Does Odwalla Go Better with Coke?

By Steve Hoffman

When one thinks of fresh juice, nutrition and social responsibility, Odwalla immediately comes to mind. Founded in Half Moon Bay, CA, in 1980 by a group of musicians seeking to fund musical and multi-media events in their local schools and community, Odwalla enjoyed a stellar growth curve, becoming a publicly traded company in 1993.

In October, 1996, Odwalla had to rebuild its reputation – and its sales, which plummeted by more than 90 percent – after suffering a serious loss of consumer confidence when some of its apple juice products were found to be contaminated with E. coli, resulting in one death and several illnesses. A major recall was launched and the company came out publicly to make reparations, cover medical costs of those made ill by the products, and it subsequently introduced more stringent product safety procedures and pasteurization into its manufacturing processes. Customers and sales came back as Odwalla shared its food safety lessons with the public and the fresh juice industry. When the Coca-Cola Co. purchased the company for $181 million in December 2001 to gain a foothold in the small but growing fresh beverage business, Odwalla’s sales had reached $128 million.

Odwalla has enjoyed great popularity in California and the Northwest. In an effort to expand its scope, in 2000 Odwalla purchased Fresh Samantha, a fresh juice line popular in the Northeast. However, in 2003 the decision was made to phase out the Fresh Samantha line in order to focus on building the Odwalla brand and increasing distribution of its fresh juices and food bars on a national level. Additionally, Odwalla is currently partnering with its parent company to test-market expanded distribution via Coca-Cola’s distribution networks in Atlanta and Denver.

In an interview, Odwalla President Shawn Sugarman recently shared his thoughts with the GreenMoney Journal on Odwalla’s strategies going forward, how the company fits into the Coca-Cola portfolio, and how it continues to honor its “Soil to Soul” mission.

GMJ: You speak of a convergence of trends in the food and beverage market that benefits Odwalla. Can you explain?
Odwalla: The food and beverage industry is undergoing a transformational change right now. In the past, the successful companies have been based on six categories: fat, sugar, salt, caffeine, white processed flour and hype/hope. We think Odwalla is a perfect brand to create a seventh category: nourishment. I think everybody is now chasing nourishment. Obesity and its related health problems are a huge concern for anybody in the food business today. On the food side, Odwalla is a great way to get healthy calories and nourishment.

Convenience also is a factor. And there is a tremendous focus on health and wellness and the role food plays in this arena. It’s not about treating disease but how do I prevent health issues? Eating is a huge part of that.

Lastly, there is a desire to support socially responsible companies. People want to know that the companies they buy products from have the values that match their own. Honesty and authenticity have become much more important than in the past.

When I look at these trends, I see Odwalla is very well positioned. We think it is a perfect brand to carry forward. It’s at the convergence of these trends right now and that’s why we’re excited about building a nourishment company.

GMJ: But Coca-Cola is not nourishing.
Odwalla: In a balanced diet, I believe there’s no problem with a product that you drink for enjoyment. The question is, do you have other alternatives to create a balanced diet? Coke is aware of that and is creating a choice of beverages. I enjoy Coke when I drink it. In fact, I have this thing about Chinese food and Coke together, but I also drink my Odwalla Superfood because I need the nutrients.

Coca-Cola exists because of the consumer it serves, and right now that consumer is paying a lot of attention to what they’re drinking, and Coke wants to provide what they are looking for. The Odwalla acquisition was a response to that. The Coca-Cola line is very broad now. In addition to the core soft drinks, it offers waters, juices and some milk-based products.

GMJ: How has Odwalla benefited from the acquisition by Coca-Cola?
Odwalla: Odwalla has certainly benefited from a capability standpoint. Odwalla was a small business that was capital constrained. We’re now able to attract better talent. We’re getting more people from Coke but also more people joining our company with an eye toward a career.

Also, Coca-Cola can help us expand distribution of Odwalla products. At a minimum we are looking for help in terms of penetrating new account opportunities. In some cases where we would have looked for a third-party distributor to start a new market, now we’re going to work with Coke, which has tremendous penetration and breadth. Coke has already helped us in penetrating colleges and universities.

In Atlanta, where Odwalla didn’t have any infrastructure, we are now running through Coca-Cola enterprises, and they’re making the investment in trucks, coolers and people. Some will be Odwalla trucks and some may be hybrids depending upon location. In the case of having to drive a long way to deliver product, it makes sense to take a ride on their trucks. In the case of Whole Foods Market, we will use our own trucks. The idea is to be more efficient and that efficiency will create resources for further expansion.

One thing I think Coke has done very well is to consider the culture of Odwalla as integral to the brand. It has done a nice job of allowing us to maintain that culture through our vision and values. Our mission is “Soil to Soul.” However, we don’t have a mission statement; we have a vision poem, written by the company founders, that acts as the guardrails for the Odwalla brand and all of our activities. I know of no other company that has a vision poem: “A breath of fresh, Intoxicating rhythm, Living flavor, Soil to soul, People to planet, Nourishing the body whole.”

As we look at the future directions for Odwalla, I carefully consider each line of that poem. Plus, I speak once or twice a month with company founders including Greg Steltenpohl and Stephen Williamson. They care greatly about the brand and are big fans and I use them as a sounding board. I have to give tremendous credit to them for building the company to the point at which Coca-Cola acquired it.

GMJ: And how has Coke benefited from its relationship with Odwalla?
Odwalla: Other than just the financial return, Coke has been able to learn from Odwalla about a consumer segment it wasn’t addressing. We now have a dialogue with natural foods companies that we did not have before. We’re beginning to understand some issues from their perspective. I think Odwalla is a bit of leavening for the bread. It’s tiny right now, but it’s having an effect.

The best way to change the food and beverage industry is to educate consumers and let them choose where they put their dollars. As the larger companies see consumers buying products from businesses that are more aligned with green values, that’s where the investment will be channeled. Now, you can see all the big companies channeling money into the natural
foods industry because it’s good business and consumers are increasingly voting with their dollars. As the mainstream consumer begins to gravitate toward more natural, sustainable products, the capital will follow.

GMJ: As a career executive with Coca-Cola, what prompted you to convince the company to purchase Odwalla?
Odwalla: I came into this when my wife and I had our first child. Before then, we were from
relatively suburban, mainstream values, but we began to think differently about how we wanted to raise our children. The seminal event was having a midwife-assisted home birth. It opened up the idea that there are alternative ways of doing things, and it challenged everything I had taken for granted.

At the time, I was working in business development for Minute Maid (a division of Coca-Cola), looking for companies to invest in. I was in a Whole Foods Market store looking for some sort of organic diaper and I noticed there were no Coca-Cola or Minute Maid products in the store. Then I saw this front-end cooler of Odwalla juices. I bought one and began to read about the company and became very intrigued. I brought it to Coke, and then I believed in it so much I volunteered to come out and run it.

GMJ: How has working for Odwalla affected you?
Odwalla: My exposure to the natural foods industry has changed me in the sense that I feel like while we’re extremely competitive with each other we all in the industry share a similar vision for what needs to be done. We’re pulling in the same direction. There’s a sharing of ideas and there’s a social mission encapsulated in this industry that didn’t exist in the mainstream that I was aware of.

When I see a natural foods company succeeding, I view that as a good thing overall. And I don’t think it’s a bad thing when a company improves its product to become more sustainable. That’s happening in all the big companies now. If Pepsi or Nestle or Kraft really invested in the natural foods business, that changes everything – and they are investing. It’s a transformational time.

++++