Ferolito, Vultaggio & Sons was founded in the early 1970s in Brooklyn, New York, as a beer distributorship. John Ferolito and Don Vultaggio started their business soon after graduating high school. They had held delivery jobs at a brewery and beer distributorship, and decided to team up to form their own business on the side as a part-time venture. They purchased a used Volkswagen bus for a couple of hundred dollars, and took the seats out from the back, using it to deliver beer and soda at reduced prices to homes and grocery stores in Brooklyn. This business got big enough for Ferolito and Vultaggio to take it on full time, and they replaced the VW bus with a used truck big enough to make wholesale deliveries in such neighborhoods as Crown Heights and Bedford-Stuyvesant, which other union drivers tended to avoid as tough, high-crime areas. The two became successful enough to acquire a small fleet of trucks, though still functioning as distributors selling reduced price beer.
But they were not happy simply distributing others' products, so they decided they'd rather make their own product to sell. In the mid-1980s they established the Hornell Brewing Co. for this purpose, with Ferolito, Vultaggio & Sons becoming a division of Hornell. The first product FV&S tried, and ultimately failed, to market was Spence & Wesley, a flavored seltzer water named for Vultaggio's sons.
They then turned to another product, a malt liquor with a high alcohol content, named Midnight Dragon. They made the product available at a cheap price covering the black and Hispanic neighborhoods in the boroughs of Manhattan and Brooklyn, shaking hands with passersby every night for a year and thanking owners of small stores for their orders. This caused one Wall Street Journal reporter to write a disapproving comment that companies employing such tactics "play a part in the cycle of poor nutrition that is approaching crisis levels in the inner city."
They created a number of posters such as one in which a woman clad in red lingerie was shown sipping the brew through a straw, and the words "I could suck on this all night." This brought the National Organization for Women to protest the ad and it was withdrawn as a result, though Ferolito had told the Wall Street Journal in 1989 that his idea was that "Real men like sex and sex sells beer." At that time, the product was available only in the New York City metropolitan area, yet the estimated sales in 1988 came to one million cases. This led FV&S to form a joint venture in the following year with a Cincinnati brewer in order to introduce Midnight Dragon to other major U.S. markets and to handle additional marketing and production.
Fith the success of that brand of malt liquor, FV&S decided to add a new brand which it called Crazy Horse, named after the Sioux chief, which bore label containing a drawing of an Indian in a feathered headdress. It was produced by G. Heileman Brewing Co., sold in 40-ounce bottles, and marketed in five states in the New York City area. However, this brand attracted controveersy. In 1992 the U.S. Surgeon General called the brand name "an insensitive and malicious marketing ploy" and pointed out that American Indians, were known to have a high rate of alcoholism and alcohol-related illness. Following this proclamation, the U.S. Bureau of Alcohol, Tobacco and Firearms, which had approved the product only two months earlier, reversed itself, citing technical violations including a statement that the clear-glass, 40-ounce bottle and dark color of the beverage "all combine to create the misleading impression that the product is a bottle of whisky." In 1992, Congress actually passed a law essentially banning the product, but in 1993 a federal judge overturned the act on First Amendment grounds. A number of states also banned Crazy Horse, and by 1997 FV&S would still be fighting those state laws, as well as contending with an organized boycott. As a result of these, annual sales of the brew, according to Vultaggio, had dropped by that time from a peak of three million to some 240,000 cases.
In 1992, however, Ferolito, Vultaggio & Sons' Hornell Brewing Co. was still earning annual revenues of about $10 million, and in that year FV&S decided to introduce a less controversial product — AriZona Iced Tea — that was to make its fortune. In the previous two years they had noted that around 200 ready-to-drink teas had been introduced by companies such as Lipton and Snapple. In particular, the partners noted the success of the Snapple brand of beverages, and decided to provide a popular ready-to-drink tea beverage with a distinctive pastel-colored packaging, somewhat resembling American Indian artwork, and a jumbo 24-ounce can.
Vultaggio indicated that the brand name came to him a,s standing in front of a map in his office, he was trying to determine "Where is hot?" and "What sounds good?" He had seen the success of Snapple Beverage Corp., and this inspired them. "We had been beer guys all our lives and we only knew beer," Vultaggio told a Beverage World reporter, noting "Iced tea was foreign to us." But he and Ferolito was sure they could do what the three founders of Snapple, which was also founded in Brooklyn, had done. Although the company paid more for extra tea flavoring and higher-grade sweeteners, they marketed 24-ounce AriZona for the same 99 cents as the 16-ounce bottle of Snapple's iced tea. The same Cincinnati company that made Midnight Dragon, Hudepohl-Schoenling Brewing Co., handled production of AriZona.
The partners' experience selling in urban neighborhoods was put behind their marketing of this new product. "We learned a lot working up and down the street," Ferolito told a Brandweek reporter. "Party King was a popular soft drink that taught us pretty colors worked in the inner city. Sweetness worked too; that's why Nehi was a success." And in these markets, beer was already being sold in twenty-four-ounce cans. After more than 20 years in the business, Ferolito and Vultaggio figured that they knew enough about the beverage wholesaling game to make this a success. They ordered wholesalers — mostly large beer distributors of Budweiser and Miller — to repack their products into "rainbow cases" that would provide small retailers with an assortment of the four AriZona Iced Tea flavors (lemon, diet lemon, raspberry, and tropical), even if the retailer only ordered one case. FV&S told its sales team to get the product placed in all its existing beer accounts, and they originally resisted paying "slotting allowances" to supermarkets, considering the supermarket chains to be predatory "sharks." (By late 1997, however, FV&S would give in, routinely paying slotting fees to chain stores.) Already by mid-1993, FV&S sold more than ten million cases of AriZona in 1993. By this time, the four AriZona teas each were available in 7.7- and 16-ounce sizes, as well as in the big can, in more than 30 states, even though 80 percent of the sales were in only four markets — New York, New Jersey, Miami, and Detroit. AriZona had come from nowhere to fourth place among ready-to-drink teas in the United States.
Michael Schott, a minority owner and vice-president of Hudepohl-Schoenling when that company had contracted to produce and distribute Midnight Dragon, was running a Detroit beer-wholesaling operation when FV&S introduced AriZona Iced Tea. He brought it to Detroit and sold 900,000 cases of the beverage in 1993, which took it to the top there in its first year. FV&S saw this and hired Schott as its chief operating officer, with the aim of making the drink a national brand. Before the end of 1994, AriZona Iced Tea was being sold in all 50 states. Sales, which had been an estimated $10 to $20 million in 1992, and an estimated $130 million in 1993, reached an estimated $300 million a year by 1994. Ferolito and Vultaggio each pocketed $30 million in aftertax profits in 1994.
By the end of 1993, FV&S had also begun making AriZona Iced Tea available in a new format: a 20-ounce long-neck, widemouth bottle (produced by Anchor Glass) that turned out to be even more popular than the big can. Additional formats were introduced such as milk-style wax cartons, large aseptic packs, and in powdered form. The AriZona design was licensed for lollipops and freeze pops, beach towels, shirts, and other goods. In early 1994 FV&S introduced AriZona Cowboy Cocktails, a juice-based product, sold in such flavors as Mucho Mango and Strawberry Punch, with Kiwi Strawberry and Pina Colada added later, and the company soon added a lemonade and a nonfat, chocolate-flavored drink. During this time Canadian distribution was also achieved through an agreement with Molson Breweries.
By 1994, the 6,000-square-foot Ferolito, Vultaggio & Sons Brooklyn warehouse had become overcrowded. Vultaggio was quoted as saying, "we have been burglarized about 20 times and the roof is impossible to repair." That fall, the company began moving to a corporate office park in Lake Success on Long Island, although the sales staff would remain at the Brooklyn site. Although Heileman had offered about $400 million for the company at about that time, the partners turned them down, as well as deciding against taking FV&S public.
In 1995, FV&S introduced its iced tea in a fifth flavor, ginseng, in 20-ounce, cobalt-blue bottles. Later in the year, the company introduced the first of what became its Soda Shop line of carbonated soft drinks — Chocolate Cola, Diet Chocolate Cola, Vanilla Cola, Chocolate Covered Cherry Cola, and Root Beer Float — under the AriZona name. The root beer drink included milk and cream, which Vultaggio claimed was unprecedented in a carbonated beverage. Because the carbonation required a stronger packaging, these drinks were sold in a thicker 19-ounce bottle, but the labels still featured the distinctive AriZona package graphics. In 1995, FV&S's estimated sales were $285 million, later revised to $355 million, which included 20.3 million cases of Arizona Iced Tea. Earnings were said to be $45 million before taxes.
In 1996 FV&S went back to the beer business, introducing Mississippi Mud, a blend of English porter and Continental Pilsner. This was the first alcoholic beverage since Crazy Horse to be marketed by the company, and came in a 32-ounce glass jug inspired by the clay whiskey-drinking vessel which John Wayne used in the film The Alamo. However, AriZona's sales slipped to an estimated $337.3 million in 1996, and its share of the iced-tea market fell to 9.6 percent, compared to 10.7 percent in 1994. FV&S's totals would have looked worse, according to a Newsday article, if the company had not raised prices sharply and introduced new superpremium-priced flavors.
But by the spring of 1997, Schott and several FV&S sales and marketing executives had departed, so that Vultaggio had to take on the management of sales himself. By this time, some of the company's 500 distributors were upset by what they considered broken promises and strong-arm tactics. At least five distributors had actually filed lawsuits against FV&S, charging that the company had breached contracts for distribution rights. In early 1997 the company shifted its distribution system in many markets from beer wholesalers to soft-drink bottlers, which caused significant disruption. FV&S began to revise its distribution system further, shipping its goods directly to major national retail chains, paying local distributors a per-case fee of about $1.50 to circumvent the wholesale end of the business. The company also switched from 24-unit to 12-unit cases for some of its higher-priced packages, so retailers needed to put less money in AriZona inventory and yet could continue to stock a variety of flavors. (Some stores had been reluctant to spend $300 to $400 a case to stock the brand, and some suspected that the 24-unit cases were so heavy that clerks might avoid restocking shelves.)
The annual advertising budget had been limited to $1 million, which was trivial compared to Snapple's $33 million and Lipton's $17 million in 1996. By this time the partners were reportedly reconsidering their determination to hold to this limit. Although Schott, and even at one point Ferolito had suggested a plan to hire an advertising agency, and more than a half-dozen were interviewed, but Vultaggio had vetoed the idea in 1995. Beverage-industry consultants considered the rejection a mistake. "AriZona had a great burst in the beginning because of the packaging, but the consumer is tired of that," said one, adding "If you don't spend money to promote your brand, you will fall to the earth and crash."
By this time, the Strawberry Punch, tropical-flavored tea, and the carbonated line of beverages all had failed — in the case of the carbonated drinks, according to a distributor, because FV&S failed to get the message out that AriZona now had such drinks, while marketing them in bottles similar in size and appearance to that of the teas and juices. "I saw people shaking it up in the store, thinking it was tea," he said. But the company continued to intruce new products, and achieved some success. By the spring of 1997, AriZona's new Green Tea with Ginseng and Honey had become a big success for FV&S' line. The company also introduced an egg cream called Lite Chocolate Fudge Float, and added to its line a new herbal tea, which included chamomile, ginseng, bee pollen, and honey. FV&S also added a line of diet teas, a proprietary 16-ounce bottle, and a squeezable plastic sports bottle made to look like a metal can. The product line extended to nearly 50 stock keeping units (SKUs) in late 1997.
In 1998, FV&S had commissioned pop artist Peter Max to create a limited-edition series of 16-ounce bottles for its core Lemon Tea line. Further products included Blue Luna iced coffee, its first nonalcoholic beverage line not under the AriZona brand name, first test-marketed in the fall of 1998, in Cafe Latte and Lite Cafe Mocha forms, sweetened with the newly approved product Splenda. Blue Luna was sold in fancy 12.5-ounce bottles shaped like double-handled Roman jugs. The trademarks were eventually taken over by CasAmerica International, Inc., which continues to market under the AriZona name.
- There is an Arizona tea wiki on Wikia.