A Thirst-Class Act : Laguna Beverage Finds Niche in Cutthroat Noncarbonated Beverage Market

Three years ago, Stephen Vangelos was concocting fruit drinks in his kitchen. Today, he runs a growing beverage business from his dining room in Dana Point.

Hey, it’s progress.

Vangelos is president of Laguna Beverage Co., a small enterprise that is carving out a niche in the cutthroat noncarbonated beverage market by pitching its products to local eateries, hotels and coffeehouses.

The company, which makes bottled juice blends, lemonades and tea, will log between $400,000 and $600,000 in sales this year, and its 29-year-old president is optimistic about the future.

“It’s a struggle, but we’re doubling up on our production every single month,” said Vangelos, who launched the business with $35,000 in savings, cash advances on his credit card and a $25,000 investment from friend Ronald La Russa, who is now the company’s vice president. Today, the beverages are sold in about 350 establishments, including the Ritz Carlton Hotel in Dana Point, Farmers Market in Fashion Island and Diedrich coffeehouses throughout Southern California.

Vangelos said he shot for the “high-end” market because his company is too small to compete against Snapple and other major producers in supermarkets and liquor stores.

“We don’t have the advertising or marketing budget that could really make a difference,” he said.

Area businesses say they stock Laguna Beverage’s drinks because they like the product and want to help a company that started in Laguna Beach.

Despite the sea of teas, juice blends and various flavored waters already on the market, Vangelos seems confident that his company will find its niche.

“We don’t have visions of becoming a Coca-Cola or Snapple or anything,” he said. “The market we’re going after is people who are conscious about their bodies, who care about their health.”

His drinks contain 25% fruit juice, Vangelos said, a higher percentage than most juice blends have, and only natural ingredients. The company also sells mango-passion fruit juice, pink lemonade and Laguna Peach iced tea.

But industry watchers say Vangelos has entered a ring already crowded with heavyweights. Southern California is home to three of the industry’s bottling and distribution giants: Coca-Cola Enterprises, Pepsi-Cola and 7-UP/RC Bottling Co.

Coca-Cola distributes Fruitopia, a fruit-based drink; Pepsi distributes Ocean Spray and Lipton; 7-UP/RC sells Mystic, a noncarbonated line that includes tea and juice blends, and will soon be distributing Arizona Tea in the Los Angeles area.

“In Southern California, you’ve got one of the most competitive markets in the country, if not the world, because you’ve got three of the best bottlers in the world operating there,” said John Sicher, editor and publisher of Beverage Digest, an industry magazine based in Bedford Hills, N.Y. “Whatever retail channel you’re talking about, assume that Coke and Pepsi have heard of it.”

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The specialty drink industry has been growing steadily for years, said Nick Christy, associate editor of Beverage World trade magazine in New York City. Sales have climbed from $117 million in 1985 to an estimated $5.8 billion last year.

The fastest-growing segment of the industry is the ready-to-drink teas, Christy said, while the sales of sparkling waters have headed south. Teas snared an estimated 28.3% of the specialty beverages market in 1996, up from 21.1% in 1991, he said.

The specialty market “has grown a lot since 1991, so there are a lot more players in the field,” he said.

One of those players is Jim Turner, owner of Dr. Pepper Bottling Co. of Texas, which just bought 7-UP/RC Bottling Co. of Southern California. Small or not, Laguna Beverage Co. is considered a competitor, Turner said.

“We’re going to aggressively go after those businesses with those types of products, just like we do with our carbonated lines,” he said.

Eventually, Turner predicts, the smaller companies will be “washed out” of the market.

“We’re big enough that we can get very, very competitive from a price standpoint,” he said.

Even when a company does make it to the top, it can still take a tumble. Witness Snapple Beverage Co., the trailblazer in the alternative beverage industry. Quaker Oats Co. bought Snapple in 1994 for $1.7 billion. Then sales slowed.

“Unfortunately,” a Quaker spokesman said, “the synergies did not materialize.” This year, Quaker sold Snapple to Triarc Cos. for $300 million.

Such industry ups and downs don’t faze Vangelos, who said he’s not aiming to become a “superpower” anyway. He just wants to make the best drink on the market.

“We’re not reinventing the wheel or anything,” he said.

Laguna Beverage customers say they like both the product and its eye-catching label, which features an image of an oil painting by Laguna Beach artist Kiki Davis that shows a wooden chair sitting at the seaside.

“I really like their product, particularly their lemonade,” said Arlene Mastandrea, manager of the trendy Cafe Zinc in Laguna Beach, which was Vangelos’ first customer. “There’s more juice in it, no artificial coloring, that sort of thing. . . . The packing is great, and I like to support a local company.”

What Vangelos said he needs now is the money to hire a marketing specialist to help the firm expand.

Eventually, he predicts, everything will fall into place and he and La Russa will be able to rise above their current status of “beverage moguls by day and waiters by night.”

“After a while, hopefully, it’s gonna take on a life of its own,” he said.

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Laguna Beverage Co.

* Founded: 1994 by Stephen V. Angelos

* Vice president: Ron LaRussa

* 1997 projected sales: $400,000-$600,000

* Products: Fruit juice, iced tea, lemonade

* Where available: Sports Club Spectrum in Los Angeles, Manhattan Beach, and Irvine; Diedrich Coffee locations in Los Angeles and Orange counties