For the past 20 years, Greg Steltenpohl, an avant-garde jazz saxophonist turned beverage entrepreneur, has worked to rekindle the magic behind his greatest hit — and make peace with a nightmare that led to an abrupt fall.
LOS ANGELES — For the past 20 years, Greg Steltenpohl, an avant-garde jazz saxophonist turned beverage entrepreneur, has worked to rekindle the magic behind his greatest hit — and make peace with a nightmare that led to an abrupt fall.
Steltenpohl started the juice company Odwalla in 1980, selling drinks out of his band’s Volkswagen van in and around San Francisco. Within a few years, the company was a multimillion-dollar business, flying high as one of the first breakout healthful drinks now commonplace in grocery aisles.
In 1993, Hambrecht & Quist helped take Odwalla public, which allowed it to expand nationally and into Canada. By 1996, it had roughly $60 million in sales, a new plant and refrigerated delivery trucks to replace the VW vans.
Past: Founded Odwalla in 1980, lost control after 1996 outbreak of E.coli infections traced to the company’s juice.
Present: Since 2012, running Califia, a nut-milk business that is fast expanding into bottled coffees and other drinks.
Then the music stopped.
“I got a call from the King County department of health,” Steltenpohl whispered, tearing up at the memory. “Five or six people in Seattle had come down with what looked like E. coli poisoning, and the common element was apple juice, our apple juice.”
In the end, at least 66 people got sick after drinking Odwalla juice, and a child died. The brand’s claims about healthfulness came back to haunt it as reporters dug into its failure to heed warnings about food-safety lapses.
About 90 percent of the company’s revenue evaporated almost overnight after the outbreak. With the company on the brink of bankruptcy, Steltenpohl and his partners were forced to sell a controlling interest in Odwalla to private equity firms, the equivalent — to him — of selling out to the devil. Not long after, the company was sold to Coca-Cola.
“Odwalla took him to the top of the world and then to the bottom,” said Berne Evans, his business partner today. “I don’t think he’s ever gotten over it.”
But now Steltenpohl, a gentle and avuncular 62, is once again near the center of beverage-industry buzz as head of Califia Farms, a nut-milk business that is fast expanding into bottled coffees and other drinks. This time, he is taking advantage of a new trend sweeping the industry, as young beverage companies — empowered by changes in distribution and consumer tastes — are rising and competing successfully with titans like Coca-Cola and PepsiCo.
Today it’s possible for a company to develop a drink and cut a deal with an assembly line for hire to produce it, and negotiate another deal for someone to distribute it. Just a decade ago, it required far more capital and, eventually, a sprawling operation.
Only a few years after its founding in 2012, Califia is on track to ring up $100 million in sales and is adding products at a fast clip. The company is considered one of the hottest young brands in the beverage world, leading to whispers about whether one of the big competitors will soon swoop in with a buyout offer that Steltenpohl and his partners can’t refuse.
Not this time, he insists. “I’ve had to sell out once,” Steltenpohl said. “That was enough.”
That’s easier to say than to do. A little more than a month ago, Ben Weiss, founder of flavored-water company Bai, also brushed back talk of a buyout. “It’s called Bai, not Sell,” he said in an interview at the time.
But on Nov. 22, all that independence went up in smoke as Dr Pepper announced that it was buying Bai for $1.7 billion. The same day, PepsiCo announced its acquisition of KeVita, which makes probiotic drinks.
There are more opportunities for young drinks companies than ever, as consumers who have abandoned sugary and diet sodas search for alternatives to plain water. And new juice businesses like OnJuice, Misfit Juicery and Roots Juices, many of which start out selling their products online, come to life every month, or so it seems.
Duane Stanford, editor of Beverage Digest, said a young beverage company today can buy its flavors from a flavor house, branding expertise from a branding expert and manufacturing from a producer on contract.
“You have this situation where these companies can become viable, robust, cash-generating businesses without the help of a big company,” he said. “They’re even getting creative at building independent distribution networks.”
Shortly after the E. coli contamination, Odwalla had tried selling a product called Future Shake that was made from almonds, oats and soy. But its texture was too thick, and it never took off.
More recently, Steltenpohl had watched the rise of WhiteWave, the soy and nut-milk juggernaut, and Evans had connections with almond growers. He and Steltenpohl had decided to use the plant’s excess capacity to make almond milk when Steltenpohl learned he would need a liver transplant.
“At that point, I really wasn’t thinking of returning to the company at all,” he said.
But after the surgery, the hospital gave him a protein beverage to aid in his recovery, and the ingredients in it were so bad that he decided he had to make Califia work.
The first batch of almond milk rolled off the production line in 2012 and quickly took off.
The product had the advantage of its own production facility and what Steltenpohl had learned about distribution while at Odwalla.
It also had the advantage of a far different retail landscape. When the Odwalla crisis hit, Amazon was in its infancy, and Whole Foods, which often serves as a sort of ambassador for new food and beverage brands, had just a handful of stores.
Today, Amazon is putting up its own grocery stores, and Whole Foods has nearly 500 stores. At the same time, convenience stores have become much bigger points of distribution for a wide variety of drinks.
In the last year, Steltenpohl has pushed almond-milk drinks flavored with things like ginger, mocha and matcha.
More recently, Califia is putting the almond milk into cold-brewed and nitrogen-infused coffees, a technique borrowed from the beer business. The nitrogen imparts a sweetness to coffee, helping to reduce the amount of sugar needed. A
Steltenpohl is also trying to avoid past mistakes.
The plant is equipped with cutting-edge food-safety monitors that share alerts about problems as they happen with the entire senior management team. Josh Butt, who previously oversaw food-safety systems at Danone, the big French dairy company, presides over the plant’s operations.
In the year that ended Sept. 4, Califia’s sales more than doubled, hitting $85 million, according to data from IRI, which does not include the bottled coffee.
In other words, the company is big enough to be attractive to a larger player.
“As for big-brand interest, it would be accurate to say there has already been substantial interest — but as I’ve said, I really don’t want to go that route of selling while the company is so relatively young,” Steltenpohl said. “Finding ways to continue to grow the company into a major brand with a high degree of independence is a major lifelong objective.”