#117. DRY Soda makes alcohol-free sparkling beverages. We talk with founder Sharelle Klaus about her path climbing the ladder of national food and beverage distribution and how she survived the 2008 recession’s impact on her business and the landscape more broadly. The Loose Threads Podcast features in-depth discussions with leaders across the rapidly changing consumer economy.

Check out the full transcript below. 

Sharelle: [00:00:01] I wanted everyone’s first experience with DRY to be in a champagne flute in a fine dining establishment, because I wanted this to be a sophisticated option. It wasn’t soda-soda. This was a whole different category of soda, a whole ‘nother way to think about sparkling beverages. 

Richie: [00:00:15] That’s Sharelle Klaus, founder of DRY Soda, which makes alcohol-free sparkling beverages for festive occasions. Sharelle started the company in 2005 after failing to find evening-caliber beverages without alcohol. She set off on a journey to build a new category of beverages well before and on a much higher level than the flavored sparkling water that’s prevalent today. 

Richie: [00:00:34] I’m Richie Siegel, the founder of Loose Threads, which analyzes and advises next generation consumer companies, and FaceLift by Loose Threads, a retail incubator and accelerator for leading brands and retailers. We also just announced Loose Threads Live, our invite-only and entirely off-the-record gathering for founders, executives, investors on October 3rd in New York City. Learn more and join our newsletter at LooseThreads.com. 

Richie: [00:01:03] I started the Loose Threads Podcast to spark engaging discussions with leaders across the consumer economy. That’s why I was excited to talk with Sharelle about her path climbing the ladder of national food and beverage distribution and how she survived the 2008 recession’s impact on her business and the landscape more broadly. Here’s how it all began. 

Sharelle: [00:01:23] In the late 90s I had an internet company. It was a secured internet portal for ten-to-13-year-olds. It didn’t succeed, but one of the things that I learned from that that was a really cool experience was I really wanted to build a brand. I knew that I was pretty good at raising money, but I knew that it needed to be something that I was passionate about. And, at the end of the day I was not passionate or nor did I even care what ten-to-13-year-olds did on the internet. 

Sharelle: [00:01:44] And so I was ready to start a company after the birth of my third child when he was about one, and I was being very deliberate about [it]—I knew I wanted to build a brand, I knew I was a foodie so it needed to be somewhere in food and beverage. So I started thinking about that, but then surprising[ly], I got pregnant with my fourth child. So I put that on hold. 

Sharelle: [00:02:03] But during that time I was going out to dinner with my husband a lot and I was feeling very left out. And I thought, this is really interesting, there is nothing for people who aren’t drinking to drink. You just go to a party, you go to an event and, obviously, through that time I had, you know, four kids in ten years. So I didn’t basically drink that entire ten years. That’s really where the seed of that idea came from for me. And so, very quickly after I came up with the idea I did some research and then decided to launch the company. 

Richie: [00:02:32] So in terms of existing options at that time, it was juices, sodas. 

Sharelle: [00:02:37] Yeah. So if you went to a restaurant your options were, you know, sodas, like Coke, or a Pellegrino, a sparkling water. And that did nothing to add to food. So even I had this—there was a potential I was gonna be able to go to The French Laundry, which is obviously food mecca in the United States, but I was pregnant at the time, and I was like, well, why would I go? I don’t wanna go now because, for me, that’s only half the meal. So I skipped out on that opportunity. Interestingly, The French Laundry, years later, brought DRY in and I was able to go and have my meal paired with DRY. 

Richie: [00:03:07] Very cool. 

Sharelle: [00:03:08] Yeah. 

Richie: [00:03:08] So in terms of the first, call it a year or so of the business, what are your priorities? And, I guess, if we talk about getting to the inflection points of the business, I guess, talk us up to kind of the first one, if that makes sense. 

Sharelle: [00:03:20] I mean, the first thing was I needed to learn about the business. I knew nothing about CPG at all. All of my experience had been in high tech and then the consulting world. So that was kind of step number one. So I had the idea. The first thing I did is went to a fancy food show, which is a big trade show for fancy foods, just to kind of get an idea of what the industry was like. So I walked that show, realized there was nothing like what I was doing, so that was kind of step one. And then I had to learn about how to even make the soda. So that was sort of the next thing. 

Sharelle: [00:03:49] And my first idea was a basil soda. I was like, wouldn’t it be amazing if you had a basil soda, you could pair it with Italian dishes. But then I thought, well, I don’t think the world’s quite ready for basil soda. So my next idea was lavender. And so over the course of the next few weeks I came up with four flavors, it was lavender, kumquat, rhubarb and lemongrass, and there was kind of reasons for each of those. But again, I knew nothing, and just keep in mind this whole time that I’m trying to do this I also had four kids under the age of seven and I was homeschooling my daughters. So basically what I had said to them was—they were five and six—I said, “Hey, we’re gonna to change the curriculum. I’m gonna teach you how to start a business.”

Sharelle: [00:04:30] And so a lot of what I was doing with them in the day was around the business, let’s be honest. And I would take them to meetings, they went to PR meetings, they went to design meetings. It was obviously, this was a bit of a challenge, right? I have four kids, I don’t have a nanny. I was trying to do this. There was a lot of education on my part. 

Sharelle: [00:04:44] And then I got kind of a break because I was able to meet a food scientist. Actually, I shouldn’t say “met.” He called me one Saturday afternoon, and for an hour I was on the phone with him and he basically said, “Here are the steps to making a soda.” And I had been trying to steam, you know, different extracts in my kitchen, but he got me connected with some flavor houses that could help give me those extracts. Now, as a company, we work with flavor houses and they create the whole product for us and we work with them but, at the time, because I was a nobody, all they would do is give me the extracts. So I had to come up with the whole recipe, the sugar, the acid, the water. 

Sharelle: [00:05:17] And that is what I did. That is what I spent the first few months of DRY doing. And I remember the food scientist told me you’re gonna have to do about a thousand tests on each flavor. Well, I have ADD, so I was like, oh that’s not gonna work, I’m never gonna make it. And sure enough, I did. And on lavender I probably did like 12, 13 hundred tests to get it right. 

Sharelle: [00:05:37] And then I had to find a design firm. And I had to convince a design firm to do this for really cheap, which I was able to do. I convinced them that we were gonna be a huge company, they were a newer design firm, and I said, “You’ll make a big name for yourself.” And in reality they did, it was really cool. We ended up working with them for 10 years, our original bottles won all sorts of design awards, and we were even in the Modern Museum of Art in Denver, which was really cool for a bottle. 

Richie: [00:06:01] How did you know you had the version that was sellable, with each of the flavors after X amount of tests?

Sharelle: [00:06:07] I did testing with like, groups of people. So, my mom had a bakery, and so she had a bunch of foodie friends, so I did testing with them. I did testing with my family and friends and mostly, to be really honest, this is probably not something I’ve ever admitted before but, it was really more for me. Did I like it? Because at the end of the day I knew I was building a huge company in my head, I knew this was gonna be a big success, but I also knew I was building it for myself. And what was I gonna like? And I had a picture in my head of what each of those flavors was going to be like, and I used to just daydream about that and think about it before I went to bed at night. When I was supposed to be taking notes during my daughter’s piano lessons, I was taking notes on flavors. So it was really about whether I liked those flavors, and were they matching what was in my head. 

Richie: [00:06:50] And as you got to you know number 1,303, did it click, or was it—?

Sharelle: [00:06:54] Yeah. And so, interestingly, lavender was the most difficult one to do and that was the one I was the most clear on what I wanted it to taste like. So an interesting story about that is, over the 14 years I have shed many tears over this company, but this was the first time. The day before I was to go do the co-packer, I was testing the recipe one more time and it wasn’t right. And I was like, ah…  

Sharelle: [00:07:18] I remember sitting at this cardboard table in my living room with the kids all around me and I was crying, because I was like, this didn’t work, and I was telling my husband it didn’t work, and he’s like, “Okay just calm down, just… I’ll take the kids, just spend your time figuring it out.” And I did, and then went to the co-packer the next day and bottled them. 

Richie: [00:07:35] How does this company launch? In what year are we in?

Sharelle: [00:07:37] So we launched in 2005. I came up with the concept basically in January of 2005 and then launched it in January of 2005. I tend to, when I have an idea and I’m passionate about it, I tend to go pretty fast and hard. And then we launched their first line, the first four, in July of 2005. And what I did was, I went out and got a PR firm, that was the first thing I did, I think it’s one of the smarter things I’ve done. I’ve done some smart things, but a lot of dumb things too. That was one of the smart things, was going straight for a PR firm, and I went for one that—there was a chef in Seattle, Tom Douglas, and he was getting all this press, all the time. And I was like, well who’s his PR agency? So I found out who that was, and they actually were able to then set me up with appointments at like, 30 restaurants in the city. So they were more than just a PR firm, they really helped me get my foot in the door with these restaurants, which was fairly unusual. 

Sharelle: [00:08:26] And so, for two weeks I just went around and sold DRY into these restaurants, and every single restaurant brought it in and they were like, “This is brilliant. We get it, what you’re trying to say.” What was interesting is sommeliers weren’t getting it right away. They were like, “You’re a soda company, I don’t wanna talk to you.” And I’d be like, “Hey, your job is to pair a beverage with a meal. And how are you going to do that for your customers that aren’t drinking?” And then that would be, a light bulb would go on for them. 

Sharelle: [00:08:47] So that’s how I launched it. And then we got some good press within the first week of me launching the company, and then a major retailer, QFC, which is part of the Kroger chain, called my co-packer and said, “How do we get this product?” And it kind of went, just went from there. 

Richie: [00:09:02] Was it obvious for you to go into restaurants first versus going for some sort of larger distribution piece? 

Sharelle: [00:09:07] Yes. I was very much focused on the marketing of this company. How do you build a brand and market it. And, to me, I was somewhat naive, so I was so focused on the marketing of it I wasn’t really thinking of the business end of it, to be perfectly honest. I wanted everyone’s first experience with DRY to be in a champagne flute in a fine dining establishment, because I wanted this to be a sophisticated option. It wasn’t soda-soda. This was a whole different category, it was a whole ‘nother way to think about sparkling beverages that no one had thought of before. 

Sharelle: [00:09:33] So my plan was, the first year, everybody drinks DRY from a restaurant. But what I realized really quickly is that there is not enough volume out of those restaurants for me to sustain a business, that’s not gonna work. And then the retailers came calling, and I was like, oh, okay, well. And then I did an event within the first month of starting the company, and I was getting emails from people, how do I get this product. And I was like, oh, duh. People are gonna want to buy it. Once they’ve tasted it they’re gonna want to be able to buy it and have it at home, too. So I quickly changed that strategy, and we did both, on premise, which are restaurants, and retail. 

Richie: [00:10:06] Talk about the journey of going into retail for the first time. 

Sharelle: [00:10:10] So that’s actually kind of a funny—well it’s not a funny story. It’s a sad story. So, QFC was the first retailer, and I was so excited they called, and so I went and met with the buyer, and he’s super-duper nice—many buyers are not super-duper nice, I wasn’t prepared for other buyers that I met with—but what he told me is, you need to go sell it in store-by-store. And I’m like, what? 

Richie: [00:10:31] As in, you like, set up a table. 

Sharelle: [00:10:31] Yeah. Me, personally, I need to go up and sell it to the wine stewards. So they had a bunch of stores that had wine stewards. And so I packed up my car and, for like a week, I went in to each retailer, sold into the wine stewards, but then the wine stewards would say, yes, you could take it, now you gotta go find a place on the shelf. Then I would have to put it in myself, and then put it in the cold box. And, god bless grocery managers, but they do not give a crap about you when you walk in the door. As a matter of fact, you’re bugging them. 

Sharelle: [00:10:59] And so it was a really unpleasant couple of weeks. But I did it, and I was hell-bent on getting it done. Lesson one: never wear heels in a grocery store, because they walk really fast and you have to follow them. But two weeks after I did all that—so it was in like, I don’t know, 15, 20 grocery stores, and was all over the Seattle area—I got a call from my co-packer, who was also doing some distribution for me, he was delivering the product. He said, “Coke pulled all your product.” And I said, “What do you mean Coke pulled my product?” And they’re like, “Well, Coke’s a reset captain.” I’m like, “What’s a reset captain? What the hell?” And he’s like, well they get to decide what goes in a cold box. So they didn’t like seeing your product in there and they pulled it all. 

Sharelle: [00:11:35] So, okay, this was the time when I cried, number two. So I pull over to the side of the road. I’m like, what? It was just two weeks of work just gone. And so I called the buyer and he’s like, “Don’t worry about it, I’ll make them put it back.”

Richie: [00:11:45] A cold box is, open refrigerator? 

Sharelle: [00:11:47] Yeah that’s the open refrigerator where you pull, and it single-serves. 

Richie: [00:11:49] Which is highly-competitive space. 

Sharelle: [00:11:51] Yeah, it’s a dogfight, every day, for that space. Because people come and take it. And Coke does get to decide what goes in there. 

Richie: [00:11:58] Because they command so much share. 

Sharelle: [00:12:00] M-hmm. And yeah, all the money they give to retailers. 

Richie: [00:12:04] Yup. In terms of the next inflection point, where you start to feel things are starting to change, etc., what kind of was that, and when?

Sharelle: [00:12:10] So that was real quick. It was like, within three months, because now some of the other major retailers in the area wanted the product. So two things had to happen: I needed to find a distributor, because my co-packer was just doing this as a favor for me, ’cause he was dropping off his own product, and that wasn’t gonna be sustainable, and I needed to find someone to help me. 

Sharelle: [00:12:30] At this point, my husband had quit his job and was working as a consultant, but I had to work from like 5:00 in the morning till noon, and then he would go to work. And I was taking care of kids during this time, too. And then, once they were done with dinner and in bed, then I would work again. So I didn’t sleep very much during that time, but it was a real balancing act. And so, I really needed help. I didn’t have any money to pay anybody, and had to find a distributor, and getting a distributor is no easy task. I mean, I always tell the story about how I got called “relentless bitch” several times at the beginning of this, because I was just relentless, and finally got a distributor. It was a really good distributor to bring the product in. 

Sharelle: [00:13:07] And then I was able to find someone to come—she was an amazing woman that had just moved up from LA, she was a CMO, chief marketing officer, and she saw the article about DRY, and was like, I’ll work for you, and I’ll work for free until you can get financing. So that’s how it kind of went from there. And then, the next big piece was then raising money, because we needed to hire people, and it was clear I was onto something. Like, consumers were sending us tons of emails and we were getting more and more business. And then Whole Foods LA called, they wanted the product. And so, I was kind of, in the first year, this mad scramble of just saying yes to every opportunity, which isn’t always the best idea. And then raising money. 

Richie: [00:13:46] What was the premise for that raise, in terms of what you wanted to invest in, use the money for and so forth. 

Sharelle: [00:13:52] Well, production. I had done a home equity line of credit for the first production, and then got an SBA loan for the second production, but the third production was gonna have to be quite a bit bigger. I needed to hire people, I needed sales, marketing, operations. I needed a website, I needed, like, there [were] some things I needed. But, at some point, I was gonna need to pay my designers real money, my PR firm real money ’cause, you know, at this point I was just kind of convincing everyone just to help me. But we were having real success in Seattle, and LA was calling, so that was how we were able to go sell this to investors. It was, you know, there’s a real market here, we’re getting on the shelf, we’re getting pull off the shelf. 

Richie: [00:14:28] So, I mean, it sounds like a lot of this expands regionally from Seattle, LA., it was kind of…  

Sharelle: [00:14:32] The next one, yeah. 

Richie: [00:14:33] Was that market different, going into that market, than it was the first time, or…? 

Sharelle: [00:14:38] Each market is completely different. LA and New York are very different, they’re very different from each other, the way distribution works. I mean, LA is so spread out. LA is a huge challenge. We’ve never owned LA the way I’ve wanted to, it’s always been a challenge. And you have to have a lot of feet on the street. We were able to raise one and a half million dollars in our first round, then I brought in a lot of people, and we expanded into San Francisco, LA, and then, after that, it was Vegas, and into Texas. So I expanded way too quickly. That, for sure, I will tell you that we did. But that was kind of what it was, a land grab, basically. And that’s what my board wanted, and that’s what my investors wanted. So, but, in hindsight, I think that was a mistake. 

Richie: [00:15:21] Was there competition at that point, or was it just, go fast, because— 

Sharelle: [00:15:25] Yeah. And that’s, I think, the point right there is, what was the hurry? But I think Vitamin Water had just sold and everyone just saw this as, basically, you raise about $20 million dollars, you go big and hard, and then you sell the company. And that’s how I think the board saw it. I mean, on my board at the time was the CEO of Red Bull, and then the CEO of Red Hook, and that was the way they had built their companies, but they needed to remember that I didn’t have all the money that they did. And so there was the rub sometimes. 

Sharelle: [00:15:53] So, yeah. Looking back on that I’m like, seriously, what was the hurry? And so I tell entrepreneurs now, if I had it to do it over again, my advice to you is: own a region, and own it well, and then move on to the next region. I mean, I think the biggest problem we have as entrepreneur/founders is that we want to say yes to every opportunity. I did show some discipline, which I was proud of—because there wasn’t, obviously I don’t think I was showing that much discipline in the beginning—but within the first year, Target called. And I went out to Minneapolis.

Sharelle: [00:16:21] I didn’t even have the product in four packs yet, it was just single bottles, and they wanted it. And I mean, that was actually within the first six months. And I was like, no. We don’t have the brand awareness, this isn’t gonna work in a single bottle, you need—like, I didn’t see it working. And I said no to Target. Whether that was the right decision or not, I don’t know. It took me years to get back into Target, ’cause we had said no to them, but I think you just have to be a little bit careful when you’re building a brand. 

Richie: [00:16:46] At what point in that kind of land grab did you realize, oh, this was too quick?

Sharelle: [00:16:51] Well, I think it was that I was getting very nervous about the amount of money we were spending, so I know that there’s, you know, in the tech world and some of the other worlds, it is about, you can spend a ton of money. And I was talking to a founder the other day who has kind of a coworking space, and she’s like, I don’t know, there’s like five million in revenues, but she has 50 employees. I’m like, what? Like, that just makes my heart race. But that’s what you have to do in some instances, but that wasn’t super-comfortable for me. And so I think that was always a bit of a rub between me and the board was spend more spend more. I just didn’t know where the money was always going to keep coming from. And I didn’t feel like we were doing any one region well enough. And then, when the recession hit that’s when shit hit the fan for us. 

Sharelle: [00:17:37] We had been growing, and things were going really well, but we were still spending a lot of money ’cause I had a lot of employees, because we were in these five different regions. 

Richie: [00:17:46] And how do you have to staff those up?

Sharelle: [00:17:48] So, in reality, like, in LA, you should probably have five to six people. I had three. And so I was always understaffed but, you know, I had a head of sales, and then I would have one or two in each of the other regions. We had Portland, San Francisco, you know, and you would have like, people that were going in and selling it into the stores, and then you had kind of merchandisers, that were coming behind them and building displays and stuff. We just didn’t have the marketing dollars to support all of those regions, and that was something that I didn’t really recognize either, I kind of thought, oh, it’ll kind of go viral, it’ll do what it’s going to do. 

Richie: [00:18:21] What was the expectation from marketing support perspective? 

Sharelle: [00:18:25] What we were doing is we were doing a lot of what we called “experiential,” which was getting people to try it, because what we learned was it was hard to explain what DRY is, ’cause it’s not a soda, it’s not a sparkling water—although sparkling water wasn’t big back then. It was something really different. It wasn’t as sweet, ’cause we only use a quarter of the sugar of a regular soda. You know, it has varying acidity levels, it has these unique culinary flavors. So nobody really knew what it was, but once they tasted it, people were really into it. And so we did all these events and demos. And what you find is when, if you don’t have a really large marketing budget or you’re just concentrated in one region, you’re kind of like just little drops of pebbles in a big ocean and it’s just not gonna make enough of a difference. And so that’s one of the lessons we’ve learned in the last few years. 

Sharelle: [00:19:10] But we weren’t doing enough shopper marketing, which is marketing within the stores, we were just doing a lot of outside. So, social was just starting to get kind of big, Facebook was growing. Instagram wasn’t even around yet. 

Richie: [00:19:22] Well, there was no iPhone before what you said. 

Sharelle: [00:19:22] Yeah. No, there wasn’t. Yeah. I remember my first birthday they got me an iPhone. Yeah, that was pretty cool. I mean, my first birthday after having, you know— 

Richie: [00:19:32] Yes. Not when you were one. 

Sharelle: [00:19:32] Not when I was one, clearly. I’m a little older than that. But, and I was really big on like, every email we got I wrote back, and just sort of that word-of-mouth type thing, but I think we underestimated how long that would take and how [many] more resources you would have to put behind it. 

Richie: [00:19:49] So in terms of the recession and so forth, like, what is the head space you were in during that time, and where are you just focusing to keep everything going?

Sharelle: [00:19:57] That was a really difficult time. So what happened there was we were supposed to bring in a big, big chunk of money, from a financing perspective, so we were about to close on that financing. And we had hired up for some of that, because we knew we were just about to bring in our largest round. And we were still working all these different regions, and it was starting to have momentum. So, around that area, I do feel like, had the recession not hit, and we had continued to get the financing we were gonna get, I think we would be in a bit of a different place now. 

Sharelle: [00:20:25] So what happened is our main investor decided that he could not give us all of that and cut it back significantly, to about less than 25% of what he was supposed to give us. That required me and my CFO to have a real heart-to-heart, and we cut 90% of our sales and marketing. So we went from a team of I think 22 down to a team of six. And my head space was just, move forward. I knew without a doubt this company was gonna be a success. I’ve been able to see that from the time I started and I think that’s what sustained me through all of this, the ups and downs, is that I can see the end point and I know it’s there. It’s a lot more complicated getting there than I had anticipated. 

Sharelle: [00:21:11] So, while I was pretty scared, I knew we would make it, but we had some tough moments, ’cause one of the things that happened just before the recession hit is that Starbucks brought us in for a test. And that was when the recession hit, then we lost that financing. I’m like okay, well, Starbucks had told us they were gonna put us nationwide, and I said, well, this will be what saves the company. This will be it. And one day I was reading my paper as I do every morning, and I saw that kind of our main champion at Starbucks, she was very high up, had just got moved over to another brand. And I was just, I put my head on the table, I think I cried again, then, because I was like, it’s over. If she’s not there, we won’t get expanded. 

Sharelle: [00:21:48] What had happened also is that we were supposed to get expanded in November, and then Howard decided to launch Via, that instant coffee, instead, so that pushed us till February. So that was a huge hit to us already. And then I found out—I think it was in December or January that I read that article—and I went and told my CFO, I said, we’re not gonna get Starbucks. And sure enough they called a week later and asked us to come in, and kind of gave us some bullshit reason for not bringing us in. But that was a tough day. And kind of the funny story I tell about that is: I used to go to the doctor my family doctor a lot at the beginning, ’cause I was so stressed all the time, I was having all these stress-related symptoms, and would get sick and… but one day he’s like, “I wanna invest in your company,” and I’m like, “Why would you want to invest in my company? Every time you see me I’m stressed out.” 

Sharelle: [00:22:33] But anyway, so he ended up investing. And I remember going, I can’t even go and get a prescription for those, whatever those people take when they’re, “I’ve got anxiety.” I can’t even go ask him that, because I don’t wanna explain to him, my doctor who’s an investor, why… so I was a little bit stressed. That was a stressful time, but we kept growing in the stores. Our velocities were growing, and we just kind of kept doing what we knew best and what we could. Add one salesperson and one marketing person. 

Richie: [00:22:58] That was my question. Were you surprised at the—what was the impact of cutting back your marketing and sales so much? But it sounds like you kept going— 

Sharelle: [00:23:05] Well, it kept going. Here’s what the deceiving part was, that 2008 and most of 2009, we continued to see pretty strong growth, but what happened is, we had cut back on our investment within the retailers. So we weren’t doing promotions, we weren’t doing demos; most of our business then was in the natural channel. And the natural channel—in particular, Whole Foods—demands you do a lot with them. And, so, after a year of us not investing, they just started cutting us left and right. And it was like, oh. Because we thought we had gotten through that with no problem, and now we had gotten financing again, and we were getting going again. But it was like, oh, all of a sudden we were getting cut, and I was trying to save that business, but they were like, “No, sorry, you didn’t invest.” And I was like, it was the recession! But they didn’t care. 

Richie: [00:23:51] Interesting. So they did that because of a lack of investment, not because of a lack of growth. 

Sharelle: [00:23:55] Exactly. And that was really painful. We got cut out of the Midwest region of Whole Foods and we were up over 200%. As a matter fact, we were the number one brand in the set. And I remember just trying to talk to the buyer and he would not, he’s like, “Sorry you didn’t invest.” And I’m like, “Are you…” Whatever, it’s fine, I won’t get into those feelings! But it was a huge challenge. 

Sharelle: [00:24:16] And so, then the next inflection point happened at that point because, in order to sort of save the business I thought, well, how about if we offer an exclusive flavor to Whole Foods. And so I went to Whole Foods and I said, okay, here’s what we’ll do, we’ll do an exclusive flavor for you. You know, this is the number of regions we would want to sell it into. And we didn’t get enough buy-in. So I took it to Kroger. And, at this point we were only in QFC, and Fred Meyer, and I think maybe Ralph’s. And Kroger is the largest food retailer in the United States. And they took it. And we went nationwide with them, and that changed a lot for us. That’s when we became a nationwide brand. 

Richie: [00:24:54] Were you happy that you had Starbucks, Target, Kroger? Like, you had a lot of options, it sounds like. Not in an easy way but in a, like, if they don’t take it, well, we could pivot here. 

Sharelle: [00:25:05] Yeah. And I think that going nationwide with Kroger caused us to have to pivot away from the distribution model we were using. We were gonna go direct with them. It ended up changing a lot more than I had anticipated, the strategy of the company. So instead of going region by region, we couldn’t really do that anymore. And then also things were changing within the DSD network— that’s the distributor network, your sort of full-service distributors—lots of changes were happening, because big national distributors were growing and taking more business. And then a lot of brands were getting built by these small distributors, but then selling to Coke or Pepsi, and then they put them in the Coke and Pepsi houses and those guys lose everything. So they were demanding lots of onerous contracts and things like that. 

Sharelle: [00:25:44] So it was just becoming really difficult too, because we were growing so quickly within the national distributor there’s a—so, there’s a national distributor, too, that has our product, and it was growing there, and so they would come in and undercut the pricing of these regional distributors. And it just became really difficult. So we went from a model of, kind of a region-by-region-DSD model to a national brand, where we were going direct and in with national distributors. 

Richie: [00:26:08] We haven’t talked a bit about price point, but I’m curious given the elevated beginning of the product and who you wanted it to serve, and how did you think about it, and how did pricing for this evolve, in terms of accessibility and frequency of consumption and so forth?

Sharelle: [00:26:22] That’s a really great question, and pricing is always at the top of our minds. And so, this is a premium product so, without a doubt—I mean, I somewhat naively when I first started there—maybe I wasn’t naive, but I was like, this should be the most expensive product on the shelf. Because it is a premium product. With price you’re trying to explain, too, how to use the product and use it on occasion. Not to mention, we’re in glass bottles. I mean, we’re a small company, so our cost of goods are high. So, when you’re gonna go with a craft-style smaller brand it’s just gonna be more expensive, there’s just no way around that. I wish Costco would understand that but whatever, it’s another story. And so, but we, during the recession brought the pricing down. 

Richie: [00:27:00] What did it start at? 

Sharelle: [00:27:02] It started at, we were at $6.99 for a four pack of glass bottles, and then we brought it down to $5.99, which put us in line with some brands. But like, Izzy was kind of the closest thing to us, but they had been bought by Pepsi so they were playing a price game with us all the time. And one of the things that I have always sort of preached at DRY is, we’re not going into a pricing game, because that’s gonna be the first thing the retailers ask you to do, and what your competition tries to get you to do, and we’re just not gonna play that game. (A) our margins can’t support it, (b), it’s not good for the category. It’s somewhat irresponsible and it’s, you need to be able to explain to the retailers as well that everyone has to make money or this doesn’t make sense. Like, the retailers need to make money and they’re making penny profit—and sometimes retailers, the smart retailers understand penny profit is important not just the margin, right? Like, you know…  

Richie: [00:27:47] Right. Real dollars and percents. Yeah. 

Sharelle: [00:27:48] Yeah. So our pricing has stayed pretty steady. We did take a price increase, which was the first time we had done that, but most retailers just ended up keeping it at $6.99. So we stayed pretty much there, except during the recession we went to $5.99. 

Richie: [00:28:02] So we come out of the recession much slimmer team but growth still happening. What comes next after that?

Sharelle: [00:28:09] For us, it’s been, then it was kind of around innovation. And, because now we’re out of this we’re putting together a team. Because I came out of the recession with a really lean team without a lot of experience, it was a lot of junior people, because that was all I could afford. While they were super passionate and wonderful, it is really challenging to have people that aren’t experienced. There’s a lot to know about this business so, I would say over the next few years we continued to grow, but then we started to bring in more senior talent. And as we brought in more senior talent things changed for us, and we grew pretty significantly from 2010 to 2016. And then, for us it was real hyper-growth. Not always smart growth, though, and I think that’s what we’ve learned in the last couple of years, is about sort of smart growth with good margins and good contribution margins. Those are like, really important. And we brought in a CFO at the beginning of last year who really has taught me so much, and we’ve really made the company far more financially healthy, and that’s just another one of those growing pains that you have to sort of go through and look at. 

Sharelle: [00:29:18] And then we just, at the beginning of this year, brought in a new Chief Marketing Officer, and that has really changed the direction that we’re going as a company with our innovation, different products that we’re bringing to the market. So that’s really been the last year of the company, is, we had a senior team for those middle, from 2012 [to] 2016, and then we took it even a step further and now have even a more senior and much more experienced team. 

Richie: [00:29:43] Throughout that time how did the product assortment evolve from the original five or so that you started with?

Sharelle: [00:29:50] So we started doing new flavors after about a year, two years, I think? We would bring in new flavors. And then in 2009 or [2010], we came out with cans, slim cans, so you could get the product in both bottles and cans. And then we, in 2016, came out with what we call our celebration bottle, which is a 750 milliliter bottle. So these are all for different occasions. It’s interesting to see how consumers are using them and which occasions. So that, we’ve learned a lot from that. And the 750 [milliliter] is growing really quickly. That’s been a really successful one for us. 

Sharelle: [00:30:26] I mean, our whole mission and purpose is about, you know, social drinking for everyone, right? And it’s about these non-alcoholic celebration occasions. But then last year we kind of got away from that, and decided we were getting a little panicked, because velocities weren’t growing at the same rate. So this was two years ago. And everyone was anti-sugar, so we’re like, oh we have to be zero sugar, we have to be zero-sugar, maybe we should launch a zero-sugar line. Although, I had always said we would never launch a zero-sugar line. So, that’s lesson number 462, is really stick with your instincts. So we actually did launch, it was actually a really good zero sugar line, but we realized it’s just not fitting into what our mission is. And so we’ve decided, like, we won’t put as many resources behind that. So, it’s really staying focused on what our mission of a company is. 

Richie: [00:31:14] Throughout this time, in terms of, I guess, distribution, and being able to sell more direct-consumer and so forth, did you start exploring that at all? Or what was the evolution there? Or was it, you know we have to keep, and there’s a lot of benefit from staying how we’re distributing today? 

Sharelle: [00:31:28] Direct-to-consumer is something that is going to be really critical, and it’s something I’ve asked my team to be very focused on for years, but it’s incredibly challenging. We’re glass bottles sodas. It is expensive to ship. There hasn’t been a real answer. I think there’s some brands out there that have done an amazing job at that, and I’m trying to learn from them, because I do think there is a way to do this. And that’s what we’re working on now, because we do realize consumers want to be able to access it, and that is one of the bigger challenges our consumers have, right? That’s not everywhere, it’s not in every retailer. And it gives us an opportunity to test. 

Sharelle: [00:32:00] So that’s, our new CMO is working really hard on that piece, but that is not something I think we’ve done particularly well. We’ve tried, and I don’t think it’s not from effort, I think it’s really challenging. Amazon is a really, really challenging company to work with as a vendor. It’s all about automating everything. It’s all based on algorithms. We have the joke that the person who we have to talk to over there is “Mr. Al Go Rhythm,” because it’s like, you can’t talk to anybody. There’s nobody you can talk to, and all of a sudden they’ll change your pricing, or they’ll—I mean, there’s all sorts of crazy things they do. And so we need to be able to crack that code a little bit, because there’s lots of other options too besides Amazon, and how do you sort of fully do that. And again, I think there’s some beverage brands out there that have done a really good job at that, and I’m sort of like, want to look at how they’ve been doing it. 

Richie: [00:32:46] In terms of the market, generally—you mentioned Izzy, I totally forgot about that brand. Frankly, obviously, with—I’m gonna say it wrong of course, but La Croix or whatever—a lot of other things have come up over that time. What are your general thoughts from like, kind of a more of a macro perspective? And then, also seeming that some sort of recession is on the mend again, or we’re headed into something there, like—? 

Sharelle: [00:33:09] Yeah. I think the good news for DRY is that the original purpose of this company was to create something for people to drink when they weren’t drinking, so they could feel special. And that is exactly where we are today. And it’s about understanding that occasion, and we’re bringing that to people. And I think this concept of being sober-curious, the millennial generation call[s] themselves the sober generation, we have the product for that. I think I was a little ahead of my time with that. But I feel really good about the occasion-base of what we’re looking at doing, and there’s lots of different ways to look at when you bring a brand to the market, right? Are you looking at occasional, are you looking at function, are you looking at, however different ways you want to look at it, and I think we’ve challenged ourselves to look at this in a couple of different ways. And I think where we’ve landed now is making a lot of sense. 

Sharelle: [00:33:57] I think I’ve also learned the importance of staying very true to who you are as a company, and I don’t know that that’s for everybody, but for me, this was a very personal reason why I started this company, and I get very passionate about that. And I love the emails and letters I get from people who are like, “Thank you for making something for me.” I mean, I just got the longest email from a woman the other day just going on and on about how difficult it is for her to try to explain why she doesn’t want to drink. Like, she just doesn’t drink. Lots of people just don’t drink now, it’s about inclusion. And so, I think, for me, the kind of CEO I am, it’s having that passion and being very focused on that is making this all a lot easier for me. 

Sharelle: [00:34:39] And I do think you have to watch what’s going on in the market. So, for us, the rise of sparkling water, that kind of felt like it came out of nowhere, and it caused even further squeezing of DRY because we don’t fit in sparkling water because we do have some sugar, but we’re not really a soda either, ’cause we’re not full-flavored. So we have this weird middle-space, but really where we have this weird middle-space is really about occasion. 

Richie: [00:35:00] In terms of more of the restaurants and so forth, has there been a push to go back into that? Into music festivals? I guess it’s funny hearing you mention the word “experiential” in a 2005 context, ’cause today, people just say it ad nauseum about a lot of different things. Where has the province of that evolved, too, if any, and do you find yourself back at some of the places that you were, in the beginning? 

Sharelle: [00:35:24] To some degree. Kind of these big grand ideas you have also butt up against the fact that the beverage business is a really complicated and not very elegant business. Elegant in the way that the way your route to market can be very convoluted and confusing, and we have to kind of work within that. So you have to figure out how are these goals that you have and these sales goals that you want to do, how does that work then within this distribution model? I think if you talk to any beverage company that’s what they’re gonna tell you. I get asked the question all the time, what’s the hardest piece of this, and the hardest piece is definitely route to market, and there’s no clean kind of one-cut version of how you do it, and it can be fragmented. And so it’s not as easy. 

Sharelle: [00:36:04] And from an experiential standpoint, we are not doing as much of that because we just don’t have those resources. We don’t have the big investment that some of the brands have gotten. And so you’re not gonna see as much of that with us at the moment. I suppose if we bring in a big load of money that maybe that would change to some degree, but we’re doing it a little bit less of the experiential now.

Richie: [00:36:23] Given you have a 14-year sample size, basically, how has the way people have discovered the product changed, if at all? 

Sharelle: [00:36:31] That is a good question, and we’ve only recently started doing more consumer studies around that, ’cause again, when you don’t have a ton of resources that’s not the first place you go. I think that we still get a lot of word-of-mouth but, really, in all reality, people are mostly discovering it on the retail shelf. So for us, our goal now is, how do we better showcase ourselves on that retail shelf, ’cause that’s really the best way to get your consumer. And really, we’re doing a lot of off-shelf displays, so that people are having to bump into it, basically, and really getting very, very clear about when to use DRY and what that occasion is so that people understand, oh, that’s what this is. 

Sharelle: [00:37:10] Because one of our challenges is that our Chief Marketing Officer came in and she started doing focus groups and realized that people couldn’t describe this. Like, well it’s not a sparkling water, it’s not a soda, it’s just, you have to try it. Well, if you can’t explain it, it’s gonna be real difficult to have word-of-mouth. So, for us, it’s doing a lot more at the store level, and I think some of the brands, the beverage brands I admire that have come up and done really well, I’ve seen them do that well, and I think it’s something that we’re emulating a bit. 

Richie: [00:37:39] We’ve talked to so many direct-to-consumer brands where the packaging considerations are so different because the sale has already happened by the time someone gets the product. I’m curious to talk about the challenge of conveying that message and doing that on the shelf—and something I’m guessing is the size of a can. 

Sharelle: [00:37:55] Yep. 

Richie: [00:37:55] I guess, what has been like, the learning process there? And I mean, it seems like a very good forcing function of trying to figure out hierarchy and getting to the point. 

Sharelle: [00:38:03] That is such a great question and something we’re still struggling with, but I’ll talk about, kind of from the beginning. So at the beginning we had this incredible bottle that was really unique. And what I told the designers at the time was, it needs to look beautiful on a white tablecloth. I did not tell them it needs to look beautiful on a retail shelf, so they did not give me a product that would look beautiful on a retail shelf. And it was silk screened, and it was just writing vertical down the bottle. There had never been anything else like it. It got a ton of attention. And then I went to put it on the retail shelf and you couldn’t read it. You couldn’t see it. You didn’t understand what it was. And then we got into Starbucks, and we’re in the Starbucks cold case—you couldn’t even see it. And I was like, oh. 

Sharelle: [00:38:41] That was my first a-ha moment where beautiful packaging has to also be functional. And I would say that DRY could always do that better. We’ve had several different design iterations—I think three or four—over the years, and we’re looking to do probably another one that better describes what DRY is. And I think, the one thing I’m really proud about is we always have had a very beautiful brand. And our 750 [milliliter] bottles are hand painted and, you know, we use this incredible artist out of LA, and it’s just in our DNA. It was what I said when I began the business, was like, I want this to be a beautiful bottle that you can drink, that you’re proud of because, again the whole idea is to have this elevated experience. And to me visual is really critical, so that is something that is deep, deep in our DNA and will always be a part of DRY. 

Sharelle: [00:39:32] I remember this point, it was the first year of DRY, and Whole Foods brought it in in LA. The buyer had made a mistake and had the bottles priced at $11, it was $11.99 for a four-pack. And I was like, oh my god. So I get on a plane, go down to LA to like, get this thing fixed. 

Richie: [00:39:49] Like it had individual stickers on it and everything? 

Sharelle: [00:39:51] Yeah. So like, yeah, so in the store now you’re paying $11.99 for a four-pack of dry. And I’m like, okay, well that’s not gonna fly. And so I go into a retailer and there was this beautiful display of DRY, $11.99. And this guy comes up and buys it. And I’m like, “What are you doing?” And he’s like, “What do you mean?” I’m like, “Why are you buying that, it’s $11.99?” He goes, “Have you seen these bottles? They’re so beautiful.”. 

Sharelle: [00:40:11] Honestly, I have this joke, I think that for six months all of our consumers were design people, ’cause the bottles were really, really cool. But at the end of the day we’re going to always have beautiful design, but I think there’s always room for improvement on that function. You’re right. When you’re not a direct-to-consumer it is all about your packaging. 

Richie: [00:40:31] In terms of just the landscape today, the amount of competition, the shifting nature of retail, online sales growing, etc., how are you thinking about scale and the role that you want the brand to play? In terms of, there are companies that are kind of blitzing right now and trying to sprint, there are others that are growing steady, or there are others somewhere in the middle. Given all those dynamics, given obviously you have a history and knowledge base of previous times in the space in previous directions, how are you thinking about what you want this to become and continue being?

Sharelle: [00:41:03] I think that what I always wanted was to create a new category of beverage, and I think that’s exactly what we’re doing. We’re creating this new category that is about this occasion. Again, social drinking’s for everyone, right? That is a real concept, it is, we are trying to turn non-alcoholic drinks from an afterthought to a must-have. We’re changing that mindset. And I believe DRY should be at every party, bottom line. If you’re a host you should not just bring a bottle of wine, you need to bring a bottle of DRY, too, because you’ve gotta be thoughtful of all of the guests. And that’s what I want to see. 

Sharelle: [00:41:35] And I know there’ll start to be more competition, and I think that’s great. There should be a non-alcoholic celebration occasion set where people are going to buy, because I think this is going to continue to grow. And we’ve been here for 14 years pounding that drum and I think this is our time to really listen to the consumer and give them what they want in different packaging that they want. I think we have that now and now it’s just about getting that message. So, I think you’ll see our growth quite a bit quicker. Now we are, we’re actually even expanding even more distribution, I’ve been on the road with my head of sales for the last few months and every buyer is really understanding us, and we’re just getting a lot more of our 750 [milliliter] distribution. That has just taken off like gangbusters in a way that I hadn’t anticipated. 

Richie: [00:42:19] It’s truer to the mission, there, right? Which is the occasion bottle, in a sense. 

Sharelle: [00:42:23] Yeah, for sure. And even our holiday bottles we’ll have a gift tag on it for hosting, right? So a hosting gift, like, of course is what you bring. So. 

Richie: [00:42:30] It makes me think of like, the old school, like a sparkling apple cider. 

Sharelle: [00:42:32] Right. Like the Martinelli’s, right? And it’s like, really, are you gonna bring apple juice to a party? I mean, come on. I don’t think that’s that cool. 

Richie: [00:42:39] Yeah. 

Sharelle: [00:42:39] So the mission’s the same. I mean, my goal is to create a new category beverage. 

Richie: [00:42:44] In terms of the international aspect of this, is the focus national so far? And/or, I guess, what do you think is the potential of this, kind of, in a Europe or a Canada or, etc.? 

Sharelle: [00:42:55] So, we are in Canada. And we actually do really well in Canada. The consumers there are amazing, we have some great retailers, so Canada and the US. are a big push for us. International is probably a little bit further away. I think there’s so much work to do here. There’s been so much interest. We get interest internationally weekly, almost daily, probably. It’s just a lot more complicated to do all that, and we thought for a while pretty seriously about going into the U.K., because there was a lot of interest there and there’s some really good retailers there, and we thought it would make sense. But we have a lot to do here. So, focus over the next few years will be here and then we’ll look international, but there’s still a lot to do even with ecommerce, like we talked about. Like, I think direct-to-consumer is really critical for our future as well and we have got to get that figured out. 

Richie: [00:43:43] Awesome. Thanks so much for talking. 

Sharelle: [00:43:44] You bet. Yeah, this was really fun. 

Richie: [00:43:50] Thanks for listening to the Loose Threads Podcast. You can read full transcripts of the podcast and join the newsletter at LooseThreads.com. Feel free to leave review on iTunes, we always appreciate it, and thanks to George Drake, Jr. for editing this episode. We have a great roster of upcoming guests and we hope you tune in next week.