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

growth2

Industry Benefit Structure is Evolving

Source: Beverage Marketing Corporation

2012+

Pick me-up

Indulgence

Replenishment

Hydration

Better-for-you

Reinvigoration

Good-for-you

Energy

Satiety

Comfort/Relaxation

Purposeful Nutrition

Health & Wellness

Digestion

Beauty

Self Confidence

Healthier Indulgence Detoxificatio

n

Energy 2.0

Mood Enhancemen

t

Relaxation/Sleep

EnhancementImmunity

Refreshment + Taste

1970’s

1980’s

1990’s

2000’s

2007

Weight Management

Beauty

Eastern Medicine

Functional & Lifestyle Brands

Categories Blurring

NEXT?

Health & Wellness

Social & Environmental

Non-Traditional Competitors

3

4

Entrepreneurs are Driving Disruption

1st New Age Drink

1st EnergyDrink

1st RTDCoffee

1st Enhanced

Water1st SoyDrink

1st ProteinDrink

1st EnergyShot

5

Incubation Takes Time

$75

$20

Avg. Disruptive

Avg.Successful

Proof of Concept4-10 Years

1 2 3 4 5 6 7 8 9 10

Rev

enu

e

($M

M)

6

Risk of Failure is High…

Phase 1Experiment-ation

Phase 2Proof of Concept

Phase 3Pain of Growth

Phase 4Scale 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

Innovators are Sourcing Growth from “Outside”

Source: Mason & Rohner, 2002The 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

11Classified - Internal use

12

Investment Example: Honest TeaInnovative 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:

2Cost

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 Investmen

ts

Strategic Value

Value Created

Incremental Revenue

andProfit

14

16

Thank You !Q & A