NaturalAde, Inc.

Business Plan Jack Case | Parker Catlett Ayub Herman | Matt Mulligan 204 W Washington St. Lexington, VA 24450

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Table of Contents

Executive Summary ................................................................................................................. 2

The Problem ........................................................................................................................... 4

The Opportunity ..................................................................................................................... 4

The Business ........................................................................................................................... 5

The Product ............................................................................................................................ 6

Macroenvironmental Factors .................................................................................................. 8

Industry Analysis .................................................................................................................. 11

Market Analysis .................................................................................................................... 15

Customer Analysis ................................................................................................................ 16

Competitor Analysis .............................................................................................................. 17

Marketing Strategy .............................................................................................................. 23

Operations ............................................................................................................................ 25

Research and Development .................................................................................................. 26

Location ................................................................................................................................ 27

Management and Key Personnel .......................................................................................... 28

Financial Analysis ................................................................................................................. 29

Appendix .............................................................................................................................. 36

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Executive Summary The Business and Mission Statement True to its mission statement, "Enhance Your Life - Replenish, Cleanse, Feel Better," NaturalAde will provide consumers along the West Coast with a dual-function beverage that serve as alternatives to traditional sports drinks. NaturalAde’s dual-function, replenishment and detoxification, provides the typical benefits of sports drinks while enhancing the consumer’s workout. Based in Portland, Oregon, NaturalAde will establish a niche between the healthy functional beverage and sports drink market segments by serving new-age athletes looking to enhance their overall healthy lifestyle. The Problem and Business Opportunity The current sports drink market does not adequately service the needs of the increasingly large segment of the population that exercises as a complement to a wholistic, healthy lifestyle. Yoga, for example, grew as a sport by 50% from 2012-2016. From 2016-18 both Gatorade and Powerade, which contain 34g of added sugars, saw their sales decline 6% and 22% respectively. NaturalAde has the opportunity to build a lasting brand relationship with the new and growing segment of the population searching for an alternative to traditional sports drinks with the same benefits but without artificial ingredients and artificial sugars. The company will first start in the Portland, Oregon area, serving NaturalAde’s growing consumer demographic in of the America’s most health-conscious cities. From there, NaturalAde will expand across the West Coast to reach over 9.2 million potential customers. Strategy NaturalAde will employ a focused differentiation strategy at first by targeting young professionals living above the median income who often attend led-workout and fitness classes in the Portland, Oregon area. After starting narrow, the company will broaden its appeal to customers looking for an alternative to traditional sports drinks and people looking for a healthy functional beverage with sustainably sourced and packaged ingredients. The company will coordinate a guerrilla marketing campaign through social media, in-person taste tests with founders, and a partnership with an independent fitness studio in Portland, Oregon to generate initial sales. Competitors NaturalAde will compete with other companies in the functional beverage space in addition to the traditional players in the sports drink market. Functional beverage competitors include Zico Coconut Water, POM Wonderful, Health Ade Kombucha, Suja Juice, and Naked Juice, while the sports drink market includes Gatorade, Powerade, and Body Armor. Finally, the company will also face marginal competition from premium water brands, including Fiji, Perrier, and smartwater. Competitive Advantage and Core Competencies NaturalAde adds value relative to its competitors through its differentiated branding and marketing campaign, its unique product, and its alignment with its target consumer values.

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Initially, founder-consumer interaction will help foster a lasting relationship between the company and the consumer. As more brand ambassadors join the company – both official and unofficial – NaturalAde will capitalize on low-cost, word-of-mouth marketing. NaturalAde's unique, proprietary formulas enable the consumer to receive many of the benefits of traditional sports drinks without the typical negative components. Additionally, the NaturalAde company knows and thinks like its consumer. These shared beliefs – including an emphasis on sustainably sourced ingredients and sustainable packaging, natural ingredients, and a wholistic approach to health – differentiate the company from competitors more focused on traditional athletes. Team NaturalAde's founders have the necessary background and knowledge to connect with their core customers, and the team has strong experience across the board. CEO Jack Case has real estate investment banking experience and West Coast roots that will provide immediate value to the company. COO Matt Mulligan has wealth management and accounting experience that correspond well with his role of managing NaturalAde's distribution, logistics, and financial statements and forecasts. Advisory Board members Ayub Herman and Parker Catlett bring legal, accounting, and investment banking experience to advise the company on all long-term strategic initiatives, and the two plan to join full time in January 2023 as CFO and CMO respectively. Financial Analysis NaturalAde forecasts a strong gross margin of 65.1% for the first five years, plans to see positive cash flow in December 2021, and reach the breakeven in January 2022, one year after beginning operations. Additionally, the company utilizes a predominantly variable cost structure to ensure maximum flexibility during the initial startup and growth years. NaturalAde expects sales of just over $100,000 in 2021 to reach approximately $5.6 million in 2025, corresponding to a CAGR of 120%. Proposed Offering NaturalAde expects to raise $190,000 in seed money to finance the first year of operations in 2021. Seed capital will be used to create the company website – NaturalAde’s virtual home – incorporate in Delaware, refine the NaturalAde formulas, acquire promotional inventories, and trademark the NaturalAde brand and logo. Additionally, remaining cash will be used to finance working capital and growth. Each founder will contribute $10,000 for a total of $40,000, and family and friends will provide $150,000 in the form of convertible notes at 9% interest with a 20% discount rate. Exit Strategy NaturalAde projects significant growth, both geographically and in sales, during its first five years of operations. After five years of strengthening its relationship with a growing consumer demographic, NaturalAde will establish itself as the premier brand in the niche between sports drinks and healthy functional beverages. Given Bai Brands acquisition multiple of 7.4x projected sales, NaturalAde could expect to receive a $40 million valuation based off of historical sales in

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2025. NaturalAde will prove a lucrative target for a number of financial sponsors, and the company's growth potential will make it a promising acquisition target for strategic buyers.

The Problem Recently, the United States has experienced a spike in the number of health-conscious consumers. This trend, driven by younger consumers such as millennials, has led to disruption and rapid expansion in specific sections of the U.S. food and beverage market. One of the markets that has seen tremendous growth due to this movement has been the functional beverage industry. Moving forward, the industry is projected to see an 8.66% CAGR between 2019-2024.1 Functional beverages are defined as drinks that typically offer some sort of health benefit and include ingredients such as fruits, vegetables, vitamins, minerals, and added electrolytes that consumers may not be obtaining through their typical diets. However, one of the categories that falls under the umbrella of the functional beverage industry, sports drinks, has been struggling in recent years. Gatorade and Powerade have experienced a decline in their sales growth rate which may be attributed to health experts’ and politicians’ warnings regarding the high sugar levels and the large number of calories that are found in these beverages.2 Gatorade and Powerade, for example, each contain 34g of added sugars.3 The market for functional beverages is overrun with drinks that are beginning to be referred to as simply “sugar water,” which are in opposition to the growing population of health-conscious consumers. Additionally, many of these functional beverages, such as sports and energy drinks, are targeted at high performance athletes. A new kind of athlete, however, is emerging. For example, “the number of Americans doing yoga has grown by over 50% in the last four years to over 36 million as of 2016, up from 20.4 million in 2012.”4 This new generation of athletes is less focused on high intensity workouts and more concerned with their overall level of wellness, defined as “an active process of becoming aware and making choices towards a healthy and fulfilling life.”5 Currently, the younger generation of health-conscious consumers lacks a 100% natural, organic drink with non-artificial preservatives, colors, and dyes that performs the dual-function of hydration and detoxification.

The Opportunity While the growth in health-conscious consumers who are focused on wellness has been a national trend, it has been accentuated in specific regions of the country. One of these regions is the West Coast. For example, in the greater Portland, Oregon metropolitan area, 57.7% of the population reported exercising three or more times per week.6 This number is substantial enough to place Portland in the top 20% of most active metropolitan areas nationwide.

1 https://www.prnewswire.com/news-releases/208-billion-functional-beverage-market---global-growth-trends-and-forecast-2019-2024-consumer-inclination-toward-non-alcoholic-beverages-300876065.html 2 https://www.cnbc.com/2020/02/02/gatorade-and-powerade-try-to-adapt-as-sports-drinks-sales-decline.html 3 See “Competitor Analysis Table: Sugars” below. 4https://www.health.harvard.edu/blog/new-survey-reveals-the-rapid-rise-of-yoga-and-why-some-people-still-havent-tried-it-201603079179 5 https://shcs.ucdavis.edu/wellness/what-is-wellness 6 https://time.com/4944076/americans-exercise-map/

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Additionally, Portland is a young, unique, and trendy city that consistently ranks as one of the healthiest, most organic cities in the United States.7 If a functional beverage company can cater to the needs of the citizens of Portland and establish itself in this region, there is great potential for the company’s popularity to spread throughout the West Coast, given the West Coast is home to a large majority of the most health-conscious cities in the U.S.8 Portland is not a city necessarily known for its high intensity athletes, but rather for its modern and hip ideals of a healthy lifestyle. Portland is considered to be one of the most environmentally conscious cities in the country. The city’s website, for example, emphasizes the importance of businesses that focus on taking care of the environment and are certified in doing so. The website states, “Sustainability at Work certified organizations walk the talk of green business, from recycling and reducing energy to bike commuting and community giving. By giving these organizations your business, you’re supporting the good work they’re doing for our economy, community and environment.”9 A company operating with a sustainable business model focused on supplying a healthy, functional beverage that specializes in hydration and detoxification reflects the values of the Portland community. In the Market Analysis section below, the company has determined that a significant sustainable obtainable market (SOM) of 116,545 Portland residents above the median income and between the ages of 20 and 50 are interested in functional healthy beverages. By starting with a specific target audience in Portland, the NaturalAde team can determine the most optimal product, advertising, and selling strategies moving forward as the company looks to grow into Oregon, Washington, and California. By manufacturing and distributing NaturalAde beverages through a private label bottler in the Pacific NW, the company will sell direct to consumers through the NaturalAde website and Amazon, via the local section in grocer retailers including Whole Foods, and by working to build distribution partnerships with the distributors for local and national brand yoga, cycling, and workout studios in Portland, Oregon.

The Business NaturalAde provides consumers with all-natural, organic, functional beverages that help the consumer replenish and detoxify after a workout, yoga or cycling class, and even on a standalone basis. This goal fulfills the NaturalAde mission statement, “Enhance Your Life - Replenish, Cleanse, Feel Better.” Unlike traditional sports drinks that contain artificial coloring and preservatives, added sugars, and unsustainable packaging, NaturalAde offers consumers the rehydration promised by traditional sports drinks, detoxification that enhances their workout cleanse, and the ability to connect with a company that shares their values. In order to most effectively serve core customers, NaturalAde will go where they go. The NaturalAde team plans to provide its product to individuals leaving led-workout classes in the Portland area, such as yoga and cycling studios. In addition to reaching customers where

7 https://www.businessinsider.com/the-25-healthiest-cities-in-america-2016-7 8 Ibid 9 https://www.portlandoregon.gov/sustainabilityatwork/62151

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and when they need the product most, the company will provide customers with easy access to NaturalAde through e-commerce platforms, either through the NaturalAde website or on Amazon. The NaturalAde team understands the values and needs of the modern consumer, who is increasingly turning away from traditional juices and carbonated beverages in favor of functional beverages.10 As consumers decrease their use of traditional sports drink brands due to unsavory health side-effects, NaturalAde provides these consumers with an alternative that goes beyond the functional benefits of a traditional sports drink.11 The NaturalAde team, as consumers desiring such an alternative, recognizes the need for this product as well as consumers’ desire for augmented features (e.g. packaging) consistent with health-conscious consumers’ sustainable values. The company’s innovative proprietary formulas, NaturalAde’s dual-function of replenishing and detoxification, and the company’s understanding of the NaturalAde customer’s needs provide the company with the competitive advantage required to capture the attention of consumers who are increasingly looking to supplement their healthy lifestyle with natural, organic products.12

The Product At their core, NaturalAde products aim to provide the new-age athlete with a beverage that enhances and adds to a healthy lifestyle. In order to achieve this goal, NaturalAde will develop a proprietary formula that contains only natural ingredients. The company’s dual-function, replenish and detox, and absence of added sugars and artificial flavoring, preservatives, and coloring will differentiate us from competitors. Augmented, secondary product features will focus on further solidifying NaturalAde's bond with the customer. Through sustainable packaging and incentives to live a more sustainable life, NaturalAde will further resonate with its target consumers. Ingredients NaturalAde has selected a combination of ingredients that contribute to a healthy lifestyle. The largest players in the sports drink market offer the essential elements for hydration, but they also contain an unhealthy amount of sugar for the average consumer, which can be comparable to soft drinks.13 NaturalAde ingredients are simple, sustainable, and healthy. Our original NaturalAde flavor, Mandarin-Mango Mix, will contain the following seven ingredients: coconut water, mandarin, lemon, pure mango juice, dried mint, cinnamon power, and Fiji ginger syrup. These organic, natural, and healthy ingredients allow consumers to align their values and overall health goals while still fulfilling the traditional function of sports drinks. Additionally, NaturalAde's ingredients help enhance the customer's workout by inducing detoxification. In addition to the initial Mandarin-Mango Mix flavor, NaturalAde, Inc. will also introduce two other flavors.

10 $208 Billion Functional Beverage Market - Global Growth, Trends and Forecast 2019-2024: Consumer Inclination Toward Non-Alcoholic Beverages 11 https://www.theatlantic.com/health/archive/2016/09/organic-gatorade-srsly/499154/ 12 https://www.grandviewresearch.com/industry-analysis/sports-drink-market 13 https://www.theatlantic.com/health/archive/2016/09/organic-gatorade-srsly/499154/

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Coconut Water The base of our beverage provides the consumer with the hydration benefits of leading sports drinks with fewer calories, less sodium, and more potassium.14 These qualities provide NaturalAde with a competitive advantage over other sports drinks through providing hydration while leaving out the artificial additives consumers don't need and by providing a rich source of potassium. Pure Mango Juice True to its name, the signature NaturalAde flavor Mandarin-Mango Mix starts with a base of fresh, pure mango juice. Each Mandarin-Mango Mix drink contains 2 whole cups of unadulterated Ceres 100% juice blend mango juice. Ceres mango juice is all natural and 100% fruit juice with no added sugar, preservatives, or artificial colors.15 Mango juice is a wholesome source of nutrition that is rich in vitamins and minerals which support skin and hair health.16 Mandarin True to our consumers’ values, each bottle of Mandarin-Mango Mix contains 2 whole mandarin fruits. Mandarins are vegan, vegetarian, and a low fat and sodium free food.17 Mandarins are rich in vitamins and minerals like Vitamin C and Vitamin A which help to support a healthy immune system.18 Additionally, although fruits are known to contain an abundance of sugars, the natural sugars in mandarins are healthy in contrast to the artificial and added sugars that are present in traditional sports drinks and numerous other functional beverages.19 Lemon Lemon is added to NaturalAde for both flavor and function. Lemon provides our user with a host of health benefits. Containing electrolytes, lemon further enhances your hydration and recovery. Lemon also contains limonoids, which can help protect the body from cancer and high cholesterol. In addition to these benefits, lemon contains a healthy amount of Vitamin C, boosting your immune system without the large amount of sugars in orange juice. Finally, the high acidic content in lemon increases the amount of hydrochloric acid in your system and helps the consumer get rid of what they don't need.20 Dried Mint The original NaturalAde flavor, Mandarin-Mango Mix contains ½ teaspoon of dried mint. Mint not only makes the drink more palatable, but it also possesses a plethora of additional health benefits. Mint is rich in nutrients, it helps to facilitate digestion, and it is also renowned for its high Iron and Manganese content.21

14 https://www.webmd.com/food-recipes/features/truth-about-coconut-water#1 15 https://www.ceresjuices.com/our-juice/pure-juice/ 16 https://www.medicalnewstoday.com/articles/275921#nutrition 17 https://products.wholefoodsmarket.com/product/mandarins-e8da8f 18 https://www.betterhealth.vic.gov.au/health/ingredientsprofiles/Mandarin 19 https://www.livestrong.com/article/257429-what-are-the-benefits-of-mandarin-oranges/ 20 https://vitalrecord.tamhsc.edu/health-benefits-of-lemon/ 21 https://www.healthline.com/nutrition/mint-benefits#section2

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Cinnamon Powder True to our consumers' values, we won't put anything in our product that does not look like it belongs. Our hallmark flavor of NaturalAde, Mandarin-Mango Mix, contains ½ teaspoon of powdered cinnamon. Cinnamon not only adds flavor to the already fruity drink, but it also has proven anti-inflammatory properties and is loaded with antioxidants.22

Fiji Ginger Syrup The signature NaturalAde flavor, Mandarin-Mango Mix, contains 1 teaspoon of “Ginger People organic Fiji ginger syrup. Fiji ginger syrup is made with fresh ginger and carries the same anti-inflammatory and digestion-assistance benefits.23 Fiji ginger syrup is gluten free, fat free, organic, vegan, non-GMO, and free from artificial ingredients staying in line with the NaturalAde promise to be natural, organic, and free from artificial preservatives with the dual functional benefits of hydration and cleansing.24

Macroenvironmental Factors In order for NaturalAde to succeed, there are a number of macro-environmental factors and industry forces that the company must address. By differentiating NaturalAde effectively through unique branding and an innovative product that mixes both the conventional hydration and recovery benefits of a sports drink with the cleansing and wellness benefits of a functional health beverage, NaturalAde will deliver a value-added product to consumers, mitigating the risks associated with industry forces. Political In 2016, obesity affected 39.8% of American adults, 93.3 million people.25 Sugary drinks, defined as any beverage with added sugar or sweeteners (soda, fruit punch, lemonade, sports drinks, energy drinks), are “the single largest source of calories and added sugar in the U.S. diet.”26 Medical evidence shows that sugar-sweetened beverages (SSBs) have negative effects on obesity and weight gain in both children and adults, suggesting that rapid public policy action is needed to curb the consumption of sugary beverages.27 In response to the increasingly publicized negative aspects of SSB consumption, several municipal governments have responded with legislation levying small excise taxes on sugary drink distributors in cities such as Berkeley, Philadelphia, San Francisco, Oakland, Albany, Boulder, Seattle, and Cook County (Chicago).28 These “soda taxes” are trending upward as numerous other cities, such as Washington, D.C., are also considering implementing these taxes.29 Further, these miniscule

22 https://www.healthline.com/nutrition/10-proven-benefits-of-cinnamon#section2 23 https://www.healthline.com/nutrition/11-proven-benefits-of-ginger#section7 24 https://gingerpeople.com/products/organic-ginger-syrup/ 25 https://www.cdc.gov/obesity/data/adult.html 26 https://www.hsph.harvard.edu/nutritionsource/healthy-drinks/sugary-drinks/ 27 https://www.medicalnewstoday.com/articles/320493.php#5 28 https://www.vox.com/science-and-health/2017/6/6/15745908/soda-tax-seattle-philadelphia-sugar-drinks 29https://www.washingtonpost.com/local/dc-politics/the-district-may-approve-one-of-the-nations-highest-taxes-on-sugary-drinks/2019/10/07/088d0c4e-e922-11e9-9c6d-436a0df4f31d_story.html

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excise taxes on soda and other sugary drinks actually affect change and reduce SSB consumption, encouraging former SSB consumers to seek alternative beverage options that are healthier.30 NaturalAde will take advantage of this trend in soda-tax legislation by converting former SSB drinkers into its customers.31 Economic The current economic expansion, consisting of a steady growth in GDP and record low levels of unemployment, came to a rapid close with the development of the COVID-19 global pandemic.32 Higher unemployment levels expected as a result of the pandemic could potentially increase the supply of steady wage-labor for startups. That said, given NaturalAde’s outsourcing of bottling and distribution, two salaried founders, and advisory board, the company should initially not benefit from this trend. The recent economic instability has not changed interest rates, which still remain near all-time lows. At the end of the expansion, small banks continued to approve more loans than they rejected, which yielded a favorable and less risky borrowing situation for startups.33 That said, NaturalAde does not anticipate needing access to debt markets until December 2023. Assuming an economic recovery, NaturalAde will apply for a Small Business Administration (SBA) guaranteed loan of $25,000, secured by inventory collateral, a $250,000 loan from Advantis Credit Union in Portland, Oregon, after our initial proof-of-concept and growth into broader Oregon in year 3, so that the company can begin to establish a strong relationship with a local credit-provider. Additionally, this debt will help NaturalAde finance increasing working capital requirements as the company looks to expand into the Washington and California markets. As a company with a health-conscious product that contains sustainably sourced ingredients, NaturalAde will leverage the growing trend in sustainable consumption by providing customers with premium functional health beverages built on sustainability in terms of sourcing, inputs, and the final product.34 The consumer trend of “healthier eating, sustainable consumption, and ethically sourced food” represented one of the 3 largest trends of the year shaping the consumer landscape in 2019.35 Social From a social perspective, NaturalAde will take advantage of the growing trends towards fitness, wellness, and health-conscious behavior, as well as the augmented importance of sustainability to consumers and the rising trend in functional health beverages. Studies underscore the importance of sustainability in terms of creating an eco-friendly supply chain and understanding the consumer so that companies can position their sustainable efforts in a

30 https://www.vox.com/2016/8/24/12606166/berkeley-soda-tax-study 31 https://www.vox.com/2016/11/9/13571902/soda-taxes-vote-san-francisco-oakland-boulder-albany 32https://www.forbes.com/sites/rohitarora/2019/12/12/feds-low-interest-rates-make-high-times-for-business-borrowers/#4ad2031123b8 33https://www.forbes.com/sites/rohitarora/2019/12/12/feds-low-interest-rates-make-high-times-for-business-borrowers/#4ad2031123b8 34https://www.consumersinternational.org/news-resources/blog/posts/five-trends-driving-progress-towards-sustainable-consumption/ 35 https://home.kpmg/xx/en/home/insights/2019/03/consumer-and-retail-m-and-a-trends-2019.html

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way that aligns with and meets consumer demands.36 This research emphasizes the growing trend in premium products where quality is mandated over quantity, fresh and wholesome ingredients and inputs are in demand, and continuous innovation with regard to branding and functionality - where NaturalAde adds value - is key to winning over customers.37 An emphasis on functionality, specifically as it pertains to providing health benefits, is set to be one of the most significant trends in the beverage industry in 2020.38 Technological As the world population gradually becomes more health-conscious, not only are natural, wholesome products in higher demand, but, by extension, the preservatives that go into products must also be natural as well.39 The trend in the growth of natural preservatives vis-a-vis traditional artificial preservatives is an amalgamation of scientific progress towards reliable, potent natural preservatives and the social trend towards health-conscious, natural products.40 This trend in the rise of natural preservatives is best embodied by natural foods retailer Whole Foods and their clear quality standards declaration proscribing artificial preservatives in their store.41 In its infancy, NaturalAde will develop a relationship with Whole Foods by securing space in its local brands cooler, putting the product in front of customers who value wholesome products that are natural in every aspect from their core composition to their preservative content. Further, the rise of Amazon has drastically changed the way consumers interact with their brands and products. Brick and mortar (B&M) retailers have consistently declined and had to find ways to differentiate their in-store experience. In Q1 2000, e-commerce sales accounted for only 0.8% of total retail sales; by Q3 2019, e-commerce accounted for 10.5% of all retail sales.42 This technological change in how consumers receive their goods has opened the door for businesses to interact directly with consumers through their own websites and Amazon. In the food and beverage space, this has decreased the power of distributors and retailers as consumers have more product procurement options via e-commerce platforms. NaturalAde will take advantage of these direct-to-consumer trends by offering the product through Amazon and on the NaturalAde website. Environmental The growing trends in both sustainable consumption and sourcing as well as the trend towards natural and organic foods and beverages will benefit NaturalAde. NaturalAde is healthy and sustainably sourced, of which both qualities are increasingly important to the new generation of younger consumers.43 While many entrenched beverage companies are racing to establish

36 https://corporatefinance.kpmg.us/insights/2019/beverage-trends-and-insights.html 37 https://corporatefinance.kpmg.us/insights/2019/beverage-trends-and-insights.html 38 https://corporatefinance.kpmg.us/insights/2019/beverage-trends-and-insights.html 39 https://www2.deloitte.com/content/dam/Deloitte/global/Documents/cb-2018-health-wellness-report-new.pdf 40 https://cen.acs.org/articles/92/i6/Extending-Shelf-Life-Natural-Preservatives.html 41 https://www.wholefoodsmarket.com/blog/our-quality-standards-no-artificial-preservatives 42 https://www.statista.com/chart/14011/e-commerce-share-of-total-retail-sales/ 43https://www.pwc.com/sg/en/services/food-supply-integrity/blog-trends-food-industry-needs-to-watch-out.html

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themselves as the natural beverage brand, they are already perceived as being something else, while NaturalAde has and always will be a brand focused on sustainability in consumption, sourcing, and health and wellness due to its unique amalgamation of functional benefits.44 Recent research shows the industry is being most affected by the “rise of health-conscious millennial consumers, driving up demand for fresh, healthy, and organic products.”45 Legal The company does not anticipate an unfavorable legal environment. Instead, NaturalAde will benefit from the recent change to corporate tax laws. The Tax Cut and Jobs Act (TCJA), passed in December 2017, lowered the US corporate tax rate from 35% to 21%. These business-friendly trends allow NaturalAde to take advantage of better cash flow to further invest in the business. In the year following the passage of the TCJA, small business owners reported receiving a lower tax bill and using the savings to reinvest in their businesses.46 As mentioned earlier under political factors, increasing “soda tax” laws and regulations are causing traditional players in food and beverage industry to view healthy functional beverages as a strong opportunity for growth. This could increase opportunities for NaturalAde to be acquired by larger players in the beverage industry who are seeking to deploy cash to acquire growing brands. On a company basis, NaturalAde will trademark both its name and logo. As a legal entity, NaturalAde will be a Delaware corporation that conducts business outside of Delaware, allowing the company to avoid paying state corporate income tax.47 Delaware also has very low capital requirements to incorporate, and a corporation can be formed very quickly in Delaware relative to many other states, allowing NaturalAde to begin operations swiftly.48

Industry Analysis The Industry In Which NaturalAde Will Compete NaturalAde will compete at the intersection of two industries. The first industry in which NaturalAde will compete is the conventional sports drink industry which is declining in size and is dominated almost exclusively by Gatorade and Powerade.49 The second industry in which NaturalAde will compete is the growing functional health beverages industry which is highly competitive in nature and fragmented since no single brand has yet established themselves as the established, dominant force.50 The threat of new entrants, industry rivalry, supplier power, buyer power, and the threat of substitutes all affect NaturalAde’s ability to perform and make a profit.

44https://www.marketwatch.com/press-release/beverage-companies-turn-to-healthy-drinks-as-consumer-demand-shifts-2019-01-17-918300 45https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/consumer-business/ca-benchmarking-for-success-en-aoda.pdf 46 https://www.nfib.com/content/news/alabama/infographic-tax-reform-continues-to-help-small-businesses-thrive/ 47 https://www.entrepreneur.com/article/287677 48 https://www.legalzoom.com/articles/incorporating-in-delaware-advantages-and-disadvantages 49 https://www.statista.com/statistics/667104/us-dollar-sales-growth-sports-drinks/ 50 https://www.statista.com/statistics/979839/market-size-of-functional-drinks-worldwide/

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Industry Segmentation The traditional sports drink industry is segmented into two main components, and one smaller piece. Looking at the two larger and established players in the sports drink market, Gatorade controls approximately 69% of this market, while Powerade controls an additional 15.6% of the market.51 BodyArmor, a relatively new and up-and-coming industry player, controls a much smaller yet still significant 4.7% of the sports drink market, and the remaining 10.7% of the sports drink market is controlled by many smaller, lesser-known brands.52 Gatorade and Powerade are the historically entrenched players, being around since 1965 and 1988 respectively, while BodyArmor was recently created in 2011. The much younger and rapidly growing functional health beverages market is different from the traditional sports drink market in that it is growing, highly fragmented, and lacks a dominant, established brand.53 The absence of an established, key player in the functional beverage market, along with its high level of fragmentation, is an opportunity for NaturalAde which will differentiate itself from other functional health beverages through innovative branding and the unique dual functional benefits of a conventional sports drink (hydration and recovery) combined with the cleansing and detoxification benefits of a functional health beverage. Figure 1: NaturalAde Industry

51 https://www.statista.com/statistics/438369/market-share-of-the-leading-non-aseptic-sport-drink-brands-us/ 52 https://www.statista.com/statistics/438369/market-share-of-the-leading-non-aseptic-sport-drink-brands-us/ 53 https://www.grandviewresearch.com/press-release/global-functional-drinks-market

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Key Industry Players In the traditional sports drink industry, the largest and most important players are Gatorade (69%), Powerade (15.6%), and BodyArmor (4.7%). Unlike the conventional sports drink industry, the young and swiftly-growing functional health beverage industry does not yet have any entrenched and dominant forces, however, there are several brands that are noteworthy due to their semi-universal brand-recognition such as ZICO coconut water and POM Wonderful’s signature pomegranate juice. Threat of New Entrants: medium In the traditional sports drink market, established players like Gatorade and Powerade can use their size and brand recognition to make it very difficult for new entrants to succeed by either beating them with low costs (leveraging their economies of scale) or by simply buying a potentially successful new entrant out before they take away any significant market share from Gatorade or Powerade. Both Gatorade and Powerade have established, proprietary mixes that cannot be copied and from a distribution standpoint, a new entrant would have to prove to the distributor that their new product is worth the time and money. Furthermore, with regard to any potential expected retaliation, companies like Gatorade and Powerade will simply compete on price and cost with a new entrant that threatens their market share, or they will simply buy them out before they seriously threaten Gatorade or Powerade’s industry share. Industry Rivalry: medium In the traditional sports beverage market, which is declining, Gatorade and Powerade are the dominant and established forces commanding the majority of market share, making it competitive in the sense that there are powerful players who will work hard to defend their market share.54 Only the introduction of Gatorade Zero in 2018 saved the sports drink segment from negative volume growth in 2017.55 From 2016-2018, Gatorade and Powerade sales declined by 6% and 22%, respectively.56 The functional beverage market is projected to reach $208.13 billion by 2024 with a CAGR of 8.66% from 2019-2024, as stated above. The industry is highly fragmented and competitive with various brands working to establish themselves as the functional health beverage brand.57 NaturalAde seeks to differentiate itself in the functional health beverages market by providing the functional benefits of a traditional sports drink (hydration and nutrient replenishment) while adding the health and wellness benefits of a functional health beverage (alertness, anti-inflammation). Supplier Power: low The inputs for NaturalAde are predominantly raw commodities like fresh fruits, spices, coconut water, and purified water. Although NaturalAde would like to work with suppliers close to our home operations in Portland, Oregon, there are myriad suppliers across the U.S. who provide fresh fruits and spices to small businesses. Supplier concentration in the fruit and spice supplier

54 https://www.nytimes.com/1990/09/26/garden/gatorade-s-success-attracts-new-rivals.html 55 https://www.cnbc.com/2020/02/02/gatorade-and-powerade-try-to-adapt-as-sports-drinks-sales-decline.html 56 https://www.wsj.com/articles/bubly-is-cute-but-pepsi-needs-a-win-with-gatorade-11564157425 57https://markets.businessinsider.com/news/stocks/functional-drinks-market-worth-93-68-billion-by-2019-cagr-6-1-grand-view-research-inc-1027586441

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industries is high with numerous suppliers of fruit and spices across the U.S. that we can choose from, yielding another reason why supplier power is low.58 Ordering in bulk will yield a large discount from most fruit suppliers like our identified favorite, Giumarra, however, smaller orders will be slightly more costly.59 NaturalAde will work to develop strong supplier relations that yield discounts and lenient supplier credit, and with a number of suppliers to choose from in the raw commodities business, NaturalAde will take advantage of having several options to select from. Buyer Power: medium In the traditional sports drink market, Gatorade and Powerade are the key suppliers of traditional sports beverages, meaning that supplier concentration is low relative to the concentration of buyers which is numerous.60 On the contrary, in the functional beverage market, which is highly competitive and fragmented, with numerous functional health beverage suppliers jockeying for market share, both buyer and supplier concentration are high, giving buyers many choices to select from, and leaving suppliers to compete against a number of other functional health beverages.61 With regard to buyer information, buyers of both sports drinks and functional health beverages are more educated than ever with access to a plethora of information online concerning the medicinal properties of certain ingredients, the accuracy of advertised functional benefits from beverages, and the negative consequences of certain artificial ingredients in sports drinks and some functional health beverages.62 From a buyer’s perspective, there is a distinction between the mass market generic perception and low pricing of Gatorade and Powerade vis-a-vis the premium pricing and perception of functional health beverages like NaturalAde. The data, however, indicates several definitive trends related to buying. First, consumers are willing to pay a premium for the functional advantages that a functional health beverage provides.63 Second, the market for sports drinks is declining while the market for functional beverages across the globe is on the rise.64 Threat of Substitutes: medium In the traditional sports drink market dominated by established players Gatorade and Powerade, buyers tend to avoid substitutes and gravitate towards the two main and popular brands, which is evidenced by Gatorade and Powerade’s high market shares.65 In the highly competitive and fragmented functional health beverages market, where there is no key industry player who has established themselves as the functional health beverage drink, there are many substitutes, available ranging from coconut waters, to spice-infused wellness drinks,

58 https://research.rabobank.com/far/en/sectors/regional-food-agri/world_fruit_map_2018.html 59 https://www.pcfruit.com 60 https://www.statista.com/statistics/438369/market-share-of-the-leading-non-aseptic-sport-drink-brands-us/ 61 https://www.mordorintelligence.com/industry-reports/north-america-functional-beverage-market 62https://www.marketwatch.com/press-release/demand-for-functional-beverages-grows-as-consumer-shift-towards-healthy-choices-2018-12-13 63https://markets.businessinsider.com/news/stocks/208-billion-functional-beverage-market-global-growth-trends-and-forecast-2019-2024-consumer-inclination-toward-non-alcoholic-beverages-1028314903 64 https://www.statista.com/statistics/979839/market-size-of-functional-drinks-worldwide/ 65 https://www.statista.com/statistics/438369/market-share-of-the-leading-non-aseptic-sport-drink-brands-us/

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and exotic fruit beverages. Additionally, consumers could favor water as their primary hydration beverage, essentially bypassing sports drinks and functional beverages altogether. NaturalAde, however, differentiates itself in this market by combining the traditional functional benefits of a sports drink (hydration and recovery) with the cleansing and wellness benefits of a functional health beverage.66

Market Analysis The functional beverage market is a diverse industry that includes products in the following markets: energy drinks, sports drinks, and Ready-To-Drink (RTD) functional beverages.67 These are exciting times for the functional beverage market: approximately 65% of Americans are looking for specific functional benefits in their food and beverage purchases.68 As noted at the beginning of Section 1, the functional beverage market as a whole is expected to see an 8.66% CAGR over the next 5 years.69 This equates to an industry global market value of $208 billion.70 Currently, there are 130 million Americans between the ages of 20-50. For simplicity, NaturalAde projects the difference between the mean and median household income to be negligible, therefore our total addressable market (TAM) is 65 million. In order to build effective, long-lasting consumer-brand relationships, however, NaturalAde will start with a narrow focus in Portland. The company will target the active citizens of Portland, Oregon who consume functional beverages, ranging in age from 20-50. At the local level, there are 653,115 residents in Portland, of which 358,600 range between the ages of 20-50.71 By applying the same mean-median method for household income, the company arrives at a serviceable addressable market (SAM) of 179,300 Portland residents. The company's serviceable obtainable market (SOM) incorporates that 65% of Americans are seeking more functionality in their foods and beverages, yielding a market of 116,545 residents. Market Segmentation The functional beverage market contains several different segments, including the ready-to-drink (RTD) functional beverage market. This market has yet to see a dominant player establish itself, creating a highly competitive, fragmented market where NaturalAde hopes to fill the void. Two potentially noticeable brands in this segment are Recover 180 and Bai Brands. Recover 180 is a functional beverage that aims to aid dehydration and exhaustion and has recently sponsored professional athletes such as Christian Yelich and Deontay Wilder. Bai

66https://www.marketwatch.com/press-release/functional-beverages-market-dynamics-forecast-analysis-and-supply-demand-2014-2020-2018-09-07 67https://www.prnewswire.com/news-releases/208-billion-functional-beverage-market---global-growth-trends-and-forecast-2019-2024-consumer-inclination-toward-non-alcoholic-beverages-300876065.html 68https://www.beveragedaily.com/Article/2019/03/20/65-of-Americans-look-for-functional-benefits-in-food-and-drink-and-want-immediate-results 69 https://www.prnewswire.com/news-releases/208-billion-functional-beverage-market---global-growth-trends-and-forecast-2019-2024-consumer-inclination-toward-non-alcoholic-beverages-300876065.html 70https://www.prnewswire.com/news-releases/208-billion-functional-beverage-market---global-growth-trends-and-forecast-2019-2024-consumer-inclination-toward-non-alcoholic-beverages-300876065.html 71 http://worldpopulationreview.com/us-cities/portland-population/

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Brands utilizes rejected coffee-fruit to create an antioxidant-rich beverage, and the company was acquired by Dr Pepper Snapple Group in 2016 for $1.7 billion. While there are several proven players in the RTD industry, NaturalAde is confident in its product and that the target consumers searching for the right RTD functional beverage will latch on and provide valuable market share. The next segment within the functional beverage industry is sports drinks. This segment is dominated by the household names, Gatorade and Powerade, who together combine for about 80% market share of an over $20 billion industry. However, this segment has come under pressure in recent years as sports drinks have been exposed as predominantly unhealthy for the recreational athlete. As more consumers of sports drinks become aware of this information, they will seek out a more health-conscious option. NaturalAde plans to fulfill ex-sports drink consumers’ desire for a functional beverage that enhances their healthy lifestyle. The company expects this segment to grow as a percentage of total consumers as NaturalAde grows and public sentiment continues to shift. The final segment of the functional beverage market is the energy drink sector. Globally valued at over $50 billion, energy drinks are filled with stimulants, especially caffeine and taurine, and the sector is headlined by names such as Red Bull and Monster. The consumer in this market often has an affinity for extreme sports or is searching for an alternative caffeine source. NaturalAde does not expect nor will it attempt to compete in this sector of the functional beverage market. Ultimately, by meeting consumers at the intersection of the sports drink and health beverage segments of the functional beverage industry, NaturalAde plans to establish itself as a national player in a very valuable niche in the market.

Customer Analysis

NaturalAde’s initial target customers are health-conscious individuals within the 20-50 year age range and above the median household income attending classes at fitness studios in the greater Portland, Oregon area.72 The 20-50 year age range is one of the most active segments of American society, therefore presenting an ideal clientele for NaturalAde. There are several high input costs to create the NaturalAde product, from sustainably sourced ingredients to sustainable packaging. Therefore, NaturalAde will target residents above the median household income, which is currently $61,937.73 Gatorade used to fulfill the need of this customer, but increased public knowledge of what is actually inside their product has stymied the sports drink market, and NaturalAde will capitalize on changing public sentiment to provide the customer with an additional tool toward living healthy and clean.

72 https://www.beveragedaily.com/Article/2019/03/20/65-of-Americans-look-for-functional-benefits-in-food-and-drink-and-want-immediate-results 73 https://www.census.gov/library/stories/2019/09/us-median-household-income-up-in-2018-from-2017.html

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In the current structure of the functional beverage market, there are several different factions where NaturalAde’s consumer lies. The first place NaturalAde’s customer currently purchases is in the highly competitive, fragmented ready-to-drink (RTD) functional beverage market, where the top three players in this segment barely combine for 60% of the market share.74 These are the individuals that meet NaturalAde’s four criteria, and their constant search to find the product that will enhance their life the most will lead them to NaturalAde. An additional benefit of this type of customer is the ability to hook them in to a consist pattern of purchases. When the customer concludes that NaturalAde is an integral part of their push for a healthy and fulfilling life, they will keep buying. And, they will buy it wherever they can get their hands on it fastest, whether that be online, in the fitness studio after class, or on their weekly trip to Whole Foods. NaturalAde will also appeal to the former sports drink consumer. Even though Gatorade and Powerade hold a vice grip over the sports drink market, with the two titans maintaining about 80% market share, the sports drink market is in the early stages of decline.75 Consumers are demanding more and more out of their beverages and yearn for tangible benefits, not just glorified sugar water. As this trend continues to develop over the coming years, more and more customers will flip to NaturalAde. Not only is this a growing sentiment among the public, but governmental action has even been taken to warn and act against the sugar levels in traditional sports drinks. The power in the decline of this sector is the potential for NaturalAde to win over its secondary consumer. This is essentially the problem and void NaturalAde hopes to fill: Americans are becoming more and more conscious of what is inside of their beverages and they are not satisfied with the options. Those who are the leading voices for a superior RTD functional beverage are our target market in Portland. After establishing a strong relationship with our core consumers in the Portland area, NaturalAde will expand into broader Oregon in 2023 and Washington and California in 2024 to reach over 9.2 million consumers in its SOM for the West Coast.

Competitor Analysis Overview NaturalAde will compete in two primary markets: the gradually declining sports drink market which is dominated almost exclusively by Gatorade and Powerade, and the quickly growing market of functional health beverages that is highly competitive and lacks any established dominant force. NaturalAde will compete indirectly with Gatorade and Powerade with its defining sports drink functional benefits of hydration and replenishment that come with NaturalAde’s substantial incorporation of electrolyte-rich coconut water. Moreover, NaturalAde will compete directly with other players in the growing functional health beverage industry such as Naked Juice, Suja Juice, Health-Ade Kombucha, Synergy Kombucha, and Pom Wonderful Pomegranate Juice. NaturalAde will also compete directly with Zico and Bai coconut waters in

74 https://www.mordorintelligence.com/industry-reports/north-america-functional-beverage-market 75 https://www.cnbc.com/2020/02/02/gatorade-and-powerade-try-to-adapt-as-sports-drinks-sales-decline.html

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the functional health beverage market and indirectly with Perrier and Fiji premium natural bottled waters in the premium natural water market. Figure 2: Competitor Analysis Table – Sugars

Beverage Name Added Sugars Total Sugars

Additional Notes

Gatorade (20oz) 34g 34g Powerade (20oz) 34g 34g Zico Coconut Water (16.9oz) 0g 19g Bai Coconut Water (18oz) 0g 2g Perrier Water (16.9oz) 0g 0g Fiji Water (16.9oz) 0g 0g Pom Wonderful (16oz) 0g 68g Naked Juice Mango (15.2oz) 0g 57g *”not a low-calorie food”

warning Suja Cantaloupe (16oz) 16g 16g *organic stevia leaf extract

powder Synergy Kombucha (16oz) 0g 16g Health-Ade Kombucha (16oz)

10g 10g *organic evaporate cane juice (sugar)

Figure 3: Competitor Analysis Table – Preservatives

Beverage Name Preservative Status Additional Notes Gatorade (20oz) artificial preservatives high fructose corn syrup Powerade (20oz) artificial preservatives potassium sorbate, sodium

benzoate Zico Coconut Water (16.9oz) “no preservatives” ultra-high pasteurization; Coca-

Cola GMOs Bai Coconut Water (18oz) “no artificial preservatives” Perrier Water (16.9oz) free from preservatives Fiji Water (16.9oz) no preservatives Pom Wonderful (16oz) no added preservatives Naked Juice Mango (15.2oz) “no preservatives” Suja Cantaloupe (16oz) free from preservatives high pressure Pascalization Synergy Kombucha (16oz) no preservatives naturally occurring alcohol in

Kombucha fermented tea, not categorized as an alcoholic beverage

Health-Ade Kombucha (16oz)

artificial preservatives prohibited

naturally occurring alcohol in Kombucha fermented tea, not categorized as an alcoholic beverage

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Figure 4: Competitor Analysis Table – Pricing, Market Share, and Ownership Beverage Name Unit Price ($) Market Share (%) Ownership Structure Gatorade (20oz) $1.82 69% of U.S. Sports

Drink Market PepsiCo is Parent Company

Powerade (20oz) $1.48 15.6% of U.S. Sports Drink Market

The Coca-Cola Company is Parent Company

Zico Coconut Water (16.9oz)

$2.40 6.4% of Coconut Water Category Market76

The Coca-Cola Company is Parent Company

Bai Coconut Water (18oz)

$2.29 N/A Dr. Pepper Snapple Bottling Group is Parent Company

Perrier Water (16.9oz)

$1.63 9.2% of Sparkling Mineral Bottled Waters Market

Nestlé Waters France is Parent Company

Fiji Water (16.9oz) $1.78 3.2% of PET Still Bottled Waters Market

The Wonderful Company is Parent Company

Pom Wonderful (16oz)

$4.70 79% of US Pomegranate Products Market77

The Wonderful Company is Parent Company

Naked Juice Mango (15.2oz)

$2.66 65.1% of U.S. Refrigerated Juice & Juice Drink Smoothie Market78

PepsiCo is Parent Company

Suja Cantaloupe (16oz)

$2.67 N/A The Coca-Cola Company Holds a 30% Stake with Option to Buy in the Future79

Synergy Kombucha (16oz)

$3.49 40% of U.S. Kombucha Market

Privately-Owned by GT’s Living Foods80

HealthAde Kombucha (16oz)

$3.99 N/A The Coca-Cola Company has Invested $20 Million81

Competitor Analysis: Conventional Sports Beverages In the traditional sports drink market, Gatorade and Powerade are the dominant market forces, owning a combined 84.6% of the non-aseptic sports drink market in the U.S. in 2019.82 Both Gatorade and Powerade often come in a 20oz bottle where one serving size is the entire bottle. While Gatorade uses unhealthy ingredients like high fructose corn syrup both as a preservative

76 https://www.bevnet.com/magazine/issue/2019/vita-coco-takes-on-the-world 77 https://www.freshfruitportal.com/news/2017/09/22/u-s-pom-wonderfuls-aril-business-growth-fire/ 78 https://www.statista.com/statistics/269059/market-share-of-the-leading-juice-and-juice-drink-smoothie-brands-in-the-us/ 79 https://www.fooddive.com/news/cold-pressed-juice-company-suja-exploring-a-sale/541794/ 80 https://www.forbes.com/sites/chloesorvino/2019/05/09/gt-dave-kombucha/#7902752455b5 81 https://www.fooddive.com/news/coca-cola-invests-20m-in-health-ade-kombucha/559171/ 82 https://www.statista.com/statistics/438369/market-share-of-the-leading-non-aseptic-sport-drink-brands-us/

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and artificial sweetener, Powerade uses highly artificial ingredients like potassium sorbate and sodium benzoate to preserve the beverage.83 Gatorade and Powerade are price competitive relative to most functional health beverages which are either significantly more expensive or priced at a premium, however, Gatorade and Powerade are not organic or natural and they are filled with artificial preservatives, colorings, and ingredients.84 Gatorade and Powerade both position themselves as beverages designed to hydrate and provide additional recovery benefits for athletes, and although Powerade has a slight edge over Gatorade with its incorporation of unique complex carbohydrates, both conventional sports drink beverages position themselves as competitors on hydration and recovery.[85][86] Competitor Analysis: Coconut Waters In the fractured and fragmented functional health beverages market, NaturalAde faces clusters of competition. The first competitive cluster that NaturalAde will face is the pure and enhanced coconut water group consisting of players like Zico and Bai Coconut Water. Zico comes in a 16.9oz form with 0g of added sugars and 19g of total sugars, while Bai Coconut Water comes in a 18oz bottle with 0g of added sugars and 2g of total sugars. Coconut waters are renowned for their natural electrolyte content and hydration capabilities as a “natural sports drink.”87 In addition to being natural and organic as well as having no artificial preservatives, both Zico and Bai coconut waters position themselves to compete on the functional benefits of hydration and recovery, similar to a sports drink. Both coconut water products are neither purely price competitive nor premium when it comes to their respective price points of $2.40 and $2.29 per bottle. Competitor Analysis: Kombuchas The second competitive cluster that NaturalAde will face in the functional health beverage market is the cleansing and probiotic kombucha group that consists of players like Suja and Synergy and Health-Ade kombuchas. Suja is a cold-pressed juice brand that features probiotic drinks, kombuchas, and juice cleanses.88 Suja Cantaloupe juice comes in a 16oz bottle with 16g of added sugars which comprise the entirety of the 16g of total sugars in the drink. Suja Cantaloupe is priced neither purely price-competitive nor premium with its price point of $2.67, and although the beverage appears to have "no added sugars” its ingredients list discloses that it indeed contains added sugar in the form of organic stevia leaf extract. Additionally, Suja Cantaloupe avoids using natural preservatives by utilizing High Pressure Pascalization (HPP) to extend shelf life, however, the FDA has ruled that the use of HPP in drink manufacturing

83 https://thehealthbeat.com/best-and-worst-electrolyte-drinks/ 84 https://www.washingtonpost.com/lifestyle/wellness/sports-drinks-arent-recharging-your-kids-theyre-just-pumping-them-full-of-sugar/2016/07/25/6ceaae3a-4777-11e6-90a8-fb84201e0645_story.html 85 https://sportsdrinksusa.com/benefits-of-powerade-sports-drink/ 86 Tim Halloran, Romancing The Brand, https://www.romancingthebrandbook.com 87 https://www.medicalnewstoday.com/articles/318394 88 https://www.sujajuice.com

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precludes a company from calling that beverage fresh in their marketing.[89][90] In addition to being natural, organic, and free from preservatives, Suja Cantaloupe juice positions itself to compete on both the functional benefits of cleansing and probiotic health.91 Synergy and Health-Ade are both premium kombucha functional health beverages. Synergy Guava Goddess and Health-Ade Ginger-Lemon both come in a 16oz bottle, although Synergy comes in a traditional plastic bottle, while Health-Ade differentiates itself with a unique glass design.92 Synergy Guava Goddess contains 0g of added sugars and 16g of total sugars, while Health-Ade Ginger-Lemon contains 10g of added sugars comprising a total sugar content of 10g, however, Health-Ade does not present its added sugar content on its nutrition label, but rather reports organic evaporate cane juice (sugar) more discreetly as one of its ingredients.93 In addition to being natural and organic and free from preservatives, both Health-Ade and Synergy position themselves as premium functional health beverages with regard to pricing. Synergy Guava Goddess has an average retail price of $3.49 while Health-Ade Ginger-Lemon has one of $3.99. Both kombucha functional health beverages also position themselves to compete on the functional benefits of cleansing and probiotic health, with a slight tilt towards the latter.94 Competitor Analysis: Pure Fruit Juices Finally, the last competitive cluster that NaturalAde will face in the functional health beverage market is the pure fruit juice group which consists of players like Pom Wonderful and Naked Juice Mango. Pom Wonderful pomegranate juice comes in a 16oz plastic bottle with no added preservatives, and its average retail price is on the absolute end of the premium spectrum at $4.70 per unit. Naked Juice Mango comes in a 15.2oz plastic bottle with no preservatives, and its average retail price is neither solely price-competitive nor premium at $2.66. Both pure fruit juice beverages are relatively sweet in nature, with Pom Wonderful containing 0g of added sugars and 68g of total sugars, and Naked Juice Mango containing 0g of added sugars and 57g of total sugars. While both beverages are natural and organic as well as free from preservatives, Naked Juice Mango specifically states that it is “not a low-calorie food” in reference to its relatively high sugar content.95 Both pure fruit juice beverages position themselves to compete slightly in the realm of hydration and cleansing based on their advertised nutrients and antioxidants content. Competitor Analysis: Premium Vitamin Waters NaturalAde will compete indirectly with natural premium water industry players Fiji and Perrier in terms of the fact that these premium functional water companies are always a threat to non-

89 https://detoxinista.com/suja-juice-review/ 90 https://www.beveragedaily.com/Article/2014/02/11/Suja-Life-raw-juices-in-lawsuit-on-high-pressure-processing-HPP 91 https://www.sujajuice.com/blog/health-benefits-of-cantaloupe/ 92 https://health-ade.com/pages/sustainability 93 https://health-ade.com/products/ginger-lemon-kombucha 94 https://time.com/5516472/is-kombucha-healthy/ 95 https://www.nakedjuice.com/our-products/mighty-mango/

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water functional health beverages.[96][97] Both Perrier and Fiji come in 16.9oz plastic bottles with no preservatives and 0g of added and total sugars. Both functional waters are priced competitively with the average retail price of Perrier Carbonated Mineral being $1.63 and the average retail price of Fiji being $1.78. In addition to being natural and containing no preservatives, both functional water products position themselves to compete primarily on the functional benefit of hydration, with a small focus on recovery that comes from added minerals and vitamins in both waters.98 Competitor Analysis: Growth Trends & Strategy Both PepsiCo and the Coca-Cola Company have recently been growing by acquiring emerging players in the functional health beverages industry like Costa Coffee, Tropico, and Soda Stream. [99][100] The strategy of growth by acquisition that both PepsiCo and The Coca-Cola Company have embraced in recent years is not possible for NaturalAde given its size and nature as a start-up, however, this inorganic growth strategy via acquisition adopted by the large beverage industry players will provide NaturalAde with a potential exit or partnership opportunity with them after five years of operations.101 A strategic partnership with a large and established beverage industry player like The Coca-Cola Company provides smaller and newer brands like Suja Juice with the distribution network and contacts that they need to grow and achieve economies of scale.102 Companies like Suja Juice and Health-Ade kombucha will benefit from strategic partnerships with The Coca-Cola Company in the form of a distribution network that NaturalAde will not initially have, however, NaturalAde has the ability to isolate itself from the larger beverage industry players and their unhealthy, unnatural, and artificial ingredient-rich reputations.[103][104] Likewise, vis-a-vis the Wonderful Company and its Pom pomegranate juice and Fiji water, NaturalAde will have the ability to distance itself from the Wonderful Company’s exaggerated and nearly false claims concerning the health benefits of its beverages.[105][106] NaturalAde will also leverage its identity as a regional business that possesses strong local relationships with the people and geography of the Pacific Northwest in contrast to the less intimate global approach that large beverage industry players like PepsiCo take.107

96 https://www.businesswire.com/news/home/20180830005391/en/Global-Functional-Water-Market-2018-2022-Rising-Interest 97 https://www.statista.com/topics/3306/functional-water/ 98 https://www.nytimes.com/2013/12/22/us/beyond-fiji-and-perrier-with-a-water-sommelier.html 99 https://www.beveragedaily.com/Article/2018/11/05/Coca-Cola-on-M-A 100 https://www.crunchbase.com/organization/pepsico/acquisitions/acquisitions_list#section-acquisitions 101 https://www.beveragedaily.com/Article/2018/11/05/Coca-Cola-on-M-A 102 https://www.sujajuice.com/coca-cola-announcement/ 103 https://www.businessinsider.com/pepsico-sued-for-naked-juice-marketing-2016-10 104 https://www.faithful-to-nature.co.za/blog/coconut-water-exposed-watch/ 105 https://www.cbsnews.com/news/pom-wonderful-deceptively-advertised-health-claims-in-juice-ads-judge-rules/ 106 https://www.telegraph.co.uk/news/earth/earthnews/8585182/Fiji-Water-accused-of-environmentally-misleading-claims.html 107 https://hbr.org/2005/12/regional-strategies-for-global-leadership

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Competitive-Based Pricing NaturalAde is priced at a premium of $4.66 per unit. To attain this price point, NaturalAde observed the comparable price points of all eleven direct and indirect competitors, across several different stores in order to control for pricing differences among retailers, yielding an estimated base price of $3.61. To arrive at the final unit price of $4.66, several marginal premiums were added to the base. First, an average health beverage premium of $0.58, representative of the price that customers are willing to pay for healthy versus non-healthy drinks, was added to the base price, yielding a relative price plus health premium of $4.19.108 Second, a natural preservative premium of $0.26 was added to the relative price plus health premium, representing the excess that consumers are willing to pay for products with natural or no preservatives.109 Finally, a sustainable green-packaging premium of $0.21 was also added to the relative price plus health premium, representing the increased amount that consumers are willing to pay for products that are packaged in an eco-friendly manner.110 Additional details on NaturalAde pricing can be found in the Pricing Assumptions segment of the Financial Analysis section.

Marketing Strategy Product Service/Strategy The NaturalAde product separates itself within the functional beverage market because of its dual-function, alignment with consumer values, and niche space in the functional beverage market. The NaturalAde product fulfills the consumer’s need for a beverage that performs like a sport drink while providing the benefits of healthy, functional beverage. The company also utilizes exclusively natural preservatives and sustainable packaging, which further increases the consumer-brand relationship. Gatorade and Powerade orchestrated marketing campaigns targeted to make their products a part of the athlete lifestyle. NaturalAde will fill this void for the new-age, recreational athlete more focused overall wellness and health. Pricing Strategy NaturalAde will position its products within the premium segment of the functional beverage market, selling for $4.66 per bottle. Through market and competition research, NaturalAde has evidence that its consumers are willing to pay a premium given the functional benefits, health benefits, and sustainable packaging. This data, provided in the Financial Assumptions section, asserts that consumers are willing to pay specific premiums for health aspects, natural preservatives, and green packaging, justifying an increase from the $3.61 Gatorade/Powerade base case. A premium product is consistent with NaturalAde’s strategy to build relationships with consumers living above the median household income. NaturalAde’s projected COGS of $1.66 per bottle leaves a strong gross margin of 65.1%.

108 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3602945/ 109 https://ideas.repec.org/p/got/gotcrc/070.html 110 https://www.mckinsey.com/business-functions/sustainability/our-insights/how-much-will-consumers-pay-to-go-green

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Distribution Strategy NaturalAde will outsource the bottling and distribution of the beverage to Gordon Food Service, the largest family-operated food distribution company in North America, in business for over 100 years. Gordon will work with distributors and independently to deliver NaturalAde to the following locations: cycling, yoga, and fitness studios, to NaturalAde directly to hold as promotional inventory and to sell at farmer’s markets, and directly to the consumer via NaturalAde website/Amazon sales. NaturalAde projects that Gordon will require a 20% margin in order to take on our business, but this strategic decision to outsource will minimize NaturalAde’s overhead, fixed cost expenses as the company reaches scale.111 Advertising and Promotion Strategy Simply put, NaturalAde’s growth-stage branding and advertising strategy plans to establish a strong, value-aligned, relationships with consumers by meeting them directly through cost-efficient channels. Due to NaturalAde’s initially small-scale target market, desire to build personal relationships with consumers, and engaged founders, the company will emphasize direct founder-to-consumer interaction. By putting a face to the product, the NaturalAde team plans to emphasize the company and consumer’s shared values. To facilitate this interaction, NaturalAde will allocate over 1200 beverages toward distribution to core consumers after classes at yoga, cycling, and fitness studios, at farmers’ markets, and at local stands in Whole Foods and other grocers. This initial $2,000 of promotional inventories will enable NaturalAde to prove to consumers that its product fulfills its goal and mission statement: “Enhance Your Life – Replenish, Cleanse, Feel Better.” As the company achieves scale by growing into greater Oregon in year 3 and Washington and California in year 4, the firm will distribute this promotional inventory to studios located in San Diego, Seattle, and San Francisco to push the product to the consumer, with over 3,000 beverages ($5,000) for the Oregon expansion and over 10,000 ($17,000) for the West Coast expansion. Founders will continue to appear strategically at locations to connect with consumers, but as the company achieves scale, brand ambassadors, including instructors, will help continue to facilitate and build this relationship with the consumer. Other ways in which NaturalAde will penetrate the Portland market will be by becoming a corporate sponsor of popular, independent workout studios, starting in the Portland area. After obtaining a commitment from a studio to sponsor NaturalAde, NaturalAde will pay an annual fee of approximately $2,000 depending on the workout studio in exchange for the NaturalAde logo being presented on site and on apparel, the NaturalAde company link being accessible on the workout studio’s website, and having marketing materials be presented at workouts and during events.104 Another way in which NaturalAde plans to spread information about the company’s products is to partner with social media influencers. Social media influencers are people who are active on platforms such as Instagram and have an established, positive reputation in certain fields such as wellness and health. Influencers have become an incredibly useful marketing tactic over recent years, as the Top 20 fitness influencers have a combined 90

111 https://resources.pros.com/blog/distributor-pricing-profit-margins-pricing-markups

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million Instagram followers.112 These influencers will use their platform to promote the NaturalAde brand to their followers, which align with and value their expertise. These strategies culminate under NaturalAde’s plan to implement a wide-ranging, cost-effective, guerilla marketing campaign. Sales Strategy Sales for NaturalAde will be conducted directly over e-commerce platforms, within sponsored fitness studios, at farmer’s markets, and in the local section at retail stores such as Whole Foods. In the early stages, the founders will operate as the sales team, being present at farmers’ markets and standing outside of a fitness studio to pitch the product to the consumer. As NaturalAde continues to grow and gains the financial capacity, a VP of Sales will be hired to orchestrate a strategic sales campaign targeted to outdoor sporting events, festivals, fitness studio conventions, and boutique fitness studios throughout the West Coast.

Operations As shown in the Value Chain Analysis Model, Table 6 in the Appendix, NaturalAde’s operations will begin with the R&D phase during the second half of 2020. First, NaturalAde founders will finalize the NaturalAde formulas. Then, the team will hire a nutritionist and chemist to consult on the final formulas. These consultants will help the team fully maximize the products’ functional benefits, prolonged shelf life, and enhance taste. NaturalAde will then incorporate in the state of Delaware and file to patent the NaturalAde product with the federal government. Additionally, the company will work with a web developer to create a virtual home for the NaturalAde product. With an initial estimated cost of $50,000, the team plans to create an effective advertising and informational website that also serves as a direct-to-consumer retail channel. Before the start of the first fiscal year, the team, led by COO Matt Mulligan, will secure initial bottling and distribution contracts for 2021 operations. After these processes have been completed, NaturalAde will begin the sourcing of the beverage by acquiring fruit ingredients from Giumarra and spices from the Pacific Spice Company, as well as the natural preservatives from Connoils. Giumarra and Pacific Spice are leaders in their respective industries and are both headquartered on the West Coast.[113][114]] Connoils is an international leader in oil preservatives.115 In order to minimize overhead and fixed cost expenses, these purchases will be delivered to Gordon Food Service, the largest family-operated food distribution company on the continent.116 Gordon will produce NaturalAde beverages in line with the recipe, package them, and distribute them according to sales, whether that be direct e-commerce, secondary distributors, retail stores, studios, or as inventory. NaturalAde will effectively develop relationships with these core suppliers in order to keep inventory low and reduce costs. As the company sees higher sales volume and grows

112 https://influencermarketinghub.com/15-instagram-influencer-statistics/ 113 https://www.giumarra.com/ 114 https://www.pacspice.com/ 115 https://www.connoils.com/ 116 https://www.gfs.com/en-us

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supplier relationships, NaturalAde will work to extend its payables period and therefore increase cash flow. Given our outsourcing of supplies, bottling, and distribution, the company will have a comparative advantage through its variable-cost structure. The sales for NaturalAde will be generated by the guerilla marketing tactics implemented by the four founders on the ground in Portland. From standing outside of yoga, cycling, and fitness studios, selling at farmers' markets, and aggressively utilizing company social media accounts, NaturalAde will effectively engage the Portland market while simultaneously minimizing marketing costs. As word-of-mouth marketing increases interest in NaturalAde, NaturalAde will continue to grow e-commerce sales and expand into Whole Foods as a ready-to-drink functional beverage, significantly increasing exposure and subsequently sales.

Research and Development NaturalAde will be created and made ready for production and sale in three primary steps. The first step consists of engendering a product that is not only palatable, but also remains true to the core promises of NaturalAde by developing a beverage that is natural and organic, free from artificial preservatives and dyes, and functional with regard to both hydration and cleansing benefits. After securing the taste of NaturalAde and its three initial flavor recipes, phase two of the development process will occur. The second step consists of ensuring the nutrition of the product relating to acceptable sugar content, the proportion of coconut water needed to make genuine electrolyte and hydration claims, as well as the amount of spices needed to make credible cleansing and detoxification claims.117 Finally, the third step in the development process will consist of a food chemist consultation to discover which natural preservatives like Rosemary Extract and Green Tea Extract can be added to the NaturalAde beverage without sacrificing its great taste and functionality.118 In phase two of the development process, NaturalAde, Inc. will hire a nutritional consultant and pay for a nutrition lab analysis to ensure that the product is not only flavorful, but also filled with the proper proportion of coconut water electrolytes and soothing spices, allowing NaturalAde, Inc. to validly claim that the product both hydrates and cleanses.119 The combined cost of the nutrition lab analysis and the nutrition consultation fee will be $800.120 Finally, in phase three of the development process, NaturalAde, Inc. will hire a food chemist to help add natural preservatives to the product without compromising its taste or functional benefits. The total cost to hire a food chemist for this stage in the development process will be $5,000.121 The total costs of $5,800 required in the development process of NaturalAde will be funded entirely from the initial $190,000 raised from the respective investments of the founders and friends and family in NaturalAde, Inc. The most critical factors that will determine the success of NaturalAde, Inc. in the development process are the securing of key personnel with regard to both the nutritional analysis and consultation and food chemist components. There are several

117 https://time.com/3559621/coconut-water-nutrition/ 118 https://vegconomist.com/products-and-launches/new-plant-based-preservative-from-kemin/ 119 https://esha.com/wp-content/uploads/2014/12/ESHA-Obtaining-Nutritional-Analysis-eBook.pdf 120 https://esha.com/wp-content/uploads/2014/12/ESHA-Obtaining-Nutritional-Analysis-eBook.pdf 121 http://www.centrafoods.com/blog/want-to-hire-a-food-science-consultant-heres-what-you-need-to-know

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sources of risk inherent in the product development process for NaturalAde. First, there is the competitive threat of other methods of natural preservation such as the High-Pressure Processing (HPP) that Suja Juice utilizes to extend the shelf life of their products or the Ultra-High Pasteurization that Zico Coconut water uses for the same purpose.[122][123] Second, there is the cost threat during the development stage where either the nutritional consultant or the food chemist discovers that it will require much more capital to guarantee either the nutritional integrity of the product or the effective shelf-life of the beverage. Finally, there is the technological risk of obsolescence in the preservation process where newer methods of ensuring a longer-lasting shelf-life without resorting to natural or artificial preservatives is present in the form of High-Pressure Processing and Ultra-High Pasteurization.124 After initially going through the entire product development process with three successful flavors, NaturalAde, Inc. will repeat the process by beginning to introduce more flavors after completing our fifth year of operations.

Location As mentioned in Section 1: The Business, the Portland metropolitan area offers a large number of positive attributes that will facilitate growth, including a young and healthy potential customer base. Portland is regarded as one of the most health-conscious cities in the United States. In fact, based off of metrics such as health care rank, health food rank, fitness rank, green space rank, and others, Portland is officially labelled as the fourth healthiest city in the country trailing only San Francisco, Seattle, and San Diego.125 These trends align with NaturalAde’s goal of implementing a sustainable business model to create a functional beverage that enhances consumer hydration and detoxification. Portland does, however, experience lower temperatures ranging from an average of 39.7-43.7 degrees in the winter.126 While these temperatures are not exceptionally harsh, they could deter a portion of the population from exercising outdoors during this time period. However, due to NaturalAde’s marketing strategy including strategic partnerships with workout studios and instructors, the product will still be readily available and accessible to those athletes who continue to work out indoors throughout the winter, who constitute the core NaturalAde consumer. Additionally, other outdoor sports' such as skiing and snowboarding are easily accessible in Portland, with three resorts within two hours of the city.127 After NaturalAde establishes itself as a competitor within the Portland market, the company will expand into the rest of Oregon, as well as Washington and California. As previously mentioned, the only cities that are ranked higher than Portland in terms of health metrics are

122 https://www.sujajuice.com/hpp/ 123 https://zico.com/faqs/ 124 https://www.goodnature.com/blog/truth-about-hpp-juice-cold-pressed/ 125 https://wallethub.com/edu/healthiest-cities/31072/ 126 https://en.climate-data.org/north-america/united-states-of-america/oregon/portland-6342/ 127 https://www.evo.com/travel-guides/ski-snowboard/oregon

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San Francisco, Seattle, and San Diego, and NaturalAde will strategically target these cities when considering growth in years 4-5.

Management and Key Personnel Jack Case, Chief Executive Officer Jack is a senior at Washington and Lee University from San Diego, California. While at Washington and Lee, Jack has majored in Business Administration, led SARAH, and serving as the Retail Group Head for the W&L Real Estate Society. His experience includes working as an investment banking summer analyst at Eastdil Secured in Washington, D.C. and other experience working in the real estate industry. As CEO of NaturalAde, Jack will be responsible for guiding the long-term strategy of the company, particularly focusing on broader market dynamics. In its infancy, Jack will also focus on branding, marketing, and promotion. As a native of the West Coast, Jack has a strong background and is uniquely positioned to excel in growing the NaturalAde brand. With a $10,000 investment, Jack Case will receive a 25% equity stake in NaturalAde, which will be fully vested in five years. Jack will be subject to share dilution with the other founders at an equal rate. Jack will begin operations with the COO, Matt Mulligan, and he will be paid an annual salary of $35,000. Matt Mulligan, Chief Operating Officer Matt is a senior at Washington and Lee University from Potomac, Maryland. While at Washington and Lee, Matt has majored in Accounting and played football. Additionally, during his time at W&L, Matt has volunteered as a basketball coach for the Rockbridge Area Recreation Organization. His experience includes working as a Private Wealth Management Intern for Morgan Stanley in Washington, D.C. As COO of NaturalAde, Matt will be responsible for managing the company’s manufacturing, distribution, and retail relationships. Additionally, Matt will work with Jack Case to coordinate strategic growth throughout the West Coast, and he will initially manage the company's finances. With a $10,000 investment, Matt will receive a 25% equity stake in NaturalAde, which will be fully vested in five years. Matt will be subject to share dilution with the other founders at an equal rate. Matt will be paid an annual salary of $35,000. Ayub Herman, Advisory Board Ayub is a senior at Washington and Lee University from Charlottesville, Virginia. While at Washington and Lee, Ayub has majored in Accounting and Political Philosophy, served as Vice President for the Lotus Meditation Society, a member of Volunteer Income Tax Assistance (VITA), and worked with GenDev, Inc. as a microfinance and impact investment team researcher. His experience includes working as a Corporate Tax Advisory Intern in the Healthcare Sector for PwC in New York, NY, as an Accounting Assistant with McCallum and Kudravetz, and a Legal Assistant with Tremblay and Smith. As a member of NaturalAde's Advisory Board, Ayub will be responsible for providing guidance and advice on sales projections, valuation, and capital raise strategy for the company. With a $10,000 investment, Ayub will receive a 25% equity stake in NaturalAde, which will be fully vested in five years. Ayub

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will be subject to share dilution with the other founders at an equal rate. He will plan to join the company as CFO in year 3 and starting then will be paid an annual salary of $35,000. Parker Catlett, Advisory Board Parker is a senior at Washington and Lee University from Jefferson City, Tennessee. While at Washington and Lee, Parker has majored in History and Business Administration, served as Fundraising Chair for Mock Convention 2020, Office and Healthcare Group Head for the W&L Real Estate Society, and an Appalachian Adventure Pre-Orientation Trip Leader. His experience includes working as an Investment Banking Summer Analyst in the Financial Sponsors Group for J.P. Morgan in New York, NY, as a Corporate Finance Intern for LGB & Co. in London, UK, and a Wealth Management Intern for Lawson Winchester in Chattanooga, TN. As a member of NaturalAde's advisory board, Parker will be responsible for advising the company concerning branding strategy across different platforms, including product packaging, digital and social media advertising, sponsorships, and brand ambassadors. With a $10,000 investment, Parker will receive a 25% equity stake in NaturalAde, which will be fully vested in five years. Parker will be subject to share dilution with the other founders at an equal rate. He will plan to join the company as CMO in year 3 and starting then will be paid an annual salary of $35,000.

Financial Analysis Sources and Uses In order to start our business, each founder will contribute $10,000 for a total equity raise of $40,000. Additionally, NaturalAde plans to raise $150,000 from friends and family members of the founders in the form of Convertible Notes. These notes will carry an annual interest rate of 9% and will receive a 20% discount rate in the event of conversion. The Notes will be eligible for conversion during a future liquidity eve. These funds, a total initial cash raise of $190,000, will allow NaturalAde to incorporate in Delaware, hire a chemist and nutritionist to perfect the NaturalAde formula, order initial inventories, develop a website, and secure trademark approval for the NaturalAde brand. Initial promotional inventories of just over 1,200 beverages will be used to push the product to consumers outside yoga and cycling studios, at farmer’s markets, and at promotional stands in Portland grocers. This promotion strategy falls correlates with a guerrilla marketing strategy designed to facilitate word-of-mouth advertising and growth in informal brand ambassadors. Additionally, this will leave over $130,000 in cash on hand to support growth as the company expands in years 1-2. Figure 5: Sources and Uses

NaturalAde Projected Sources and Uses Sources Uses

Founders' Capital $ 40,000 Promotional Inventories $ 2,000 Convertible Notes $ 150,000 Website Development $ 50,000 Trademark Acquisition $ 275 Delaware Incorporation Fees $ 90 NaturalAde Formula $ 5,800 Cash on hand $ 131,835 Total Sources $ 190,000 Total Uses $ 190,000

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Capital Equipment List As NaturalAde will be outsourcing manufacturing and distribution to begin, the company will have very few capital requirements. NaturalAde will spend $275 on acquiring the trademark for its brand. Additionally, NaturalAde will budget $90 respectively for the incorporation fees in Delaware. The largest capital expenditure corresponds to the development of the NaturalAde website. The team has budgeted $50,000 for this website, which will serve as our home for consumers. The website will be informational and also allow consumers to place direct orders for NaturalAde in bulk. The company will also capitalize $5,800 in expenditures relating to the proprietary NaturalAde formulas, which will not be depreciated. Pricing Assumptions: Competitive-Based Pricing & Added Premiums In order to determine key metrics for the NaturalAde financial forecasts, the team used historical data for competitors while also factoring in NaturalAde’s unique position in the market. NaturalAde’s price point is based on several factors. First, to arrive at the NaturalAde price, a relative base price (Estimated NaturalAde Base Price) was established which was grounded on an average of the prices of the top sports drink industry players, numerous functional health beverage industry players, and several indirect competitors in the premium natural water business. Similar unit sizes in terms of fluid ounces were used and each beverage price was averaged across several stores to control for pricing differences amongst retailers. The relative base price of $3.61 included the indirect competition of Gatorade and Powerade in the declining sports drink market, as well as clusters of popular drinks in the rising functional health beverages market such as plain and enhanced coconut juices (Zico & Bai Coconut), “pure” fruit juices (Pom & Naked Juice Mango), probiotic-focused juice cleanses and kombuchas (Synergy, HealthAde, Suja), and finally the indirect competition of Fiji and Perrier in the premium natural bottled waters market. After establishing this relative base price which was grounded on an average of several key competitors across three main industries, a premium that takes into account the average price difference between “unhealthy” price competitive beverages and “healthy” premium beverages was calculated and added to the established relative base price.128 This computed health beverage premium (AVG Health Beverage Premium) was established as $0.58 and when added to the initial relative base price, yielded a Relative Price Plus Health Premium of $4.19.129 Finally, in addition to the Relative Price Plus Health Premium, two additional premiums were added to reach the final NaturalAde unit price. First, a natural preservative premium of $0.26 was added to the Relative Price Plus Health Premium. Studies show that consumers are consistently willing to pay a 62% premium for preservative-free foods.130 Although NaturalAde’s products will have natural preservatives in them, this stands in stark contrast to the artificial preservatives such as high fructose corn syrup and sodium benzoate which are present in

128 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3602945/ 129 https://www.refrigeratedfrozenfood.com/articles/95858-study-quantifies-how-much-more-consumers-willing-to-pay-for-healthy-food 130 https://www.researchgate.net/publication/241758999_Consumer_Willingness_to_Pay_for_Preservative-Free_Food_The_Case_of_Beijing

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Gatorade and Powerade respectively.131 Customers are still willing to pay a premium for natural preservatives over artificial preservatives although not as substantial as free from preservatives.132 Accordingly, NaturalAde still incorporated the 62% premium for preservative-free in its price point although this premium of 62% was reduced by 90% in the calculation of NaturalAde’s Natural Preservative Premium of $0.26. Finally, a Sustainable/Green Packaging Premium of $0.21 was included in the computation of NaturalAde’s final price which was based on the 5% premium that more than 85% of consumers would pay for sustainable, green packaging.133 The final unit price for NaturalAde is $4.66. Figure 6: NaturalAde Pricing Assumptions

Key Assumptions In order to account for key balance sheet and income statement metrics, the NaturalAde team used a competitor-based analysis. The NaturalAde team took a common-size approach when looking at Coca Cola, Pepsi Co, and Monster Beverage, who served as the publicly traded competitors for our analysis. For COGS, the competitors had an average of 50.1%. That said, Monster Beverage, which also commands a pricing premium, had a much lower COGS, 40%. Each competitor has certain downward pressures affecting retail price, therefore increasing COGS as a percentage of sales. To accurately capture our pricing premium, the NaturalAde projections show COGS as 35% of Sales, or approximately $1.63 per NaturalAde. For SG&A, the company projects costs at 22.4% as a percentage of sales, 10% lower than competitors. General expenses will represent 2% of sales. NaturalAde will have a much thinner, cost-effective corporate structure than its competitors. Selling expenses, including distribution, will start at 10% of sales, and then decrease as the company gains scale moves into greater Oregon, Washington, and California. Additionally, through guerrilla marketing tactics, NaturalAde will spend less on advertising. As selling expenses decrease, however, marketing and advertising expenses will rise proportionally as the company looks to achieve greater market penetration. In balance sheet projections, NaturalAde expects to maintain similar inventories, accounts

131 https://healthfully.com/63889-bad-gatorade-ingredients.html 132 https://ideas.repec.org/p/got/gotcrc/070.html 133 https://www.mckinsey.com/business-functions/sustainability/our-insights/how-much-will-consumers-pay-to-go-green

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receivable, accounts payable, and accrued expenses to its competitors during its normal course of business. These projections will be refined as NaturalAde gains internal historic data. Sales Forecasts NaturalAde will achieve rapid sales growth during its initial years given its lucrative market placement in Portland, Oregon. To accurately project CAGR over the first five years, NaturalAde looked at the historical growth of a competitor, Bai, before, during, and after its acquisition by Dr Pepper Snapple Group. Over the five years from 2013-2018, Bai grew sales from $16 million to over $500 million projected in 2018.134 This corresponds to a CAGR of 99%. Given that NaturalAde will be younger and more poised to achieve exponential sales growth in its early years, NaturalAde projects 120% CAGR over the first five years, growing sales from approximately $110,000 in 2021 to over $5.5 million in 2025. In our first month of operation, we expect to reach 0.35% of our SOM in Portland, Oregon of 116,545. To account for customer retention, we assumed that each consumer would purchase beverages per month. This corresponds to 816 beverages sold in our first month. During years 1-2, NaturalAde projections show 15% and 10% monthly growth respectively, addressing 5.11% of our SOM in the Portland market by the end of year 2. Year 3 will see an expansion into the greater Oregon area, and as the company enters new, untested markets and matures, monthly sales growth will slow to 8% in year 3. In years 4-5, NaturalAde will expand up and down the West Coast into Washington and California, and monthly sales growth will slow to 7% and 6%, respectively. Figure 7: NaturalAde Sales Growth

134 https://silverwoodpartners.com/bai-high-valuations-in-alternative-beverage-ma/ and https://www.foodbusinessnews.net/articles/7359-was-bai-a-good-buy

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Breakeven Analysis Over the first 12 months of operations, NaturalAde will post a net loss, primarily due to fixed expenses, namely wages and depreciation expense. In January 2022, NaturalAde projections show a positive net income of $479. In December 2021, NaturalAde will have positive cash flow of $688. As shown in Figure 9 below, below, when NaturalAde achieves just over $17,500 in total revenue or 8,848 unit sales, the company will breakeven.

Figure 8: NaturalAde Breakeven Analysis

NaturalAde Breakeven Analysis Projection Estimates Date Breakeven Monthly Sales $ 19,465 January Year 2 Breakeven Units 9,732 January Year 2

Cash Flow Analysis NaturalAde will use cash on hand of over $130,000 obtained from our first capital raise event to found the company until December of year 1, when NaturalAde will be cash flow positive. Almost all cash flow will surround operating activities. Additional cash inflows from financing will occur at the end of year 2, as NaturalAde seeks an angel investment of $100,000 in the form of convertible notes. The company will seek an investor with background and expertise in the functional beverage space. This investment will fund growth into greater Oregon in year 3. Additionally, the company will seek a debt investment in the form of an SBA Loan and a loan from Advantis Credit Union in year 3 for a total debt raise of $275,000. This capital will be used to fund growth and improve cash position during the expansion into Washington and California. NaturalAde will seek out interest-only, bullet payment loans to keep money in the business during its growth stage on the West Coast. Income Statement As mentioned in the assumptions section, NaturalAde Income Statement projections incorporate a competitor-based approach to determine baselines for key line items. Using these baselines, the NaturalAde team made strategic alterations where needed to project the most realistic view of expenses moving forward. Wages expense, $70,000 per year, includes a $35,000 salary per annum for the CEO and COO. In years 3-5, this will increase to $140,000, as all four founders are salaried employees. Additionally, in order to improve net income and cash flow after reaching breakeven, NaturalAde will take advantage of the sizable tax loss carry forward accrued over the first eleven months of operations. Given the tax loss carry forward is limited to 80% of taxable income, NaturalAde will pay significantly lower taxes in 2022, 2023, and 2024. The utilization of the tax loss carry-forward will allow NaturalAde to use that cash to fund geographic growth. The website, which has a value of $50,000, will be depreciated using the straight-line method over five years, leading to $10,000 in depreciation expense per annum.

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Balance Sheet NaturalAde will have an efficient inventory turnover rate similar to its competitors due to private label manufacturing agreement. The company will start with $2,000 in inventories for promotional purposes and then expand as warranted by sales growth. In order to ensure strategic flexibility, NaturalAde will keep a significant amount of cash on hand due to its initial capital raise of $190,000. The lowest projected year end cash balance will be approximately $98,000, well above the 4.0x required ratio above monthly expenditures. This will ensure that NaturalAde has the capital and flexibility to fund growth, especially if larger retailers leverage their size and negotiating position on their payables to NaturalAde. As NaturalAde expands into more and larger retailers, the company will incur an accounts receivable balance similar to its competitors based on company projections. NaturalAde will hold its trademark, formulas, and incorporation on the balance sheet as intangible, non-depreciable assets. PP&E, consisting solely of the website, will decrease with depreciation over five years as stated in the section above. NaturalAde's competitors have significant leverage with their suppliers and are able to extend their payables period, leaving accounts payable higher as a percentage of sales. In order to account for NaturalAde's lower leverage as a smaller company with lower volume, Accounts Payable as a percentage sits at 4.3% of sales. As NaturalAde gains scale and works to develop a better relationship with its suppliers and distributors, the company expects to extend its payables and have higher accrued expenses to maintain stronger cash flow. Long-term liabilities consist of convertible notes belonging to both angel investors and family and friends, with a total of $250,000. The principal will not be reduced as they will not be amortized. Starting at the end of year 3, NaturalAde will raise $275,000 in debt through loans from the SBA and Advantis Credit Union to finance growth in Washington and California. Given that the company will want to retain all funds for future growth, NaturalAde will not consider a dividend. Ratio Analysis Given the upward pricing pressure in the healthy functional beverage space, NaturalAde expects to command a significant premium relative to COGS. This translates to a 65% gross margin. Further, given NaturalAde's lean corporate structure and effective advertising campaigns, NaturalAde has an effective variable cost structure. Once NaturalAde reaches scale to breakeven given fixed cost expenses including founders' salaries and depreciation, NaturalAde is poised for strong bottom-line growth. Barring the first year where the company projects a net loss, NaturalAde is poised to maintain strong debt service ratios. In 2022, NaturalAde projects a times-interest-earned ratio of 7.2, which will increase to over 45 by year 5. Profit margin, ROE, and ROA all look promising as well at 31%, 47%, and 62% respectively in year 5. NaturalAde will also efficiently use its assets, with an asset turnover ratio not dropping below three in years 3-5. NaturalAde will have a slightly higher collection period at 42 days in comparison to payables period of approximately 30 days, reflecting the company's inability to negotiate terms as

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favorable as their larger, public competitors such as PepsiCo. NaturalAde's online sales, however, will receive instant payment. The split between sales to distributors and direct-to-consumer sales will heavily influence our collection period. That said, NaturalAde expects to see a cash conversion cycle stabilize at approximately 30 days. The firm will make this a priority to optimize cash flow as sales growth and larger volume gives NaturalAde more leverage with suppliers and bottlers. Exit Strategy Given NaturalAde's expected significant growth and penetration in a market with favorable tailwinds, the company expects many larger beverage companies to find NaturalAde as a suitable acquisition target. For example, in 2016, Dr Pepper Snapple Group acquired Bai Brands, LLC for $1.7bn, which valued the firm at a 7.4x multiple of projected 2016 sales of $231mm. Given this multiple, NaturalAde could seek to achieve a $40 million valuation based off historical sales in 2025 at a 7.4x multiple. In addition to exploring a strategic acquisition, NaturalAde would make an attractive investment for a private equity investor. Private equity firms focused on investing in middle market food and beverage companies would be drawn to NaturalAde's cash on hand, low debt, low overhead expenses, and significant growth potential.135 Additionally, many venture capital firms focused on the space would find NaturalAde's ability to scale in the West and throughout the United States appealing because it would suggest strong future growth.136 Additionally, given the R&D pipeline with dissolvable NaturalAde packets for outdoor recreationalists, new opportunities for growth will further serve to attract investors to the business.

135 https://www.arborpic.com/deals/ 136 https://www.mydrinkbeverages.com/top-venture-capital-funds-for-food-and-beverage-industry

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Appendix Table 1: Defining the Business Model

Table 2: Business Model

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Table 3: Competitive Advantage Building Blocks

Table 4: Generic Strategy Model

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Table 5: Competitor Analysis of Price & Health Consciousness

Table 6: Competitor Analysis of Functional Benefits

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Table 7: Macroenvironmental Factors Model

Table 8: Value Chain Analysis

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Table 9: Industry Analysis

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Table 10: Sales Forecasts (Years 1-5 & Year 1 by month)

Table 11: Cash Flow Statement Forecasts (Years 1-5 & Year 1 by month)

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Table 12: Year 1 Monthly Income Statement

Table 13: Annual Income Statement

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Table 14: Annual Balance Sheet