the ever popular kids drink containers. Notably the InZone Brands products, Tummyticklers and Bellywashers, along with new WaddaJuice… all have a twist selling less than healthy ingredients in a cute and marketing driven bottle or collectable container.

Are there unique branding, messaging or positioning issues that companies face in this category? With increasing interest from the majors (Pepsi, Coke etc.) does this make for better or fewer opportunities and why?

This a bit of an oxymoron… if beverage and or food manufacturers are aiming to make product first and foremost, to sell their product to one of the ‘big boys’, they have already compromised the integrity of the branding process, moral stand, and the creative process is lost. Clearly, over the last few years, more and more companies starting out in the natural space have broken through the cloud deck and have been snatched up by big brother, who of course, has been watching. This is a sign of the times in all facets of business today, not just the natural or health industries.

But the caveat still remains, ‘we sell no wine before its time’ a well said quip from old winemaker Paul Masson, since buried and gone. I firmly believe that as a manufacturer or marketer of products, the entity owes to itself and its consumers the commitment to become the best it can be, true to its mission statement(s), its mantra. If they are successful enough in growing to be noticed by others, that is the best compliment one can expect. If profits and potential acquirers notice as well, all the better, but this is not the most important thing in the building process. Success is natural, and its course cannot be foreshortened or predicted. When it arrives we all know it! The answer to your perhaps implied question is “NO, nothing unique or subversive should be planned or executed in my view to attract a suitor… notwithstanding the fact that if a company knows that they ARE creating something of value, and will only be able financially or thru current available resources only take that entity so far and are therefore in need of assistance from bigger more powerful partners/acquisition player- great!” Knowing this is not a crime, moreover it is imperative, and the sooner a company realizes their frailty, the better chance they have to be shored up and or rescued from falling short of goal… no harm in raising your hand for help, is there?

In general the fact that the big boys are now in the fray, albeit with poor attempts to show real progress in turning to healthier good for you products, the growth should be much greater over time. The entrepreneurial environment is well and working overtime to present new innovation, and as the big guys as mentioned are not good at innovation, only ‘plugging’ a vertical with their offering- good bad or indifferent, we will always need the creative juices to flow from the little guy!

What types of companies have been driving innovation in the category? What characteristics do their leaders have?

Companies that drive innovation are typically entrepreneurial, small and agile They usually have adroit and prepared management, a strong and singular goal, and expertise to get to it… the catch many times is that in order to drive innovation, it takes the development by and with larger companies, who can create products, ingredients, packages, production techniques and the like, but who either cannot or will not commercialize them. So they move over for others to make the plunge into never-never land. These small work-horse companies are usually overburdened with too few personnel, not enough money, but the drive of 20 Budweiser Clydesdales per employee! Some start ups are driven by the lack of performance of big brother, and lack of motivation or creative initiative often times.

Can they transition or must they be gobbled up?

The answer is No and Yes… No, not in the near term, but frankly, almost all products that come to market reach the pinnacle of sales velocity on their own, and if they glide through the peak of performance by the company and start on the downslide, they are less likely to gain full value if they are purchased. The reality is that because of the issues outlined in this and other answers about the Big vs. Small, the small business really needs to know ‘when to get out’. An example in the beverage business is Energy Brands, (Glaceau Vitamin Waters). They have been approached and since spurned both Pepsi and Coke, who saw the benefits of purchasing this maverick company. On the other hand, a reality which often happens to the smaller player when they take a stand not to sell, Big Brother creates a ‘knock-off’ and quickly comes to market with its distribution power (the key to most success in food and beverage and the nemesis of most small business), and competes and can kill the original momentum of the innovator~

Are there any ‘innovation gaps’, needs for research and new products not currently being addressed?

One can always speculate on gaps in the market, but for me and in my view, there will always be gaps, areas for more or deeper development, and of course, creation. The distance between science and marketing hyperbole needs to be closed. As I have espoused in this piece and always in my speeches and with our clients, new functional and nutraceutical creation depends solely, in the end, in the consumer ‘trusting’ in us and what we say. When we think of brands like Kleenex, Maytag, Budweiser, Mercedes, we come to EXPECT perfection, company pledges to support, and of course warranty what they sell. This is in the end the most important aspect to long term success. Without it, consumers will eventually give up the short term loyalty for price incentives, deals, promotions and brands that offer new trust. The brands I mentioned above are just examples of large, insightful companies who atone to branding principles as the guideposts of all decisions, and they NEVER forsake them for short term profit or notoriety or gains of any kind.

Research needs to continue in the world of aging, and age related remedies for that which currently and in the future will plague the baby-boomer generation. This soon will be the largest demographic subset of consumers in the US. Their buying power is enormous, they are intelligent and avid readers, and will both require and demand products and services to meet their consuming demands…Great opportunity therefore exists and companies that spend R & D time developing for example, Alzheimer’s aids, remedies and (gawd-forbid) a cure, will be both powerful and in demand.

Are there any limitations that you foresee to the use of beverages as a delivery format?

NO, not really… I believe that as our bodies are made up of about 70-80% water, or brains even more, it seems logical to follow that the more liquids we replenish from our expended energy sources in our body, the better. As water is used, we must restore. So, to that end, water as a delivery system is the most natural there is. Of course, as we all know about Star Wars and Star Trek taught us, pills are the easy answer to all of our concerns… so why not combine the two then, water as the base for all delivery, except those better put in a pill or tablet… this IS the future no doubt, as we continue to move faster, need more-quicker, and require convenience to the ‘enth’ degree, it only seems logical that a handful of this or that with a swallow of liquid (mostly made of water) is the answer…

What do you see as the hottest trends in the next two years? The next five years? The next 10 years?

Hottest Trends will be found in chapter two of the Soothsayers novel’… no one knows for sure, but I can tell you this… the computer industry is years ahead of the current user platforms, the problem is that we as lowly users, cannot adapt to the level of frequent change and uptake that the industry wants to throw at us. We will be working at light speed soon anyway, and gawd help our children and their children, as we will not understand much of what they are doing, even when they do it, as we are still jammin’ out to Santana oldies and Jimmy Buffet Margaritaville singalongs in our 90’s and beyond.

One thing I know, we are destined to achieve a lot more than our parents have, as we are doing it NOW. Hopefully our kids will have the same motivation benefiting the masses and self. Some of us went thru the me- generation stuff, and it seems as though some of that is changing for the better now. We must be mindful of the earth, its resources that are finite, and learn to control our infinite desires to please ourselves and each other. We shouldn’t ever forget the pioneers, our forbearers, and their toils. We need to leave things better than when we found them, and my concern still rests in wastes, overages, and plain no-needs. So when innovation is not done for the good of all, it is a waste in my view. Don’t create just to create…make it count, make it good, and make it right!

Unequivocally , I believe that companies that create products for the profit motive ONLY will ultimately be fewer and far between as we move into the middle of the 21st century. Company health and welfare aspects, causal marketing platforms and wellness bents will be more the norm than the fringe. As I look at Kraft, Coca Cola, Pepsi-FritoLay and others, I see the need by them to expand their vision to include response to consumer demand, moreover expectation of better for you, value added products that work. If this does not happen, they will see a dwindling of sales and erosion of profits, as we are seeing with carbonated soft drinks today. Whoever would have thought bottled water could outstrip all of the other categories except CSD’s in ‘choice by consumers’? As beer sales flatten, energy and sports drinks grow as a percentage of ‘share of belly’, and food products that are free of unhealthy ingredients or same that are unnecessary or ‘empty in value’, companies that focus on their consumers well being, will be rewarded in profits in my view. The paradigm shifts from the almighty dollar at the top of the pyramid to the consumers’ well being, which in turn will bring the dollars… Interesting prospective eh?

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