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Originally published Thursday, May 15, 2008 at 12:00 AM

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Jones Soda eyes mainstream soda market

Like its most loyal customers, Jones Soda refuses to be a shrinking violet. Rather than return to its roots as a brand for skateboarders...

Seattle Times business reporter

Turnaround by Jones

Hiring: 30 new employees to keep tabs on products in Seattle, Chicago and Los Angeles

Delivery: More efficient movement from manufacturing to store shelves

New products: Later this year, launch new Gaba product, plus new soda and vitamin-enhanced drink flavors

Marketing: Convert the buzz into sales, including more displays in stores and better customer incentives

Like its most loyal customers, Jones Soda refuses to be a shrinking violet.

Rather than return to its roots as a brand for skateboarders and hipsters, the company is forging ahead with plans laid two years ago to enter the mainstream-soda market.Jones bungled the rollout of canned soda at Wal-Mart and other national retailers last year, leading to red ink and a dismal stock price. Founder Peter van Stolk departed as chief executive in December.

His successor, former Coca-Cola executive Stephen Jones, is going on a hiring binge to get it right this summer. The company will zoom past the 100-employee mark with 30 new hires to keep tabs on products in thousands of stores in Seattle, Los Angeles and Chicago.

"You can go back in a nice little corner and sell bottles in skate shops, but you must get into the mainstream of the game to increase the value of the company," Jones said last week at the company's South Lake Union headquarters.

Some analysts think Jones should pull back instead.

"Expanding on what caused the problem in the first place isn't going to fix the company," said Suzanne Price, senior analyst at ThinkPanmure in San Francisco. "They've spent all their time and money focusing on the cans and lost what makes Jones special."

Jones' new hires will be charged with something that Coke and Pepsi already do: They will make sure shelves are stocked and scout out places to set up displays and otherwise merchandise Jones products, including canned and bottled pop, tea and vitamin-enhanced drinks.

"We want to demonstrate to retailers that when it's merchandised well, there's [more profit] margin for them," said Chief Operating Officer Joth Ricci, who joined in January after being general manager for a Jones distributor.

The company is moving fast, he said, because "the categories we compete in are won and lost between Memorial Day and Labor Day."

Jones' bid to go national started well, more than tripling fourth-quarter 2006 earnings to $2.1 million. But delays in getting cans onto shelves led to a devastating 98 percent profit drop in mid-2007, and the company has yet to recover.

Earlier this month, it posted a $3.85 million first-quarter loss, and Jones said the company will report "modest losses" for the next few quarters.

Piper Jaffray has a "sell" recommendation on the stock, which trades near the bottom of its 52-week range of $2.36 and $24 a share.

"We applaud management for adhering to being diligent in their strategy," said Nicole Miller Regan, Piper Jaffray's restaurant-and-beverage industry analyst. "We just think it's going to take a little bit longer to play out than they do. We don't foresee profits this year or next."

Mark Astrachan, an analyst at Stifel Nicolaus, is concerned that Jones is obligated to pay millions of dollars to the Seattle Seahawks, New Jersey Nets and others for raw materials, finished goods and promotional and branding benefits. Those "purchase obligations" total $20.8 million over the next five years, according to securities filings.

"The amount of purchase obligations makes it that much harder for them to produce profitable results," Astrachan said. "Clearly, they've had growing pains."

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

Copyright © 2008 The Seattle Times Company

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