AriZona Beverage CEO Abid Rizvi on the current beverage landscape

0:13Hello, everyone, and welcome to the Modern Retail Podcast.

0:30large, ubiquitous brands about how they do it, what it's like. I mean, Arizona is a really interesting company because it's so big, but it's also a relatively lean company given its size. I just want to talk about all this stuff, about what it's like to be working for Arizona, a company that's so well known. But Abed, how are you doing? Thanks for joining. Very well. Happy New Year to you, Kale. Happy New Year. First, let's start with you. Correct me if I'm wrong. This is according to my research on LinkedIn, but you joined in 2016. Is that correct? That is correct. What were you doing before you joined Arizona?

0:58I mean, I was a consultant for a short period of time after undergrad and grad. And then I was in investment banking for most of my career. Actually got to know Arizona first and foremost as a banker calling on Arizona and got to know Don and Arizona extremely well through those years. And then as I'm seeming you're familiar, you know, Arizona had gone through a transaction where Don ended up buying out his partner. So I was his advisor in that process. And then once that does settle, he asked me to come over full time and frankly go after some of the growth opportunities that we had missed during those litigation years.

1:37So why don't you actually, I feel like people know who Don is. We're talking about Don Voltaggio. He's the founder of Arizona. But he's a he's a character that I've seen him quoted in many articles. But if you want to just give, I'd say, an abridged history of the company for those that don't know, why don't you take a stab at it? Look, I mean, Don is a classic and Don Voltaggio, as you correctly highlighted, is a classic American success story. You know, he is a gentleman who didn't go to college, you know, right out of high school, took on a job. originally worked on a beer truck and from there built out a beer distribution business.

2:16While he was building out a beer distribution business, saw there was an opportunity in the non-alc space in addition to the alcoholic world. And the background that Don had is sort of interesting because I know you at the outset mentioned Arizona Heart, which is in some ways that is a part of the consumer world that Don Voltaggio was extremely familiar with, has been very familiar with throughout his career. It's just kind of interesting that, you know, we became as big as we did in the non-alc space, even though Don had started out his career actually in the alcohol world originally. But, you know, 1992 is when Arizona was launched.

2:57And, you know, Don had been in business for, you know, almost a couple of decades till that point in time. And a lot of people talk about how Arizona was an overnight success. And, you know, Don Voltaggio very often correctly points out that was, yes, it was an overnight success, but it was 20 years of nights, right? And then suddenly it kind of, it hit and it hit extremely well. And, you know, the company, and again, this is, this predates my time here, but, you know, pretty much Don sold every case he could make that summer. And then from there on, It was just a rocket ship, and it continued to go from success to success over many, many years to come after that.

3:40One of the things that people always talk about when they talk about Arizona, at least the original product, is that, and I've read some quotes, and I'm sure you can talk about this more, but it's that the product branding was essentially its marketing. Like it was such a loud can, such a big can. Was it just sort of getting the traction over decades in convenience stores that ultimately led it to be a success? Or what was it that led it to sort of that point of velocity where it became so ubiquitous? Yeah, look, so, you know, Don, because he had serviced so many retail outlets personally, literally backing out coolers, he had observed consumers very, very up close.

4:24And he knew how consumers were making their decisions. You know, he, you know, Don is an incredibly intuitive individual. And he would stand literally by the coolers and see how people were looking at the different decisions, or different offerings, and then making a decision on what they were going to grab right there and then, and whether consume with a sandwich or walk out of the bodega with in their hands. And he realized that people shop with their eyes, right? And, you know, when Arizona was launched, and frankly, for every single thing that we have done as a company, there's three pillars that we always focus on.

5:06One of them is make it taste good. The second one is make it look good. And the third one is price it fair. And you know, what you have to understand is those three build on each other because if it looks good, it'll pop on the shelf. So when you're out there shopping with your eyes, you're going to go, oh, that thing really, that's interesting, you know, vibrant colors, you know, sort of bold graphics. But then if it's price fair, even if you haven't tried it before, you'll try it because, hey, you know, I mean, again, as you know, we're known for our iconic 99 cent can. And if it's 99 cents, you're probably going to give it a try if it looks like a pretty attractive package.

5:46But when you try it and it tastes good, then you kind of come back for more and again and again and again. And I think that's how you form a habit of consuming Arizona beverages, because we stuck with those three particular pillars and built our entire business around it. And that has been true for pretty much every single item that we have launched. As you said at the outset, we're known for our iced teas, But we're truly a beverage company. Some of our juice drinks sell as well as our iced teas. I mean, our green tea is what we're known for. But our mucho mango, our watermelon, our fruit punch are extremely strong sellers for us in many, many parts of the country.

6:25I'm probably jumping around a little bit, but you brought up something that I really want to know from your perspective. And this is more of an opinion than it is. I don't think you can know this beyond your own company. But do you think it's possible to be a startup beverage now and be as affordable? You guys are afforded a certain economy of scale because you're so ubiquitous, you have those things in. But as a startup, I feel like you're seeing more and more companies that are more premium. And I imagine that's just because of the necessities of the business. Do you think it's possible to have that price advantage anymore when you're just getting out the gate?

6:57Kale, as you said, hard for me to speculate on that. I think it is hard now just because getting onto the shelf is harder than it's ever been before. And as a result, a lot of companies end up spending a lot of money before they even get to the shelf. The good thing about Arizona when Don launched the brand was because he had his own distribution business, right? He was going to a lot of these stores already with his beers that he was distributing for other companies. So it was much easier for him to ask his own salespeople to say, hey, when you go to that bodega down the street, as you're selling the beers that you're carrying, maybe sell them this iced tea.

7:33And you know what, make sure you put this in the iced tea cooler next to a Snapple or some of the other offerings that are out there. So it was very easy for him to at least see if this idea that he had would catch fire. And when it did, because again, in New York, it caught fire. And then from what, you know, the good thing about New York is it's not very easy to be successful in New York. But if you are successful in New York, you can then replicate that in the rest of the country a little bit easier than you would if you had started somewhere else. Because New York is such a microcosm of the entire country, and I would argue the entire world in many ways.

8:08You know, I go to a bodegas now and I see it's just smattered with a bunch of different new beverages. And I'm like, well, maybe one of these, we'll see the rest of the country. And it might be very good. We'll see. But I think it's an interesting point, Kel, that you mentioned, right? Because some of these companies may end up on the shelf, but because they have made all those investments and spent as much money as they have had, even if they get to the shelf, they're usually not priced at a price point where they can really be successful. So again, those three pillars are pretty critical to Arizona's success.

8:36Yeah, I agree. I think that that's like, as someone who lives in New York, I see a$7 beverage and I'm like, I'm not going to spend that. But I see a 99 cent Arizona and I'll get that. Let's go to 2016 because you mentioned at the outset that one of your mandates was that you wanted to ramp up, I think you said product expansion or opportunities that weren't otherwise there before. What were they? So what were you focused on? Was it these other flavors that you were talking about? Or yeah, give me a sense. Yeah, look, so like most things, Cale, it's never one thing, right? There's a lot of things that were available to us.

9:13You live in New York, so you probably see Arizona everywhere. But what you have to understand that even though for a company that has been around over three decades, there is significant white space available to us right here in the United States. So if you go to most QSRs, you wouldn't find Arizona in there, right? Just because a lot of the large companies like Cokes and Pepsis have contracts, which very often preclude them from carrying our products. If you go to a bunch of, you know, stadiums or, you know, these concert arenas, et cetera, again, very often that is contracted business and Arizona isn't in there.

9:47So long-winded way of getting to a simple point, which is there's still significant upside available to us right here under our feet in the U.S., where we already are a very well-known brand. But beyond that, you know, the rest of the world looks towards U.S. and U.S. brands and looks at them kind of aspirationally. So one of the things that I did right at the outset was because I was an investment banker and I had relationships in the consumer world around definitely North America, but even beyond North America. One of my first calls was to a company that I knew extremely well through my banking years up in Canada.

10:23And they're one of the largest juice producers up there. But I knew, knowing what I knew about them and knowing what I knew about Arizona, is that their plants could run our product. And so I picked up the phone, called them up and said, hey, you know, this is a complete win-win for you and for us because we can ship you the ingredients. You can run it on the same lines that you currently run your product on, put it on the same trucks that you distribute your current products on and put on the same shelves that your products are currently merchandised on. And as a result, you know, it would be an incremental revenue opportunity for you, for the retailer, for us, and most importantly, for the Canadian consumer who hasn't really been able to enjoy our beverages as much.

11:05So that is just one kind of small example of the kinds of things that we went after. But even in the U.S., we were not as well represented at that point in time and not in every retailer that we could have been in. And part of the reason was, you know, the company had gone through almost a decade of litigation because of the and, you know, it's very hard to attract really good talent when you have a little bit of that cloud hanging over the over the company. So, you know, we did bring on some talent in sales and otherwise, and were able to penetrate a lot more accounts and a lot more channels that we weren't as present in before 2016.

11:45How do you go about circumventing those exclusivity deals, especially with QSRs that only hold Coca-Cola or Pepsi or something like that? Look, Kale, it's very hard, if not close to impossible, right? Because again, some of these companies throw a lot of money at these companies to have those exclusivity or exclusive rights, I should say, to not carry any of the competitive products. But you know what? I wouldn't name names, but we've been told by multiple QSRs that, look, I know that my customers come into my shop and buy a sandwich in my shop, but then go across the street and grab an Arnold Palmer or an Arizona iced tea to consume with the sandwich they bought in my shop.

12:32And I lost that revenue. What were your initial, I guess, lessons, I would say, from Canada? One thing, whenever I talk with companies that expand internationally, it's always, And Canada is pretty similar, not identical to U.S., but, you know, culturally different countries glom on to different products in different ways. Did Canadians know instantly it was Arizona? They've seen it in New York, so they bought it. Or were there any stepping stones of doing that type of international expansion? You know, so, you know, generally, you know, I know that a lot of the larger companies rely extremely heavily on consumer panels and, you know, consumer insights.

13:10And so we believe we listen to our consumers. Right. And what I can tell you is. Globally, and, you know, no matter where you go in the world, people like good tasting beverages. That's just the way us humans have been. You know, we've evolved over over at this point, a very long period of time. But we like good tasting beverages and doesn't matter where you are. And those three pillars that I mentioned earlier on the conversation still apply here, right? If you make it look good, taste good, and you price it fair, people will come on to it. We really, really work hard at making every single one of our offerings taste great.

13:52You know, I don't know how familiar you are with the beverage world, but very often you have flavor houses that work with these beverage companies. and, you know, they come in, you know, let's just say I'm making this up. We wanted to launch a new flavor and we'll give them some general guidance and they come in and show out their first iteration. You know, sometimes we joke that the first five or six iterations could just be thrown out without even trying. We go through sometimes 30, 40, 50 iterations before we launch any particular new flavor. You know, literally, and I'm not exaggerating this on this point at all, So unless, frankly, Dawn personally does not launch anything without all of us tasting the beverage and agreeing around the table that this is the best thing that we could have come up with for that particular SKU.

14:42So then how do you decide if you if it's all about just you all agree on it? It sounds like it's more. How do I say this? You know, you're more trying to get an essence than you are trying to get a data set of consumer sentiments. Would that be a correct thing of what you're saying? Yeah, look, so I mean, again, I mean, it wouldn't launch without us kind of all agreeing that it is the best tasting beverage that we could put out there. But, you know, again, we're a New York based company. So just within our own offices, we have a microcosm of all the different demographics that you can look for.

15:16And we, you know, once we believe it's ready for prime time, we share it with a lot of the folks in the office and say, hey, what do you think? You know, and sometimes people love it and sometimes people have some unique insights into it, whether it's a sweetness level, whether it's a juice level, whether it's something else. And we tweak it as necessary to make sure that, look, we're launching something that has the best chance of success out there in the marketplace. All right, we're going to take a quick break right now. We'll be right back after this message from our sponsor. So how do you choose when it is that you're going to go into a new flavor?

15:49It seems like you have a portfolio, but it's not an insane portfolio, I would say. And this can go into us talking about the hard teas. What made you say one day, we're going to go into hard teas now? You know, so, so, I mean, there's like any kind of innovation, right? There's multiple buckets of innovation, right? So we are, you know, we are obviously, our core business continues to be the non-alcoholic beverages. Obviously, we're innovating within that particular dimension because whether it's a tea flavor, whether it's a juice flavor, we're always tweaking and making sure that we have as vibrant a portfolio as one can have in our core.

16:32Then there is new categories entirely, right, that we could go into. Now, generally speaking, we want to go for categories that are really big because, you You know, sometimes to the innovation amount, I guess I should say differently, the amount of work that goes into launching something new is not that much different for a big category than it is for a small category. So we wanted to go always for big categories where we can make a difference, where we have a reason for being. You know, we went into the fruit snacks business because, again, you know, we thought that was an interesting space where, frankly, some of the competition wasn't as vibrant, wasn't as flavor forward as we could make it.

17:14So we went into that category. That obviously is, you know, an adjacency in some ways because it's the center of the store, of most of the stores that are non-alcohol beverages are sold in. But one of the conversations we had, and this is reasonably early on in my time here, was with Miller Coase. And we thought, hey, you know what? Maybe we should think about expanding our non-alk lineup into the alcoholic variation, so to speak. So we originally did the Arnold Palmer line, which is the half and half, you know, half the half lemonade version of our, I guess, you know, it's called the Arnold Palmer.

17:54because the legendary golfer is known for having mixed the hot tea and lemonade for consumption in golf courses after a nice round. Long story short, we launched the Arnold Palmer spiked brand in the U.S. And that did well for us, partly because of that success in the U.S. The Molson Coase guys, the same company, Molson Coase is the parent company to Miller Coase. They reached out to us and said, hey, they were interested in doing an Arizona heart up in Canada. So we originally did Arizona heart up in Canada. And that was the heart tea. So our green tea, peach tea, lemon tea with alcohol, both with malt and with vodka were launched in Canada a few years back at this point.

18:42And again, were extremely well received. When that happened, we had a lot of our consumers, whether it was social media or elsewhere, reaching out to us and saying, hey, when are you bringing this to the U.S.? because this is phenomenal. And, you know, you have to also understand a lot of people, you know, we're a 30 plus year old brand at this point. And a lot of people who were, you know, high schoolers when they started drinking Arizona, love Arizona, are, you know, of that drinking age, which is appropriate, you know, and right now they didn't really have much of an offering available to us, to them, sorry, versus given the other brands in that hard tea category.

19:18So they embraced us. And, you know, we launched Arizona Heart in 2023. We're still kind of working through all the distribution agreements to have national footprint. But up till now, it's just been a blowout success for us. Is it easier to test out alcohol in Canada just because I don't know. I know about the three tier system in the United States, but I don't know how things work in Canada. Is it relatively easier to get a footprint there? Um, it's the whole retail space, particularly for alcoholic beverages, is extremely regulated up in Canada. So it's hard to get in there. But at the same time, when you go through the hurdles, you get this much wider distribution much faster, if you if you understand what I'm saying on that front.

20:03That makes a lot of sense. Can you talk just about how the reception in the United States has been. I feel like hard, soft drinks have been happening for a little bit now. They've reached kind of fever pitch, I'd say about six months, a year ago. What do you see in terms of demand? Because I read somewhere that you, correct me if I'm wrong, but you want the hard business to represent as much as a quarter of the overall revenue. Is that right? Look, I mean, I think sky's the limit on that particular category for us. And again, non-alph business can continue to grow and the ALK business can grow.

20:38I mean, we fully expect, because right now, if you look at 2023 numbers, our non-ALK business pretty much drove the entire category. So our non-ALK business continues to go gangbusters. But on top of that, now we're kind of adding on another growth engine in Arizona Hard. Just to give you a frame of reference, I mean, we only launched Arizona Hard in kind of, you know, late or I guess mid to late. So Q2, Q3, 2023. And as you were saying about the three-tier system, it's reasonably complicated in the US to kind of get an entire infrastructure built to get the product onto the distributor's truck and then into the shelf and, you know, and then obviously for the consumer to be able to buy it.

21:26So as I said earlier, we're still laying, you know, So we can end up with close to 300 distributors around the country. But, you know, a lot of that has happened over the last few months. So if you think about 2023, we were not, you know, we weren't even represented throughout all the states. We sure as hell didn't have a lot of planograms. You know, if you think about national chains and how they operate, their planogram, you know, where you would be on the shelf. We had none of that. So in the Northeast for 2023, when we were only in the market for a few months, we had less than 17 % ACV, which is essentially a rough gauge of how widely available your product is.

22:13And it was less than 17%. And we ended up being the number three flavored malt beverage in Northeast. Wow. So, you know, we're right behind Twisted and Mike's. So despite all the crowded space in a very short period of time with not full penetration, with very little ACV, we're already number three in the Northeast. So if we can build on that momentum, not just in the Northeast, but the rest of the country, I think, you know, sky's the limit for heart. Wow, that's amazing. 17 % ACV in your number three, you said? Yes, sir. Is the plan for 2024 to be available nationally? Or what are you thinking for the rollout?

22:49So not only do we expect to be available nationally with our heart teas, we have very quickly followed up with some innovations within the Arizona heart portfolio. So right on the heels of the heart teas, we have launched heart juices and heart lemonade. Those are only available in the limited distribution in the northeast region. But as we open up the rest of the country, those will be following as well. So in 2024, I would be surprised if we don't have national distribution for all three subcomponents of heart, which is teas, juices and lemonades. This is very specific, but I just want to know because I know it's weird in New York specifically.

23:34But you mentioned how in Canada you launched with both malt and vodka based, you said, right? Are you doing that here? Do you have plans to do that here? Because I know if you have a vodka based beverage in certain states, you can only be sold in spirit stores. And that is a whole can of worms. So what's the plan with the U.S. with that? So, Cale, as I said, you know, the way Arizona operates, right, we're extremely entrepreneurial and we'll go where the consumer is. And we know that there is a consumer out there for malt beverages and we know there's a consumer out there for vodka beverages. Malt versus spirit-based RTDs are a different animal, not to the consumer.

24:14The consumer wouldn't even know the difference because they go to the shelf and they pick one versus the other. but they don't realize is it's probably coming on a different truck. There's more, there's different taxes associated with it. There's different, you know, rules and regulations around it. So the likelihood that it will be following up with a vodka offering is pretty high. But again, you know, I'm not in a position right now to give you any specific dates as to kind of when that will happen. We want to also make sure that we just differentiate and distinguish the offering on the shelf from the malt offering.

24:46Because again, otherwise we can confuse the consumer out there. Yeah. I mean, we're seeing more brands try that out. And it's interesting to see how they're trying to differentiate it and how and how it resonates. I wanted to ask, just speaking about resonating, just marketing is something that people often talk about with Arizona that you traditionally don't spend very much on marketing. Correct me if I'm wrong in that. I think your founder, Don, pretty much said, you know, when you have such a, you know, the can itself, the branding itself is the marketing. When you're launching a new product, does that mantra, does that philosophy still stay?

25:20Do you put a little bit of marketing behind it? Like, how do you approach marketing when doing these product expansions? So look, I mean, you know, again, in this day and age, as you know, marketing has taken very different dimensions. You know, we have never had a billboard. Like, I will say this with almost 100 % confidence. You will never see an Arizona billboard in Times Square, right? That's just not who we are. you know, going back to our origins, Don has always believed that people make decisions when they get to the shelf, right? So, you know, people are not watching, again, I know this may be, I don't want to hurt anybody's advertising, but, you know, our philosophy has always been that people are not buying any particular brand because they saw a Super Bowl ad.