Alcohol Consumption and Marketing

• Randall Searls thought it was a particularly bad time for the partners to fight because for 3 years the partners had worked side-by-side and invested their savings and time into their startup, Big Boom Beverages (BBB).
• The partners had regrouped and exceeded results before when faced with the prospect of going out of business years earlier.
• Now they sharply disagreed on how to respond to a threat that could destroy their business, making their decision more urgent.
• Co-founder Malik Evans mentioned that around 2007, he and two others began talking about starting a business, which Randall was willing to help with on the business side.
• Randall warned that 75% of new businesses fail.
• Malik Evans, Jaf Hallett, Denny Grocki, and Randall Searls had talked for months after receiving their undergraduate degrees about business to create a business of their own.
• Malik recalled a popular type of drink they had consumed when they were in college: an energy drink, vodka, and a lime-flavored soft drink combination.
• For college students in the late 1990s, energy drinks frequently replaced coffee for staying alert to study, attend classes, and take tests and they also enhanced athletic performance.
• The four discussed building a business around a premixed version of the drink they had consumed in college.
• Randall said it was crazy to start a business in the beverage industry, but was willing to do it.

Adult Beverage Industry

• Thousands of companies were part of the adult beverage industry worldwide, ranging from small local breweries to global companies such as Anheuser-Busch, Heineken, and Diageo.
• The industry generally had annual sales in the billions of dollars, which gave them scale advantages over small producers, including in marketing, manufacturing, and distribution.
• Spirits like vodka and gin were the largest segment of the alcoholic beverage market in the 1970s, but beer and malt liquor displaced them in the 1990s.
• Between 1995 and 2009, beer consumption declined, wine consumption increased substantially, and spirits consumption increased modestly.
• Many states in the United States relaxed their laws regulating liquor sales, and the distribution channels for beer and wine broadened to include supermarkets, discount stores, and convenience stores.
• These retailers demanded frequent deliveries of small quantities to keep shelves stocked and to reduce warehousing costs.
• Convenience stores wanted adult beverages supplied in single containers due to limited shelf space and the purchasing behavior of their customers.
• For convenience stores, young single males were the largest market segment
• Their best-selling product was tobacco, followed by food, packaged beverages like soft drinks and energy drinks, snacks, and beer.
• Food, packaged beverages, and alcoholic beverages had the three highest store margins.
• Small beverage companies are innovators in alcoholic beverages, such as the segment of craft beers.
• They experiment with formulations because they produced in low volumes and easily adjust their manufacturing processes and offered products from flavored spirits to craft beers with signature tastes to alcopops.
• The sugary fruit flavors masked the taste of alcohol and were palatable to young people, especially females.

Rise of Canned Energy

• Canned energy drinks combined caffeine with other ingredients like taurine or carnitine (amino acids), herbal ingredients like ginseng and guarana, B vitamins, sugar, and green tea extract.
• In the early 1960s, Taisho Pharmaceuticals of Japan marketed Lipovitan D and energy drinks were not sold in the United States until 1997, when introduced Red Bull
• Red Bull packaged its product in a slim, 8.4-ounce aluminum can.
• Red Bull's marketing plan targeted young men through brand associations with sports.
• Red Bull eschewed large expenditures on traditional media and instead sponsored auto racing and vigorous sports such as the X Games, snow thrill skiing competitions, and the Red Bull cliff diving tour.
• The Red Bull-sponsored Stratos jump on October 14, 2012 which generated many news stories and was popular on social media.
• Starting in 2006, Red Bull began to build an online presence with YouTube videos and launched its own channel in 2008, attracting a huge following of YouTube subscribers.
• The channel featured short videos on soccer ball tricks, skateboarding, snowboarding, and motocross and developed an in-game island for the PlayStation Home platform in 2009.
• The company also bought soccer teams around the world, including teams in the United States (New York Red Bulls in Major League Soccer), Germany, and Brazil.
• Between 2000 and 2010, sales of energy drinks in the United States grew roughly 3,500%, while coffee sales remained flat.
• Red Bull maintained the largest share of the energy drink market, although Monster, owned in part by Coca Cola, closed the gap over time.
• Researchers estimated in the early 2000s, 34% of 18- to 24-year-olds regularly consumed energy drinks.
• Many energy drink companies used promotions in social media such as YouTube and Facebook to reach their target audience and often used provocative product names such as Full Throttle, Ammo, and Havoc.
• Multiple studies on the impact of moderate energy drink consumption found improvements in focused, sustained attention and reaction speed while excessive consumption could lead to adverse effects, including fatal cardiac arrest.
• Several European countries banned sales of energy drinks but later relented after research showed that the drinks were generally safe when used in moderation.

Launch of Big Boom Beverages, LLC

• The partners decided that their product would not contain hard liquor, using malt liquor instead, for sale by retailers such as convenience stores.
• Several large beverage companies had already introduced caffeinated alcoholic beverages.
• The partners established Big Boom Beverages (BBB) with their savings and contributions from family members and friends and shared all business functions, but informal roles soon evolved.
• Malik emerged as the marketer and chief motivator (CMO), Denny focused on distribution, Jaf shared product management with Malik as operations manager for manufacturing, and Randall took care of finance and strategy.
• The group registered as a limited liability corporation (LLC) to provide personal financial protection in the event of bankruptcy.
• BBB found a consulting firm that helped startups develop beverages.
• The product had an average alcohol by volume (ABV) content of 8% and the volume of the can was 12 ounces.
• They settled on the product name Highbrid, which was a pun on both the composition and effect of the beverage.
• They were confident of the beverage ingredients, the target market, and the price they were going to charge.
• They defined their principal target market as male students attending Midwestern universities with large enrollments in relatively small towns and set a retail price of $2.29 per container.
• The product would be sold in single cans and the package design imitated the subdued graphics of Red Bull containers.
• BBB's biggest obstacle was distribution because large distributors had little interest in a low-priced product from an unknown startup.
• Through Denny's industry contacts, BBB negotiated deals with liquor distributors that served college towns in the Midwest.
• The partners themselves promoted the product directly to convenience stores in the same towns and the sales effort was received positively, but production, distribution, and payroll costs soaked up cash.

BBB's Near-Death Experience

• Sales of Highbrid grew, and retailers and customers responded positively but cash flow was not sustainable.
• With capitalization of another $100,000, BBB could survive in the short run, but the founders had limited resources and had a glum meeting to discuss their next steps
• Only Malik was confident that BBB could succeed if it increased alcohol and energy drink content, changed the brand name, changed the packaging design, and launched a low-cost promotional effort centered on social media.
• BBB increased the ABV of the product to 14%, increased the percentage of the energy drink, sized the container from 12 to 23.5 ounces, and set the retail price to $2.99.
• Malik proposed a new product name, Totaled and BBB hired a professional graphic designer to create a package design.
• BBB launched a website with marketing announcements/information. They set up a Facebook page to recruit testers and announced marketing events.
• They made videos of audience members endorsing Totaled and posted them on social media. Video uploads by customers then showed the effects of customers' drinking the product.
• Totaled sales increased 150 percent in a year, to 500,000 units, and in its second year, sales soared to 750,000. A national convenience store chain reported that Totaled had the second-highest sales growth among the alcoholic beverages it sold and the BBB partners grossed more than $2M in two years.

Twist in the Road

• As Totaled became popular for young people, binge drinking led to troubling incidents.
• In the year after Totaled was introduced, 35 students at two colleges were reported to have been hospitalized due to the drink but later reports clarified Totaled had not been one of the beverages the students consumed.
• Physicians noted a spike in patients who had consumed beverages containing alcohol and an energy drink.
• The CDC was concerned that a significant percentage of high school students and young adults had consumed a caffeinated alcoholic drink at least once a year and warned about the effects of alcohol.
• Administrators at several colleges and universities said that the consumption of caffeinated alcoholic beverages had been implicated in sexual assaults on their campuses.
• BBB had no public relations (PR) specialist or outside PR firm.
• Depending on the partner, BBB expressed concern, pushed back, or simply said no comment when asked about Totaled.
• BBB stated that the company had no control over its customers used the product and disavowed responsibility for underage drinkers.
• Drivers who excessively consumed the drinks had been involved in fatal accidents that killed five people so attorneys general began the process of banning sales of the products.
• BBB received offers from PR firms to help with its crisis management but the founders rejected them, mostly because of the high fees, and announced BBB would add warnings to their product packaging and create a new website section.
• Rumors circulated that the federal Food and Drug Administration (FDA) launched a review of the beverages, which BBB feared.
• SABMiller and Anheuser-Busch Inbev withdrew their caffeinated alcohol products without protest.

The Reckoning: Fight or Flight?

• Randall raised questions about heading off an FDA warning letter, seeing what the letter would mean practically, waiting and seeing what FDA would do, and how to react to a letter if issued “- I’m disgusted by the YouTube binge videos about Totaled,” said Denny, “The reports about binging that tie it to deaths and sexual assault are sickening. This isn’t what I want to do.” “- We’ve got money in the bank now. We can afford it."
• Randall agreed with with Denny but was not willing to give up and agreed there was responsibility on all sides and questioned if there was a way we can lower the risks of Totaled enough to get people off our backs and save the company.