This is the second in a series of interviews with leaders of business groups and food and beverage incubators, including General Mills 301 INC, Nestlé’s internal incubator and Gen Z incubator. by Target. The existence of these types of organizations has been one of the most significant trends in how Big Food innovates these days.
Today’s discussion is with Matt Hughes, Vice President, Incubation, and one of the founding members of VEB of Coca-Cola (Venture and Emerging brands). This interview has been edited for length and clarity. You can read the full transcript here.
Barb Stuckey: What is your role at VEB?
Matt Hughes: I oversee internal innovation, the external investments we make, and help them navigate the growth cycles that we have identified for emerging brands.
Before joining Coke 12 years ago, I was a beverage entrepreneur. I have launched three brands of drinks. Before that I was a bottler, distributor. I spent some time with a public company along the way called Jones Soda in Seattle.
Stucky: VEB was super early. You were in adventurous and emerging brands before they were cool. What motivated this?
Hugues: This happened because there had been a series of failures for the company. We launched new brands in North America that failed… And we made acquisitions that didn’t work. Company management said, “What’s different? What’s going on ? We have to change what we do.
Disruption was starting to occur in the beverage market in the United States, including a lot of category blurring. The energy drink category was created in the early 2000s with improved waters such as Vitamin water. We needed a group to look at things through an external lens, build an ecosystem to take advantage of these trends, and finally, participate.
Our mission is to discover and develop a portfolio of emerging brands that can help us grow in the future, as well as to examine emerging technologies, entrepreneurs and other platforms that can give us new insights into the direction. that consumers take.
Stucky: How do you measure success?
Hugues: By the return on the invested capital. We also want to ensure a significant percentage of the company’s revenue growth. Coca Cola now has a comprehensive drink for life strategy. It’s an important growth strategy that says there are lots and lots of drinking opportunities, and we want to take advantage of and participate as much as possible, not just in the US market, but globally. VEB fits well with this growth strategy objective.
Stucky: Can you give us a case study of one of VEB’s investments that has worked very well?
Hugues: Well, I love them all, but there are two that come to mind. We made our first investment in Honest tea in 2007. We acquired the scale in 2010, and it’s a great story: the first ready-to-drink organic tea in the United States, fair trade, environmental awareness, sustainability and growth. Seth Goldman, the founder and CEO, is still involved today, which is a wonderful added bonus for the founder to stay with the company (after the acquisition).
Hugues: At the moment i like Topo Chico, a sparkling mineral water brand from Mexico that we acquired in 2017. It’s a great brand, experiencing healthy, strong, double-digit growth, with a base of passionate consumers and followers. Authentic return story. And there is a beautiful symmetry between Topo Chico and the Coca-Cola company. The Topo Chico de Monterrey company bottled the first bottle of Coca-Cola in Mexico, around 90 years ago.
Stucky: Are you always going to take a minority position and then ultimately acquire? Or is it a brand by brand, business by business case?
Hugues: Every transaction is different, depending on the needs of the founder or owner, the stage of the Coca-Cola company at the time. In the case of Honest, it was a multi-step process where we entered as a minority investor, we helped with distribution and other supports from a supply chain perspective, and then later made an acquisition complete. In the case of Topo Chico, it was an outright merger-acquisition transaction.
Stucky: Can you talk about a VEB investment or acquisition that did not work out?
Hugues: Well, I don’t have a good example of a minority investment, but we had an internal innovation that didn’t work.
We created and launched a brand called Cascal in 2008. It was a drink made from fermented juice. Today kombucha and fermentation are hot and hot and trendy, but we had a head start in 2008. Consumers did not fully understand fermentation. It was written “fermented” right on the packaging, and a lot of people would contact us and ask, “Does this fermentation contain alcohol? There was a lot of confusion around the term.
The company had invested in a patented dual fermentation technology that turns the juice into that truly delicious and unique flavor profile. And it cuts down on sugar and calories at the same time. We thought we were on to something. We launched nationwide with a leading natural retailer (Whole foods from my research). We were experimenting, we were taking risks, but the market was not quite ready for this fermented juice proposition.
But we’ve built muscle around agility, evolving a brand proposition, trying new packaging, when one packaging doesn’t work let’s move on. And around the way we communicate something to a consumer that was not well understood (fermentation).
Stucky: Fast forward 11 years, and you have a minority investment in Health-Ade Kombucha.
Hugues: Yes. We also acquired a brand in Australia called Mojo kombucha.
Stucky: People might think from the outside that it would be so much cheaper for a company like Coca-Cola to grow in-house and incubate it in-house, rather than paying the multiples required for an acquisition. Is it?
Hugues: There is a balance you need to have from a portfolio perspective. You want to place bets in more than one place. This will partly involve internal innovation and others through external investments. We would also like to have a balance between small, medium and large brands evolving and growing over time.
Stucky: How does a business benefit from Coca-Cola’s investments? How do they interface with the Coca-Cola company? And in which areas do they need to ask you the most?
Hugues: When it comes to how they can get the most out of a relationship with Coca-Cola and VEB, some would be in the initial benchmarking where we create a growth strategy together.
Entrepreneurs don’t have the resources and access to the things that we have. Often these are very simple things like knowledge and ideas. They are running out of steam and do not have the financial means to acquire the information resources to which we have access. So we help them think about trends and category information. Marketing is often an area of underinvestment or lack of affordability… Sometimes there is an element in the supply chain that we can help. Other times it’s distribution. It depends on the brand’s need at the time.
We can help think about an innovation pipeline, some opportunities they might not have thought of, ideas for expansion, etc. We usually step in when the brand asks for our help. It’s not too brutal, it’s really very consultative. Sometimes it’s a third party. It just depends on the situation.
Stucky: What does success mean to you as an adventurous and emerging brand group?
Hugues: It means discovering and developing a portfolio of emerging brands and disruptive companies serving Coca-Cola’s objectives. We’re part of an internal ecosystem, if you will. Our modeling system is a pretty big business. So we are a part of that in a holistic way.
Stucky: What areas are you interested in?
Hugues: Water use is important to us, as are women’s empowerment and environmental sustainability. So we really have a missionary approach to things. It’s about growth for us, drinks for life, but also important aspects of what we are trying to do.
The plant is an interesting space in which we participate… but it is an area adjacent to dairy products from a protein point of view. We spend a lot of time thinking about the future and the future of consumers in five or ten years. We invest a lot of time, energy and money against this vision of the future state: not only from the point of view of the beverage portfolio, but also to gain expertise in new technologies, marketing and digital platforms, and other areas that can help grow their brands and ours.
Stucky: All right, now I have the million dollar question for you. If we have to look 30 years into the future and you have to bet on a company in your portfolio, which of them has dethroned Coca-Cola as the biggest brand within the company?
Hugues: Well, that’s a really good question. I have no idea. I think Coca-Cola 30 years from now will be as trendy as it is today. It’s more than a product. It’s a way of life, it’s a cultural phenomenon. It has stood the test of time, and I think it will continue to stand the test of time.
You have heard my enthusiasm for Topo Chico. And I like Bullet proof vest and what it stands for and what it does to disrupt the sports hydration category. I could go on and on about the brands we have in our portfolio today. Emerging drinks certainly aren’t a boring space! The pace of change will accelerate. I can’t predict precisely what this means, but it’s going to be fun and exciting and we can’t wait for it.
Read it full interview with Matt Hughes here.