This Packaging Change Sent Sales "Through the Roof"

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1:33There's no safe like SimpliSafe. From Entrepreneur Media, this is Problem Solvers, a show in which entrepreneurs do what entrepreneurs do best, solve unexpected problems in their business. We were completely wrong. And I'm just like, it's not selling. It was like, we have to start from scratch. I'm Jason Pfeiffer, the editor-in-chief of Entrepreneur Magazine.

2:21this, sometimes you're wrong. Not just wrong, but in fact, sometimes the thing that you think makes you special is actually so confusing and maybe such a turnoff that it actually hinders your growth. And you don't realize it. You have a blind spot. Because of course, this is the thing that makes you special. And today we're going to explore exactly this problem through the story of one brand. One brand whose founder hung on to an idea of what made it special for way too long. And when he finally made a change, when he finally did the thing that he thought would sacrifice that specialness, would make him look like everyone else, would sacrifice that specialness, would make him just, ah, you know, look like everyone else.

3:13That's when this happened. Sales went through the roof. Sales went through the roof. Okay, let's meet the person we're talking about today. Yeah, my name is Dan Crater. I live in Boulder, Colorado, and I'm a 20-year veteran of the consumer packaged goods industry, currently with a company called RX Sugar. And so we're building a platform of products around the rare sugar allulose. But prior to this, I was with a beverage company that we started in 2004 in San Francisco called Highball. Highball. That's just a H-I-B-A-L-L. Highball is an energy drink. It calls itself an energy seltzer. And it's really intended to be mixed with alcohol.

3:56So just to be clear, when you buy a bottle of Highball, you are not buying an alcoholic beverage. You're basically buying something like a Red Bull, but then you're supposed to mix it with vodka or whatever you want, which was really the market opportunity. Red Bull vodkas were all the rage at that point in time. The original concept was to create variety for the consumer. So you could have a vodka soda and get energy. You could have a gin and tonic and get energy. And now a quick origin of Highball and Dan's involvement in Highball. Highball was created by a guy named Todd Berardi in the early 2000s.

4:30Dan met Todd and they geeked out over their love of the beverage industry. And Dan thought that he could help Todd build this thing. So he invested money, became a co-founder, and they were off to the races. But at first, they really wanted to differentiate themselves in the market. Yeah, they were like a Red Bull. And at first, they really wanted to differentiate themselves in the market. Yeah, they were like a Red Bull or whatever, but they didn't want you to think that. They wanted you to think of Highball as more elevated, classier, more interesting. And so they didn't want to package Highball in a tall aluminum can the way that Red Bull and other energy drinks were packaged.

5:08instead. So this was our first product. Okay. So what you're holding up here is that's glass. Yeah. So that's a pretty simple glass bottle. It looks squat and it's got a screw cap on it. Yeah. It's 10 ounces, clear glass. And why was it in a glass bottle like that? Originally, we went with the preferred package of the mixer category, the sort of the iconic squatty bottle. And so we wanted to convey, yes, it's an energy drink, but no, this isn't going to be your traditional energy drink experience. And that totally made sense, right? You could absolutely see why they thought that was important for helping people understand highball.

5:50The end of this story, which I've already teased, is that they had to get rid of the thing that they thought differentiated them. But trying to stand out in a marketplace was just too confusing. and it would require some big changes, some real gut checks in order to get to the place that they got to, where they sold Highball to Anheuser-Busch for a deal that, they didn't release exactly the numbers, but Dan said they were pretty happy about it and I can imagine they were. So today on Problem Solvers, we're gonna talk about how Highball got to the understanding that the packaging that they thought helped separate themselves in the marketplace was actually the wrong decision and give you some ways to start thinking about whether you are making the wrong decision in standing out the way that you are too.

6:42Coming up after the break. Do you know that I have a newsletter? I was thinking about other ways to start this ad, but yeah, whatever. You're listening to the show, me, Jason Pfeiffer, the host of Problem Solvers. I have a newsletter because I do and you will love it. It's called One Thing Better. Each week, just one way for you to improve your work and build a career or company that you love. People tell me that it is the only newsletter that they regularly read, sometimes the only one that they subscribe to because it is straightforward, simple, and really thought-provoking. This is gonna help you answer some big questions about what change should you make or what should you do next or how can you build trust with others or how can you get through major setbacks?

7:30I take the wisdom that I learn from the most impressive entrepreneurs that I meet and I distill it down along with sharing the strategies that I use throughout my own career to build and grow and navigate change and come back from real embarrassments. And I put it all into One Thing Better. So you can get One Thing Better in your inbox for free every week. All you gotta do is go to onethingbetter.email. That's a web address, just plug it into a browser, onethingbetter.email. Okay, now back to the show. All right, we're back. I'm talking with Dan Crater about his previous company, Highball, and the evolution that they went through before recognizing how to really stand out in the market.

8:18To do this, I had Dan walk me through the entire evolution of this brand. how these guys first understood the product and the marketplace opportunity and how that understanding changed. And to start, you need to know this. At the beginning, Dan and Todd, co-founders of Highball, were really trying to build out their on-premise business, which is to say they were trying to sell their bottles of Highball directly to bars. So you were thinking that your primary buyer was gonna be a bar manager. Yes, we were trying to get on cocktail menus, San Francisco is this perfect seven by seven square mile radius city that makes it pretty easy to really tackle a lot of accounts in one day.

9:04Oh, sorry. Quick interjection here. They launched in San Francisco. And so we'd load our cars up in the morning with cases and then just try to set up meetings at bars, restaurants, clubs during the day. And then at night we do promotions where we'd have drink coupons. We'd be talking to people. Hey, you can try this. this is a new energy drink, but you can have vodka soda, for example. So we're burning the candle at both ends up early in the morning, then going to bed late at night after doing promotions. And that was our first big learning experience. And it also led to our first big pivot. Okay.

9:39So that's really interesting. And now I totally understand it. So you were seeing an opportunity to be an elevated kind of energy drink that was specific to being used as a mixer. and you're thinking, we're going to go to the on-premise places that are going to appreciate what that is and have it as a great offering for their consumer. And so you've got to show them that you belong on their shelves, which means that you're going to put it in this glass bottle, but it's not connecting the way that you want it to. It's leading to a pivot. So what was that pivot? The pivot originated out of really running against the wall over and not getting through.

10:17and what we found was like Red Bull and Monster even would write really big checks for the most marquee establishments and made it really hard. They'd be the exclusive energy drink of XYZ establishment. So it really created the people in the back room were drinking it and they're like, our employees love it. We just can't serve it at the bar. So in what we also found is places where we were getting some penetration, we're getting the bottles on display, we're getting a cocktail menus, the depletion rate wasn't there because one bottle could make almost three cocktails. So we weren't seeing the reorders happening as quickly as we'd like.

10:54And so what I was doing on the side was we had some independent natural food stores in the city and we had these in a four-pack. We'd get them on the shelf and then I would go and set up a table and do a sampling. And you're talking to all the yoga chicks coming through and sampling them on the tonic water and club soda. And you're just like, you hear the same thing kind of start repeating itself over and over. And the reaction was with the club soda. It was like, wow, this is like Perrier with energy. This is amazing. I love sparkling water. And at that time, the sparkling water boom hadn't really taken off.

11:32It was still years before. And New York, San Francisco have a more European mindset. And so sparkling water was definitely a thing even back in 2005, 2006. So you'd go to a local grocery store and the sparkling water set would be just decimated every day because people are just buying it all the time. So you start putting those things together. Okay, we're hitting a roadblock, building it on premise. We don't really see a way to get volume there or brand recognition because once they pour it into a glass, somebody's walking around a noisy bar, restaurant, club, whatever. There's no brand identity.

12:08Yeah, they don't know what's in there. And so they don't know how to ask for it again. Exactly. And so it's really hard to brand. And so in the grocery side, somebody could take a four-pack home. They can give one to a friend. They can interact with the brand. They can hold it in their hand. It helps propagate the messaging so much faster. And the depletion rate started picking up where we started noticing, okay, the club soda is definitely starting to get legs. And that was that first pivot of, okay, let's focus our, point our energy into grocery. And let's also look at what's happening with the club soda and say, wait a minute.

12:48Okay. The tonic water had sugar. It wasn't landing with consumers. The club soda was. So we split, sped up the launch of what we were going to originally launch some flavors of the club soda. And so we, we accelerated that. So we came up with an orange, a grapefruit and a lemon lime, and then the club soda. And we launched those maybe eight months after this kind of first epiphany and started presenting that to retailers. And our first big break was Safeway, which is headquartered in Pleasanton at the time, brought us into their natural food stores. So we got immediate distribution into 300 stores across the country.

13:25And are you still in that little glass bottle, that little squat glass bottle? Okay. Yeah, this is 2006. We're still in the stubby glass bottle. That's what we want to roll with. We still were like, we'll never give up on glass. It's premium. It tastes better. People can see it's clear. And we were just completely determined to exist in glass through the duration of the company. And I bet rattling around in your head are those yoga checks, as you described, being like, oh, it's Perrier with energy. And so what they're looking for is something that signals a higher end version of something. Exactly.

14:00But that didn't work. It worked to a point. So we got distribution, we got retailers, Safeway came on first. We started getting Whole Foods came on nationwide. And then Kroger came on after Whole Foods. And so we started getting a lot of retail adoption. And then of course, you get those big pillar accounts and it does help you get distribution in some of the more smaller independent chains. So we were having a really good run of really getting distribution in the glass. There were some of your typical nightmare emails where we get an email in the morning that says exploding highball. And we're like, oh no, somebody knocked over a display in a store.

14:42And these things turned into like little grenades and you're just like broken glass everywhere. And so we're like, we started getting those emails more because we had more distribution. And then what really led to it is we get a letter every year from our glass supplier saying, hey, unfortunately, we're going to be raising prices 10%. And so we started seeing after a couple of years of these letters, our margin going down. And we started understanding to have a healthy margin is critical in this industry to absorb all of the margin compression at retail and trying to drive prices down and promote and demo and all these things.

15:17So we started seeing our margin shrinking. We were not at critical mass at that point, but definitely tiptoeing towards that. And so we started seeing the issues that glass was having, the breakage, the weight. It's heavier to ship. So there's more costs there. What really made us walk the plank, though, was the price of glass going up. And we'd always thought about going into cans. And it was a conversation. But we were always like, no, we can't. Like, we're a glass-bottled energy drink. And finally, we started talking to Whole Foods and some other retailers. And they said, we'd be all for it.

15:50We would love a 16-ounce can. So we started looking into the metrics on that. And that checked out. Our margin went through the roof in a can. It's infinitely recyclable, which is cool. And it's the preferred, back to what we started with mixers, it was the preferred package of the category. All we did was evolve to the preferred package of the energy category, which is cans. Yeah. Wait, before you get there, before you get there, right? So I see where you're going. We're going to get into cans and then it's going to fit more naturally into this category that you're trying to separate yourself from.

16:22So before we get there, let me just ask you, you had said a couple times, we identified as we're a glass bottle company here. Like glass is a part of our identity. That was something that you thought made you stand out, that signaled the kind of quality that you wanted, that helped you not get lost in a whole bunch of other random energy drinks that you didn't want to be associated with. was it just simply economics, just seeing that the margins would be better or maybe was it that retailers expressed interest in having you in an aluminum can? What was it that on a personal side, not just the economics of it, not just the business strategy of it, but on a personal side, helped you guys say this idea that we had of what our identity is and what our differentiation point is, the thing that makes us special.

17:15What if we're actually wrong about that? And maybe we need to accept that we're wrong about that. What did it take to actually get you there? There was definitely some soul searching. Like we had to really sit there and go, what if we were in a can? Because we'd just been so anti. And part of the reason was at the height of energy drinks, there was some crazy stat from BevNet. It was like, I want to say it was maybe up to 500 new energy drink brands would enter the space. every year. Every single one of them, their business plan was, if we can get 0.00001 % of the energy market, we'll have a business.

17:53And so the liquid was very similar to Red Bull, the graphics, all of it. So to us, it was like this graveyard of lost energy drink brands that were in cans. So it's super off-putting for us because we don't want to participate in that. And the soul searching part was like coming back to what's really different about our product. Like it's zero sugar, zero sweetener. This was like pretty simplistic as the product is from a experience standpoint and a flavor standpoint and product standpoint. It was very cutting edge because we were ahead of the curve on that sparkling water boom that took off in 2012.

18:31Yeah. So that soul searching was more about looking at what was in the liquid that the liquid itself that differentiated our product. and the fact that once we started playing around with artwork on the can we realized geez we have a lot more real estate here to play around with and we we did some cool stuff where we use thermochromatic ink which is an ink that's temperature sensitive so we know we have these bubbles on the can that turn blue when the can's cold and so we had some fun with the design i think once we started really making it real it it felt like the right gut decision and that's one thing I'll say for entrepreneurs out there that are either just starting out or maybe a few years in, the coolest thing I think that gets refined throughout this journey is your gut instincts.

19:17Initially, you're trying to just see what people think of your product. And then as you get consumer feedback over years and years of being at trade shows and out in the trade and talking to people, it's really cool to see how your gut instinct gets formed and sharpened to where you can almost rely on it and be aware of the fact that, hey, this is coming from my gut. I think I better listen. And when we made that pivot to Cairns, we started, we were already, I don't know, five, six years in. And so that gut decision making was starting to get refined at that point. And so it made it an easier decision because we just knew.

19:53We couldn't maybe say exactly why we knew, but we just felt it. I'll take a guess as to what that change was like. and I'll say it to you and you can tell me if I'm onto something or not, which is that at the earlier stages when you felt committed to glass and maybe every once in a while, the idea would come up, hey, what if we went to aluminum? And you would say, no, because glass is the thing that makes us special. The idea at that point of switching was entirely oriented around loss. You knew the value of the glass. The glass was this elevated thing. It made you distinct. And so to change it was just about loss.

20:34It was just about losing that glass. But once you started to try it on, which is to say, once you started to really genuinely explore what would it be like to be in aluminum, let's talk to retailers. Retailers like it, but not just like it, they do like it. Let's look at the numbers. Our margins go way up. Let's look at the design. Oh, wait, we actually have a lot more real estate to grow our brand here. Now, suddenly, you don't see loss. You're able to see the gain. And the gain is the thing that can get you excited. And you could not have seen that gain if you did not actually take the steps into actually exploring what it was like so that you could try it on for size.

21:17What do you think about that? Yeah, no, I think that's absolutely right. And the hard part about making this decision is you're just trying to grow with what you have. And we had glass. and our glass had decorated artwork on the glass. So that's cemented inventory that we need to get out into the market to get cashflow. And so you're trying to make these decisions while you're still trying to grow what you have. So it's really hard to go, okay, when do we have time to do this? We're just trying to fill orders and go to trade shows and talk to people every day. And like, when do we have time to just completely move out of glass inventory and order cans and get that whole process started?

21:57So it really just taking that like that, the Japanese, it's called Kaizen, right? Where you just take a baby step and then it leads to another step and another step, that philosophy. And I think we just started doing that with cans. We were taking little steps while we were doing the normal day-to-day stuff. And then over time, it started taking shape and we started getting really excited about it. And then once retailers were like, hey, if you do this, we're in and we're going to give you more shelf space and you're going to be, you know, positioned in this set because we were in glass, we were stubby bottles.

22:29Sometimes we weren't always in the marquee areas. So it was harder to get prime shelf positioning. With the can, it's more of an opportunity to brand block. It's a big, sturdy package. And the other piece to this is people want energy on the go. And glass isn't really an on the go. So can is something you can throw in a bag, you can take it with you, you can take it to the beach. So it opened up the usage occasions where people need energy. So all this stuff got put in a pot and we started tasting it and adding different ingredients and going, okay, we got something here. Yeah. All right. So let's take it home then because the funny, ironic thing about this pivot is that you started by trying to be really separate from all of these other energy drinks.

23:13And then you ultimately adopted the packaging that is familiar among energy consumers because it is what all other energy drinks are doing. The downside is that you gave up some point of differentiation. Perhaps the upside, and I'm really curious to hear what happened, perhaps the upside is that now you were signaling exactly what you were to a consumer that's primed to look for energy drinks that look a certain way. And so maybe, in fact, by giving up this point of differentiation, by being similar to other energy drinks, even though you're now competing visually amongst them in a way that's similar, you're also signaling to the consumer that knows what an energy drink looks like.

24:00Hey, we're an energy drink too. And maybe they actually would have overlooked you before. So what happened once you went can? Sales went through the roof. Communities went through the roof. We were getting into convenience, which we could never get into convenience. It was so hard. And that's where people are buying energy drinks, is in the convenience channel. So we started getting some convenience plays in the Northwest, in the Southeast, in the Northeast. And that would have never happened had we not switched to cans. And then we just got more brand presence on shelves. So you think of a cooler at a Whole Foods, we were just expanding like crazy into all these cooler sets.

24:36And that's where the volume comes from. You go to those seven or eight stores in New York City and you have a presence in all those coolers day in and day out. That's a lot of exposure. And it really, the momentum builds on itself. Once we were in cans, we just got more opportunities, more at-bats at the highest level of the game. And then it self-perpetuated from there. Yeah. And I think you said at the beginning, you said you exited to Anheuser-Busch or AB InBev. Was the size of that deal public? No. Okay. But I bet you were happy with it. We were. Yeah. We've been on the treadmill for a long time.

25:11And looking back, geez, you see what's happened with Celsius kind of becoming the sort of fit, healthier energy drink in the number three spot now. I wonder what if we hung on through COVID, but who knows what happens there. So we had an opportunity in front of us to really catapult the brand globally. And they really wanted to work with us. So it made sense on all fronts to do the deal and no regrets at all. It's just a close of that journey and learned a lot just from you start out. Nobody knows what a highball is. you're trying to tell people what it is and then to see it blossom to the point where you have this fan base of people that are reaching out to you and the brand means something to them.

25:50They have an emotional attachment to it. And then you have somebody like AB InBev that wants to bring it on into their portfolio. That's a cool experience and journey that I'll always cherish. Yeah, that's great. Great validation. Dan, final question here, which is, I'm curious what your advice would be to entrepreneurs who want to stand out in a crowded marketplace and are trying to balance what is it that makes me stand out versus what is it that I need to do to be familiar. The funny thing was that in holding onto glass as a way of standing out, what you ultimately had been doing for a while was locking yourself out of some of the primary ways that people buy energy drinks.

26:35And it wasn't until you gave up some of that differentiation that you were able to access the massive opportunity in that space. So as someone is trying to balance that, what's your advice about what to hold on to and what to let go of? I think the easiest way to explain it is every brand that's positioned for success is going to have first principles. And that's your bedrock. And at the end of the day, our first principles were a healthy energy drink with no sugar, no sweeteners of any kind. And we were an open book. We were sharing our origin stories of our ingredients. We were taking the mystery out of energy drinks.