+ Vertically integrated beverage innovation: An interview with Amelia Bay

The world of beverages moves faster than most, and few parts of beverage move faster than tea. Fueling much of the category's growth is the furious pace of innovation, in terms of ingredients, sourcing, extraction, packaging, and just about any other dimension you care to measure. Amelia Bay, a vertically integrated extraction company, has been at the forefront of this growth, and AB's Jason Crandall was kind enough to tell us about it. Be sure to check out the Amelia Bay site for more details. Thanks to Jason for his time and attention.

First of all, can you just give us some background on Amelia Bay?
We are an extraction company. We extract all kinds of botanical products, mostly in tea. We've been doing this for about 10 years now, and as the market's changed, we've changed too. Now, we're almost more of an engineering firm than anything else, catering to the beverage industry, whereby we bring in all sorts of agricultural products like tea, coffee, pomegranates, mate, you name it. We extract these products right here, concentrate them and formulate these materials into finished beverage products. So, a customer could come to us and say "I want to launch this tea or tea/juice blend," and we would source all the leaf tea from different parts of the world, we would source the juice or fruit, bring them in and do all the extraction work here, process all the components and polyphenols in the components, then put them back together into a super concentrated extract that ships in a drum to the bottler where water, sugar, and whatever else is added to bring it to a ready to drink state, then it goes in bottles and onto the shelves.

What products are out right now that you've worked on?
Unfortunately, we have non-disclosure agreements with all our customers. But, they're big companies- a lot of the major brands you see on the shelf right now.

One of the unique things about Amelia Bay is your vertical integration. Can you tell us exactly what that means?
What that means is that we have nobody we buy from except for tea plantations in Indonesia, Argentina, China, Africa, etcetera. We're certified organic as well as fair trade, and what that means is that we buy organic products, bring them in, process them, extract them, formulate them, and ship it to the bottler.

In the past, if you wanted to formulate a beverage, you'd go to a flavor house that buys different flavors, and they all buy from one another, and you'd have five different companies in the middle. Where with us, there's nobody in the middle. We buy from the growers, do all the processing, and ship to the bottler.

That sounds really powerful, because it enables you to have strict control over the entire "chain of custody" for the whole product.
It absolutely does, which is why we have non-disclosure agreements. A lot of people ship in their own ingredients, we don't even source them. They have a specific tea or fruit from a specific plantation that they want to do. They ship it into us, and we do all the extraction work. All these formulas are owned by our company, but they're unique to a specific customer, and we can't copy that for anyone else.

We're focusing on health & wellness trends in both beverage and society in general. What trends are you seeing right now?
People are interested in what they're putting in their bodies. They're interested in reading labels, in reading about polyphenols, in functional foods that provide a health benefit, and I think you're going to see that continue to grow. Now whether that's just tea, I don't know. Tea will continue to grow, tea juice blends will continue to grow, mate, any of these things that were previously considered nutritional supplements, you'll see more of them in the beverage and food industry. I don't think that will backslide. The selection is going to grow and change, I don't think people are going to go back to ordering a Coke. Their days are sort of numbered. But you see major players like Coke and Pepsi launching more functional products. It's a big change in the industry.

Is there a lot of hocus pocus? Yeah, there is. But there's a lot of legitimate companies out there making a lot of legitimate products. The energy drinks launched it in the 90s, like Red Bull. Why drink something else when you can drink a Red Bull that will energize you and do all this other stuff? It's grown and evolved from there into all sorts of market segments, like Whole Foods.

You mentioned all the hocus-pocus out there. How can people sort through all the information and get through the hocus-pocus and snake oil?
Unfortunately, you have to do your homework. Anything that's a functional beverage, for example, our customers aren't allowed to put any health claims on the label. That's the ruling by the FDA. You can say that such-and-such is in the product, but you can't say what such-and-such does. So in a way it's good, and in a way it's bad.

For someone that's interested in learning about what they're putting in their body, the information is out there. It's on the internet. You can learn about all these things, but you've got to take the time to learn about it. And none of it's under the ruling of the FDA, they're not governing what you can and can't eat, so you have to do the homework.

Food safety and other sourcing issues have been in a news a lot lately. Has that affected your business at all?
Of course it's affected us, like anybody else. China is a huge supplier of tea, and we've had to pretty much quit buying from China. It's not that we've ever had any problem, but just to avoid any problems, don't buy from China. Buy from Japan. Buy from Africa. They all sell green tea. It's more expensive, so it's raised our costs, and that gets passed onto the consumer, although not a great deal. But we quit buying from China, because it's not worth the hassle of having someone come to us and say that such-and-such is in our tea.

Are consumers willing to pay that price premium?
Sure. All these companies, toy companies for example, they're not making toys in China because it's a better way to do it, they're doing it because it's less expensive. You're going to see costs rise in all kinds of products that were formerly sourced in China, because it's a massive industrial country with cheap labor. If you lose that supplier, costs are going to go up across the board, not just in food.

So is the customer going to be willing to pay the higher price? I don't see where they'll have much choice. The more heat that gets put on China, the more toys that get recalled, the more dog food that gets recalled, these are all costs that are incurred, and they have to go somewhere. It's just Econ 101.

Yeah, it seems like people are beginning to realize that there's no free lunch, that if they want higher-quality materials, there's going to be a cost.
The customers that we've added in the last year are choosing to use raw materials that cost probably four or five times the raw materials we've used in the past. Which is really interesting to me, because the housing market has crapped out, the stock market is kind of "eh." There's a lot of uncertainty, but people are putting massive amounts of money into their products- and it's not just tea or food ingredients, it's also the packaging- the bottles, the labels, the type of packaging they're using, it's outrageously expensive compared to what they were using a few years ago which was just like your basic bottle of Coke. They're quadrupuling their costs, but there must be people buying it. Go to Whole Foods. It costs five times more to shop there compared to any other grocery chain, and that comes from reputation and quality of product.

Tea has been growing really fast over the past decade or so. Can it continue to grow like this forever, or will it plateau soon?
Right now, tea is continuing to grow. We've shipped more tea this month than we ever have in the history of the company. Will it continue? I don't know. We're always looking at doing new products, and we've changed a lot in the last year. We're not just tea, we've gotten into lots of functional beverage products to satisfy the growing demand. Like I said, I don't think people are going to switch from functional products back to drinking Coke or Pepsi, but will it continue to be just tea? Of course not. People will find new products. Like stevia. Are you familiar with that?

It's a sweetener, right?
Well, you're not supposed to call it a sweetener. But it's a long time sweetener that been used forever, but there's laws that say we're not supposed to use it in products because of the sugar lobby in this company. There's laws against using the word "sweet" next to "stevia."

Wow, really?
Oh yeah. That's why you never see any products with it. But stevia alone is getting a lot of attention. There's just all kinds of things, not just tea. Look at what's happening with pomegranates, with acai, mate... Is it going to plateau? Will people get sick of hearing about these things that are so hot right now? Yeah, I think they will. But is the core idea of functional foods and beverages going to go away? No.

Health is going to be at the forefront of food forever. It's not going to change. People want to live longer and be healthier. It's going to grow and change as new products get developed. The process we use for stripping polyphenols out of agricultural products is an amazing process that wasn't around a few years ago. The technology is going to grow, too. It's not going to just be that new foods are found, it's going to be the technology to get the nutrients from those foods. It's all growing.

The last question I had is, what separates good tea from great tea?
It depends what the consumer wants. The tea that we provide is not the biggest selling tea in the country. The biggest sellers would be Nestea, which if you ask me is more of a tea drink than a real tea, but they sell more of it than anyone else. That's junk, you might as well be drinking a Coke.

So the concept of what good tea is or what great tea is continues to change. Great tea, in the eyes of a tea taster or a taste buyer would be more like the high end stuff from India and Indonesia that mostly goes to the European market. Most of the great teas don't come to the United States. But that's through the eyes of a connoissuer.

Great tea in the southeast, which we provide a ton of, is your standard sweetened black tea with sugar, and that's great in the southeast. So, it means different things to different people.