Hansen Natural Corporation Business Information, Profile, and History

Company Perspectives:

The mission of Hansen Beverage Company is to satisfy consumers' needs for superior quality and great tasting, healthy, natural and functio nal beverages. Our beverages will be positioned as an upscale brand a nd will often be marketed at a premium to competitive mainstream prod ucts.

History of Hansen Natural Corporation

A descendant of a venerable California juice maker, Hansen Natural Co rporation went from bankruptcy case to NASDAQ darling by focusing on innovation in the beverage marketplace. The company offers natural so das, juices, smoothies, teas, sports drinks, Blue Sky branded carbona ted beverages, and the Junior Juice line of products for toddlers. Th e company launched its Monster energy drink in 2002 and sales have si nce doubled. In 2005, Forbes magazine ranked Hansen Natural nu mber one on its annual list of the 200 Best Small Companies in the Un ited States.

A Sunny Beginning

"Hansen's Fruit and Vegetable Juices" first appeared in southern Cali fornia in 1935. Assisted by his three sons, Hubert Hansen started the business in Los Angeles selling fresh, unpasteurized fruit juices. H ollywood film studios provided his first clients. That company became Hansen's Juices, later known as The Fresh Juice Company of Californi a, Inc. The plant it opened in Los Angeles in 1946 was used until ope rations were moved to a new plant in Azusa, California, in 1993.

This company's fresh juice line included orange, carrot, apple, straw berry, and banana juices, as well as blends. By this time, Hansen's J uices was firmly established in the West and was shipped to the East Coast and Hawaii as well. Some of its 35,000 gallons of juice produce d per week was marketed by an Illinois company, and some was shipped overseas, reported the Los Angeles Times.

One of Hubert Hansen's grandsons, Tim Hansen, formed his own, separat e fruit juice business in 1977: Hansen Foods, Inc. He obtained a lice nse to use the family name as a trademark. The new company, also base d in Los Angeles, specialized in pasteurized, shelf-stable juices, pa rticularly apple. It was known for innovation in combining flavors as well as in marketing. Hansen Foods branched out into Hansen's Natura l Sodas in 1978. These featured all natural ingredients.

Hansen's sales reached an estimated $50 million in the mid-1980s. Sales failed, however, to climb sufficiently to repay financing for a new factory, and the company filed for bankruptcy in 1988. Californ ia CoPackers Corporation (doing business as Hansen Beverage Company), based in Hawaii, subsequently acquired the Hansen's brand name in Ja nuary 1990.

Annual sales reached $13.7 million that year and rose to $17. 1 million the next. Hansen, always known for using cans, introduced i ts first glass bottle in the summer of 1991. At this time, Harold C. Taber, Jr., was serving as president and CEO of the company, then bas ed in Brea, California.

Creation of Hansen Natural Corporation in 1992

An investment group including Rodney Sacks, who would become CEO, bou ght the money-losing company on July 27, 1992. The investors felt tha t the brand's longevity and name recognition would be worth banking o n and that its niche was just opening up in the market. Aside from Sa cks, a corporate lawyer from South Africa, other new management talen t included Taber, a 27-year Coca-Cola veteran. Investors included Bri tish industrialist Hilton H. Schlosberg, who became vice-chairman and president, and friends and family members. Hansen Natural Corporatio n went public at the same time, listing on Nasdaq. The company soon s eemed to evidence a turnaround. Revenues reached $21.3 million in 1992.

Hansen employed about a dozen people at the time. Since Tropicana had acquired the Hansen factory in the bankruptcy, the company now outso urced most of its operations, even turning to flavor consultants for new formulations. Independent companies blended the drinks and shippe d them to independent bottlers.

Pint-sized, bottled iced teas, lemonades, and juice drinks came out i n the early 1990s. These competed in the "New Age" drink category, wh ich also included alternatives to traditional cola drinks such as fla vored water and iced tea. What defined the category was the public pe rception of these drinks as relatively healthy. Hansen's heritage was perceived as particularly healthy. Its labeling began to proclaim, f or example, "California's original clear natural soda."

Industry leaders such as Coca-Cola and Pepsi fought for a share of th is segment, the fastest growing part of the $50 billion a year so ft drink market. Coca-Cola introduced Nordic Mist, and Pepsi offered Crystal Pepsi as an alternative. Snapple's drinks quickly came to dom inate this $1 billion category. It sold $232 million worth of iced tea in 1992. Its advertising and marketing budget that year-- 36;30 million--exceeded Hansen's total revenues, noted the Los Ang eles Times. Some analysts, however, believed that Hansen's long-t erm interests were best served by a focus on keeping costs down. They felt that the company was less likely to "crash and burn" in the eve nt of a price war. Hansen embarked on a major expansion into the Midw est in 1993, introducing a multiserve, 23-ounce glass bottle to its p ackaging mix.

New Age drinks were faddish and in July 1994 Hansen introduced a line specially branded to appeal to young consumers. Equator drinks initi ally debuted in Southern California. They came in 16-ounce cans (a 24 -ounce version also was tried) wrapped in environmentally conscious i magery and copy. By not packaging the drinks in glass bottles, they c ould be sold in more locations, such as gyms and swimming pools where risk of breakage might be considered a hazard. To capture the loyalt y of younger consumers, the traditional Hansen's brand, which was ide ntified with older drinkers, was not featured on the packaging. The f irst flavors were Blue Raspberry Creation Iced Tea, Cosmic Mango Iced Tea, Black Cherry Eclipse Lemonade, Heavenly Strawberry Banana Juice Cocktail, and Guava Berry Earthshine Juice Cocktail. A portion of th e proceeds from each can sold went to Earth Day USA.

A "Smoothie" Return to Profitability in 1996

Hansen Natural lost nearly $3 million in 1994 and 1995 ($1.4 million in the latter). The debut of its Smoothie drinks late in 1995 carried high hopes. They proved to be a lifesaver. In their first ni ne months on the shelves, the Smoothie line brought in one-third of t he company's revenues; one in every five cases sold contained Smoothi es. Hansen Natural was able to report income of $357,000 in 1996.

Smoothies were available in 11.5-ounce cans and 11.5-ounce glass bott les. Although inspired by the smoothies found in fresh juice bars, Ha nsen's were not formulated as thick so that they could be bottled. So me smoothies had herbal additives ginseng and taurine, a meat-derived amino acid featured in many Asian "energy" drinks. Radically redesig ned packaging helped Hansen's products stand out on store shelves. Sm oothies were sold in distinctive fluted bottles.

The smoothies were more than a new product. They signaled a new innov ative spirit at the company, Sacks told the Business Press/Califor nia. Previous national product launches had failed since they wer e too similar to what Snapple already had in stores--that is, iced te a, lemonade, and juice cocktails.

Another shot in the arm, Hansen's "functionals" came out in early 199 7. This category was defined as drinks bought primarily for health be nefits. They typically included extra vitamins. This trend had alread y been established in Europe, where they first caught the attention o f Sacks. Similar, often syrupy, concoctions had been popular in Asia for more than 30 years and constituted a $3 billion market there.

Hansen's energy drinks were lightly carbonated. They were packaged in skinny 8.2-ounce cans, offering a more manageable serving for an ene rgy drink. Each can retailed for about $2, whereas sodas cost 60 cents. They offered "an immediate boost whenever you need it the most ." Part of the pitch was naming the drinks not for their flavoring, b ut for the benefits they touted. An antioxidant ("anti-ox") variety f ought aging. Yet another pitched "stamina." Finally, "D-Stress" was i ntended to enable the drinker to relax.

Some wondered whether the U.S. Food and Drug Administration would eve ntually regulate this category more strictly, but since the drinks we re marketed as food, not as drugs promising any specific medicinal be nefits, they fell out of that agency's purview. Hansen labeled the am ounts of different herbs and additives in its drinks to enhance its c redibility and to advise people with allergies. Although the company always had avoided adding caffeine to its drinks, and even formulated its iced tea to be decaffeinated, it was added to some of the functi onal drinks for the purposes of stimulating metabolism.

Bullfighting in the Late 1990s

Hansen had ventured into Great Britain in 1994, but found the market unwelcoming. It also failed to differentiate its products sufficientl y. Its subsidiary there, Hansen Beverage Company (UK) Limited, stoppe d operating at the end of 1997. Back home, Hansen faced some competit ion on its own turf from Red Bull, an Austrian company that virtually owned the $500 million European market for functional drinks. Sp eaking to a local newspaper, Sacks characterized Red Bull as a one-pr oduct company.

Another advantage credited to Hansen was that its drinks tasted compa ratively good. The company also had an established distribution netwo rk. Hansen pitched its functional drinks heavily, giving out free sam ples and setting up literature centers in grocery stores. Convenience stores and liquor stores were among the first to sell the new bevera ge, but they were soon joined by a variety of retailers. The "new" Ha nsen received much praise from analysts for finding its own niche on the "cutting edge" rather than competing directly with the larger pla yers.

In 1997, three-quarters of the company's sales came from California. The success of the functionals line helped Hansen sell more of its ot her products out of state. Earnings were $1.3 million on revenues of $43 million. The next year, functional drinks accounted for a quarter of Hansen's sales of $54 million, and the company's earn ings doubled. Within a year of the introduction of the functionals li ne, the company's share price nearly quadrupled, to $6. The nutri ent-enhanced beverage category of New Age drinks increased more than fourfold in 1998.

Hansen Natural relocated from Anaheim to Corona, California in Januar y 1998. Its headquarters and warehouse shared a 65,000-square-foot bu ilding. It was developing the DynaJuice blended fruit drink, which co ntained 15 vitamins and minerals. This was first in a line of "Health y Start" products for supermarket chains.

In April 1999, Brio Industries Inc. of British Columbia agreed to mar ket Hansen's products throughout Canada. More than 18,000 venues were to be offered opportunities to sell the drinks. Because of the vastn ess of territory and its lack of name recognition up north, Hansen pl anned to introduce its products gradually there. The company had work ed previously with a small Toronto-based distributor. As Canadian law forbade adding any type of vitamins to drinks, some reformulations w ere in order.

Revenues were expected to reach $64 million in 1999. Hansen had s igned distribution agreements with Dr. Pepper and 7-Up and secured a national product introduction through 7-Eleven convenience stores. Th e company was planning to bring out a nutritional boxed drink for chi ldren as well as a "super smoothie." Also forthcoming were Signature Soda gourmet carbonated drinks made with cane sugar and clover honey. Sacks sought to differentiate the brand on nutrition, not taste. "Wh at we're trying to do is sell people something that's honest--somethi ng that will do something for their bodies," he told one California b usiness journal.

Success in the New Millennium

Hansen Natural experienced marked success during the early years of t he new millennium. The company bolstered its holdings with two major purchases and also launched a new product that would dramatically inc rease its revenues. On the acquisition front, the company acquired Bl ue Sky Natural Beverage Company in 2000. Founded in 1980, the Santa F e, New Mexico-based company sold nearly $6.5 million of natural s oda in 1999. Hansen then added the Junior Juice brand to its arsenal in 2001.

Its most significant move, however, was the launch of its Monster ene rgy drink in 2002. The company spent heavily to market the drink--nea rly $1 million a year--in an attempt to pull market share away fr om competitor Red Bull. With a tagline of "Unleash the Beast," the dr ink was a departure from the company's natural offerings. Monster con tained high levels of caffeine and sugar and was sold in large black cans with neon claw marks. The product secured several extreme-sport sponsorships, enabling it to capture 18 percent of the $2 billion a year energy drink market. Red Bull continued to dominate with a 50 percent market share, but Hansen's energy drink sales grew by 162 pe rcent in 2004, which was more than three times the rate of Red Bull.

In just two years, sales more than doubled to $180 million and ne t income skyrocketed to $20.4 million. The company's stock had tr aded as high as $108 per share, up from $4 in 2002. Hansen's recent success had catapulted it into the upper echelon of small busi ness. In fact, during 2005 the company was positioned at the top of t he Forbes list of the 200 Best Small Companies in the United S tates, a ranking based on several criteria, including growth over the past five years, recent sales, net income, stock price, price-to-ear nings ratio, and market value.

With new competitors, including PepsiCo and Coca-Cola, entering the e nergy drink scene, Hansen was forced to stay on top of its game to ma intain its sales growth. As such, Hansen bolstered its energy drink l ine by adding the Joker and Rumba energy drinks to its lineup, as wel l as Monster Assault, which was found on store shelves with the words "declare war on the ordinary" printed on a black and gray can.

Despite the significant growth of the energy drinks segment, an Augus t 2005 Barron's article claimed, "Energy drinks could well pro ve to be a passing fad." With this category accounting for nearly 70 percent of Hansen's sales, the company was indeed subject to changes in consumer demands. Nevertheless, Hansen Natural was confident the c ompany was on track for success in the years to come.

Principal Subsidiaries: Hansen Beverage Company; HEB.

Principal Competitors: Cadbury Schweppes plc; Ferolito, Vultag gio & Sons; PepsiCo, Inc.; Coca-Cola Inc.

Chronology

• Key Dates:
• 1935: Hubert Hansen and sons begin selling juice in Los Angele s.
• 1977: The founder's grandson, Tim Hansen, establishes the fast -growing Hansen Foods, Inc.
• 1988: Hansen Foods succumbs to debt load in Chapter 11.
• 1992: Rodney Sacks and others acquire the company, and list Ha nsen Natural Corporation on the NASDAQ.
• 1996: After two years of losses, the company again posts a pro fit.
• 1997: The "functionals" line energizes Hansen's sales and shar e price.
• 1998: The company relocates to Corona, California, from Anahei m.
• 2000: Blue Sky Natural Beverage Co. is acquired.
• 2002: Monster, Hansen's new energy drink, is launched.
• 2004: Sales have more than doubled in two years, reaching $ ;180 million.