INTELLIGENCE FOR THE GLOBAL DRINKS BUSINESS MARCH 15, 2008

Global Edition»

BEVERAGEWORLDBEVERAGEWORLDJON OLAFSSON (l) and

his son, Kristjan, founders of Icelandic Glacial

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Special Report:

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Results of Our AnnualTruck Trends Survey

Global Innovations

Results of Our AnnualTruck Trends Survey

Global Innovations

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Breaking

UpClose With:Ale-8-One Bottling Co.

D. Bertoline & Sons, Inc. Kennesaw Fruit and Juice

The Nackard Companies Triangle Distributing Co.

Tri-Cities BeverageXS Worldwide

UpClose With:Ale-8-One Bottling Co.

D. Bertoline & Sons, Inc. Kennesaw Fruit and Juice

The Nackard Companies Triangle Distributing Co.

Tri-Cities BeverageXS Worldwide

Icelandic Glacial joins Function, Hint,Sambazon, Steaz and 360 Vodka onBW’s short list of BREAKOUT BRANDS.

Icelandic Glacial joins Function, Hint,Sambazon, Steaz and 360 Vodka onBW’s short list of BREAKOUT BRANDS.

featured in this issue

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BEVERAGE WORLD_MARCH 2008 BEVERAGEWORLD.COM

h, Saturday morning at the soccer field... Packs of kids vying for goals. Feverish dads motioning where junior should

run. Moms talking about what they pack in school lunches and

tipping each other on XS Energy Drink. Sorry if it sounds cliché, but the scene plays out every

weekend, and last year XS reaped the benefits. Haven’t heard of XS? You’re not alone. The brand registers

all of 10 percent consumer awareness. It’s not sold in con-venience stores—only online or through a dialed-in neigh-bor. Meet the energy drink category’s quiet killer. Whilecompetitors slug it out can by US$2 can at the mini mart, XSdelivers by the US$24 case load right to customers’ doors.

“We see the big opportunity isn’t trying to launch anotherenergy drink that competes with Monster and Rockstar andRed Bull,” says David Vanderveen, co-owner of XSWorldwide. “But one that significantly innovates the categoryand really brings new consumers in—particularly heads ofhousehold, mom and the sugar-free consumer.”

The XS brand has been making rounds since 2001.Originally XS Energy Drink was offered in two flavors—cit-rus and cranberry-grape. The line since has ballooned to 13varieties. Juice-flavored offerings now include tropical, cher-ry and lemon. There are cola flavors, including root beer. XS

also offers two tea flavors and threecaffeine-free varieties. All the flavorsare packaged in 8-ounce cans similarto Red Bull. None of them burn thethroat on the way down. “The eurekaresponse we get consistently is, ‘Wow!This tastes good!’” Vanderveen says.

Then he points them to verbiage onthe cans: All of the energy! None ofthe sugar! “We’ve never sold it as a

diet product,” Vanderveen says. “We always focused on thetaste and the backup function was sugar-free.”

XS draws on a blend of artificial sweeteners and fruitessences to mimic the absent sugar. The energy comes froma proprietary blend of herbs, massive doses of vitamin B and(except in the caffeine-free varieties) an 80 milligram jolt ofcaffeine, which is notably less than other leading energydrinks. Vanderveen suggests the no-sugar, low-caffeineapproach leads to a more sustained energy boost than onegets from competing energy drinks.

Cans in HandsWhether or not the product tastes good, everyone knows theonly way to keep the lights on is getting cans in hands. Thisis where XS literally stands apart from its peers. No retailoutlet stocks the brand. In the US, XS Energy Drink is soldexclusively through the direct sales company, Quixtar. (Youlikely know Quixtar’s more analog sibling, Amway.)

Quixtar is powered by roughly 650,000 so-called independ-ent business owners. These are neighbors, moonlighters, soc-cer moms—maybe even your cousin. They work as distribu-tors of Quixtar’s family of products, buying the products at

Energy Unleashed

VITAL STATSXS WORLDWIDE

CO-OWNERS: Josh Bradbury, Scott Coon, Greg Duncan, David Vanderveen

HEADQUARTERS: Seattle, Wash., USA

EMPLOYEES: 12GOALS: Introducing sugar-free beverage consumers tothe energy drink category.

A unique distribution model for XS Energy Drink proves a winner. By Adam Kleiner

XS WORLDWIDE PRINCIPAL OWNER, David Vanderveen.

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wholesale prices andselling them for slightmark-ups.

Vanderveen and hispartners had beenQuixtar distributors longbefore the XS line washatched. Rather thancommit huge sums to in-store tasting events andother common beveragemarketing tactics, theylobbied Quixtar to sell the origi-nal two XS flavors in 12-can cases andthen focused on engaging their independentbusiness owner peers at quarterly meetings.“We were able to speak their language. Showthem the profit potential. Show them howexciting and differentiated the product wasand really capture a lot of their enthusiasm,”Vanderveen says.

In five years, XS Energy Drink has becomeQuixtar’s second-best selling product line,accounting for roughly 10 percent of grossrevenues. “It’s a great product for our inde-pendent business ownersbecause it’s so simple,” saysBrian Geers, Quixtar man-ager of health marketing.“The product speaks foritself.”

This is where theSaturday soccer gamescome in to play—as dodinner parties and othersocial occasions. The inde-pendent business ownersshow up with cans of XSto share. If the people theyencounter—and those peoples’ kids—like the product, theyget instructions on how to buy it (by the US$24 case). Theyalso get the sales pitch: shipping’s free when they placeQuixtar orders of at least US$75, and there’s an automaticdelivery program if they want routine shipments. “I would beshocked if we were reaching less than 70 to 80 percent of[Quixtar’s] customers,” says XS Worldwide partner GregDuncan.

Growth PotentialChicago market research firmMintel forecasts domestic ener-gy drink sales will grow toroughly US$6 billion by 2011.XS has an exclusive US distri-bution agreement with Quixtar,so any domestic growth of the

brand will hinge on Quixtar cus-tomers. Duncan doesn’t mind.“We think this could be our bestyear ever,” he says. “I wouldn’t beshocked if we did 30 to 50 percentgrowth this year.”

Duncan qualifies the bold pre-diction by referencing the imme-diate access XS has to its cus-tomers. At every distributor meet-ing, the XS crew can gauge whatpeople like and dislike about theproduct, and what they’d like tosee more of. “They’re our best cus-tomers, so they’re giving us veryenthusiastic and honest feedback,”Duncan says. “It’s really been ablessing for us.”

XS plans to continue unleashingnew flavors every six months until numbers suggest theyare cannibalizing sales of other flavors. “We ask a lot offamilies, ‘What are we missing?’” Duncan says. “Our goalis to fill that hole more and more, so we’re not onlyadding more people to the business, but we’re sellingmore to each family.”

XS also has opportunities to leverage the brand outsideof the United States, where the exclusive distribution arrange-ment with Quixtar doesn’t apply. Discussions already areunderway with Spain-based nightclub franchise Pacha to co-brand and sell the cherry variety of XS Energy Drink. A Pachalaunch could happen as soon as this summer, Vanderveen says.

“We see the huge opportunity is not trying to push more energy drinkers kicking and screaming in to sugar free,”he adds. “But to bring the sugar-free consumer over in toenergy.”

BOLD COLORS accent the XS Energyportfolio; middle, XS is a sponsor of surfer Ryah Arthur, note the logo on hisboard; bottom, XS Energy is a hit with thebeach crowd.

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BW

Reprinted with permission from Beverage World Magazine, March 2008.

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