Enterprise:

Steaz Organic Soda: The Next Real Thing

By Sarah Fister Gale


Eric Schnell and Steve Kessler initially may seem like unlikely candidates to enter the realm of the cola wars, but their passion for the environment, experience in the tea and beverage industry and driving entrepreneurial spirit has made them the organic Davy to the soda giants’ Goliath. Their business is poised to take on a battle dominated by Pepsi and Coke—and they are probably going to win.

In 2002, Schnell and Kessler founded the Healthy Beverage Co., the Newton, PA-based maker of Steaz Organic Green Tea Soda, which combines all the fizz and sparkle of regular sodas, with organic ingredients that, gulp, taste as good as traditional sodas but are actually good for you. “One sip of Steaz Green Tea Soda, and it will be obvious that this revolutionary beverage is going to change the way you feel about soda forever,” Schnell says.

Steaz is no bitter-tea tasting drink. It comes in six varieties that mimic all of the classic soda flavors—cola, lemon dew, raspberry, orange, key lime, and even root beer. The company also offers sparking diet Steaz flavors, and is launching ginger ale and grape soda this summer. More importantly, Steaz is one of the first soda brands ever to be stamped with the U.S. Department of Agriculture (USDA) Certified Organic seal.

Tea for Two
Schnell and Kessler didn’t set out to be the first manufacturers of organic soda, but it appears to have been their destiny. Schnell was brought up in an organic, vegetarian household where he was taught to live a more respectful and healthy life. As an adult he became a sales manager for the fledgling company, Country Life Vitamins, which produces Long Life Tea and other brands, and by the late 1990s he was president of the tea division. “I didn’t know what to do with it but I knew I was passionate for tea,” Schnell says.

Meanwhile, Kessler was a vice president at Country Life Vitamins where he was riding the wave of the growing trend of wellness products. “We had parallel careers in related fields,” Schnell says.

By 2000, Schnell was ready to move his career forward with something innovative. He wanted to take the Long Life Tea brand (a division of Country Life) from a boxed product to a bottled ready-to-drink variety. At the time, there were no Quality Assurance International (QAI) certified organic bottled teas on the market and he saw his chance to create a niche. Working with a non-organic tea bottler, he helped get its bottling plant certified by QAI and began producing their first product, organic Long Life Iced Tea.

“Our boxed tea operation was already certified by QAI so we had a lot of experience with the process,” he says of his willingness to help the competition achieve its organic certification. “Working with the other tea company was a great thing for both companies and I want to do what I can to share my experiences in organic with others.”

Shortly after Long Life launched the bottled tea, Schnell read an article about mainstream sodas getting kicked out of schools in the battle against obesity. “It got me thinking. Why can’t we reinvent soda and make it healthy and organic?” he says. “No one was doing it anywhere.”

It was perfect timing. Schnell and Kessler began their quest for the perfect formula, and in 2002, the USDA’s National Organic Program (NOP) began implementation, making it possible to certify soda as USDA organic.

The Holy Grail of Green Tea
Schnell and Kessler spent the next two years working on the formula, scouting teas from all over the world to find one that blended well with other ingredients and had a smooth, mellow green tea taste. After months of searching through Japan, China and other nations, they found what they were looking for—Ceylon tea, grown high in the fog-shrouded, mystical mountains of Sri Lanka. Of all the teas they sampled in their travels, the Sri Lankan Ceylon blended the best in a soda formula and didn’t have the strong bitter tea flavor that could compromise the flexible beverage’s multiple flavor profiles.

To the green tea, they added organic cane juice, milled from sugar cane grown deep in the Florida Everglades. The unique, single-crystallization process used by the Florida farmers, who mill the sugar onsite on the day of harvest, preserves the original flavor of the sugar cane without the use of additives, preservatives or animal by-products.

Schnell and Kessler worked diligently to ensure all of the ingredients they used, from the tea and sugar cane, to the minor ingredients, met organic certification standards and traceability guidelines. They built relationships with the tea suppliers and worked with growers in the field to establish organic practices and tracking procedures. “With USDA organic you have to have traceability from the field,” Schnell says. “As a brand we have to be able to show our inspectors where our tea came from, and be able to prove it isn’t contaminated with pesticides or genetically modified organisms (GMOs).”

Healthy Beverage works with Finlay Tea Solutions, one of the largest tea suppliers in the world, to broker the Ceylon tea. Finlay’s manufacturers’ reps are regularly on-site at the farms to ensure that all growers meet Healthy Beverage’s quality and organic standards. “It’s another layer of security and best practice,” he says. The processing plants are also regularly inspected by QAI inspectors. Similar practices are in place at the sugar cane farms in the Florida Everglades.

For the minor ingredients, such as flavors and acids, Schnell and Kessler found few suppliers had the organic products or knowledge to meet their needs. “A lot of them were new to organic and didn’t know the rules,” Schnell says, noting that many of them had to get certified as manufacturers or traders of organic ingredients to win their business. “Some couldn’t do it or they didn’t want to. We had to find suppliers willing to invest in organic certification.”

Eventually they found several ingredient suppliers who made the transition to organic over the next year and, says Schnell, many have already recouped their investment by selling products across the organic marketplace.

With the formula and ingredient suppliers in place, Healthy Beverage Co. needed a brewer to bottle Steaz. There were no certified organic soda brewers around on the East Coast but Schnell found nearby Lion Brewery, a regional soda and beer brewer in Wilkes-Barre, PA, that manufactures natural and custom sodas and beers and produces roughly 430,000 barrels of product a year.

It wasn’t an organic facility, but as Schnell and Kessler had learned in their quest for ingredients, this could easily be fixed if they could convince the brewer to make the transition. “We sold him on the concept that organic was the way of the future,” Schnell says, convincing the brewer that with so few organic brewers, converting the plant to organic would put the brewery in an excellent marketing position.

Leo Orlandini, brewmaster at Lion Brewery, quickly embraced the organic vision that Schnell presented. “Everyone was impressed by Eric, so we decided to participate and start down the road to organic,” Orlandini says.

They set to work to work on the certification process. Because, Lion Brewery already produced many all-natural products, the transition wasn’t that painful. “We were geared to organic,” Orlandini says, noting that the brewery has had strict quality control procedures in place for decades. “We were already following a lot of the organic rule requirements.” The plant had a Good Manufacturing Practices (GMP) program and well-defined critical control points, which are key to food safety and quality assurance standards, but to get certified for organic production it needed full documentation of its traceability procedures, certificates of analysis (COAs), and tracking of incoming products. Physically, the plant also had to change its pest management program to meet organic standards and create quarantined storage rooms for organic ingredients. “Mostly, it was just a lot of paperwork.”

The biggest challenge in getting the plant certified was not the documentation however, it was the education process. They needed to teach the staff why it makes sense to use flow charts and standard operating procedures, and why it’s important to segregate ingredients and verify cleaning and sanitation processes between non-organic and organic production processes.

“It was an arduous process, but it was definitely worth it,” Orlandini says. “The organic certification allows us to produce organic at a time when the organic beverage market is growing rapidly.” Lion Brewery has already begun working with other organic drink manufacturers and it hopes to grow that side of the business.

Today, Lion Brewery produces Steaz about once every two months, depending on demand. Before the soda is produced, the sanitation team follows organic protocols to flush, clean and sanitize equipment, which is also used to make non-organic products during the rest of the month. The sanitation staff rinses equipment with 4 parts per million (ppm) chlorine in the rinse water, followed by testing to ensure that all traces of the chemical are removed before production begins. The cleaning team, chemical lot, cleaning procedure and test results are all logged and kept in a production packet that is linked to each product run.

Once the beverage is made, it is bottled at the plant, in old-fashioned glass soda bottles. The bottles have clear labels, which feature images of real fruit—not cartoon drawings—that appear to be etched onto the bottle. “The look of the bottle is very high-end,” Schnell says.

Soda Spin Doctors
Even with suppliers in place, the brewer certified and bottles designed, Schnell and Kessler knew there was more to be done before the product could be successfully brought to market. They needed to build interest. Having been in the retail products business for years, they knew that hype and excitement was elemental to capturing consumers’ attention.

“We spent most of 2002 trying to build interest in the Steaz concept,” Schnell says. Over 12 months, his team took unlabeled samples of the soda to more than 30 foodservice chains and retailers and pitched the concept. “We went to every buyer in every warehouse and said, ‘We have this great new tea soda that will be the alternative to Coke and Pepsi. Who wants to be the first retailer in America to have organic soda?’”

Adding to the aggressive sales campaign, Schnell and Kessler crafted a marketing formula to match their soda. “We took a page from Ben and Jerry’s and turned our journey into a great story,” Schnell says. “We are two guys who grew up in the industry and we sailed halfway around the world to find the perfect organic tea.”

The aggressive early marketing campaign was a huge success (see box, p. 45). “It takes six months, at least, to get a new beverage to store shelves. We knew the timelines, and we didn’t have time to float product for six months,” Schnell says. “The biggest mistake a small beverage manufacturer can make is to assume they don’t have to sell their product until after it comes to market.”

By starting early, they won interest and sales before the first finished bottle was ever capped. To garner further support, Schnell and Kessler involved buyers in research and development decisions during that final critical year, asking for input on everything from ingredient choices and taste testing, to flavor names, label images and even what attorneys to use. “We respected their opinions and they took ownership in the product,” Schnell says, adding: “I had so many people say, ‘If you do this, we will put it on our shelves.”

And they did. Steaz hit the market in December of 2002 as the first organic green tea soft drink ever. Because it was the first of its kind, and it came up against Coke and Pepsi at a time when they had become villains in the war on obesity, Steaz got a lot of media attention. “Soda experts were talking about how this was the healthy alternative,” Schnell says. And that’s exactly what he wanted. To add to the anticipation, Schnell hired OrganicWorks Marketing and Christie Communications to get the message out that there was a fresh new controversial healthy drink on that market that would reinvent the public’s concept of soda.

Sales Exceed Expectations
The early excitement and heavy media attention built a lot of buzz around the new soda, and sales soared. In its first year, Steaz sold 130,000 cases—double what was anticipated. And by May of 2005, two years into business, more than half a million cases of Steaz had sold with major growth showing no sign of waning.

In June 2005, Steaz signed a deal with Polar Beverages Co., a privately owned, independent beverage company in Worcester, MA, that is one of the largest soft drink distributors in the country. It produces and/or distributes such brands as Sun Kist, RC, Country Time, Snapple, Fiji Water, Nantucket Nectar and Arizona Ice Tea, says Gerry Martin, vice president of marketing for immediate consumption sales. He gets 30 requests every week to take on a new beverage brand for distribution, but is cautious about who he adds to his drink stable.

“It takes four things to make a beverage a good choice for distribution: great taste, a point of difference for consumers, profitability and marketing support,” Martin says. “We felt Steaz hit everything we were looking for.”

Martin immediately recognized that the organic label and green tea ingredient would be major points of difference with health conscious consumers, and he was excited to tap the “good-for-you soft drink business.” But Martin was sold on Schnell and Kessler’s dedication to the brand. “We know they aren’t going to just drop off case and go,” he says. “They do a great job educating consumers.” And Martin is confidant that once consumers understand that it’s great tasting and healthy, they’ll love it.

The relationship with Polar means Steaz goes from from a brokered sales model to becoming part of a major distribution network, which will dramatically increase their ability to saturate the market. “We already have orders from some major chains and that will increase in the coming months,” Martin says. “Done right, I expect big things from Steaz.”

Sarah Fister Gale is Editor of Organic Processing Magazine. She can be reached at sarah@organicprocessing.com.