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This episode is brought to you in partnership with Airbnb. This past summer, I took my family to Athens, and it was truly an incredible trip. We ate amazing food, we saw the Parthenon and the Agora, and all the incredible things that you can see in one of the most amazing cities in the world. And one of the things that made it special was the home we booked on Airbnb.
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Your home might be worth more than you think. Find out how much at airbnb.ca. host. I want to ask you about a product that turned out to be a huge winner, which was half and half.
The Arnold Palmer, you guys partnered with this company or with him to bring it to basically make a can. An Arnold Palmer can. Yeah, I came up with this look with Arnold on the front and we introduced it. And I went to a sales meeting a couple of weeks in and one of the sales ladies said to me, I got an order today for four green tea and two George Bush's.
What? George Bush was present at the time and it looked like George Bush. Not intentional, but that's the thing. She thought it was George Bush, not Arnold Palmer.
I said, ignore the umbrella, ignore all that golf references and Arnold Palmer on the front. Yeah. But I said, okay, I said, take all the George Bush, that's fine, but me too. Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.
I'm Guy Rosin on the show today, how a beer salesman made a split second decision to get into the iced tea business and beat Snapple at its own game. In the early 90s, bottled iced tea was dominated by three brands, Nest Tea, Lipton, and Snapple. But around 1992, there was a new brand that started to pop up in convenience stores. It looked like a can from a craft fair in New Mexico.
The can was turquoise and pink. It had a huge logo printed across the front and the can was giant 24 ounces, as big as a tall boy beer. You'd see the word Arizona and you'd imagine a scorching hot summer day and a beverage that people in Arizona presumably would drink to quench their thirst. Except Arizona iced tea had nothing to do with the actual place, Arizona.
It was launched by two guys in Brooklyn, Donville, Taggio, and John Feralito. At the time, they weren't even tea makers. They were running a beer distribution business. But Don noticed Snapple flying off the shelves and he thought, this is an opportunity.
It wasn't Don and John's first shot in beverages. They'd already launched a seltzer brand that fizzled and two malt liquors, Crazy Horse and Midnight Dragon, that stirred up more controversy than success. But iced tea, that would become their empire. Don and John understood something simple but powerful.
Packaging can change everything. Arizona took off almost instantly outpacing Snapple, rivaling the big beverage corporations. And today, it's one of the best-selling iced teas in America with billions in annual revenue. But the real story?
How Donville, Taggio came to own it all, how he ended up buying out his partner, and how that deal ugly, drawn out, almost impossible, dragged on for a decade. Which we'll get to later on because it's a fascinating story. But for now, let's start at the beginning. Donville, Taggio grew up in Brooklyn in the 1950s and 60s in a working-class Italian-American family.
And Don stood out in no small part because of his size. He's six foot eight inches. When I was a kid, I said, my mother told me, you're tall. Don't do bad things because people are going to recognize you're going to stand out in the crowd.
You're going to be picked out for bad deeds. I also came to the conclusion back then. I said, I'm never going to drink or smoke, I'm not water any of that, because I'm too big. If I'm incapacitated, I'll be too hard to handle.
So I better not do any of that stuff. And I think it kind of governs my life being tall and being different than most. And I used to be challenged because people thought I was really older than I was. Did you play basketball?
No. Were you good athlete at all? I wasn't very athletic. And we didn't talk about sports today.
We talked about retail. We talked about challenges of being a retailer. My dad worked for the AMP. And so I grew up with that kind of environment.
We were more of a focused on real world stuff than what some athlete was doing. He was a manager at an AMP market, right? Yeah. He used to say, I leave him when it's dark and I come home when it's dark.
And oftentimes, if they had a problem with one of the stores that he managed, he would wake me up and I'd go with him in the middle of the night to see what happens. So he broke in or broke a window and that kind of thing. He'd bring you because he wanted to show you or? Yeah.
He wanted to show me the world that he knew. And I think those things were very important to me in my experience and in business myself. I see the things that happen that most consumers don't recognize or realize. And Don, I mean, I guess already in high school, me watching your dad at AMP, I'm assuming you worked at AMP too, like maybe you had groceries or stocked shelves.
Did you do that as a kid? I worked at a place called Key Food. And my dad didn't want me to be a grocer. But when I graduated in 1970, I had no intention going to college.
And he set up an interview for a job at a brewery in Brooklyn. And that's how he started a beverage business. It was called Peel Brothers. And they were in Bushwick Avenue in Brooklyn.
And this was a job to just do whatever they needed. I mean, you're 18. So I'm assuming like, try the truck or stock the warehouse or whatever they needed. Well, it was a merchandising.
I was in the sales department. So I didn't drive a truck there. But we built a display and put the signs up and, you know, in the enticed consumers to buy our product. So it wasn't like a muscle job.
You were in a sales job early on. Yeah. When I started there, you know, I lived a kind of quasi-shelted life with my parents. And I wasn't well-traveled.
I had never flew in an airplane until I was 35 years old. And I didn't, you know, from being in retail because I worked in that grocery store, I was social with customers and I became comfortable with that. And when I became a salesperson, it just kind of carried over. All right.
So you start out in the beer business working for brewery and I think the peels folded a couple of years after you joined. And but you were in that space. So from what I understand, you went into to go work for a beer distributor at that point, which I think around 2021. This is, you need a guy named John Ferrelito and he's also a young guy like you.
And you guys become fast friends. You start to talk about ideas to get a tell me, tell me about that time. You know, we came from the same kind of background. You know, we were not middle class, lower middle class.
He was also Italian American, but I don't know that mattered. I didn't, but you know, it happened to be that we had things in common. He was just a good guy. You know, he was my best man in my wedding and he was terrific.
I asked this because a lot of times when people are looking for co-founders, you know, it's a crapture. You just never know. It can be great at the beginning, get horrible at the end. A lot of things can happen.
But oftentimes people say to me, what should I look for? And I say shared values, right, which is a bit squishy, but I think that matters. Did you guys have shared values? We did, but you know, like anything else, it's like picking a wife.
Sometimes the person you pick changes and maybe sometimes you don't change with them. So it's hard because if you say, well, I want to pick somebody today who's going to be great 40 years from now, it's hard. It's hard to think that far ahead. Number one, and number two is it's hard because things change and things happen.
And, you know, candidly, part of the, I call it the romance of the relationship between John and I was the fact that we, you know, started out with nothing and then we turned it into something. It was kind of cool. Yeah. Yeah.
All right. So it's the early 1970s. I guess you and John partner up and you start a beer distribution business. Tell me a bit about what you were doing.
You know, because of my experience appeals and John's experience working at this distributing company, we said we go to stores and offer them these popular brands of beer at not so much a better price, but more convenient. You know, we can deliver on Saturdays. We deliver nights, that kind of thing. And then at some point later on, we, you know, we just thought of becoming more of a, what called like a primary distributor where we actually had the exclusive right to certain brands.
But back in those days was whatever sold, you know, we bought and we sold. Tell me a little bit about two young guys getting into the distribution business. I imagine there are a lot of vested interests, a lot of companies that had, you know, all kind of controlled certain areas and markets. This is a threat to their business.
Were there dirty tricks played on up starts? Like you guys? Yeah, we were threatened a lot. You know, we were threatened by the teamsters about, you know, you can't do that.
You know, that's not allowed, you know, because the Shafer delivery guy, we would deliver in Shafer. Shafer beer. Yeah. That was produced in Brooklyn.
Yeah. But you know, the guy on the Shafer delivery guy, or the Shafer sales guy didn't like us very much because we were selling beer that he says he could have sold. But there was always a rub because you're buying beer from a distributor who bought it directly from the brewery and then reselling it. They hated you.
You know, for that. And and probably, you know, again, given that there are unions involved and maybe some unsavory characters and all of like, it's risky, right? I mean, I, I read stories about your time in this business back in the day. We're like, you were robbed on at least 100 occasions.
You were at some one point held held in a closet at gunpoint in your office. What happened? What's the story? Well, you know, we were a company and a business that dealt a lot in cash because that's how the grocery stores paid.
And people who worked for us knew that we had a lot of cash coming in. And they told their friends about it over bar or in a restaurant and then they would come and stick us up. The time I was held up, I was I was in our office and I was held up. And one of the guys I was with pushed the gun away from his head that he hit him over the head with the gun.
And and I believe I kind of cooled the situation down by kind of talking to these bad guys in a very fatherly way. And then when they left, they put us in closet. Then when they left, I said, why'd you do that? He said, I don't like a gun to my head.
I said, who does? He likes a gun to their head. I mean, I have to imagine you have a gun in your desk, just out of safety. I never I was never a gun owner.
If you're not Clint Eastwood, where you can draw quick and shoot straight, you better off not having one. But my dad told me you got to respect the gun, right? So I'm holding the gun. You got to be very respectful for what he's telling me to do.
Otherwise you might be a victim of the gun, right? How quickly did your why? Why did you guys call your business or distribution business? United United.
Okay. And how quickly did it become profitable? You know, we lived off it. So it was profitable for day one, you know, but we were always reaching further than our finances were able to keep up with us.
So, you know, we had some difficult times where there were some sleepless nights about how to meet payroll and how to pay the electric bill. And that went on. You know, I tell people, they say, well, you're an overnight success. I said, yeah, we were 20 years of nights because the first 20 years of our business, prior to Arizona, was a struggle.
It was, you know, we did business. We supported our families. We paid for our homes and things like that, but it was always we're always on the edge. But the beauty, it seems to me of what you guys were in is it's not perishable.
And it's not like a peril where it just goes out of fashion. Right. And so eventually you knew that all your inventory was going to sell. Yeah.
But also what we did by things that were like, cool hoops. But back in the beginning, it was selling shafer to people who wanted to change or wrangled, wanted wrangled. It was just about price. Yeah.
And I guess by the early eighties, things begin to shift because you actually decided to buy the license for, I guess, a failing brewing company. And at that time, you and John start to think about launching your own brand, which we'll get to what you started in just a second. But I'm wondering why, like, why did you guys want to move from distributing beer to making it? Well, because we lived through a time where we always bought something from a distributor who bought it from the company that made it.
We never bought it from the company directly. If we bought Budweiser, Miller was from a distributor and the distributors had, we'd have changing views on what they wanted to do. So we'd have a good connection with a guy who sold Budweiser, then he'd call us one dancer. I can't sell you anymore because, and I suppose said, I don't want us to do it any longer.
So we're always on the edge about our future. So we thought if we had a brand that we owned that we can control, it could be something that we wouldn't have the uncertainty that we had buying beer from somebody else and reselling it. All right. So you guys decide instead going to beer, to go into malt liquor, this is a beverage called Midnight Dragon.
Tell me a little bit about why you decided to go into malt liquor. Well, multiple liquor in those days was a very popular category in the beer business. And I'll never forget it was actually a beer manufacturer from upstate New York. It came to me with an idea about he wanted to do a malt liquor.
And he asked us, he said, you guys know that category. What do you think? And he showed me his package and his product and his name. And I thought it was horrible, but I didn't tell him.
I said, all right. But when he left, John, I looked at each other and said, why don't we do that? And then we developed a label and a bottle and a product and all that. But it started with that one visit from this brewery from Rochester, New York.
All right. Midnight Dragon. I want to dig into this for a little bit. And it's a little bit uncomfortable, but I think that, you know, we're going with this.
The poster, you know, is controversial. OK. And in part, because I think the way it was marketed, first of all, there was an ad that was very sort of sexually suggestive. And John was asked about this because I guess the National Organization of Women protested it and he's quoted as saying, look, real men like sex and sex sells beer.
I'm not interested in whips and achievers who want to suck on a lime and drink Corona. That was his quote in the Wall Street Journal. Yeah. I mean, wow, tell me about just kind of reflecting on that.
How did you feel about? I mean, did you think that the critics were just wrong and unfair or did you think they had some that was some legitimacy to what they were saying? Well, as you know, was a beverage category that was very popular in America. We went at it in a, in a, I guess a Brooklyn style where we said, we got to be a little outrageous because in order to get some attention on the shelf, we have to do something different and it worked out pretty good.
All right. The next product you launch was even more controversial. Someone was called Crazy Horse and it had a label with a Native American and like a feathered headdress. It also drew a lot of negative attention.
I mean, I think at one point, the US Surgeon General called it an insensitive and malicious marketing ploy because he argued it was aimed at Native Americans. Obviously there's a lot of alcoholism in the Native American communities. Um, I think the, the ATF, the Alcohol Tobacco Firearms Bureau even banned it at a certain point. Um, again, you know, you may have just been focused on making a business product, but you saw what people were saying about it.
And what did you think about about that criticism? Um, back in when we had been a dragon, I would work to trade every day. And, um, I saw what was happening in the coolers and we, we said, we want to do, like an upscale mall liquor. Okay.
And I was watching an old Western movie one night and they had, uh, they used to break the bottle over the bar and use it as like a weapon. Uh, and I said, boy, that's the bottle. It had a long neck on it because all the mall liquors and actually all the beers in those days that these kind of rounded not so pretty next. And then the Indian on the front and the cowboy in the back and the story about the West was what inspired, came from my home.
You know, at the time, I lived in a home in Queens that we, uh, my wife, designed around the Southwest. It was like a Santa Fe, uh, motif home, right? Yeah. And we had a lot of, you know, Native American things in the house and decorations and stuff like that.
It was very cool. And the package was terrific looking and we went to a trade show, John and I, and we sold thousands of cases of it without even having a product. It was just the package. Um, then of course, things happened, you know, to our surprise.
It wasn't like we were trying to offend anybody. It was just, you know, we thought it was a cool look and it was because consumers loved it. It's actually, it's what saved our company because prior to that we were floundering. Um, with midnight, with midnight dragon.
Yeah, we just keeping our head above water. I think crazy. Which was over there. What was it about crazy horse that did so much better?
Why? Uh, it was a high price beer, higher priced with a lot more margin in it. At that time in our lives, it was. Pivocal to our success into the future.
Eventually you changed into crazy stallion a couple of years later, but initially was crazy. I think the crazy stallion brand is still around, but midnight dragon is not right. I mean, I drag is not no longer sold. Okay, but I think you guys were profitable, right?
The business union was profitable. Uh, and what do you think your revenue was around? I know those days. Yeah, no, no more than that.
Well, 30, 40 million. Wow. So you were at a significant business with a mall liquor. Well, and what liquor in other brands that we're selling?
You're selling distributing. Okay. Alcohol is a, I mean, certainly then, of course, I think we know that that alcohol consumption has been a decline in the US beer and wine and it's still in decline spirits as well. But back then in the late 80s, 90s, this took a business.
I mean, because the margins can be really good, but it's a highly regulated business. And so I would imagine that a smart, savvy person in the space is thinking, what if we look into non alcoholic beverages, which is what was about to happen? So let's talk about this. This is 1991.
Can you tell me the story of how you first kind of had this, uh, epiphany? I was on a store on Broadway in Houston. It was February, 1991. I was selling midnight dragon and a Snapple truck pulls up.
Snapple, I saw it happened in New York as it happened here. It started here in New York. Uh, and he starts peeling off like 40 cases of iced tea. So I said, Hey, iced tea is not supposed to sell in the wintertime.
Number one. Number two is the order he was bringing into that store was far greater than the order I was trying to get on the beer. And I made the decision right there. So I'm going into tea business right then, right then.
I'm just curious up until that point, February, 91, Snapple was not on your radar at all. So I wasn't really focused on the soft drink aisle. I was focused on the beer aisle until that day. And I said, I said this the other day, entrepreneurs could tell you the time when the light goes on and that's when it went off for me.
When we come back in just a moment, the story behind the turquoise and pink paint job on the very first can of Arizona iced tea. Stay with us. I'm Guy Raz and you're listening to how I built this? Hey, welcome back to how I built this.
I'm Guy Raz. So it's 1991 and Don's made a snap decision to get into the iced tea business. He's seen how well Snapple is doing and he thinks he can capitalize on it. I think by that point, if I'm not mistaken, Howard's turn was already endorsing Snapple on his show.
Oh, yeah, sure. And that I think really super charts that brand because Howard's turn was talking about it in such a way that made it sound so appealing. Yeah, you know, the the brand was started by a couple of window washeshes from New York. One of them had a health food store, like a health, I guess like a vitamin store.
And and Snapple was selling, they didn't start the brand, but they saw it there. And then they took it over and done it off. They became very successful. And I saw it firsthand.
So, so, so really, I mean, you got really excited about iced tea and you started, I guess you start to look for a plant that can produce those lug nut, those wide mouth bottles, just like Snapple. But from what I read, once you did that and you went to that factory, you started to kind of have second thoughts and thought, I'm not going to, I can't out compete Snapple. There's no way this is going to be a fail. Well, John and I drove to a plant in New Jersey who was making Snapple and is a man who ran the Peel Brewery.
He was a production manager there and he asked whether we had a name. I said, we didn't, we didn't have a, we didn't have a formulation. And we essentially went through like, what it would take. Well, he said, this generic bottles, you know, what a look at this people label.
We can find a flavor house for you and then we're on the way home. We stop at 7 11 and we buy some Snapple to look at on the way back to Brooklyn. And we kind of talk ourselves out of the tea business because we said, how are we going to get somebody to buy us over Snapple? How are we going to get them or convince them to buy us better looking label?
But maybe it's not enough, you know, the same shape bottle. Are we going to get lost to the mix? And we kind of said, you know, something better saying the beer business, we know that. Yep.
OK, for a couple of months, you put this out of your mind. I'm not going to get into the tea business. Snapple's killing it. We're not going to do it.
We'll change it. I walked into a 7 11 one morning, which I did every morning by coffee on the way to the office and they had Gatorade and 24 ounce can. And I had never seen that before. I knew that 24 ounce can because we, John and I delivered Schlitz Bowl was in a 24 ounce can.
They would be only brewery using that can. I buy the can. I take it back to the office. I look on the side, it's Reynolds metals making it.
We call it Reynolds Reynolds says you can put tea in that can because it's what he asked. And I said, now I got the package. This is this will also be 50% larger than a 16 ounce Snapple bottle. 24 ounce can.
So a tall boy can. So there was no gate. That was the first time you saw what we now called tall boy cans. I was in person.
You'd seen it. No one was doing it up until Gatorade. What's with an on out? Not all.
OK. Schlitz was doing it with the off. Right. So Schlitz has been doing it but Gatorade and the can and you said, wait a minute, we can sell it for the same price as how could you sell it for the same price if you're offering, you know, eight more ounces of product.
Well, glass bottles were historically more expensive with a lug cap, a run slower in the beer business that we knew, you know, we knew the speeds of cans was faster plus the fact because we were just looking at pure margin. We were saying if if we can be competitive and get people to buy it, then we'll figure out what we got. I wasn't so focused on, well, how are we going to make a killing on it? The question was, can we get some consumers to buy it, see it and buy it?
And I thought this was the angle bigger can very stood out in the cooler, unique, different and we entered the market with that. Okay. Okay. Let's talk about getting ready to enter the market because you're almost 40 at this point and you have a lot of experience now in beer distribution, the beverage industry.
First of all, how hard was it for you to come up with a recipe for Icedy? Was that like, how did you, did you go to your kitchen and start playing around? Or did you find like a, you know, a beverage scientist and start working with him? I looked at the back of a beverage magazine and it was an ad for a flavor house in New Jersey and I called it and they sent a salesman in.
And we talked about his background and I realized that he went to the same high school and graduated the same year that I did. And my wife, no man in high school, I met her in high school and I should mention you married your wife in 76, Eileen. I did. And you're still married today.
Yes. We're going to celebrate our 49th wedding anniversary in a couple of weeks. Amazing. Thank you.
Congratulations. Okay. Keep going. Go back.
So now, you know, now where we have this guy in the office and he's, you know, he works for flavor house in New Jersey and we start playing around with flavors. Okay. Let me ask you about your palate. I'm curious, right?
Because you were looking for a particular flavor profile, right? And how did you know? I mean, you're, I mean, do you have a particularly good palate? Do you do really for what, for any wine?
You have to have, you know, some people can drink something. I don't know. I don't get it. Or, you know, maybe I developed it over years, but I was always someone who savored things.
And, you know, when I was working on the original flavors, I knew what I wanted. I wanted, you know, tea character with fruit flavor, good cleanup, good nose. And that's what I was striving for. And I was, of course, tasting the competition as well.
Was it hard to do? I mean, or was he basically he knew what he was doing and you could just kind of taste and say, I had a little bit more lemon, a little bit more sweetener. The flavors he brought in at first were terrible. And I said, Hey, Joe, I mean, I want tea and he said, Oh, you really want tea.
But it was interesting because, you know, the typical response in the flavor category was, you know, you don't have to put a lot of tea in on a tea. You just put flavor, you can kind of fake it up. And then I realized that what other guys are not doing is putting really ingredients in because, you know, they choose to go a less expensive route. And we then said, let's make a great taste in tea.
We came out with lemon and razzos with the top two flavors for Snapple. Great taste and raspberry flavor. Put it in a great looking can and put it on the shelf next to Snapple at the same price. OK, now you've got a differentiated product because it is going to be in a tall boy can, which is going to make it stand out.
But that's not enough. You still need a brand and Snapple. Snapple is a formidable brand. I mean, it has a wide mouth and still a big deal.
So let's talk about how you started to think about what this was going to be. First of all, the name. Let's talk about the name. How did you come up with a name originally to name with Santa Fe?
Santa Fe. Good name. Good name Santa Fe to you company. OK, because our house in Queens look like it belongs in Santa Fe.
And when you say look, let's just describe the house again. So this is a house in Queens and Rockaway, Queens. It looked like it was in Santa Fe. So what does that mean?
Like what were the colors of the house? It was an Adobe style and my wife. She said, I said, what do you want to do? She said, I'm going to make it look like an Adobe style.
And I didn't quite understand what that meant, but I said, it sounds great. But then she transformed it into a house that looked like a belong in Phoenix, Arizona. And people saw it and love the colors and the vibrancy, the turquoise, the pinks and yellows and the zigzags and all kind of stuff. And that was the inspiration for the look of the can.
And what about the name? Santa Fe. It was going to be Santa Fe tea, but it's not called Santa Fe tea. Well, we put Santa Fe on the can and I showed it to somebody and they said, it sounds like a train.
Oh, yeah. And Santa Fe railroad. Yeah. I said, oh boy, I don't like that.
So we had a map of the country on the wall. We said, Arizona, we want it someplace dry, warm. OK, so Arizona, you saw the name Arizona, and it stylized with a capital Z in the middle. Yeah.
My wife, she went to Hunter College and she was an odd major. I went home that night and told Lillian, I said, Arizona, and she came up the big Z in the middle of it, something that made Arizona look kind of cute on the can. And there we go. I wrapped it around the can.
And we said, wow, it's going to stand out in the coolant. In those days, the coolers were a lot more drab than they are today. You know, there was all blues and blacks and reds and coolers in New York, you know, yeah, no news to turquoise or pink. Yeah.
And so from the time that you you saw the Gatorade cans to the time that you actually had product to sell, how long would you estimate that was? Probably under a year. So fast. Yeah.
Well, I mean, today we do something in three weeks because we, you know, we plugged in. But back then we had to get the cancer player and all that. The brilliance of cans to me also seems not just going to differentiate the project. And by the way, just to be clear, no iced tea was being sold in cans at that point.
Well, that's well, that's good. You know, the standard. Well, that's good. Not the big.
But nobody was doing the top one. So that was the first thing. And the second thing is lighter than glass, right? So that's got to save you some money, too.
It doesn't break. And afraid is a lot more because it's heavy, you know, and they. Right. The freight on glass has more, right?
Yeah. OK. So you come out with this. I think what was it in May of 92 when when Arizona debuts May 5th, 1992?
First load comes to New York. OK. So you've got and your first run, how many do you remember how many cases of it you made? I think we made 20,000 cases.
OK. And now how are you going to get them into stores? Because you got a distribution business, but so could you just literally say these stores? Hey, we got iced tea.
We put them on your shelves. The first weekend we had Arizona delivered, it was early May. And I had my sales manager. I said, go out with a van and get me different types of stores.
Let's place it. It was Friday. And then let's see what happens on Monday. Let's go back to him.
And he comes back and he got a drugstore or a gas station or a book. They're a mom and pop supermarket. And he said, I placed it. He placed a case of each, put a sign on there, the price of Snapple.
Whatever Snapple so for it was usually a bucket in those days, but some places had it for more. And then we went back on the following week and nine out of 10 stores sold 48 pieces, which is two cases. OK, but just just let me pause for how did you get the stores to agree to let you put it in their coolers because they have limited space. Well, somebody gets kicked out.
Somebody gets moved over. You know, there are there's always room in the cooler as long as you get the green light from the shopkeeper to move something. But what gave you the ability to do that? Was it was it in personal relationships?
Because it's right. It's you knew a lot of these store owners. Well, you know, if you're selling a guy something already, you know them. Doesn't mean he'll take a new product of yours, but it's more likely he will than he won't because he knows you and he knows that if he doesn't sell, you'll pick it up and take it home and give him credit on it.
So it was relatively easy to get a grocer to take it on plus the fact it looks so dynamic and the can looks so good that the grocery said, yeah, sure. Why not? I think I could sell it. But you did not put any marketing dollars behind it.
Other than the point of sale, like signs on stores and coolers, no. I'm curious. What was the cost to you per can back in those days? It was about a half a buck a can.
So then you were probably what making 20 cents on each can? Maybe we're making 17 cents a can. So that was then you had to sell a lot to make money. Well, you know, back in those days to make three bucks a case was pretty good.
Yeah, because it was incremental. It was we were already the truck was there to take a few extra cases off the truck. The economics were great. And it in a sense, I mean, the fact that Snapple was doing so well was good for you because they were paying for marketing and and Coke and Pepsi's products were paying for marketing and all you really had to do is just kind of be next to them on the shelves and hopefully people would see this interesting can and say, oh, I'll try that.
Well, exactly. Because they may tea cool, sample it at least and then walking around with that big can was cool for kids. But I think packaging is what did it and the colors and the look I can as well. And I should mention the first year, I think 80% of the sales were in four states, four places, New Jersey, New York, Miami and Detroit.
So you were not in you weren't really penetrated every market yet. But those four places were doing very well. We did. I think it was 700,000 cases.
You're one of us 800,000 cases. And I guess the another turning point was Detroit. There was a guy in Detroit, Michael Schott, who was a handling distribution for you. He did such a good job.
You guys brought him on as a chief operating officer for you and really started to push this product out nationally. Yeah, by 93, we knew we had something and Mike was the first real serious guy outside of New York, New Jersey to take the brand on and they did very well at year. And from that, we became a national brand by 94. You know, we became powerhouse.
I don't think it's right that two years in, you're doing more than $150 million in sales. Does that square with your memory? Yeah, well, year two, we did $100 million year to then year three. We did one and double again.
So we got to like 400 million. That's unbelievable. Okay. So you've got, I think by the early 2000s, Arizona, which had started in 92, is already producing more ice tea than Snapple.
I don't know if you're outselling Snapple by that point. From maybe you are. Yeah, you are already. But Snapple went through multiple owners and they destroyed it.
Right. They sold the Quaker and a bunch of different things. But again, when they sold a Quaker, you would think, oh, they're going to be huge now. They got a huge marketing team behind them and a huge company behind them.
But it didn't actually happen. It didn't become this threat. Most, most entrepreneurial companies that are born or consumed by logic companies usually don't fare very well because that little thing that happens in entrepreneurial companies can't happen in these large companies. So unintentionally they destroy them.
And that's what happened to Snapple. That's what's happened to a lot of brands that you see acquired. And then what happened? Yeah.
And I want to ask you about a product that really just turned out to be a huge winner, which was half and half, Arnold Palmer. Arnold Palmer is right. Everybody knows you go to a restaurant. We're going to ask for an Arnold Palmer, half lemonade, half iced tea, Arnold Palmer, great golfer.
Um, I think there was a company that had like a license to sell the drink and around, I think around 2001, 2002, maybe you guys partnered with this company or with him to bring it to basically make a can and Arnold Palmer can tell me a little bit about that, the genesis of that idea. That flavor house I mentioned, the guy I went to high school with, brought it in to me and he said, what do you think of this? Now I played golf, but I didn't, I never heard the term Arnold Palmer is a half and half, but he told me about it. And he had sold his company flavor on California and it came out with an Arnold Palmer in a dairy half gallon.
And I said, well, send me it because he said it didn't do very well. He said, would you be interested? He sends it to me and the picture on the carton was awful. Didn't look like onnie and the product was awful.
And being a big size container for somebody who says, Oh, I want to try it, but I want to invest in, you know, in a half gallon. Giant carton. Yeah. So I said, you did a lot of things wrong.
I said to myself, she said, what do you think? You want to try it? Onnie didn't control a lot of photographs of himself. So he had photographers who would follow him and I asked on it.
I said, you got some pictures. He said, well, call these guys. And I did. And they said, well, all right, give us like a nickel of can.
I'm not going to give a nickel of can to some guy photograph of them in play. So we had this lady who did a graphic designs. She painted the first picture, put it on a can, put some of his highlights of his career on the side of the can and we introduced it. And I went to a sales meeting a couple of weeks in and one of the sales ladies said to me, I got an order today for four green tea and two George wishes.
George Bush was president at the time and look like George Bush. Not intentional, but that's she thought it was George Bush, not our father. George Bush. I love this George Bush.
I see. I said, they ignore the umbrella, they ignore all that golf references and auto Palmer on the front. Yeah. But I said, who cares if they call them George Bush?
That's fine with me too. And today it's our second best selling flavor. When we come back in just a moment, the end of a partnership and beginning of a 10 year legal battle over what the brand is worth. Stay with us.
I'm Guy Raz and you're listening to how I built this. Hey, welcome back to how I built this. I'm Guy Raz. So it's 2005 and Arizona I see is doing incredibly well, even outselling Snapple, the brand that inspired it.
But behind the scenes, the partnership behind the brand between John and Don is starting to sour. In fact, it turns out that John has been drifting from the business for quite some time. When Arizona started and it became very successful, he became more remote and more away from the business. It was what the evolution of a partnership that started with us both working together and then it turned into mostly me and John, not as active or involved as he was.
He was pursuing other interests at that point. And our success gave him opportunities that he never we didn't have before. And he was like golf and he went to the buying a golf course and I said, go pursue your interest and have fun. But you were guys are partners.
You were full partners. And I want to be very sensitive here because John is not a documentary show. We're going to be in one founder at a time and your co-founder, John is not here to give his side. And so we're going to talk about him respectfully.
I mean, oftentimes when one partner is doing more of the work, it can create tension because one person's like, Hey, I'm doing all the work and you're getting all the profit. You're going to have the profit here. Did that create any tension? Or are you okay with it?
I was fine with it. You didn't care because I never considered what I do work. I enjoy what I do. And I also, and I said to him at one point, I said, we didn't fight.
We had nothing. We're not going to fight now. Did you call him to consult with him on anything? Or I mean, did you say, Hey, I've got this new idea for a product or was he completely out of the picture?
There were times when I didn't speak to him for over a year. But also I knew that at that point in his life, it wasn't for him. And oftentimes I, when I would make decisions, I did call him sometimes. But for the most part, I didn't because it was, you know, he had trust in me and I had trust in the fact that what I was doing, I felt was the best for both families.
And we succeeded. It was great. All right. So let's get to 2005.
By 2005, he decides he wants to sell his half of the company. Now he wanted to sell the company. He wanted to sell the whole company, not his. Want us to sell.
He wanted you to sell. Okay. Because I guess there were people out there who were offering lots of money. Why weren't you interested in selling?
I mean, apparently there was billions of dollars at stake here. There's arguments to be made in 2005. We're on top of the world. Let's cash out.
I have two sons in the business and I have four grandchildren. And I hope that one day my sons take over and then they have the children take over from them. Maybe it's an old fashioned approach, but I don't. I think the worst thing in life is that be wealthy and not having anything to do.
You know, the guys from Snapple told me that the worst day of his life was the day after he sold out. But he said, now what? You know, but I also understood that if he wanted to sell, I said, Hey, sell it to somebody who'll get into your shoes and get the same benefit you've been enjoying. That's fine.
I can't have a guy buy you out and then say, I want to run the company because I know what they do to our entrepreneurial companies and I was concerned about them. My stake would be hampered by some large company putting their big mitts on them on the brand. And that's where it kind of kind of where the world kind of unraveled a bit. Right.
Because nobody, well, very few people would accept that deal. They wouldn't buy out his share only not, you know, only be a situation where they can control the business, right? Because if an outsider private equity or big firm buys into the company, they want to share it. They want to control it, generally.
They're sure. And for their obvious reasons, they say I put a lot of money up and I don't want this guy who's the founder to control my destiny. Of course. But it's, I think it's a mistake because I think the reality of it is who better to run something is the guy who started it and who's got vested interests in it.
And just to be clear, when it became obvious that you were not going to sell, right? And that you were going to have to buy John out. The real dispute began over what the company was worth, right? And this gets pretty complicated, but suffice it to say, John thought the number should be much higher, like in the low billions.
And you said the number should be lower. And so this began a 10 year legal battle that I'm assuming neither of you knew was going to last that long. I couldn't have imagined it last thing that long. Ten years of your life.
Now, not every day you're in and out of court or depositions, but it's always hovering over you. There's a lot of stake during that time. I said I was 70, 80% lawyer, 20% marker because it took up that much of my time. But I was able to take that 20% of time and keep running the business and keep growing the business.
Even though it was very difficult at times to make decisions and also it was difficult for me to tell an applicant because oftentimes I'll interview people to say, come on board without the certainty of where the company is going to be a year from now. And I felt it was wrong for me to have somebody leave his job, come work here and then tell them a year later, hey, by the way, we got bought by Coke and you're out of a job. So I wasn't able in good conscience to recruit good people to grow my business. And I wasn't able to make the kind of investments that businesses need to keep growing your business.
So I was kind of like frozen for 10 years. Yeah. Okay. Why did it take so long?
Like again, I get mad. I mean, and it gets personal, but I wonder why didn't the both of you just go to a third party mediator and say, okay, you value the company to a fair analysis. And then let's see where that, you know, where that where it lands. You know, if I look back at it and I would say, well, what, what could have been done differently?
Could that have worked? But there were other issues going on. There was family issues. There were ex employees that went over to his side.
Right. And so I was fighting on multiple fronts because I had people who like former CFO was on his side of the table, who was a, who was a friend of mine, but John promised them all kinds of wealth. And there were lots of sticky issues. See, when I represented the company as I did and the profits of the company was shared 50 50, not a nickel went to me over what John had received.
I gave him half. But do we think it was going to last 10 years? No. Did we think the money that was spent on legal fees would have been possible?
No, I cannot imagine how expensive that was. How did it take a toll on your physical health, just sleepless nights or I don't know, you know, I've said, when you've had guns to your head multiple times, those things are things that kind of stand out. But, you know, my wife often said to me, how long are you going to fight? How long do you want to keep this up?
What are you doing? You know, I think, but I realized there were thousands of people who worked for me who depended on the decisions I was making for their future as well. Yeah. OK, this case was settled or a court ordered settlement was reached between you and you and John in 2015.
The public amount is a billion dollars and then you guys reached a settlement on the floor. But OK, a check was written to him. Do you think if he did nothing, if he just kept his 50% share, he'd have more money today? Absolutely.
You know, what we earned the last year was what he got bought out for. So, so again, I think this is not a diamond of you or John. It's just sad. It's a sad story and it's sad because it happens in business and money just messes with our minds.
I don't there's no I don't have any harsh words for John. I really don't I don't know what he thinks of me, right? Because I haven't spoke to him since it was invented, but I wish him well and I'm hope he's happy because I'm happy. There's more important things in life to really are.
Yeah. OK, he's out of the picture at this point. And now it's all behind you. OK.
Now that the legal battle is over, doesn't allow you to do things that you couldn't do before. Absolutely. That's why we've been able to do as well as we've done. I built the factory in New Jersey that we needed desperately.
You know, I'm very proud of it. It's a million two hundred fifty thousand square feet of a building that every single piece of it we own we paid for. We don't have any company debt. We have no banks.
We have no lending institutions. I mean, it's incredible. You know, our cost of making a can today is less than it cost us 33 years ago to make the same. Yeah, let's dig into that.
I read, for example, that you actually thinned the aluminum of the cans, which made them lighter and cheaper, for example. Yeah. You know, aluminum is a component that when you buy cans at all level, aluminum goes up and down, your price changes every 30 days. So taking a little more amount is a tremendous saving.
But we didn't want to do it. Other people did it as well. Can manufacturers did because of the obvious reason they use less material. And I read, for example, like another way to keep your costs down is you use lightweight trucks, use them at night to avoid city traffic.
Is that right? That's right. Well, you know, the trucker has eight hours to work and he stuck on the George Washington Bridge for six hours. It's only one move, you know.
I came to that conclusion. I was going over to George Washington Bridge at one o'clock. Yeah. You know, if you go after eight o'clock, it's still a nightmare, but it's a short nightmare.
Yeah. Less of a nightmare. Yeah. So what are you doing to stay ahead of?