What's in a Label?

August 25, 2005

Be it at a coffee shop, spa, real estate office or, perhaps, the local gym, private label water is popping up everywhere. It's commonplace.

In fact, private-label water and juice are reaping the benefits of the health movement as well as the marketing awareness that characterizes the current consumer climate. Sales are up and, in most cases, growth has spilled over into double digits, outpacing national brands.

There's no doubt that private label bottled water has proven to be a lucrative venture with, according to Information Resources Inc., a 14.6 percent sales increase over branded bottled water's 13.1-percent increase.

That's music to Derek Reineman, whose 10-year-old Chameleon Beverage Company produces approximately 3,000 private labels for such clients as Kraft Foods, Souplantation, Bebe, Splash, Kelley Services, St. Regis Hotel at Monarch Bay and its newest account, Starbucks, whose brand, Ethos, helps children around the world receive clean water. Five cents of every $1.70 1/2 liter bottle sold goes to the clean-water effort. The bottles are walking billboards.

Reineman's concept for a private-label water company began while he was studying for his master's degree at the University of Michigan.

''"Our New Venture Development class won the school's Pryer award for the best business plan'a competition that was judged by venture capitalists and bankers," explains, Reineman, 38, who grew up in Pacific Palisades, and who with wife Tanya has sons Adian, 5, and Jackson, 3.

''"We went on to a national competition and were chosen one of three finalists. The other plan we considered was for ostrich farming, but thankfully, I got into private-label beverages."

''For the first two years, Chameleon had only three employees'definitely a bootstrap effort. In fact, Reineman figures that he probably hand-labeled about two million bottles himself.

"I thought I was the only one who could put a label on straight," he says, with a laugh. The company now boasts over 100 employees who work out of a 100,000-sq.-ft. complex in the City of Commerce.

In the beginning, the company's water was bought from bottlers, the labels from a printer. Four years ago, Reineman bought a printing company. And as Chameleon's growth continued to explode, it had problems getting enough water from its bottlers. The next leap was to invest in a state-of-the-art bottling facility, which fundamentally changed the size and the scope of the business.

"We went from a cottage-boutique business to $2 million in sales and are now doing close to $20 million, based upon a higher volume-type customer," Reineman says. "Across the board, you'll see our products in such places as Whole Foods, Albertsons, Costco and Wal-Mart. But we will always have allegiances to our small to medium-size customer and will never move away from that type of business. In fact, we may be the only bottler in the country that prints its own labels, bottles the water and then does the distribution. We're very vertically integrated and focused. And we think that is probably what sets us apart as much as anything else."

The company distributes spring water that comes from underground wells, and tap water that goes through a reverse osmosis process to take out the sediment. Both types of water are purified through a UV process. Additionally, Chameleon creates flavored as well as enhanced waters in which the structure and chemistry of the water are manipulated without changing the water itself.

"We may not be the first in the country to do private labeling," Reineman says, "but we may be the first one to do it in a cost-effective way.

"For instance, in the past, if a restaurant wanted to do something with its own label, they would have to go to a printing company and they would have to buy, say, 10,000 labels. Then they would have to find a bottler that was going to put the labels on the bottle. What started out as a 'cute' idea suddenly became a very expensive, unrealistic concept. So by charging only $75 for the digital printing set-up, and with a 10-case minimum, we really brought the threshold of customization down to an affordable level. We have no contracts or commitments beyond the first order. And we deliver free in the Los Angeles area.

"The ease with which somebody can do this," Reineman continues, "is probably one of the most attractive things for our customer. And the private labels area is a great marketing tool for events such as trade shows and fundraisers. People even order them for private parties."

According to Reineman, when a business gets to about $2 million in sales, it reaches a threshold where either the entrepreneur will get through that level or will kill the business.

"Although someone has created the vision that grows the content of the company," explains Reineman, "he must learn how to delegate and set up systems or else the very things that made the company great are the very things that work against it. So either one works through that and recognizes the need to fundamentally transition or a company dies."

Luckily, Reineman has heeded his own advice. Right now the company is running every day of the year, 24 hours a day.

However, although its employee list has grown, Chameleon still has a friendly, "family-owned" feel. In fact, Reineman and his retired father, Bill, who has worked with the company without

pay for the past eight years, have a daily lunch date except for the day when Bill meets with his Palisades Rotarian group.

"My dad is the chief consultant and 'lunch-provider for the president,'" Derek quips.

Advice from a parent can keep one grounded, too.