Small companies, big impressions

How Jones Soda, Wawa Dairy and Hirzel Canning outmaneuver the giants in their categories

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In the biblical story of David and Goliath, the small boy slays the giant. Our story today has small heroes, but nobody dies.

 

It would indeed for difficult for a Jones Soda to knock off Coca-Cola or Pepsico. Ditto for Wawa Dairy and Hirzel Canning in their respective categories. But being small has its advantages. You can be a lot more fleet of foot, take more risks, get excused for making some mistakes. But that doesn't mean you can't hit some home runs.

All three of these companies have pulled some firsts in their categories. Hirzel was the first company in North America to use a reclosable steel can. Wawa Dairy is quick to try unusual flavors in both milk and other drinks -- getting both pre-launch input and immediate feedback from its convenience store customers. Jones Soda makes such a strong connection with its customers that more than 4,000 of them have contributed photos that have been turned into product labels.

They are three very different companies in three very different businesses. Each category has its quirks, from the stodgy milk industry to the easily commoditized canned vegetable business to the two-company category of carbonated soft drinks. Each category has seen its share of consolidation, with clear leaders emerging. But as the top guns got bigger, they also turned into battleships: unassailable at what they do best, but incapable of sharp turns. That leaves a lot of room around the edges.

For instance, Pepsico made headlines back in March when it announced it would unveil a mid-calorie cola, Pepsi Edge, sometime this summer. (Those fair-weather dieters among you who have been mixing regular and diet Pepsi at home are entitled to a "duh.") Coke, in a marketing stroke of genius, claimed to have had one in the works, too, and would beat Pepsi to market. Jones Soda, suspecting there was at least some short-term hay to be made, promised nothing but quickly launched a mid-calorie soda. "It's not rocket science," says CEO Peter van Stolk.

Despite their differences, our three Davids also have some things in common. Product development in all three is a multifunctional and somewhat casual affair, from salespeople bringing back ideas from grocers to voting for new soda flavors on a web site to sampling customers at convenience stores. Hirzel and Wawa also tightly integrate manufacturing into the R&D process; both have surprisingly sophisticated manufacturing processes for their size and their categories. While Jones outsources its bottling, it has forged especially close relationships with both its copackers and its ingredient suppliers, who play important roles in product development. All three companies admit to making some mistakes, but regard errors as inextricable parts of ideation.

All also have a strongly entrepreneurial spirit, which is particularly refreshing in a industry that, despite claims to the contrary, still keeps score in 13-week increments. "We don't have the budgets our competitors do, so we have to take risks and move quickly," says van Stolk.

Far from walking in the shadows of the giants, these small companies are leaving some pretty big footprints of their own. Their stories follow.

,'Everybody does R&D'

Common sense and gut feel still drive Hirzel Canning

When the salesman came calling on the Acme grocery chain in Philadelphia 30 or so years ago, the buyer said he wished he had an "Eastern" style of stewed tomatoes, a formulation a little sweeter than what he was getting with the "California" tomatoes of his current supplier.

The comment could have been brushed off with "we don't make that," or at best forwarded to a corporate hierarchy or inflexible product development department. In fact, the salesman's company, Hirzel Canning Co. and Farms, made just about every kind of canned tomato product but stewed tomatoes. But this salesman was also the company president, as well as one quarter of the research and development department. All it took was a little tinkering and a new store brand of stewed tomatoes hit the shelves of Acme stores along the East Coastfollowed later by Hirzel's Star Cross brand.

"That was kind of crude R&D, but it was how a lot of our products were developed," says Karl Hirzel, the third generation to be running the Toledo, Ohio, company. "Up until five or six years ago, almost everything was done by trial and error and by keeping our eyes and ears open. We'd ask our [grocery] customers what they wanted, we'd look at what was in the market and especially what was doing well and we'd think of ways we could improve on that. A lot was common sense and gut feel."

The 67-year-old Hirzel admits the market has gotten a little more sophisticated, so the R&D department has ballooned to two dedicated professionals, as well as "anyone else who needs to be in on the development of a new product. We're doing R&D at all levels. Every plant manager does R&D, every production manager, every salesperson who tells us what their customer wants," says Hirzel.

In fact, he says, product development usually starts with the salespeople. "They're our front line. They see what's already out in the market, what's doing well and what the retailers want," Hirzel says.

The company was founded in the basement of Karl's grandparents' house in 1923. When Prohibition forced the closing of the Buffalo, N.Y., brewery where Carl Hirzel worked, the Swiss-born brewmaster moved back to Toledo to put his canning and fermenting skills to work making barrels of sauerkraut. A year later he was canning, and two years later he packed his first tomatoes.

Three generations later, the $40 million company has three plants in and around Toledo plus an 1,800-acre farm and greenhouse, where tomato transplants get started, schedules are figured and crop research is conducted.

Karl and his brothers William and Joseph gradually are turning the company over to their sons and daughters, but not before that fourth generation gets cross-functional experience running every operation within the company, from plant management to information systems management and sales to purchasing.

While Hirzel Canning still makes some sauerkraut under the Silver Fleece brand, tomatoes are the company's mainstay. Virtually all varieties of canned tomatoes, spaghetti, barbecue and chili sauces, tomato juice and salsa are marketed under the Star Cross and Dei Fratelli brands. Packaging ranges from 8-ounce retail cans to 26-ounce glass jars to 3-gallon bag-in-box foodservice sizes to 300-gallon bag-in-tote products; and all sizes in between.

Along with traditional canning, aseptic production has become a specialty. In fact, a portion of each year's tomato harvest is aseptically stored in 20,000-gallon former beer tanks for use throughout the year. Last year the company processed 80,000 tons of tomatoes.

The Toledo plant has seven lines dedicated to cans, one line running glass jars and one filling plastic. Nearby Ottawa has four lines running bulk aseptic products and four lines for cans. And Pemberville has seven lines all for canning. There also is a three-gallon bag-in-box line at both Ottawa and Toledo.

After mechanical and chemical peels, the tomatoes go to an Urschel dicer. Cans are processed in an FMC rotary cooker-cooler. Glass or plastic containers are hot-filled.

About 30 percent are store-labeled products and 70 percent are Hirzel Canning brands. About half of production is retail and the other half is foodservice and industrial. (Hirzel supplies tomato sauces in bulk for the nearby Nestle frozen foods division and for the Chi-Chi's Mexican restaurant chain).

Remember regional tastes?

While he is obviously proud of his brands, Hirzel sounds like he still has a special affinity for developing store brands based on regional tastes and the instincts of store managers -- although he laments that's becoming a lost art as independent grocers are replaced by tightly regulated national chains.

A little research and plenty of instinct tell the Hirzels a lot. While people are cooking less often, especially two-income families, Hirzel believes the weekend batches are getting bigger -- they are setting the menu for the week ahead. So while competitors make smaller cans, Hirzel Canning has increased the number of products in 28-ounce cans. "They're more economical and easier than opening three smaller cans," he says.

On the other hand, when the decision was made to use the 12-ounce Dot-top can (see sidebar story), Hirzel Canning was looking for products for smaller appetites, including snacking. One such product was Italian Dipping Sauce -- a category he thinks he may have created at retail, although he was inspired by pizza delivery chains offering dipping sauces with delivered pies. All it took was some tweaking of the spices. "It wasn't rocket science," Hirzel notes, "but it's been doing OK."

Hirzel Canning 30 years ago became one of the first companies to use a white lining in its cans. Hirzel first saw such linings on a family trip to Europe. He brought some canned products back and asked can suppliers for the same thing. "For almost 10 years I got the runaround," he recalls, so one year he just demanded it. One can supplier came through and got the business. "People think it makes the product taste better," Hirzel says. "It definitely leads them to believe it's a higher quality product.

"We do some market research now. And we try to keep an ongoing dialog with consumers via phone calls and online. We ask them why they bought our product and how they use it. There's no great secret. You've just got to find out what sells and why.

"Not a year goes by that we don't introduce some new products. It's our lifeblood," continues Hirzel.

He admits to making plenty of mistakes along the way. "The first three years we tried to store tomatoes aseptically for ourselves, we spoiled the whole batch every year," Hirzel recalls. "We got into salsa for foodservice early, maybe too early, like 25-30 years ago. We packaged it in No. 10 cans and it bombed. At that time they were buying glass. We gave up and did something else. But we came back with foodservice salsa 10 years ago, put it in plastic bottles and it's been a hit. We even export some."

Green beans, asparagus and other canned green vegetables have fallen by the wayside. "We're a pretty traditional company, but we can't stand still. Sometimes it even means discontinuing products that were mainstays 10 years ago. We're always fine tuning or changing recipes, looking for ways to extend our products.

"You should always try to do new things," he concludes, "but don't try to do things you can't do well."

 

Sidebar:

North America's first recloseable can

Despite its size, Hirzel Canning Co. is the first company in North America to offer the Dot Top can, a 12-ounce tin-plated steel can with a reclosable lid. "It offers the reliability and assurance of a normal can with the convenience of a container with a lid," says company promotional materials.

The can design was created by a Brazilian can manufacturing company, Metalgrafica Rojek. It is licensed in this country by Silgan Container, Woodland Hills, Calif. (

The key to the three-piece can is the lid. No tool is necessary to open it. Very similar to a jar lid, it's held on by a vacuum created in the headspace as the lid is applied. A steam jet flushes the headspace, the lid is applied, and the steam condenses to form a vacuum.

A plastisol membrane about the size of a dime covers a 1/16-inch diameter hole. When the membrane is partially peeled back (it remains in place), the vacuum seal is broken and the can is easily opened. Afterward, the lid snaps back on. A little downward pressure can create a new vacuum to further hold the lid in place until reuse.

The 3-inch diameter (300 x 312 size) can is offset-printed in red, with two colors on the lid. Hirzel Canning uses a wrap-around paper label in full color. Inside, the can uses Hirzel's "pure white" plastic lining for added shelf life after opening.

Both can and lid are imported from Brazil. Hirzel Canning needed only minor modifications on a line used for 14.5-ounce glass jars to fill and seal the can.

The new can carries Hirzel Canning's Dei Fratelli Presto pizza sauce and the novel Italian dip. One of the outlets for the product is the Meijer store chain, which operates 150 megastores in the Great Lakes states. "That was a real coup," says President Karl Hirzel. "We already had some products in their stores. As soon as we showed them this can, they could see it was different."

 

www.silgancontainers.com).

,'All it costs us is labels'

With a captive audience in its C-stores, Wawa Dairy gets immediate feedback on new products.

In 1998, when most of the stodgy milk industry was just beginning to think about single-serve plastic bottles, a small eastern Pennsylvania dairy named Wawa jumped in with both feet and saw a 30 percent jump in single-serve sales.

 

As much of the dairy industry was still making the glacial change from gabletop paper half gallons and quarts to plastic, Wawa, already in the squarish high-density polyethylene (HDPE) container, jumped to a stylish decanter plastic bottle. When HDPE became commodity, Wawa jumped to clear polyethylene terephthalate (PET).

Staying one step ahead of the pack and taking risks has become the culture at Wawa Dairy, headquartered in the town of the same name (it's Indian for the type of goose native to the area). Though small (sales are approaching $100 million), Wawa can claim a number of firsts. It also has some of the most sophisticated equipment in the dairy industry, including a multi-million-dollar automated storage and retrieval system, a $750,000 Krones labeler and mix-proof valves throughout the plant.

 

Wawa's AS/RS is more sophisticated -- and more expensive -- than equipment at dairies several times Wawa's size.

Wawa does have one unfair advantage, at least in terms of product development. While the company was founded as a dairy 102 years ago, the far larger part of the corporation now is its chain of convenience stores, begun in the 1960s. They're a captive audience, as retail customers go, a great test bed for new products and a resource for consumer opinions, sampling and simple trend-watching.

"We're very eager to try new products. When we have what we think is a good product idea, we say, 'Let's give it a try. All it's going to costs us is some labels,' " says Rick Over, director of dairy and AS/RS.

"We used to do a lot of customer intercepts. We'd stop people right in our stores and ask their opinion of a product idea or give them a sample to taste. About a year ago, we stopped customers buying Hershey's Cookies & Cream milk and asked them how they liked it, if they would buy the same product under the Wawa brand and how much they would pay for it. Then we came out with our own," he says.

"We can watch first-hand what they're buying, what's new and what's hot. That's how we got into juices, drinks and teas. We also considered water, but haven't decided to make that ourselves," says Over.

C-store customers also talked the company out of making what could have been a packaging mistake. "HDPE worked so well with single-serve milk, we thought that was the logical package for our other beverages. But our customers told us they wanted a clear plastic bottle for drinks and teas, so we went with PET and saw another 30 percent jump in sales.

"We do a lot of taste testing. Some of it right in the stores, but we also do professionally done tests with our ad agency," Over continues. "For example, they told us to get rid of the snap-on cap on our plastic milk bottles."

Wawa also has used its clout as a large retailer to gather intelligence on, and sometimes within, Coca-Cola, Pepsico and Snapple. "We began benchmarking them about a year and a half ago. We wanted to learn to think like them, to think like a beverage company not a dairy or a C-store chain. Coke and Pepsi even have allowed us in to see their operations , our C-store component is a very big customer for them -- and we've changed some practices as a result."

Don't follow every trend

Despite the trends toward lower calories and fat, Wawa determined from its C-store customers there was a market for a decadent milk drink. "So last year we introduced Double-Dutch Chocolate in 4 percent milkfat. It may fly in the face of low-fat and low-carb diets, but people love it," says Over.

Following instincts and some leads also led to a diet green tea, an "awesome lemonade, 12 percent juice," says Over, and an Arnold Palmer-inspired lemonade-tea combo.

There have been a lot of extra-base hits for Wawa. But there have been some strikeouts, too. Despite the nutraceutical connections, an oolong tea never caught on with consumers. Neither did a raspberry lemonade.

"In the case of the oolong tea, we even outsourced the production of that one rather than commit any internal resources," says Over. "But generally speaking, we're not afraid to give just about anything a try. It only costs us labels."

Wawa also is not afraid to spend money. "When we went to a decanter style for quarts and half gallons, we could have put on a simple, inexpensive label. But we really wanted to take advantage of the billboard possibilities, so we developed an expensive but vivid label and wrapped it all around the bottle," Over continues. "We could have bought a typical labeling machine, instead we bought one that was 15 times more expensive than a roll-fed machine -- $750,000 for one machine. That may sound crazy, but we look at it as an investment in our product and our brand. And it's paying off."

Similarly, the dairy installed a sophisticated Swisslog AS/RS in late 2000. It's four stories high, has 16 cranes, three miles of conveyors, four servers with redundancy and can handle 82,000 cases. It keeps product at 38 degrees. "We gained almost 4 percent in accuracy. We're now up to 99.98 percent dock audited accuracy.

"Just because you're small, just because you're in the dairy industry, doesn't mean you shouldn't take risks," he concludes.

 

'We need to take risks and move quickly'

Jones Soda creates a pop culture around unusual flavors, retro bottles and an emotional connection with its young consumers.

Turkey and gravy-flavored soda? A web site that greets you with "Time flies like the wind. Fruit flies like bananas" (sent in by a customer). An energy drink called WhoopAss.

 

No, this is not your father's beverage company. And if you don't get it, well, that's OK. For every potential buyer this irreverent, in-your-face approach turns off, it also ingratiates Jones Soda to probably more than one new customer of a certain demographic.

"We own the 14-24-year-old demographic," says Peter van Stolk, founder and still CEO of the 17-year-old (isn't that appropriate?) company. He throws at that niche everything he thinks they might be interested in, from athletic heroes culled from the ranks of skateboarders and freestyle bicyclists to blog areas on the Jones web site to unusual flavors in sometimes short runs.

 

"We don't have the budgets our competitors do, so we need to take risks and move quickly," van Stolk says.

Case in point: Pepsico three months back announced it was coming out in late summer with a mid-calorie cola, in partial response to America's trimming of carbohydrates. A few weeks later, Coke said it would follow suit. Jones didn't say anything; it just quickly formulated and launched a half-calorie, half-carbohydrate watermelon soda.

"The world doesn't need another soda," van Stolk reportedly said when he founded the company. What he meant, he says, is that Coke and Pepsi do a fine job of producing good-tasting products that slake the world's thirst. "People sometimes need more than a soft drink. They want an emotional connection to a product.

"The quality of the product is, of course, a very important component," he continues. "But it's only one, and some companies focus too much on the product. There's also packaging. But what I see as most important is the emotional connection. I want all our customers to get excited by our product, to feel like it partly belongs to them."

That explains the company name. "Why Jones? Because I couldn't get Smith," van Stolk says. He's not being facetious. "I figured that with a common name like Smith, at least all the Smiths in the world would try it and feel that emotional connection." He was satisfied when his trademark lawyers came back with Jones, learning only after the selection the various vernacular meanings of the word. "All of which work in our favor," he adds.

 

Peter van Stolk

Another reason customers feel connected to this company is they provide the labels. For instance, a bottle of that new watermelon soda has a black and white photo of bowling pins. Tiny type along the side of the picture says: Photo #2748: Rachel Bowman, Indianapolis, IN. That means two things: 1. Customer Rachel sent in this photo in a long-running photo contest, and 2. This is the 2,748th label used on a Jones bottle. Van Stolk says the count is above 4,000 now.

Van Stolk started the company in 1987 as Urban Juice and Soda Co., a western Canada distributor of Coke, Pepsi and an increasing number of innovative , some would call them "new age" -- beverage lines such as Just Pik't Juices, Arizona Iced Tea and Thomas Kemper sodas. In the early 1990s, van Stolk followed the meteoric rise of Snapple Beverage, and he saw the potential of emerging "alternative" products in the beverage industry. By 1994, Urban Juice and Soda was well established as a full line beverage distributor in western Canada with a reputation for picking winners among these up-and-comers.

In 1995, van Stolk decided to create his own brands. Wazu Natural Spring water debuted in April 1995, followed by the January 1996 launch of Jones Soda in six flavors (raspberry, grape, strawberry-lime, lemon-lime, cherry and orange). In 2000, the company name was changed to Jones Soda Co. and he moved the company to Seattle.

Don't forget the nose

While van Stolk will put his products' taste and overall quality up against anybody's, what he chooses to focus on are components other companies might not. One is the smell emitted when a bottle of Jones is opened. "It's a high-impact smell, one that tells you right off the bat we're different," he says. It requires working with ingredient suppliers as much on this component as on flavor.

Unusual flavors are another critical component. The closest thing to a cola is vanilla cola, the taste of which van Stolk claims beats the Coke product. But he's more jazzed by green apple (his favorite), cream soda (tied with green apple as top seller), blue bubblegum, orange & cream, crushed melon and fufu berry (a fictitious name for what van Stolk describes as a cross between watermelon and raspberry).

Currently there are 22 flavors and they include a few mundane ones, such as root beer, cherry and grape.

Jones uses sucralose as the sweetener for its sugar-free flavors.

In all cases, neon colors , another critical draw -- are visible through the clear glass bottles. The simplicity of the bottle and the black-and-white label evoke a retro feel although the cap is reclosable. The labels change often. "Send us your photo. If we like it, we will put it on our label," each bottle reads. While not everybody can be a winner, there apparently have been 4,000 so far. Even most of the losers make it into the photo gallery of the Jones web site (www.jonessoda.com), which has 12,034 pages with multiple images per page.

Jones is unabashedly a marketing-driven company. It has no manufacturing of its own, relying on (at the moment) six plants in the U.S. and Canada. Van Stolk closely controls product development, relying on input from customers, the web site, associates and his own instincts. But he also puts a great deal of stock in his two flavor suppliers, which he would not name. "We work exclusively with them, and they're great. I think they're trying to find out what we're looking for as much as we are.

"I'm not afraid of making mistakes, that's part of taking risks," van Stolk says. "Out motto is, we have to be fun, fast and cheap."

In 2000, Jones Soda launched its own energy drink, named WhoopAss, followed in a few years by two other entries under the "Energy" sub-brand; all of those are in cans. The following year came six flavors of Jones Juice, now settled under the sub-brand Jones Naturals.

The original distribution strategy had Jones Soda placing its own coolers, bearing the company's signature flames, in such off-the-path venues as skate, surf and snowboarding shops, tattoo and piercing parlors, as well as in individual fashion stores and national retail clothing and music stores. The result was hip and/or noticeable people seen drinking these hip and noticeable beverages.

"Then came an up and down the street attack of the marketplace, this time placing product in convenience and food stores," says van Stolk. Only in the past year has the company achieved chain store placements in outlets such as Starbucks (Canada last year and the U.S. this year), Panera Bread, Barnes & Noble, Safeway, Albertson's and 7-Eleven stores.

Pro athletes are a tried and true, traditional marketing method. Here's something off a Jones ad: "Jason Ellis snagged a Guinness Book of World Record for highest bomb drop into a vert ramp." Then there's Bam Margera, "a previous member of the Jackass Crew."

What are they talking about? Ellis is a "pro" skateboarder from Australia. Bam's a skateboarder, too.

As we said up front, if you don't get it, that's OK with Jones. But if you want to feel like you belong, there's the ultimate emotional attachment; and you don't have to be 14-24 for this. Just send Jones $34.95 and a photo, and the company will produce your own custom 12-pack -- 12 bottles of any flavor you choose.

Maybe later they'll teach you to blog.

Co.
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