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00:00I have to take a second and thank the viewers here because without your suggestions I can
00:12confidently say that this video wouldn't exist. I think I'm in the majority when I say I knew about
00:18Arizona iced tea. I've always seen them at the gas stations or convenience stores but I failed to
00:23realize just how big they were and how there's a great story behind this company. The first time
00:28I remember hearing this suggestion was back in December and I had overlooked them to such a
00:33degree where I replied by asking if they were talking about the iced tea. Now of course they
00:39were talking about the iced tea and they replied back saying as such. Made me feel silly. So I do
00:44want to thank everybody who suggested this because you put something on my radar that probably should
00:50have been there anyway. And here's why it should have been there. There's teas out there that you
00:55have to prepare and brew yourself but that's something else. Arizona deals with teas that are
01:01already bottled and ready to drink. And in that market in the United States they're typically the
01:07biggest brand. Even in the few years they weren't the biggest. It wasn't by much and they were a clear
01:12second place. And they sell so many different things. They're probably most known for their cans
01:18of iced tea, their green teas with ginseng, and their Arnold Palmer which is a blend of iced tea and
01:24lemonade. Just think about that. Arnold Palmer is a pretty famous drink that takes its name from a
01:29pretty famous golfer. And Arizona is the only company that has the right to call it that. But there's
01:35also countless other products they offer. Their new thing is green tea, cucumber with citrus. There's fruit
01:42punches, golden bear, lemonade, watermelon, mango. Aside from drinks they sell shirts, hats, shoes with their
01:50signature designs on them. They even sell nachos both with salsa and cheese dip. Last year all this
01:57stuff combined to bring in an estimated three billion dollars in sales. We can all agree this is a large
02:04company. And you can better respect all this when you hear about how they got to this point. Because
02:10they didn't start out big. They started out just about as small as you can get. It was two guys from
02:16Brooklyn. John Ferrellito and Don Voltaggio. They were both very young, not far out of high school,
02:22and gaining some experience working as beer distributors. Basically driving beer to different
02:28places. One day they crossed paths and learned that they had the same dream of starting their own
02:34business. So that's what they did. The story goes that they bought an old Volkswagen bus for a few
02:40hundred dollars and used it to start delivering beer all over Brooklyn. In the beginning it was just part
02:45time and most of their deliveries were to some pretty shady areas. Areas that were avoided by most
02:51other drivers. It was a tough start. But they got through it. They grew as distributors and soon turned
02:57it into a full-time venture. All of this took place in the early 1970s and it wasn't until the mid-80s
03:03when they actually started making their own products. Up until that point they were just distributing
03:09stuff that was made by other people. Their first product was a flavored seltzer water called
03:15Spence and Wesley named after Voltaggio's sons. But it didn't do very well. Their first successful
03:20product was a malt liquor named Midnight Dragon. This product became a bit infamous for its controversial
03:27marketing. I don't want to talk about it too much but it was effective. In 1988 Midnight Dragon sold an
03:33estimated one million cases despite it only being available in New York City. In 1992 they had a big
03:41follow-up to Midnight Dragon called Crazy Horse which also became somewhat infamous for its
03:47controversial marketing. Native American groups found the name to be offensive. It was thought to
03:51be unfairly targeting Native Americans who tend to be susceptible to alcoholism. It was essentially
03:58banned by Congress in 1992 and followed by 12 years of litigation and settlements that eventually led to
04:05the drink being renamed. This is an unexpected origin story isn't it? It's much more controversial than I
04:11would have thought but it's also just different than I would have thought. When I think of Arizona
04:16I think of iced tea. I'm sure I'm not alone in that. Yet the story has already taken us into the 1990s
04:23and there's no mention of iced tea. It's been all beer distribution and malt liquor. To this point
04:29it's been a great case study of how to get a small business off the ground. Within 20 years these two
04:35men turned the smallest business imaginable into a 10 million dollar a year company which I'm sure most
04:41of us would be happy with but if you remember they're now a 3 billion dollar a year company. I did some
04:48quick math for you and found out that that's 300 times larger and they did this of course through their
04:55iced tea. In early 1991 they recognized that iced tea would be a logical market for them to enter.
05:01It's something people love to get in the summer yet still drink in the winter. They saw that there was
05:06great demand for it but in my opinion their smartest observation was that they saw how there was already
05:13great supply for it. Sure people wanted iced tea but Snapple was already providing it to them. So their new
05:21question became how do we make people want our iced tea over Snapple? Which is a hard question to answer.
05:27It took them a few months to come up with an answer. They ultimately came up with three ways to separate
05:32themselves all of which still apply today and can be seen by simply looking at their can. The first way
05:39make a bigger can. A bigger can makes it look unique and stand out from all the other options. The second
05:44way print a unique design on that can. Arizona uses these signature colors and patterns that
05:51are unlike anything else out there. Whether you think they're good or not they're going to capture
05:55your attention. The final way? Make it 99 cents. The can has cost 99 cents since the very beginning and
06:02that has never changed. They print it on the can itself so it's yet another way to draw your attention
06:08and plus that way the place that's selling it can't really mark it up. Picture this. You walk into a gas
06:14station looking for something to drink. You walk over to the refrigerated section to go grab a Snapple.
06:19Then out of the corner of your eye you notice a tall can with a unique pattern on it. You see that
06:25it's 99 cents for 24 ounces while the Snapple you are about to get costs more and is smaller. Even if
06:33you haven't heard of the Arizona brand it's probably enough to make you give them a try. This isn't a
06:38decision like buying a car. You're not researching it for weeks. You might not have anything in mind when
06:43you're walking over to that section. It's a decision that's made in seconds and Arizona has found an
06:49effective way to convince you in that short amount of time. The obvious question here is how are they
06:55able to sell it for so cheap? In a world where inflation exists and the price of just about
07:00everything is constantly rising, how has Arizona been able to sell their can for the same price
07:05for the past 26 years? The simple answer is that they've cut costs. They've managed to run their
07:12business very efficiently. Compared to 26 years ago their cans use half the material, the distribution
07:18system is remarkably efficient. Almost any way that you can cut costs without sacrificing the quality
07:24of the product they found a way to do it. In addition to a very small marketing budget their marketing
07:29is done with their cans in that moment when people are making their decision not with commercials and
07:35billboards. It's hard to say if it's a good strategy or not. I'd say they would benefit from a few
07:40commercials. I think it's the reason I overlooked them initially. I don't believe I've ever seen an
07:45advertisement from them so as I said before they weren't really on my radar. But then if you do spend
07:51money on advertisements they may be forced to raise that price which they definitely do not want to do.
07:57It's a very deliberate strategy that they seem to feel very strongly about. It's worked very well
08:03for them over the past 26 years but one has to think this could eventually turn into a negative for
08:09them. Obviously they can't keep that price tag forever. 50 years down the line it'll be absurd
08:14to sell something for so cheap. In many cases it's already cheaper than a bottle of water. They are
08:19heavily reliant on that 99 cent price tag. If they raise it by just a penny it could mean a massive
08:25reduction in sales. Which is not a good position to find themselves. I don't know how long they could
08:30manage to keep it at that price. They've already done it for longer than many people thought was
08:34possible but there will come a time where it's no longer practical. Maybe at that point they'll
08:40reduce the size of the can but then that's taking away from one of the three things that makes them
08:45stand out. It'll be something to keep an eye on. Whether or not this exact strategy is sustainable
08:50forever I say absolutely not. But it's gotten them where they are today. Within about 10 years
08:56Arizona went from not selling any iced tea at all to becoming the number one iced tea brand. But if we
09:02look at this graph I showed earlier it does appear that they've been losing market share. The market for
09:07iced tea is becoming more evenly distributed. Now there's countless potential reasons behind this
09:13but here's one that people like to point to. The two owners Voltaggio and Ferralito. Remember the two
09:19guys who met each other on their delivery routes and started the whole company. Well those two have
09:24not been getting along. Stemming back to 1994 they've had trouble agreeing on big decisions and
09:30management styles. In 1998 they signed an agreement that said they would remain 50-50 partners in
09:35ownership and voting rights but Voltaggio would more or less be running the company. Soon after
09:41Ferralito wanted to be done with the company altogether and just sell it but Voltaggio didn't want it to
09:47go to someone that would demand more control of it. Long story short after years of legal
09:52proceedings it was finally settled in 2015 when a court ordered that Voltaggio would have to pay
09:58Ferralito around 1 billion dollars for his share of the company. Voltaggio scraped together the money
10:04from the company and took out a loan and was able to get the money together and become 100% owner of the
10:10company. That's where everything stands today but it's believed that all of this had a negative impact. They were so
10:17distracted by court cases and wrapped up in legal fees that they let their market share slip and the
10:22competitors took advantage of the situation. Not to mention the billion dollars that the company paid
10:28out to Ferralito. Now Voltaggio, the current 100% owner, assures that his full focus is back with the
10:34company and he has some big things planned. He recently revealed plans of international expansion
10:39and product expansion. He says he would like to double the size of the company within the next five
10:44years. Now I haven't seen much evidence of success or failure of these plans yet, probably too soon to tell,
10:50but I'm excited to see what happens. Let me know in the comments, what do you think will happen? Will this
10:56company double in size over the next five years or continue to slide downhill? There's no doubt that the
11:02feud between the owners was bad for the company, but can we point to it as the reason for their small decline,
11:08or are there other big factors? And finally, did you underestimate the company in the same way I did?
11:15Do you think their strategy of low prices and very little marketing is sustainable for the future,
11:20or is it time to make some adjustments? I'd like to hear what you have to say. Thank you for watching.
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