Strategic Brand Venturing

Entrepreneurs’ Organization - NERVE 2012

“Dream – Lead - Challenge”

April 20, 2012

Retail $ Sales

> $1B

U.S. Beverage Industry

Total Industry

$350 - $1B

$5 - $350 mm

< $5 mm

2001 - 2009

Retail Sales# of TMs

3,363 $ 135

40

391

2,899

33

$22

$27

$85

$1

+19% +30%

Net 12 New

TMs

Entered the

ranks

of $1B Brands

1/3 of growth in

categories that

barely existed

5 years ago

Over 3500

brands (20% of

total) driving

50% of the

growth

2

Industry Benefit Structure is

Evolving

Source: Beverage Marketing Corporation

Functional &

Lifestyle Brands

Categories Blurring

N

E

X

T

?

Health &

Wellness

Social &

Environmental

Non-Traditional

Competitors

3

Entrepreneurs are Driving Disruption

4

1st New

Age Drink

1st Energy

Drink

1st RTD

Coffee

1st

Enhanced Water

1st Soy

Drink

1st Protein

Drink

1st Energy

Shot

Incubation Takes Time

$75

$20

Avg. Disruptive

Avg.Successful

Proof of Concept

4-10 Years

1 2 3 4 5 6 7 8 9 10

Re

ve

nu

e

($M

M)

5

Risk of Failure is High…

Phase 1

Experiment-

ation

Phase 2

Proof of

Concept

Phase 3

Pain of

Growth

Phase 4

Scale to

Win

Retail Revenue $0 - $20 $20 - 50 $50 - 150 $150 - 350

Success Rates 3% 16% 17% 30%

…And Need New Capabilities

Art of Emerging Marketing

Flexible Supply & OTC

Incentives & Performance Management

Flexible Route to Market

Entrepreneurial

Sales & Activation

Influencer Customer Relations

6

Innovators are Sourcing Growth from

“Outside”

Source: Mason & Rohner, 2002

The venture imperative

7

Need Distinct Unit to Pick &

Build Future Winners

• Small team, tight resources

• Action bias, quick to respond

• Ground level approach to marketing

• Long time horizon

• Distribution agnostic

Adopt entrepreneurial models while leveraging scale when appropriate

8

Two Core Strategies

INVEST

Minority Investment and/or Acquisition

INCUBATE

Importation /Innovation

Replicate Entrepreneurial Model Retain Entrepreneurial Model

9

Identify and Nurture Brands with $1 Billion Potential

“SWEET SPOTS”

Capabilities

Dedicated, Loose-Tight Autonomous

Business Unit

10

CEO

President North America

President Sparkling

President Still

President VEB

Respect & Leverage the CurveR

even

ue (

$M

M)

Time

Invest at “Proof of Concept”

Leverage Distribution, Sales, Supply Chain, and Brand knowledge

Commit for Global Brand Portfolio

Traditional VC FocusVEB Focus

11

Classified - Internal use

12

Investment Example: Honest Tea

Innovative Deal Structure

• Founder retains equity & GM

• KO Marketing & Insights, Supply Chain, Selling & Distribution

• Minority investment with call option

Thought leader in Sustainability

Opportunity

Opportunity

• Category $2.2B, up 10%

• Starbucks unchallenged

• Illy brand premium positioned

• Opportunity to Capture Share

Replicate Entrepreneurial Model; Think Big, Start Small, Prove, Expand

Incubation Example: illy issimo

Innovation

• Seed in influencer cities

• Hybrid RTM

• Brand missionary (intrapreneur)

• Feet-on-the-street

• High risk/reward incentive

programs

13

Equity:

Phase 2:

Incubator:

2

Cost

Savings

Valued

Created

Source: Citi Growth & Innovation

% of Company Growth Business value

vs. investment

• External perception of

innovation capabilities

# of scaled brands • New channels/cust./models

Revenue Growth

• Expanded relationships

• International expansion

Venturing Scorecard:

Capture Tangibles & Intangibles

Equity

InvestmentsStrategic

Value

Value

Created

Incremental

Revenue

and

Profit

14

Thank You !

Q & A

16