Virgin Tanks

Gerry Khermouch Virgin Cola USA is looking to recruit seasoned U.S. beverage execs as its. Virgin Cola launch encounters tougher-than-expected distribution challenges and a mostly tepid consumer response at retail. Also high priorities: bringing in a proprietary package for greater retail shelf presence, and broadening the mix of distribution options.

Those developments come as industry execs say Virgin Cola has fallen far short of sales expectations in most markets, even those where wholesalers have done well in getting the brand out to retail and are heavily discounting the product. After a Philadelphia test in 1996, Virgin launched in six California and East Coast metros in June, supported by a provocative mix of ads, sampling initiatives and pr stunts built on exhortations to consumers to "Say Something." Ad agency is Ground Zero, Santa Monica, Calif.

In recent weeks, execs at alcoholic and non-alcoholic beverage companies, several of them managing portfolios worth $100 million or more in annual sales, have been approached about taking top positions at the L.A.-based marketer, which despite some turnover continues to expand aggressively. The current chief, evp Alexis Dormandy, said searches "instigated by myself" will fill "very senior positions," but declined to say more. People close to Virgin expect Dormandy, an associate of Virgin founder Richard Branson, to shift to a more administrative and financial role once U.S. market veterans are aboard to grapple with complex marketing and distribution issues.

Several wholesalers said that, despite the healthy levels of support, retailers have proved hard to win over, particularly in New York, and consumers so far show little sign of breaking their Coke or Pepsi habit.

"It's not going that well," said a major wholesaler in California. "We're discounting with 2-liter bottles in independent groceries and there's very little chain activity. The proprietary package never came, and the advertising falls on deaf ears. In one store we're at 74-cent 2-liters and the retailer is saying, 'Get the price lower.'"

Even in New England, which Dormandy rates as the best market, it has been tough to get the brand out there. "There's strong loyalty out there to Coke and Pepsi, and I don't think that's any secret to anybody," said Gary Keimach, vp at Venture Distributing, Bridgewater, Mass. "They underestimated the power of Coke and Pepsi to do what they've got to do to maintain [their presence]. But the good news is that Virgin's committed for the long haul."

Dormandy acknowledged the spotty performance but said Virgin views this as a long-term investment. Research indicates "the brand proposition seems to be working," he said. "People are aware that the brand exists, so we're very pleased."

The proprietary packs wholesalers had expected, perhaps the curvy "Pammy" bottle used in England, were held up by production constraints that will be resolved by next year, Dormandy said. "We're looking at a whole range of packaging options, the 20-oz. package in particular," Dormandy said. "Having a larger package is what it's all about."

With access to retail difficult in many markets, Virgin is exploring for future markets alternatives beyond its exclusive reliance on beer and new age distributors, selected for their access to independent retailers. "We're talking to a whole range of different people, but we have totally different things in mind, including some never tried before," Dormandy said.

Industry execs reported some turnover in the L.A. office, but Dormandy said the staff there has doubled to 20 in the past four months and will double again in the next six.

Wholesalers, meanwhile, said they expect the hard knocks so far to inject a healthier realism in Virgin's efforts. "I think they thought America would just fall down for them," said a major East Coast wholesaler. "Now they're getting their sights refocused, and still seem deeply committed."

COPYRIGHT 1998 BPI Communications, Inc.
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