Expert: Eric Hofer - 4/6/2011

Question
Dear Mr. Hofer,

For our undergaduate New Product Development course, our team is developing (on paper) an innovative beverage that will serve a niche market.  We are struggling to obtain some of the numbers required in our model simulation, specifically the initial R & D costs, marketing/promotional expenses, administrative costs, and all other investments in the product prior to commercialization.

Given your experience, we feel that you would be able to give us a ballpart of numbers to start with. Can you please provide us with some insight into the average costs required to launch a new beverage startup company?  We would really appreciate it! Thank you for your time.

Thank you.

Answer
Ms. Kwok,

Surely you realize that the numbers vary depending upon the product, market, target?  I'll give you some numbers, as I've had some experiences with product launches.  One was a major bottler who did a local In-Out, another, an energy drink massive new product...   Here are my broad brush strokes (in EUR):-

- R&D (In/Out: 25K (flavor rights were bought), Energy: 300K, Line-extension: 80K (shared costs))
- marketing (In/Out: 15K (part of existing system, just needed posters); Energy, small local market: 1M+ (limited test), Line-extension: no idea, wasn't privy - expect it must have been 3M+)
- Administrative (In/Out: neg, Energy: no idea, Line-extension: no idea, was a line extension)
- Sales Org (In/Out: nil, Energy: 500K, Extension: nil)
- Beverage Broker (In/Out: n/a, Energy: 750K, Extension: n/a)
- Sampling (In/Out: 5K, Energy: 500K, Line-extension: 250K)
- Returns (In/Out: 20%, Energy: 40%, Line-extension: 10%)

All of this is drawn from Central & Eastern Europe between 2000-2005.

As to the average cost, you can launch for very little depending upon infrastructure, media, standing agreements; or you can go wild.  For that model, you need more variables - plant, hiring, systems, securing distribution, a strategy for going to market, etc.

I'd have to know more about a particular product for that; and it would be chargeable work.