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How To Start A Soft Drink Business

How To Start A Soft Drink Business

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How To Start A Soft Drink Business

How To Start A Soft Drink Business

Starting a new soft drink business is an ambitious undertaking, but the rewards can be sweet. The soft drink industry is a competitive market that is constantly evolving, but with the right approach and careful planning, you can build a successful business and brand.

Launching a successful soft drink business takes more than just a great tasting formula. This guide is here to help by providing an overview of the industry and steps to get your fizzy drink startup off the ground.

Business Overview

Soft drinks encompass a wide range of non-alcoholic, carbonated beverages like colas, ginger ales, root beers, lemon limes, and flavored sodas. The industry also includes juice drinks, ready-to-drink teas and coffees, sports and energy drinks, flavored waters, and enhanced waters.

Major companies like Coca-Cola and Pepsi dominate the production and distribution of branded soft drinks. But the market has thousands of smaller soda makers, including craft soda startups using natural ingredients, unique flavors like bacon or pickle, and artisanal production methods.

U.S. soft drink sales totaled $42.8 billion in 2022, according to IBISWorld. Carbonated soft drinks accounted for over half of sales, followed by bottled water, sports drinks, and fruit beverages.

Trends impacting the soft drink industry include:

  • Health consciousness: Consumers increasingly want drinks with less sugar and artificial ingredients.
  • Smaller packages: Cans and mini bottles appeal to portion-control preferences.
  • Unique flavors: Craft sodas leverage intriguing new flavors like horchata or maple bacon.
  • Lifestyle branding: Drinks are positioned to complement healthy, adventurous, or hip lifestyles.

Steps To Start A Soft Drink Business

Step 1: Market Research

If you’re considering starting a soft drink business, you’ll need to do some market research to determine whether there is a demand for your products in your area. This process should begin with identifying your target market and understanding their preferences and needs. By analyzing the local consumer landscape, you can make informed decisions about your product line and marketing strategy to better position your business.

When starting a soft drink business, it is beneficial to begin locally. By focusing on your immediate area, you can get a better understanding of the market and customer needs and grow from there. Here are a few ways to research the local market.

Talk to beverage distributors and independent retailers: Engaging in conversations with beverage distributors and independent retailers can provide valuable insights into market demand and growth trends specific to your area. They have their finger on the pulse of the local market and can share information about popular brands, flavors, and emerging consumer preferences.

Monitor social media conversations: Social media platforms are a way to gain insights directly from your target market. Monitor conversations and discussions related to soft drinks, paying attention to what soda drinkers in your area are looking for. This can provide valuable clues about flavor preferences, packaging preferences, and even potential gaps in the market.

Test at farmer’s markets: Another way to gather valuable feedback and gain insights into the local market is through test marketing at local farmer’s markets. These markets provide a great opportunity for you to introduce your soft drink products to potential customers and observe their reactions.

Step 2: Write a Business Plan

The soft drink industry generates billions in annual revenue, but launching a new brand and getting noticed requires extensive planning, and the business plan is a great planning tool. Writing a business plan helps get the ideas out of your head and establishes a clear vision for your business. It outlines the steps needed to achieve your goals and objectives, as well as the resources you’ll need to accomplish them. By doing this, you’ll be able to make informed decisions and avoid costly mistakes.

One key section of a business plan focuses on projecting income and expenses to estimate the feasibility of your business. This financial analysis allows you to gain a better understanding of the potential costs and revenue streams associated with your soft drink business, along with how much funding you need to get started. By conducting this analysis early on, you can assess whether your idea is financially viable before investing time and resources into launching the business.

Related: How to write a business plan

Step 3: Source Funding

Securing funding is the next step in starting a soft drink business. It can be one of the most challenging, too, but let’s look at the common sources of funding for this type of business.

One of the first sources of funding to assess is self-funding. Before reaching out to outside funding sources, look at how much personal savings are available to finance the business. If personal savings isn’t enough to cover the startup costs, outside funding sources will be needed.

Lenders, such as banks, are commonly used sources of outside funds for small businesses. Lenders typically require the borrower to invest at least 15% of their personal funds towards the total cost of the project, have a good credit score, and have sufficient collateral. If the bank feels the loan is too risky, they can use an SBA (Small Business Administration) loan guarantee. The SBA provides the bank with a government-backed guarantee that will pay off a portion of the loan if you default.

Friends and family are another potential funding source for small businesses. This type of funding has the advantage of being low-cost, flexible, and easy to obtain. However, it is important to put all agreements in writing. This can help avoid misunderstandings or awkward situations in the future, such as when it comes time to pay them back. It is also essential to communicate your expectations and be clear about the terms of the agreement.

If the funding needs are low or credit isn’t available through a lender, a microloan is a great alternative. Microloans are small loans, often less than $50,000, and some microloan providers even offer business training in addition to funding. These loans often have manageable interest rates and less stringent credit requirements.

Related: Finding the money to start a business

Step 4: Register the Business

Starting a soft drink business involves several legal steps to ensure everything is set up correctly. Each state has different requirements and procedures, but here is a general overview of what is needed.

Business structure: Consider the different types of business structures available, such as sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).

  • Sole proprietorship: Provides ease of startup and the lowest cost, but the owner has unlimited personal liability for any debts or legal issues.
  • General partnership: Involves two or more individuals sharing profits, liabilities, and management responsibilities in the business.
  • Corporation: Offers liability protection for owners (shareholders) and has stricter requirements for setup and operation.
  • Limited Liability Company (LLC): Combines the advantages of a corporation and a sole proprietorship or partnership, providing liability protection for owners (members) while allowing for more flexible management.

Business licensing and permits: Obtain the necessary licenses and permits from state and local authorities. These may include a business license, sales tax permit, and food manufacturing or processing license.

Each state is different in the licensing required for consumable products, like soft drinks. In most cases, employees will be required to have food sanitization permits, and the product will need to be created in a facility that is approved and inspected regularly by the local health department. Many states have lesser food safety requirements for businesses selling low volumes of products under the state’s cottage food law.

Related: Common business licenses, permits, and registrations by state

FDA regulations: Comply with the regulations set by the U.S. Food and Drug Administration (FDA) for food and beverage facilities and products. This includes registering your facility, obtaining ingredient approvals, and following labeling rules to ensure product safety and transparency.

Bottling, canning, and packaging: Adhere to state and federal laws regarding the bottling, canning, and packaging of soft drinks. Ensure that your processes and facilities meet safety standards to protect consumers.

Trademarks and intellectual property: Consider protecting your brand and unique soft drink formulations through trademark registration and other intellectual property protection. This can help safeguard your business’s identity and prevent others from using your intellectual assets without permission.

You can also get a patent from the United States Patent and Trademark Office for your recipe to prevent anyone else from using it. A patent is very expensive ($10,000 – $50,000), will probably take two years to get, and you have to include the recipe in the filing. Another method is to keep the formula a trade secret, which is how Coca-Cola protected their recipe, which costs nothing; however, if someone else stumbles upon your intellectual property, they can’t be stopped from using it.

Step 5: Set Up Operations

Now that you have established your ideas and done the planning, it’s time to start turning your vision into reality. Here are some tips to guide you through the process:

  • Determine the manufacturing process: Deciding on your manufacturing process is a significant aspect of setting up operations. This includes acquiring the necessary equipment and facilities if you choose to manufacture in-house. Alternatively, you may opt to outsource production to a copacker who can handle the manufacturing process.

    During this stage, consider collaborating with experts or partners in the industry to enhance the flavors, improve consistency, and optimize your recipe. Their expertise and insights can help you create a superior product that stands out in the market.
  • Secure ingredient suppliers: Suppliers will be needed for the raw materials, such as sweeteners, fruit juices, etc. While purchasing from local markets may be sufficient to start, the costs and hassles of obtaining these ingredients often become unsustainable if the business grows. If you are outsourcing production, the copacker will have these relationships unless you have a special ingredient.
  • Packaging design: Packaging design is an important decision to attract customers among all of the other brands sitting on the shelf. Consider factors such as bottle size, labels, logos, and packaging materials. Collaborate with graphic designers or packaging experts to create an eye-catching and distinctive packaging design.

Step 6: Create a Marketing Strategy

Launching a new soft drink business is a big undertaking, but even with the best tasting soda, without effective marketing strategies, it can be challenging to gain visibility in a crowded market. When launching your soft drink, go back to the first step of market research to identify your target audience and understand what appeals to them. Are they health conscious, or do they love unique and exotic flavors? Knowing your audience helps tailor your marketing messages and campaigns to resonate with potential customers.

Step 7: Establish Distribution Channels

Once you have developed a delicious and refreshing soda, the next step in starting your business is to establish a plan for how the product will get into the hands and mouths of customers.

It’s generally recommended to start locally before expanding to wider regions. By starting close to home, you can leverage your local community’s loyalty and support while fine-tuning your distribution strategies. Focus on building strong relationships with local retailers, supermarkets, and distributors who are more likely to support local products.

If you plan to venture outside your local area, you can also form partnerships with larger retailers, supermarkets, and distributors, though this will require a much larger budget. If you plan to go this route, consider working with a broker to assist with the initial distribution of your soda. A broker can leverage their industry knowledge and established contacts to help navigate the complex distribution landscape.

Step 8: Prepare to Launch!

As you wrap up your preparations to start a soft drink business, there are more steps that remain. While the specific needs may vary for each individual, here are some loose ends that may need to be tied up before launching your business.

Business insurance: Different types of insurance may include general liability insurance, product liability insurance, or commercial property insurance.

Setting up bookkeeping: Set up accounting software and systems that handle daily transactions, taxes, and financial statements. This will help you stay organized and make informed financial decisions.

Opening a business bank account: A separate business bank account will keep your personal and business finances separate and make it easier to manage cash flow, track expenses, and process business transactions.

Joining industry associations: Membership in industry associations like the American Beverage Association can provide networking opportunities, industry insights, and professional development resources.

Preparing for the grand opening: Plan a memorable launch event to generate buzz around your product. This could involve taste-testing events, partnerships with local businesses, or press releases to local media.

Greg’s Tip: Start small and focus on selling in your local market first before expanding distribution. This allows you to refine flavors, branding, and operations.

Greg's Business Tip

Common Questions When Starting A Soft Drink Business

How much does it cost to start a soft drink business?

The total cost to start a soft drink business can range from around $9,000 to upwards of $150,000 for a smaller operation. This estimate includes the most critical startup expenses but doesn’t cover ongoing costs like rent, utilities, or payroll.

Production equipment: If you are making beverages in-house, equipment like industrial blenders, bottling machinery, labeling machines, and water filtration systems can range from $5,000 to $40,000 for a small production facility.

Location: If you need a facility for production, an initial deposit and renovations will be needed. This cost will vary based on factors like the size and location of the space, but it can range from $5,000 to $20,000 or more, depending on your location’s rent rates and lease terms.

Initial inventory: The cost for raw ingredients, flavoring supplies, bottles, cans, carbon dioxide, labels, and packaging materials will likely start at $1,000.

Marketing: Initial expenses for branding, logo design, website development, and initial marketing campaigns can range from $1,000 for a small, local launch to over $50,000.

Business registration: Registering your business and obtaining licenses and permits can cost $500 to $2,000, depending on your location.

Insurance: Plan for an initial expense of approximately $1,000 to $2,000 for general liability and product liability insurance.

How profitable is a soft drink business?

A small specialty soft drink company selling 5,000 cases at retail per year could potentially generate around $100,000 in annual revenue. With an average selling price of $20 per case of 24 units, 5,000 cases equates to $100,000 in revenue ($20 x 5,000 cases).

Using industry averages, the Cost of Goods Sold, including ingredients, packaging, and production, is estimated at 60% or $60,000 for 5,000 cases, or $12 per case. That results in a gross profit of $40,000.

With estimated operating expenses, including marketing, payroll, insurance, and rent, totaling $20,000, the net profit for a $5,000 case per year specialty soda company could reach $20,000.

Profitability depends on many factors, but this simplified example provides a scenario for the profit potential of a specialty soft drink startup.

What is the NAICS code for a soft drink business?

The NAICS code for a soft drink business is 312111.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code and how to find yours


Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

How To Start A Soft Drink Business

How To Start A Soft Drink Business

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