Positive Energy Beverages LLC is betting that a continued rise in consumer demand for “better-for-you” food products will be better for the Irvine-based startup, too.
The company sells energy drinks that are made from natural ingredients, using green coffee beans for caffeine to go into fruit juices.
The venture got its start about two years ago in the office of a hedge fund.
Michael Cancelleri, managing director and chief operating officer of Irvine-based Mont Pelerin Capital LLC, came up with the idea. Chuck Martin, longtime investor and the founder of Mont Pelerin, is a longtime mentor to Cancelleri and a key backer of Positive Energy.
The company recently drew another investor, Alan True, founder and chief executive of office furniture manufacturer True Innovations.
Distribution
Positive Energy doesn’t disclose financial data, but it has gotten off to a fast start on distribution, expanding its product line from one flavor—orange—to seven. Its products are on the shelves of various grocery stores, such as Whole Foods, Mother’s Market & Kitchen, and others, that specialize in organic foods. The drinks, which carry the Positive Energy brand on clear bottles with resealable caps, also are available on more than 100 college campuses and about the same number of corporate cafeterias, including the offices of Facebook, Sony and Qualcomm.
Cancelleri and Martin have been working together since 1999, when he was fresh out of Chapman University with an undergraduate degree in business. Martin at the time was heading Enterprise Partners, one of the largest venture capital firms in Southern California.
They’ve worked closely since then, and when Cancelleri completed his MBA program at University of California-Irvine in 2005, the two launched Mont Pelerin.
“I’ve been able to grow my professional career with and through Chuck,” Cancelleri said. “This has been a unique opportunity for me. And [this drink venture] is kind of the third stage of all this.”
He said they had amassed “quite a bit of knowledge” in the consumer products market through Mont Pelerin’s investments prior to launching the drink company.
“One thing we saw was that the energy area was growing, no doubt,” he said. “We saw there was a development of these ‘healthier, clean energy’ types of chains and enterprises.”
Idea
But the idea to start Positive Energy originally came from “a much simpler place than all that,” Cancelleri said.
“I’m actually one of those people who doesn’t like the taste of coffee,” he said. “I don’t like diet soda, and I won’t drink the traditional energy drinks because of the ingredients.”
That left Cancelleri with few options for getting a boost of energy when he faced the rounds of sleepless nights as a new parent.
“About six, seven months before I launched Positive Energy, I had my first child,” he said. “I was struggling in the morning because I wasn’t sleeping—any new parent comes upon that. And I really didn’t have anything to help me in the morning. I’d have my breakfast at the office, and every morning, I’d have a cup of orange juice. And it dawned on me: ‘Why can’t I have the taste and nutritional profile and also the function that everyone is looking for with these energy drinks?’ ”
The question eventually became the basis of a business plan.
“I went to Chuck’s office and shared this crazy idea,” Cancelleri said. “No one else was doing this. So we went down the path to try and figure out why, and we learned that it was a huge challenge to marry these two things (function and nutrition) in this way. We took about a year to develop a proprietary blocker, which blocks the bitterness of the caffeine.”
The key objective was to make the drink natural, Martin said.
“We wanted to pass non-GMO, kosher, gluten-free, all of that,” he said. “If you look at the traditional energy drinks, that’s all synthetic ingredients and caffeine. We wanted to be the opposite of that.”
Demand for natural ingredients and organic food products has increased steadily over the years. Grocery stores dedicated to such offerings continue to strengthen and open more doors.
The stock price of Whole Foods Market Inc., for instance, has grown more than 110% over the past five years, and stores such as Wal-Mart Stores Inc. and Kroger Co. are offering their own versions of more health-conscious brands. Food manufacturers such as Nestlé SA also are making efforts to simplify ingredients, throwing out certain artificial flavors.
The trend is clear for beverages, too.
Trade publication Beverage Digest recently reported that consumption of carbonated soft drinks declined in the U.S. in 2014 for the 10th straight year.
Martin said Positive Energy is well positioned to take advantage of the market dynamics.
“The mainline grocery stores, like the Albertsons and the Safeways of the world, also are really interested in selling ‘new-age beverages’ as a category,” he said. “They want part of that action.”
Next in line are plans to land Positive Energy drinks in convenience stores.
“Convenience stores are perhaps really a long-tail opportunity for us because there are well over 100,000 of those doors in the U.S., where more than half of the energy drink consumption is done,” Cancelleri said. “But it’ll be our last area, because you need to build some brand recognition first.”
