A Laguna Beach-based energy drink maker with $150 million in sales was sold Jan. 9 to Ada, Mich.-based Amway Corp., its exclusive distributor, the two companies said.
XS Worldwide Inc. makes an energy drink called XS Energy. Amway is a network marketing or direct-selling company with about 10 million distributors in 80 countries.
XS cofounder and Chief Executive David Vanderveen said his products are sold in 38 of those countries and that about 80% of his time in his new role as vice president of Amway will focus on growing that business to other markets. The other 20% will be devoted to teaching Amway how to attract younger consumers.
“We’re the pivot point for a new strategy,” Vanderveen said. “They’ve decided the future of their business is a lot of what we’ve been doing for the last 10 to 12 years.”
It is Amway’s effort to sell to consumers in the fabled Millennial market and to sign on the next generation.
Amway would not disclose a purchase price, but Vanderveen said, “they paid a very fair price” for “a brand that had $1 billion in sales over the last decade.”
A private equity source said some “less traditional” brands sell for higher multiples depending on products’ reputations and a company’s plans for expanded distribution.
Amway already sells vitamin supplements through its Buena Park-based Nutrilite subsidiary.
A news report said the energy drink market is worth about $28 billion and growing by more than 10% a year.
XS Worldwide has a dozen employees in Laguna Beach, Vanderveen said.
Changing Habits
Five shareholders founded XS Worldwide in 2002 and began to sell through Amway a few months later.
Vanderveen had been a successful Amway distributor in the 1990s, managed network servers and co-location centers in the dot-com boom a few years later, and got involved in trying to turn around an Irvine-based firm called Logic Nutrition in 2001.
While managing the servers, he bought a Red Bull energy drink distributorship to help draw attention to the tech company at trade shows.
That was when “puppets were selling pet food,” he said—referring to an iconic ad campaign of the time—and “we wanted to put legs and lipstick on a boring [tech] business. Then the dot-coms imploded.”
The Logic Nutrition turnaround didn’t work, and the founders afterward formed XS Worldwide.
“People didn’t like the taste of energy drinks,” he said. “So we focused on ingredients.”
Vanderveen said energy drink makers then were mistakenly trying to compete directly with Red Bull and push people to change their habits completely.
He didn’t try to alter behavior but to get consumers to replace existing habits—drinking soda—with XS Energy. They went at general consumers with multiple flavors, adding B Vitamins and testing in stores—Costco, Safeway—to bring buyers into the category.
XS was “converting 20%” of tasters into buyers at a time when 8% of consumers used energy drinks, he said.
“We weren’t talking to the health food side,” he said. “We said, ‘Let’s make it fun.’ ”
Amway quickly took notice.
XS Energy agreed to sell exclusively through Amway within the first year. It grew into other Amway markets over time, and in 2010 the distributor—which Vanderveen said “likes to own its brands”—bought an option to buy XS.
It closed the acquisition 10 days ago, he said.
The fun XS has pursued with consumers is part of the equation.
“We’re not rational animals,” Vanderveen said of people. “We’re emotional animals who rationalize our choices.”
He said, “This generation doesn’t care about ‘feature-function’ claims—they care about experience.”
Parties
Amway distributors selling XS Energy hold parties as the Amway of old always has, but instead of in a home, they might be in a nightclub or at a resort.
In Austria, the product works with a snow skiing race; in Japan, it has a partnership with MTV, he said.
“It’s work and play, the best party you’ll go to, and you can make money,” Vanderveen said.
Amway had sales of about $12 billion in 2013, according to a news report that said the company’s targeting entrepreneurs younger than 35. Half of the company’s new distributors in Japan and North America in the past 10 years, for instance, are in that category, according to the report.
The new owner said it sees the potential in XS Energy.
Said Chief Executive Steve Van Andel in a statement: “Bringing Amway and XS together will strengthen our efforts in the years ahead and create more opportunities for aspiring business people.”
