Pizzeria Owners Pop into Specialty Sodas

In hindsight, Jeana Edelman (left) says she and husband, David Yudkin, were crazy to jump into the soda business after they'd already spent close to a decade rebuilding a financially shaky pizza chain they'd taken over from her parents.

But six years ago, going from pizza to specialty sodas didn't seem so crazy. Edelman and Yudkin were sick of buying Coke and the like for their Portland, Ore.-based Hotlips Pizza restaurants and wanted to extend their brand name without adding more locations. They were already enmeshed in the area's local food movement, so when a farmer who supplied vegetables for their pizzas urged them to buy berries too, they said, "Why not?"

Edelman, 51, and Yudkin, 52, started brewing and serving blackberry, raspberry and other fruit-flavored sodas from kegs in their five pizza restaurants. Four years ago, they bought a bottling line and expanded to selling soda to high-end delis, organic grocery stores and other retailers.

Launching a new business as the recession hit put the couple back in all-too-familiar financial straits, but they're getting by. Hotlips is up to nine fruit-based sodas sold through 30 distributors to 750 U.S. and Canadian retailers. By September, the couple expect to produce the one millionth bottle of Hotlips Soda. Sales are growing 20 percent a year and currently represent 7 percent of the private company's approximately $5.5 million annual revenue. It could be even higher, Edelman says, with a bigger marketing budget. But the couple has deliberately refused to take on investors who could provide needed capital in order to retain control of the business. That's left them making tough decisions about how to spend limited resources.

In an interview with SecondAct, Edelman talks about what it took to get into a second line of business, selling an upscale product in a mass-market world, and the realities of entrepreneurship during hard times.

Aha moment: It was Yudkin's idea to turn berries into soda. Hotlips chef Greene Lawson made some small batches for the company to sell with its pizza at an annual summer food festival in Portland. "Everyone loved it. It was delicious," Edelman says. After that, they sold the soda on tap in the restaurants for several years before deciding to try selling it in bottles. "A bottle can travel the way pizza can't," she says. "All of a sudden, we weren't limited by bricks and mortar."

Getting started: They rented space at a local organic brewery to make soda and used a guy with a mobile bottling business to bottle it. "We knew nothing about the beverage industry, which is high-stakes, huge capital," Edelman says. "We were like a couple of dumb kids. But we were having fun, and people were loving the product." That was until the bottling line became contaminated and bottles started to leak and, in a few cases, explode. No one was injured, but the company recalled the sodas and spent a year retooling operations. They bought and refurbished their own bottling line, setting it up first at one, and then a second local fruit processor, where the drinks are still made.

Biggest challenge: Learning standard operating procedure in a new industry was daunting. In the beverage world, manufacturers commonly lavish marketing programs on distributors and retailers. But as a small startup with a hand-made product with low volume and equally low margins, Hotlips can't afford fancy marketing. "We give away a few cases to (stores) to sample and give away to customers, but there are many distributors who the first thing they want to know is what our marketing program is," Edelman says. It's also challenging to sell soda with a suggested retail price of $2.49 for a 12-ounce bottle when people can pay 69 cents for name-brand soda at a convenience store. Hotlips executives constantly have to remind themselves they sell an upscale product and shouldn't worry about the mass market, but it's hard, Edelman says. "People will walk into a market and spend $3.50 on an ice cream or coffee or fresh juice or kombucha tea," but there's resistance to spending the same for a soda, she says.

Inspired by: "My father always said money is [for having] an interesting life," Edelman says. Jumping into the soda business definitely made life interesting for the couple and their two teenage children. "We live a pretty modest life," she says. "We went nearly two years without a paycheck, but we've never missed a payroll, and we've never laid anyone off. We have kids going to college in two years and we have no money. We spent our kids' college money on soda. Our operations guy says, 'I'll take this over my corporate job any day.' He loves it because even though it's incredibly hard work, it's a good life."

What's next? Pizza sales dropped during the recession but are recovering, even though Edelman doesn't think the economy will follow suit any time soon. "Our goal is to grow the soda business slowly and steadily and maintain and strengthen the restaurant business slowly and steadily," she says. "We're super focused on quality, customer service and cost. We've simplified our menu, carving off anything that isn't working or is beside the point."

Words of advice: The financial risks of starting a business are huge, and although business plans are good, things rarely turn out as anticipated. "If your expectation is that you're going to come in and give it the capital it needs, create a business according to a plan and see certain outcomes, that's not something we've ever experienced," Edelman says. The main thing is staying true to your objectives. "It's so easy to go astray," she says. Especially in the food business, trends come and go. "There's a lot going on. It comes down to understanding what you sell and why, and standing up straight and saying, 'Yes, this is what we are.'"

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