The challenges for a small/medium CPG company today, competing against the multibillion dollar conglomerates, are greater than ever before. With the skyrocketing cost of freight, manufacturing, raw materials, sales and marketing, the small/medium CPG company does not enjoy any of the economies of scale that the established multi nationals do. Competing in the low margin highly competitive beverage category, as we do at Celsius, only accentuates the challenge. Now, add the complexity and potentially tainted past of a small/medium CPG company in a turnaround effort, and the opportunity for success is greatly diminished.
This was the situation facing Celsius Holding in the fall of 2011 when we embarked on a turnaround strategy that, although far from complete, has progressed well enough to share some key insights that have put us on the right track.
Before any turnaround effort can take place, a financial commitment from the owner or board for the funds necessary to transform the company is essential. From there, the turnaround effort turns to an assessment period that requires getting beneath the "skin" of the company to determine the challenges that will need to be overcome. This assessment includes reviewing the past, including the marketing strategies, packaging, branding/messaging, operations, the current market landscape, sales plan and most importantly, the team.
Some failures are easily identified and there will be other issues that are not so obvious. It is important to systematically assess all aspects of the business and have a plan developed for the turnaround effort that is ready to implement in no more than 90 days. The typical company in trouble has a scaled back team that is maxed out and the financial resources are limited. Getting the right team in place prior to the execution stage is imperative. Tough decisions will have to be made as it relates to business practices. In our case it meant walking away from a major customer that accounted for 40% of our revenue in 2011. Hard decisions also have to be made regarding personnel. During one turnaround, I had to terminate the brother of the owner. Don’t be surprised if it is clear that the best friend of the owner or even his wife might have to leave in order for change to be accepted. Making these types of decisions in a small/medium company has a greater impact on the remaining employees than in a large corporate environment. The key to the success of the turnaround is the employees.
At Celsius Holdings Inc., a publically traded company founded in 2004, our turnaround began on November 11, 2011. The Celsius product was and is the world's first 'negative calorie" beverage. Celsius is a brand steeped in science, with seven university studies of which six have been published in peer reviewed journals. The good news is that the product is a science based, one of a kind product and is targeted to the fastest growing categories in health and beauty; weight loss, energy and fitness. The bad news challenges for this small CPG company were the lack of brand recognition and the costly effort of marketing a new category (negative calorie beverage) to three different consumer categories.
Small/midsize CPG companies, especially in the beverage industry, are working off very small margins. Volume is the single biggest factor in gaining greater margins. Large CPG companies enjoy lower cost raw materials, lower cost co-pack fees, lower cost packaging, lower cost freight etc. Competing with the big CPG companies, with their substantial volumes and mature distribution systems, is an uphill battle. Not a 45 degree climb but more like 70 degrees. One of our first steps at Celsius was to strengthen the infrastructure. New software systems were implemented to manage the business more efficiently. The warehouse was moved closer to the manufacturing facility to reduce freight costs and a freight carrier change to move our product with minimal LTL usage lowered costly damage to the product.
Development of a website asset allowed for higher conversions for both store locating and online sales. Changes to our marketing and sales strategies were the cornerstone of the turnaround. Celsius needed a fresh new look to our packaging. The prior packaging looked similar to a power point presentation; visually very cluttered, wordy, confusing and not a premium look. The new upscale branding resonated extremely well with both consumers and category managers. Through the analysis period it became quite evident that the strategy of having a higher entry price point in a four pack configuration was not working. The brand needed a singles strategy as the product is experiential in nature, both taste and a sense of "this makes me feel and work better". The singles strategy demanded a lower price point of entry for sampling and a shift in our story to the trade.
Celsius’ sales strategy for years was the "thin and wide" approach. Let's put on national accounts, tens of thousands of store fronts, and then spread our meager marketing dollars across the country trying to support those accounts and driving pull through. Not a good approach. It's no surprise, Celsius in 2010, lost $19 million on $8.2 million in revenue. Our strategy as part of the turnaround was to go to a "drill deep" approach. We selected five markets: Southern California, Texas, South Florida, Tampa and New England. Our marketing and sales efforts were primarily focused on those drill deep markets.
The key for us was to increase daily consumers thus achieving quick momentum. We turned to a form of marketing that best fit our brand message and our budget: social digital media. We embraced Facebook, Twitter, Pinterest, Instagram and our main driver of the marketing plan, Pandora digital radio. Pandora provided the ability to target our demographics both by age and location with both audio and visual advertising simultaneously. We focused our digital radio marketing in the six drill deep markets. The individuals utilizing digital radio are typically active people, who listen to their digital station on their smart phone while they are walking, exercising, working around the house etc. It directly hits our sweet spot of the type of consumer that would be most interested in our brand.
Creation and implementation of new digital campaigns had to be cost effective, quick and most importantly- measurable. We developed a custom software program that would allow for the creation of in-house new digital radio campaigns. The software provided easy implementation and detailed reporting of all activity of a consumer from "click" through to our landing page through exiting the site. Analytics play a key role in a small CPG company with a limited marketing budget. Every dollar spent has to be measurable against the marketing objectives.
At Celsius, the strategy was effective and a year after walking away from our largest customer we had regained the lost revenue and exceeded it with more profitable sales. We also became an international company and gained acceptance among new consumers with international sale now accounting for roughly half of Celsius’ revenues.
Building a small to medium size CPG company, especially in the highly competitive, low margin, beverage category, is a very steep hill to climb. Achieving brand recognition is very costly. Gaining retail distribution and creating the pull through takes months if not years to accomplish. Deciding on whether to go DSD or a hybrid and managing the strategy is resource consuming. It is not a pretty picture but doable. Focus is one of the most important attributes the management team must adhere to. It is very easy to get distracted by "opportunities". Chasing opportunities greatly reduces your chance for success.
The turnaround presents other challenges like the "skeletons" that are in the closet. Rebuilding relationships with former retailers and vendors is essential. The executive team has to prove intent and integrity moving forward. It is important to reconnect with loyal consumers who lost easy access to the brand during the down turn of the business. It takes a solid measurable plan, focus and a dedicated, excellent team, to compete against the big companies in the CPG industry.
Last year we made progress against that objective, growing sales 38% to nearly $11 million and reducing our net loss to $1.83 million from $2.75 million the prior year. The turnaround at Celsius remains a work in progress, but the gradient of the hill we are climbing has flattened considerably compared to when our journey began two and a half years ago
Gerry David is CEO of Celsius, Inc., manufacturer and marketer of the world’s first negative calorie Beverage. David is a veteran CPG industry executive who joined Celsius in the fall of 2011.