- Hatsu From Start Up To Megabrand Enrique Ramirez R Angela Gil And Camilo Fernandez Wrote This Case Solely To Provide 1 (228.21 KiB) Viewed 32 times
from different source)
HATSU: FROM START-UP TO MEGABRAND Enrique Ramirez R., Angela Gil, and Camilo Fernandez wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G ON1; (t) 519.661.3208; (e) [email protected]; www.iveypublishing.ca. Our goal is to publish materials of the highest quality; submit any errata to [email protected]. Copyright © 2022, Ivey Business School Foundation Version: 2022-02-22 Hatsu seeks to go beyond the product; what matters is creating a community. —Hatsu' At the end of 2020, Luisa Jiménez the premium business unit director at Colombia's leading beverage company, Postobón SA (Postobón), which managed the Hatsu brand-was in her office preparing for a team meeting the next day. In addition to sharing the company's main achievements, she would take advantage of the opportunity to analyze the challenge the general management of Postobón had set for her: to turn Hatsu into a megabrand a brand that could generate sales of US$100 million-$120 million annually. Jiménez was aware of the origins and purpose of Hatsu, as she had been working with the brand since January 2016 when it was a start-up, created by two young millennial Colombian entrepreneurs, Julián Oquendo and Alejandro Pardo. Later that year, Postobón acquired the brand, intending to enhance it and include it in its portfolio of multicategory products. In the meeting with her team, Jiménez emphasized the importance of making the most of the support they could get from Postobón in terms of distribution and market penetration. She also analyzed strategic growth alternatives for the brand. Nevertheless, she knew that expanding could bring the risk of losing or misrepresenting the idea of the concept brand, which would be sheltered by the processes of working with a large corporation like Postobón. How, then, could she turn Hatsu into one of Postobón's megabrands without losing its essence? HATSU: THE BEGINNING In 2009, two entrepreneurs had the idea of importing a foreign tea brand and distributing it in Colombia; however, the business model was not viable. So they decided to create their own brand, with the objective of developing a premium tea product for the Colombian market segment that had not been covered by the existing tea brands in the country. Unlike Lipton, Mr. Tea, and Fuze Tea, Hatsu offered various exotic fruit flavoured teas for consumers to choose from: white tea and mangosteen tea, yellow starfruit and lotus blossom tea, lilac cherry blossom tea, and blue pomegranate tea. ¹ Hatsu (website), accessed November 17, 2021, https://hatsu.co/medellin/es/sobre-nosotros#.
Page 2 W25423 The product, which targeted consumers who already had or wanted to adopt healthy eating and lifestyle habits such as exercise and meditation, was branded Hatsu (see Exhibit 1), using a Japanese term that meant "the beginning." In the words of one of its founders, Hatsu represents a brand that was created from the inside out, from the why and not the what. We sought to be identified with the philosophy of a lifestyle rather than with a particular product. We enact here the enjoyment of a conscious life. When we started this idea, we connected with the same purpose, that is, to build a company that talked about the balance between mind and body, enjoyment of sports, and overall well-being. We wanted to build a disruptive brand that could speak differently and transmit the artistic side, through many colours. The packaging had full-body labels that covered the entire bottle using heat-shrinkable packaging and a distinctive design (see Exhibit 2). The market perceived these added values, enabling the brand to be priced at between US$1.00 and US$2.00 per bottle, depending on the distribution channel. This could be up to three times higher than the prices for ordinary ready-to-drink tea drinks in the local market. In the beginning, sales and distribution were conducted personally and directly by the founders, who cared greatly about people and became friends with almost all customers. With persistence, Hatsu reached restaurants, gourmet stores, and supermarkets located in high-income areas of Colombia. Moreover, the company's commercial relationships consolidated, and once its products were accepted in supermarket chains, its growth skyrocketed: 2015 sales revenue was more than 20 times greater than 2010 sales. The founders were refused credit from the formal banking sector, so to leverage the growth of the first years, they borrowed from friends, family, and people outside the financial system who believed in their business model. These loans financed the construction of production facilities to make tea and allowed them to stop producing and bottling through third parties. They established a plant as a separate company, and it still served as a Hatsu bottler. While reviewing the company's history, Jiménez was aware that, in any scenario, Hatsu would have to be faithful to the brand's original purpose. This idea was reflected in the text on one of the slides for the presentation she was preparing for the meeting: "We are a brand that talks about design, architecture, music, that talks about a lifestyle. We must reflect this to become a megabrand without losing our essence."² THE ACQUISITION BY POSTOBÓN The growth Hatsu achieved in the early years was not accompanied by positive returns. Its founders had difficulty keeping up with the contributions required to leverage the accelerated growth. However, Hatsu had received several proposals from investors who were interested in fully or partially purchasing the brand and its product. In 2016, the founders understood that they would have to make an alliance that would boost the business in order for the brand to be universal. At that time, they decided to sell Hatsu and accepted Postobón's proposal to acquire 100 per cent of the Hatsu brand. By the end of 2019, Postobón marketed more than 44 brands. It was the leading company in the Colombian market in soft drinks, waters, fruit drinks, energy drinks, and ready-to-drink teas. In its sustainability report,
Page 3 W25423 Postobón defined itself as a category developer and brand builder company that was interested in leading all segments, categories, and markets in which it participated. The company was supported by a great distribution force. Regardless, its birth and leadership had historically been determined by soft drinks: in 2019, products such as waters, fruit drinks, energizers, and ready-to-drink teas represented 53 per cent of its sales volume.³ For that year, the company had revenues of US$1.1 billion (see Exhibit 3). Moreover, it generated 11,700 direct jobs, and its distribution network covered approximately 90 per cent of the Colombian territory.4 Postobón belonged to the beverage sector of the Organización Ardila Lülle, which had acquired Agua de Nacimiento, a premium water brand, in 2015. Unlike Hatsu, this acquisition had a tangible component: the property where the water source and packaging line were located. Jiménez knew that Postobón had seen the purchase of Hatsu differently as a process of integration and not of absorption. This was because the company understood that behind a bottle of Hatsu, there was a philosophy of life; a culture; and a different way of thinking, seeing, and feeling life. Thus, Postobón had allowed part of Hatsu's operation to continue to function with its dynamics, providing the required tools for it to grow. After the sale, Hatsu's operation was integrated under Postobón's corporate umbrella, which brought great benefits in terms of increased distribution power and access to the capital needed to grow. Likewise, given Postobón's size and dominant position in the market, Hatsu gained negotiation power with suppliers, distribution channels, and clients. The acquisition of Hatsu was accompanied by the birth of a strategic business unit for premium brands, to which Jiménez was appointed as director. This new unit would develop a business that could represent categories or brands with great medium- or long-term growth potential.³ Furthermore, as part of the conditions agreed upon in the acquisition, the two founders of Hatsu maintained an active presence in the new Postobón business unit. A good part of Hatsu's commercial and marketing team, which had been an essential part of brand development, was also maintained. Postobón's acquisition of Hatsu produced favourable results. The company's share of the Colombian market for tea beverages, its main product, measured by monetary value, had gone from 9.2 per cent in December 2018 to 20.6 per cent in August 2020. Notably, the brand had expanded its presence to other market segments such as soda, snacks, and vegetable drinks. When Jiménez met her team the next day, she would emphasize the importance of Hatsu's human resources, recalling the words of one of the company's founders: To achieve what we dreamed of, we need to have people who share the same lifestyle purpose. This is our greatest challenge: to build a multidisciplinary and creative team that shares the brand's purpose, which is the well-being and enjoyment of life. We have always been clear that, to build the what, you need the who. Unlike what happens in other companies, for us, people are everything. A CONCEPT BRAND Hatsu sought to generate an emotional connection with its consumers around a concept of "lifestyle motivated by evolution and human well-being." More than the particular advantages of a product, which could easily be imitated by copying ingredients and offering them at ostensibly lower prices, Hatsu sold a
Page 4 W25423 lifestyle and sought to be consistent in what the brand said and did. While its founders recognized that they had had some early financial difficulties, they had also given up some income-generating activities that were inconsistent with the essence of the brand. Jiménez recalled that the development of a concept brand had taken several bold initiatives. First, although products in the category were usually sold in a 250 millilitre (ml) format, Hatsu was sold in 400 ml containers. Second, Hatsu risked using full-body labels, which did not allow its content to be seen, at a time when this presentation was uncommon. Finally, it had a premium price higher than the average in its category. In terms of social media presence, Hatsu sought to become the centre of communities that shared its principles. This meant that those who published stories did so organically, because they identified with the brand and not because they were paid something in return. That was the case with #HatsuLovers, an Instagram hashtag that presented interesting content to followers, who contributed to increasing brand awareness at a low cost. In her presentation to her work team the next day, Jiménez wanted to emphasize that Hatsu was an organic brand that wanted to create an emotional connection with its users a brand that was synonymous with healthy lifestyle, design, creativity, and quality and that supported the concept of living with a conscience. She wanted to make it clear that the Hastu brand was based on a lifestyle whose essence was the mix of healthy ingredients. At the same time, Hatsu was art, design, fashion, music, photography, and wellness. Hence, one of Jiménez's presentation slides included images describing the brand's identity and information regarding the target consumer profiles (see Exhibit 4). ONE BRAND FOR MULTIPLE CATEGORIES Production started in 2010 with two tea products, each with an associated brand: black tea with lemonade (brand Hatsu) and green tea with honey (brand Antidox). The founders even considered creating a third product (red tea) associated with a third brand. Before continuing with their plans, they realized that having different brands for each product would be a mistake and that it would be better to use a single brand (Hatsu) as an umbrella for the company's products in tea and other categories. In 2016, just after the Postobón acquisition, Hatsu made its first attempt to extend its portfolio to include fruit mix beverages a project the company had been working on before being acquired. This product line had been in the market for only one year. The idea was developed empirically, without the support of market research from a company like Postobón. The output of the product was unsuccessful, despite having good opportunities regarding colour and flavour. Other brand extensions were then developed, following Postobón's launching methodologies, and these had good responses from the market. Hatsu's portfolio included vegetable drinks, cereal bars, nuts, infusions, and sodas that combined fruit and herbal flavours (see Exhibit 5). Hatsu's entry into new categories was determined by considering three standards: (1) the brand's identity could be maintained; (2) Postobón's value chain could be used, and (3) an aesthetic concept could be enhanced in the product's presentation. At the end of 2019, tea drinks accounted for 90 per cent of Hatsu's total sales, followed by sodas and then the other products. By 2020, Hatsu had managed to increase its sales revenue by 15 per cent; tea drinks accounted for 74 per cent of this, premium sodas for 22 per cent, and other products for 4 per cent. Soda was the product with the second-greatest projection, after tea beverages. The soda maintained the indulgence concept of carbonated drinks, with 12 per cent fruit content, no added sugar, and only 15 calories. The market for soda was 3.5 times bigger than the market for teas, so it augured well for growth possibilities.
Page 5 W25423 With the acquisition of brands such as Hatsu, Postobón could enter new product categories, access new clients, and expand its portfolio. Hatsu had represented an opportunity for Postobón to consolidate its presence in a premium segment since its focus had historically been on mass consumption or mainstream brands. One of the points Jimenez would highlight in the meeting with her team members was the purpose of the brand's association with a lifestyle rather than with a tea or soda. She would also propose the challenge of consolidating Hatsu as a concept brand, which would navigate through different categories without losing its essence, becoming one of the most important premium food and beverage brands in Colombia. TAKING ADVANTAGE OF STRENGTH IN DISTRIBUTION One of Postobón's strengths was its distribution network, through which Hatsu could reach 90 per cent of the Colombian territory and more than 21 international destinations. From the outset, Hatsu benefitted from this network, reaching nine countries via exports and placing its products in the local market through various means: department stores and superstores, premium channels (restaurants and geo-referenced locations in high-income sectors); traditional channels (store to store), and special customers such as McDonald's and Subway chains. Postobón also had a broad customer base, which allowed Hatsu to use segmentation to concentrate its commercial efforts on the share with greater purchase potential. An example of this was the store-to-store distribution channel plan developed at the end of 2019. Based on this plan, Hatsu focused its efforts on the 26,500 stores (out of a total of 360,000 stores that Postobón reached with its products in Colombia) to which the sales team had direct access. The stores were chosen based on their purchase history of other Postobón premium brands and the income level of the neighbours. Because of this plan, Hatsu's presence in the retail channel increased threefold. Leveraging Postobón's financial muscle, Hatsu was able to consolidate its product portfolio and distribution channels for different types of clients. Moreover, Postobón's level of specialization, years of experience, and technological resources allowed the brand to develop the necessary skills to serve premium customers. Likewise, it was able to achieve greater efficiency in negotiations with suppliers and allocate more resources to research and development. THE FUTURE When she met with her team members, Jimenez wanted to get ideas on how to turn Hatsu into a Postobón megabrand, which would imply multiplying its current turnover more than eight times. Thinking about how to increase the sales of current products without losing the brand's essence and how to enter other categories under the Hatsu umbrella was going to be very important. The director of premium brands was confident that the entrepreneurial spirit of her team, added to Postobón's strength as a great player in the Colombian beverage industry, would be decisive in achieving this purpose.