It's not just your kid brother's soft-drink company anymore
Seattle Times business reporter
Founded: 1987, as Urban Hand, a juice distributor in Alberta, Canada. Name changed to Urban Juice and Soda in 1993, and to Jones Soda in 2000.
Chief executive: Peter van Stolk, 42.
Employees: Around 60, with about half in Seattle main office.
Products: Jones Soda (premium sodas), Jones Naturals (juices and teas), Jones Energy and WhoopAss (energy drinks), Jones Organics (teas), lip balms, frozen pops.
Coming next: Jones Soda Flavor Booster candy.
Source: Company reports, Seattle Times research
Jones Soda wears its alternative credentials on its sleeve — or, more likely, pierced and dangling from a convenient body part.
The Seattle soft-drink company has spent years cultivating an offbeat, rebellious image. It sponsors skateboarders and rock shows, and adorns its long-necked glass bottles with an ever-changing gallery of photos submitted by customers; the mostly black-and-white photos are a dramatic contrast to the Day-Glo colors of the actual sodas.
But founder and Chief Executive Peter van Stolk wants Jones to be more than the favorite guzzle of tattooed youth. If skate shops and comic-book stores aren't your speed, you can also find Jones beverages at Starbucks and Barnes & Noble — or in "fridge packs" of 12-ounce cans at Target.
And this past November, Jones' stock moved from the ragged frontier that is the OTC Bulletin Board to the more established Nasdaq Capital Market (see sidebar).
"I think they're more mainstream than people realize," said Nicole Miller, an analyst who follows Jones for San Francisco-based brokerage ThinkEquity Partners. "The soda started out very Gen-X, but I think they've transcended that."
The challenge for Jones, as with any company trying to make the leap from niche hit to mainstream success, is attracting the masses without alienating the customers who embraced its edgy image in the first place — a challenge van Stolk is well aware of.
On a shelf outside his office are a couple of two-liter jugs of "Sam's Choice" soda from Wal-Mart. If there's a soda equivalent of mayonnaise on white bread, they're it.
"They're there so that every day, as I walk past, I'm reminded of what I don't want to be," the 42-year-old van Stolk said.
What van Stolk does want to be is the purveyor of a "lifestyle brand" that travels well beyond the beverage world: "My view is that Jones is more of an experience than just soda," he said.
"Nike isn't just a shoe company — it's an apparel company, it's a lifestyle company, it's a company that creates an emotional connection with customers. Nike would never be the company it is if Phil Knight thought of it as a shoe company."
Jones, which sold its first sodas 10 years ago last month, has worked hard to build that emotional connection.
The company was an early sponsor of skateboard legend Tony Hawk. Pictures and quotes sent in by customers are featured on Jones' Web site. A separate site promotes indie rock and invites users to build their own play lists.
Playing to core market
All that interactivity plays well with Jones' core market, said Rob Callender, trends director at Teenage Research Unlimited in Northbrook, Ill.
"Teens want to be heard," he said. "Being at the stage of life they are, teens feel very condescended to and not always able to express themselves the way they want, so it's very important that they feel they have the chance to influence the brands they know and love."
But especially since the deals with retail giants such as Starbucks and Target, analyst Miller said, Jones also has positioned itself as an "affordable indulgence" — a premium alternative to Mountain Dew or Cherry Coke.
Gary Hemphill, managing director of Beverage Marketing, a New York consulting firm, said that over the past decade, "Jones has become the pre-eminent maker of premium soda in the United States."
"There are quite a few premium soda brands, but the vast majority are regional or local, (with) fairly limited distribution and availability," Hemphill said. "And distribution — getting your product from the plant to the retailer — is probably the single greatest challenge for beverage companies today."
Jones found that out the hard way. As it expanded from its base in the Pacific Northwest and western Canada, the company spent millions to place its sodas with independent distributors.
Paying for promotion
In 2000 alone, it spent $7.4 million on promotion and selling, a whopping 39.4 percent of gross sales. The next year, three of the company's five biggest distributors shut down or went bankrupt. All in all, the company lost money every year from 1995 to 2002 except in 2000, and that was because it gained $4.5 million in a lawsuit settlement.
So in 2002, van Stolk retooled the business plan. Jones pulled back from noncore markets; although its drinks are sold in 41 states and eight Canadian provinces, the company focuses on the Northwest, the Southwest and Midwest, as well as western Canada. Rather than rely solely on distributors, Jones began cutting deals directly with big-name retailers
In 2004, Jones plunged into the mainstream pop world with its two-year Target deal, under which the discounter has the exclusive right to make and sell Jones Soda in fridge packs of 12-ounce cans. The goal, van Stolk said, is to establish Jones as a premium brand in the market — dominated by Coke and Pepsi.
"We couldn't go into (that market) alone — our larger competitors would kill us," he said. "Target is our partner to protect us."
The rewards are potentially huge: While premium soda is about a $335 million market (wholesale), Hemphill said, the broad carbonated soft-drink market is $47 billion.
Target was the first of several licensing deals van Stolk has struck. Others include a deal with supermarket-giant Kroger (parent of Fred Meyer and QFC, among other chains) to make and sell Jones Soda frozen pops, and an agreement with Lime-Lite Marketing to make Jones Soda lip balms. Besides getting the Jones name in front of more eyeballs, the deals give Jones a new revenue source: In the first nine months of 2005, the company took in $600,758 in licensing fees.
Van Stolk wouldn't give details on how the Target experiment is faring, other than to say that "Target is a wonderful partner — we're very pleased with what they're doing, and they're very pleased with what we're doing."
Target deal to expire
But the deal expires in July, and Jones will have to decide whether to stay under Target's umbrella or enter the canned-soda business on its own.
Another decision that may or may not come: whether Jones should sell itself to a larger company.
While some of Jones' competitors, such as Arizona Iced Tea and Hansen Natural, have thrived as independents, most are parts of larger companies: Cadbury Schweppes, for example, owns Snapple, IBC and Stewarts, among other brands; Thomas Kemper sodas are made by Seattle-based Pyramid Breweries; and PepsiCo has owned SoBe since 2000. (Corona, Calif.-based Hansen, in fact, has been mentioned as a potential Jones acquirer.)
Van Stolk, though, dismissed such rumors.
"In the 10 years that Jones Soda has been in business, I've heard that five companies were going to acquire us," he said. "We're not looking at anything other than building our business."
Drew DeSilver: 206-464-3145 or firstname.lastname@example.org
Copyright © 2006 The Seattle Times Company