Innovative to a ‘tea.’ – New Products Company of the Year – includes related article – Ferolito Vultaggio and Sons

Steve Dwyer

Like local legend Frank Sinatra, FV&S does it their way–from stunning package designs to atypical new product ideation.

Curiosity washes over Ferolito Vultaggio & Sons like a cold iced tea quenching a powerful thirst on a sultry summer day.

People often wonder, who are these guys? Their core brand, Arizona, belies their very essence: a Manhattan-based beverage company with Italian-American roots that fashions an image of the arid Southwestern desert and mystique of the Far East.

People often ask, what are these guys thinking or, for that matter, drinking? While most companies view market research initiatives and consumer focus groups as essential, FV&S often avoids such formal techniques.

“We have tow approaches to new products,” reports John Balboni, executive vice president of marketing and business development for FV&S. “There’s the traditional approach where we conduct research and look at what the competition is doing. Then there’s the Don Vultaggio approach, where we check garbage baskets to see what people are consuming. We call it `rubbish marketing.'”

Then people move to the $64,000 question: Where are these guys headed? If their performance over the past 12 to 18 months is any indication, they’re headed nowhere but up. In the competitive New Age beverage segment, FV&S has raise the bar on new product distinction and done so without compromising its unconventional, independent-minded values.

“We’re not mass marketers; we’re more like gourmets,” offers Don Vultaggio, chairman of the Lake Success, N.Y.-based privately held company. “We push beyond what’s normally accepted and deliver value through unique product formulations and packaging designs. We take aim at the consumer who says value is size, good looks and great taste.”

Last year was a case in point. New beverage products that caused a buzz in the marketplace include Arizona Asia Plum Green Tea, processed with real plum juice, ginseng and honey; Blue Luna Iced Coffee, packaged in 12.5-oz. bottles shaped like double-handled Roman jugs and formulated with the new sweetener Splenda; Palm Beach Flavored Beverages, formulated with malt and positioned for consumers who enjoy low-alcohol spirits; and Arizona Total Sport Extreme Thirst Quencher, fortified with antioxidants and ginseng extract. Total Sport makes FV&S a player in the isotonic beverage category.

For the first time, FV&S has expanded beyond beverages through a second Blue Luna Cafe offering: Salsa N’ Chips, a snack item that delivers convenience through portability.

While these new brands build a marketplace presence, Ferolito & Vultaggio has watched their vaunted Arizona franchise grow into a $500 million brand in seven years, ranking behind Lipton and Snapple in the retail ready-to-drink (RTD) tea category. The line includes seven flavored teas, seven juice drinks, two non-alcoholic colada mixes, four diet teas and a carbonated soft drink.

Augmented by distinctive packaging, which includes a design series by pop artist Peter Max and a new grip-glass bottle for its flagship Lemon Tea, Arizona does not lack for packaging variety with its 16-oz. and 24-oz. cans, proprietary 16-oz. and 20-oz. bottles, 12-oz. aseptic juice boxes, 1-liter bottles, gallon containers and a new one-of-a-kind polypropylene 24-oz. Sports Can.

While the packages are spiffy, the thing that Arizona which represents 95% of company sales, brought to the table in the early 90s was redefinition of the “single-serve” concept through its signature 24-oz. Big Can.

Raised in Brooklyn, Vultaggio says that it was standard practice when a customer ordered an iced tea at a local diner for the beverage to be served in a big glass. “Because it’s non-carbonated, you can consume more. If I’m thirsty, I can easily consume 24 ounces of tea,” he states.

Raising Arizona

In the early 1970s, his partner, John Ferolito, delivered beer and other beverages throughout the boroughs of New York City. In 1992 they decided to become beverage marketers and entered the still-untapped RTD tea business.

At the time, the burgeoning Tex-Mex restaurant theme was growing in popularity throughout Manhattan. Unveiling a brand conjuring up images of the Southwest was appropriate, says Vultaggio.

Following the first two tea flavors, Lemon and Raspberry, the company expanded with a Diet Lemon flavor. It also expanded to incorporate glass into its process. “Bottles were a natural progression since they had so many benefits, such as resealability.

Vultaggio didn’t commission a study to discover the importance of resealable bottles … he hit the streets. Some New York thoroughfares were and still are a “marketer’s dream since New Yorkers have a tendency to throw empty cans and bottles out their car windows,” Vultaggio reveals. “What we found was that most of these empty bottles littered on the side of the highway still had the cap on them. The cap was invaluable to the consumer to keep the beverage fresh.” Something cans couldn’t provide.

To complement big cans, Vultaggio decided to implement a 20 oz. long neck and wide mouth 38 mm bottle. The long neck allowed consumers to hold the bottle without warming up the liquid.

Long necks and wide mouths are ambitious packaging techniques; however, many of FV&S’s new product ideas aren’t cheap. The company justifies the added expenses by saving capital in other areas. Rubbish marketing is one. Also, rather than ramping up internal costs through its own manufacturing operation, FV&S outsources to co-packers. On the R&D side, the company utilized the expertise of Allen Flavors, a flavor house based in Edison, N.J. (See NEW PRODUCTS COMPANY OF THE YEAR.)

The role of co-packers is crucial to FV&S’s success. “Each packer has his own operating manual and every aspect and testing requirement we expect is clearly written,” says Balboni. “We have a 12-page, 55-point valuation system governing areas like cap and label application, warehouse sanitation practices and the QA lab.”

FV&S last year invested $4 million in labeling equipment for its packers, a process which allows labels to be applied right before product is shipped to ensure quality.

Designs On Innovation

Before, co-packers get involved, FV&S follows its own new product ideation cycle. The team first creates a package design, chooses a label and then picks a brand name that fits within the overall framework.

“I got the idea for Arizona Green Tea from a bottle of my wife’s perfume,” says Vultaggio. The perfume inspired the idea for the bottle shape and color scheme. Vultaggio’s wife, an artist, sketched the exquisite Oriental garden. Today, the three flavors, including Green Tea with Ginseng & Honey; Diet Green Tea with Ginseng; and Asian Plum Green Tea with Ginseng, represent the company’s best-selling Arizona line.

“This bottle convinced us that packaging as art gets consumers excited and induces trial,” asserts Vultaggio.

There were formulation challenges with Green Tea that weren’t resolved until the 11th hour, says Vultaggio. “The night before the initial plant run, I decided to change the calorie content from 80 to 60. The labels were already printed for an 80-calorie product. But I thought a 60-calorie version was less sweet and had a more authentic Chinese tea taste.”

To protect the integrity of the beverage, the company used a full-body shrink label, which it had developed for its Pina Colada product. This product needed UV protection for the milk formulation. Pina Colada took one year to launch, but time-to-market for Green Tea was about five months.

There are other examples of steadfast product development. In Mississippi Mud, FV&S’s black and tan beer brand that hit the market in 1997, Vultaggio wanted a glass vessel with a handle mounted on the side.

“The Glass Institute told us that a handle wouldn’t hold up to the pressure from carbonation and pasteurization,” he notes. “We later found that we could make the glass weight proper and, in fact, put a handle on a beer product.”

These days, the smooth pilsner variety, packaged in 16 oz. faux ceramic bottles, is winning friends in the marketplace. “The package is really pushing this product at the retail marketplace,” says Balboni.

Using its experience with Mississippi Mud, the company proceeded confidently with Blue Luna Iced Coffee, which debuted last October in both Latte and Lite Mocha flavors. “We went with a double-handle urn look,” says Balboni. “It was a wonderful package to induce trial.”

Trade Talk

The new products and line extensions have stirred enthusiasm among FV&S’s trade partners. FV&S, which garnered 11 awards in 1998 for attractive packaging, will continue to use its single-serve packages in C-stores to drive family size sales in supermarkets, which now account for about 20% of its volume.

The retail trade’s anticipation stretches beyond tea. Arizona Total Extreme Sport, which became available nationally in June 1998, contains a thermal barrier to keep the 24-oz. plastic bottle colder longer, and a dual-flow spout for better control.

“The antioxidant vitamins [A,C and E] are the ones that athletes really value. We give the isotonic consumer something to move up to,” says Balboni.

Blue Luna Salsa & Chips allows the expand beyond their beverage roots and compete in the snack food market. The product took one year to master, and became available nationally by the end of March.

“The container has a polypropylene oxygen barrier and the laminate film layer does too, which doubles the shelf life of a typical bag of snacks,” says Balboni.

The other product in the Blue Luna Cafe family is Blue Luna Cafe Iced Coffee. “The Lite Cafe Mocha variety has fewer calories than skim milk, but still has a full-bodied taste,” says Balboni.

Blue Luna has line-extension potential. One new product in the experimental stage is a Blue Luna Cafe smoothie, says Vultaggio.

Another brand the company believes has excellent potential is Palm Beach, a malt-based cocktail mix, which will be shipped nationally by the end of 1999.

Sold in Margarita and Cosmopolitan flavors, Palm Beach offers consumers the taste of a mixed cocktail in the convenience of a take-home package. Vultaggio is confident Palm Beach, which took about three years to develop, will “bring renewed excitement to the low-proof, single-serve refreshment market.”

Stay The Course

As it looks ahead over the next five years, Vultaggio insists the company, which has about 125 employees, has no plans to delve into anything radical … save for a flashy bottle design here or there.

While it keeps an eye on chief competitors such as Coke, Pepsi, Triarc and SoBe, does not chart its course based on competitive activities.

Take the booming functional food and beverage segment, for example. You could say their motto is, “too many herbs spoil the tea.” According to Vultaggio, “we don’t look at our Green Tea in the same vein as Snapple does its functional beverage [Essentials]. Some of these beverages have taken it to the extreme. They throw everything into the formulation like it’s going to be a magic elixir.” FV&S isn’t one to go scouting for beverage companies either. The company is profitable and debt-free, and buying a beverage firm would complicate matters. FV&S has made no acquisitions primarily because “we are not eager to assume other companies’ debt, and there are too many `fix-its’ out there right now,” says Vultaggio.

Overall, staying the course is the thing that Vultaggio, a big man who stands about 6’5″, thirsts for most. “The way I see it, if Frank Sinatra would have started suddenly singing rap, shaved his head and put on earrings, it wouldn’t have been well embraced. Ours is consistency. That’s how you hang on a long time,” Vultaggio declares.


Extra, Extra, R&D All About It

What Ferolito, Vultaggio & Sons saves by holding down expenses in areas like national advertising and market research, it makes up for in the spare-no-expense mentality of product development.

John Balboni, executive vp of marketing and business development for FV&S, says the company uses only high-end ingredients that other companies might “shy away from because of costs. From a raw material standpoint, we’re sometimes 100% to 200% more expensive on a cost-of-goods basis than other beverage makers.”

Balboni says that the company outsources a majority of its R&D responsibilities to Allen Flavors, based in Edison, N.J. The flavor house has been affiliated with FV&S since the inception of the Arizona brand in 1992.

Along with Balboni and Vultaggio, the Allen R&D team consists of about 20 individuals.

Allen Flavors was instrumental in developing the new sweetener sucralose, which was approved in April 1998 by the FDA, for Blue Luna Iced Coffees. “Sucralose blended well with coffee and offered a consistency in quality,” Balboni states. “It also offers a stability at high temperatures that additives like aspartame do not, and allows the product to sustain a consistency in quality. If we had used aspartame in Blue Luna we’d be looking at a shelf life of about six months, while with sucralose it’s more in the nine to 12 month range.”

In the formulation of tea varieties, Balboni says that unlike many other beverages, tea has always been driven by home preparation. Consumer tastes also vary from region to region. In the Midwest, consumers drink tea unsweetened and it’s usually the instant variety. On the West Coast, they use lemon and like it sweetened, while in the South they like it heavily sweetened with no lemon.”

As FV&S goes forward, Balboni, who managed the Nestea brand at Nestle for 4 years, says R&D challenges into the next century will only become more vexing. “We’ll have to provide even more innovation along with value and quality because the consumer is getting smarter and more sophisticated each year. Fancy brand names won’t be enough to grab them,” he promises.

COPYRIGHT 1999 Cahners Publishing Company

COPYRIGHT 2000 Gale Group

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