174. Beverage Production Disaster: Losing 10,000 Cans

Beverage Production Disaster: Losing 10,000 Cans

Jordan Buckner: [00:00:00] Imagine you finally get to a point as a beverage company where you can upgrade to your first printed cans. You had to secure a new contract with a can company and co packer just to make it happen. Everything is all set for your production to run and the co packer starts running your product through the line.

Then, disaster strikes. All 10, 000 cans come out of the tunnel pasteurizer with labels peeling off. All that product is unsellable and effectively lost. But it still tastes good. The co packer blames the can company. The can company says the facility wasn't approved. And you're caught in this frustrating, he said, she said, scenario.

With no one taking responsibility. To make matters even worse, your business insurance isn't set up to cover this type of product loss. How would you even expect it? This is exactly what happened to Sara Delaney, founder of Sarilla. I invited her on along with Russ Taylor from Secure CPG to learn how this happened and how proper insurance can help you prevent issues like this from happening to your company.

Despite this setback, Sara's story doesn't end there and she's up [00:01:00] and running. But before we get into that, I'd love to invite Sara on to say hello. Hey Sara. 

Sara Delaney: Hey Jordan. Hi Russ. Good to be here. Thanks for having me. 

Jordan Buckner: First for our listeners, I'd love for you to give a quick intro on what Sarilla is and what your products are for people who haven't heard of them before.

Sara Delaney: Yeah, definitely. So, I am the founder of Sarilla Beverage. Right now, I'm drinking our latest flavor, which is called Hoppy Hibiscus. And I've been working with tea farmers in Rwanda, actually, since I lived there in 2009. I'm headed back Monday, so I continue to go back. I'm really invested in that partnership and the tea that I discovered in Rwanda while I was living there really inspired my brand.

We now have seven flavors, including this one. Most of them are with a base of organic, fair trade, low sleeve tea and we've kind of branched out. We're also working with some cooperatives in South Africa now. We have a Rooibos flavor from Cape Town but I'm based in Asheville, North Carolina and really wanted to create A mission driven impact [00:02:00] brand that could help people in the states really find healthier options.

I'm also sober almost 18 years, so that's part of my journey living , in a mecca , of breweries. Surrounded by beer, I developed Sarilla originally in kegs to have on tap in breweries so that people like me also had something to drink while they were socializing. I wanted it to kind of look like a beer, but not taste like a beer to create that social inclusivity.

Jordan Buckner: I love that. And I've tried them. They're delicious. And so they're sparkling teas. They're made kind of really refreshing, and I believe all of them are unsweetened. Is that right? 

Sara Delaney: We have a different level of sweetness for just about each one. We have a couple caffeine free options now, too. My favorite one in the evening is our Chamomile Tulsi.

So that is unsweetened, but it's got sweet notes just from the herbs. There's no calories, no preservatives. Really clean label high in antioxidants, which by the way, we're testing in labs after canning now, which [00:03:00] I think is really unique. So I would put all the beverages in the category of spritzers.

You know, it's very light, refreshing. People who maybe don't think of themselves as like tea lovers also love our drinks. We do have a couple that are slightly sweetened two with monk fruit, no erythritol, no stevia, and then two with fruit juice. 

Jordan Buckner: I love that. So you've been around a couple of years now and tell me about how you were first manufacturing the product.

You were using sleeves for the labels around those, right? 

Sara Delaney: Yeah. So I got started. I did a lot of work out of the craft beverage Institute, which is just outside of Asheville. If anyone doesn't know about it, it's an amazing program. They train a lot of breweries and they've got some distilling classes now as well.

So I was probably their first non alcoholic Client, you would say I still do my R and D in there. It's just a great place. And then took that, that formulation to a brewery scaled into the brewery out of my kitchen, scaled from the brewery into my first co packer, which was probably the spring of [00:04:00] 2020.

So it was a tough time. But it was also a good time to get in with a co packer because things were relatively quiet production wise. I still feel like. You know, very, like, deeply grateful to that first co packer because of that time. It was such a bonding period when we came together and they gave me some time.

They had line time and that's kind of when we first scaled into probably our first, you know, run was like maybe 10, 000 cans per flavor and using the sleeves. Cause as you probably know, like it's important to get to a larger quantity before you can get into the printed cans.

And there's a traditional print can, which, you know, you'd see on traditional soda are very like high volume national beverage brands. The minimum. is usually about 200, 000, 250, 000 cans. So that's a truckload. But between, you know, before you get to that stage, there's also this , newer option, which is a digital print.

So the MOQ is minimum required on that is just as low as the sleep. So it's a [00:05:00] nice option. For emerging brands to get into a printed product. it's a different type of digital print though. 

Jordan Buckner: I love that. 

Sara Delaney: It's still, I would say, you know, in development, not perfect.

You really have to test it on all the equipment that you're going to run that on. 

Jordan Buckner: But I bet that was really exciting knowing that you could move and try out this new digital option. And, you know, as part of that, you had to find that new kind of digital printer. You had to find a new cold packer that could run it.

Tell me about what happened with the manufacturing run where things went wrong. 

Sara Delaney: Yeah. And I mean, part of the excitement too, is getting into more environmentally friendly packaging, you know, the sleeves are plastic. So I think anyone who size like Aluminum cans are the best option, like, yeah, there's a caveat there, I mean, they're still lined with plastic, which hopefully is BPA free and there's still, you know, the plastic sleeves on the outside, and then even the printed paint I'm sure has, like, some toxins for the earth, so we try to do the best we can, it's not perfect.

It's [00:06:00] better than, you know, a plastic bottle in my opinion, but so we're taking a step towards that more environmentally friendly packaging. And then also, you know, with this new flavor, the Hoppy Hibiscus, it was really inspired by the mission of a nonprofit called Pink Boots. And so they work to support women and non binary individuals in the brewing industry, providing scholarships for them to advance in.

You know, a career path that's traditionally very much dominated by men. So I wanted to support their cause. We were going to donate 5%. We still are of all the products sold. So that was really the purpose of doing this. We ordered 10, 000 cans from a digital print company. They approved them. The Copacker approved them.

That was probably in November. We were scheduled to run in late December. And then one thing after another delays until January with the holiday, understandably. And then another delay we didn't get [00:07:00] line time, I think, until the end of February, maybe first of March. So we were pre selling this product through January.

We were supposed to launch in time for dry January. Missed that can shipped in. We're waiting at the co packer. We also prepaid in advance a hundred percent. We paid for all of the materials, all of the production before getting our products. So then we had our cash tied up in that run for probably three months.

And then by the time I ran you know, you, you already shared a bit of that story, but so tell 

Jordan Buckner: me a little bit about like what You have a lot of excitement, right? There's like According to this great cause of Pink Boots, you have a new flavor that you're launching, the new digital can, a new co factor for, there's a lot of exciting new things going on.

I mean, but then as you also have experienced, that also creates a lot of complexity and moving parts and there's time delays and things change , over that period. So , I guess I'm curious as well, like going into that, did you have a sense of like, Hey, [00:08:00] everything like feels really good. Did you have any yellow flags or red flags who are starting to come up as you were going into that process. 

Sara Delaney: I had a lot of flags, and I had worked with this co packer before I had left and moved to another one, but the reason I went back to them was I really needed to fit this in, and I wasn't getting it at my regular co packers.

They were able to fit me in, but then after Probably a couple of delays it just wasn't looking good. Like once you're bumped, like once or twice, and you're not giving a firm date, and then your money is down up front, that was the other flag, is 100 percent up front. I just definitely felt like there was a power play at hand but I really didn't see another choice.

I was already invested in this decision. The cans were already there. So I certainly could have taken the time to pull back, pull my stuff out. But you know, a lot of people get to the point where it's like you have to run, you have to run it. And then it's like, do you want to free it out? Building a relationship with a new co packer can take six months.

It really can. [00:09:00] And so I did not have that kind of time. The good news is like I had worked with this place before and really with beverage, I would say the most important person at that co packer is the brewer, the head brewer. Like, they're the ones managing and overseeing the production and the flavor is like our biggest asset.

So I really had a lot of faith in him. I knew him pretty well and I would say that was the main reason I was staying there. But then, you know, it was, you know, a number of things came up that I was definitely getting concerned but we finally ran it. I was very confident in the brewer, in the recipe.

And as far as I knew, the cans looked great. They looked good when they arrived. I, you know, perhaps mistakenly assumed they would run a quality control test. Usually you run a small batch before you put everything in. I was on vacation actually with my son in Colorado. and during production and no calls came in.

So that's good. Like you [00:10:00] assume there's, it all went, you know, without a hitch, but the next week I called and I said, you know are my cans ready to pick up? Can we book the freight? And they said everything went, you know, looks, tastes great, ready to go, palletized. And then they showed me a picture of the cans.

Jordan Buckner: Those listing in the cans, can you describe kind of what was happening? 

Sara Delaney: Yeah. So the paint on the whole bottom half, bottom third of the can is peeling off. I mean, there was one, it looked like a tiger had just taken its claws and like scratched through the whole thing. So it was this sort of by the way.

And I was really surprised they had packed it all and palletized it and they said, it's ready to go. It's on our dock. So that was like very hard news to process and just kind of getting through, how did this happen? You know, why didn't you catch it before all 10, 000 cans went through the tunnel pasteurizer?

So it was a number of claws to kind of figure out. Who's responsibility was this? You know, talking with a [00:11:00] can company, what I later found out was this Copacker wasn't approved for these cans but they didn't realize that until a few weeks before my run. And so, because my product had been there for about three months, It was only a recent discovery because it had happened with another product.

So the co packers should have put it together and said, you know what? We can't do these cans. And the can company said the reason was the cans were upside down intentionally on the tunnel pasteurizer. And so the pressure of the water was coming down so hard, it peeled the paint on the bottom. So that's kind of the technical reason why if I were to, you know, do it differently again I would have just ensured that they had run the cans from the company through the tunnel.

I would have asked for photos and examples of what they had done before, but I just hadn't worked with this type of can before and Didn't realize like how important that was. I also would consider working with a can broker moving forward which I didn't [00:12:00] even know existed, but now I do so they take care of all of that and then Russell get into this I'm sure but also when you allow your co packer to do your ordering for you Like then I believe some of the liability is on them I like ordering my own ingredients and I, generally do most of that myself.

Jordan Buckner: You know, running a CPG brand, there are so many moving parts, and especially if you're a solo or small team, you end up having to make so many decisions every single day that it's hard to keep track of every single one and how that impacts things months later. And so it's totally understandable, like how, from your perspective, like these little things slip through and you would hope that the people who do this all day, every day.

Right. Would know and would see and kind of bring these things to light. But unfortunately I found across all parts of the industry, it doesn't really happen that way. And this real 10, 000 cans as a emerging kind of brand as your size, like it was pretty significant. How much [00:13:00] did that hurt for you as a founder?

Sara Delaney: Yeah, it's really significant. It hurt in a lot of ways. I mean, there was the financial. There was the time, you know, just the stress. I definitely appreciate any opportunity to learn and the reason I wanted to talk to you today is just. Hopefully to help other founders prevent this from happening to them.

But I think also the lost trust there, and there's also like a second guessing happening like, you know, I beat myself up a little bit like where was I, where could I have done something differently here? But I really think it's that trust, like having built a relationship with this co packer and then having them not take any responsibility.

I will say. The can company stepped up, you know, , and they did accept some responsibility and refunded part of the can. So that was helpful. But yeah, it, you know, I would say like it could have maybe put another brand out of business. We, you know, luckily are diversified enough and have other [00:14:00] flavors and sources of revenue coming in.

Yeah. it wasn't like a life threatening situation at this point, but I think a few years ago it could have been, or really, because I mean, it's like, I don't have product to sell. Not only was my cash tied up, but it's like, What am I going to do with this product now? You know, and there was an amazing conversation happening on LinkedIn where I shared what happened and so many people stepped up, offered to help and had suggestions.

And that's how I, you know, I connected with Russ there, connected with him on your first podcast, which was perfect timing that I heard about, you know, his services. We had a new Copacker step up. We had a new can company, Lager Smith, step up. I'm excited about their technology. Excited about what Right Coast Brand is doing.

They're actually running a new Hoppy Hibiscus today. As we 

Jordan Buckner: Oh, that's really exciting. It's running. 

Sara Delaney: Framingham, yes. So, they look awesome. Like, I've already seen some that have come out of the tunnel. It looks amazing. 

Jordan Buckner: I absolutely love that. I'm [00:15:00] so excited to see. And I want to bring Russ and because a lot of people may from outside say like, Hey, you have business insurance.

Shouldn't insurance cover that? Russ, what did you find after kind of taking a look as well and kind of knowing what happens then in these situations? 

Russ Taylor: Jordan, thanks so much. There's a lot to unpack here, right? When issues like this happen, it's rarely just a very cut and dry scenario, right?

As you point out, there's a lot of finger pointing there can be multiple things that come into play, right? Lost revenue damaged product there's a bunch of things to unpack, and Sara contacted me after this and was really just looking for some guidance initially, and it's Bloomed into something where Sara and I are tackling a couple of obstacles as she's getting ready to scale the business, which is great to hear.

But we have seen this. It's sort of unfortunate how common this can occur for small to mid sized brands. And I want to touch on two areas that really Sara and I focused on. When we were unpacking the issue that she's having, the first one is clearly that, you know, the can issue, right?

 That makes, you know, that's the [00:16:00] crux of what the problem was, is her product was damaged and the way her policy set up at face value looks pretty good, right? She operates like most CPG brands in today's day and age where she's got her business. She outsources the manufacturing, she outsources distribution.

And I think, you know, 90, 95 percent plus of brands can relate to that type of operational setup where that becomes kind of a hindrance in the insurance world is traditional insurance policies are structured for vertically integrated manufacturing firms. They want you to source your own materials.

They want your materials to be in your building. They want you to be doing the filling, the making, the packaging, whatever else it is, and then once you sell it's gone and it's out of your hands. There's a clause on most property policies that says, Hey there's an exclusion if your property or your product is not in your care, custody and control, and that's something that was on Sara's policy when she reached out to me and we did a review.

And I said, this is going to be a major hurdle here [00:17:00] because. You don't have the product in your facility, in your care, custody, and control, and the way we combat that when we set up a policy for CPG brand is by scheduling the location of the manufacturer, the co packer, whomever's doing the work, and then you can list the value of your inventory, your packaging, your raw materials, anything that you own at their facility on the policy, and if something bad happens to it while it's there.

You, coverage would apply. So, that's one of the things I strongly encourage people to look at. A lot of insurance policies, when someone goes out and gets them for the first time, You know, they might get a couple of questions from the agent they're working with, or they might be doing it online and they go, Oh, how much inventory do you own or how much product or property do you own?

And they'll, they'll give a value. And they scheduled for corporate headquarters, which, you know, might be the co founder's house. It might be an office in downtown Austin, and they don't have any actual product there. So scheduling it at that location does the company no good. It's actually.

[00:18:00] Doubly detrimental. They're paying for something that's not going to provide coverage and they still have a loss. So that's something that we looked at and we're getting that straightened out on our policy once we get them renewed. The other piece that's a little bit more risk management and Sara's done it.

Just tremendous job on the second go around vetting her co mans. And I think we're going to have some questions for about that later is a lot of emerging brands and small to mid sized brands. Yet, don't get their pick of the litter when they're looking at co man and co packer relationships. Sara just referred to where she said, I got bumped once or twice on my runtime.

And so I don't want to say that you're stuck working with someone, but you might not be doing all the vetting that you should be because you're potentially desperate for line time to get your product out into the marketplace. We advise companies when they're talking to these brands, if they do nothing else, To request a certificate of insurance from their manufacturer, from their co packer, from their 3PL showing that they have coverage and [00:19:00] being asked to be named an additional insured on that policy, on that certificate, what that allows you to do you know, in a oversimplified version though, is.

If something is the fault of your co man, your co packer, their insurance will apply before yours does. And that's really how insurance is designed to work. Whomever's fault it is, their insurance should be the policy to respond. And that was something, unfortunately, that Sara and I, when we were going out combing through all this, you know, I think she had made sure that they had insurance, but , she hadn't been named additional insured.

And now you know, since Sara and I started working together, we're talking to the new comans and she goes, I'm making sure they have insurance. I'm making sure I'm an additional insured. And it's a totally normal business function to ask to be named additional insured. Every coman asks that of a brand to make sure that they have insurance and they're listed as additional insured on the policy.

And it's a two way street and insurance. So for all of the brands out there listening that might not feel like they have leverage to ask for that. Don't feel that way at all. That is [00:20:00] the number one thing you should be doing when you enter into these agreements. And you get the contract, read through the insurance section, send it to your agent.

Have them read through the insurance section and make sure that language is in there that you will be named additional insured per the contract. Because what would have ultimately happened is Sara would have the COI saying that she's additionally insured and the contract with this co man that she could have gone back to and said, I'm going to have to get a lawyer involved if you don't exercise, you know, the insurance policy in the way that we know it should be.

So those are the two things that really unfortunately, and I'm not trying to pick on Sara because, you know, she's doing 90, 000 things as a founder that we were looking at when we were trying to figure out if there was going to be coverage that applied that stuck out to me that were missing from the initial setup of her insurance.

And that we have since corrected. And again, the asking to be additionally insured, it doesn't cost any money for anyone to do that. So please do not feel like you're bugging them or you're inconveniencing [00:21:00] them in any way, shape, or form, and it should be a red or yellow flag if they're unwilling to provide that, or say they can't provide it for some reason.

It. That would be, in my opinion, as an insurance agent, giant indicator that maybe there's someone you need to vet a little bit more closely or not work with altogether. 

Jordan Buckner: Yeah. And I think that's one thing where a lot of founders run into. I did this myself. I don't even know what I don't know. Like, I'm not always sure, like what the questions are that I need to ask.

Like, I didn't even know that I need to get a certificate of insurance from them with me listed as an additional insured. And I think that's why, you know, we have this podcast so that we can. Bring to light, you know, some of the issues that happen and sometimes it's the worst cases so that you can be prepared for those relationships.

Because as with any type of contract or agreement, you want to be clear or as clear as possible when things go wrong. Who is going to take responsibility for it? If you have a partner that's like, I'm not taking any responsibility, then know that that's just going to be a very, very risky situation. You [00:22:00] might still have to do it because you don't have another option, but at least you won't be surprised when things go wrong.

You're like, all right, I built that into my risk assessment. It sucks, but you have to move for it. But yeah, if you can have that agreement of like, these are the things that go wrong, have someone that knows. Where are the likely points that things that can go wrong and who's kind of taking responsibility that makes a big difference?

Russ Taylor: Yeah, it's You're spot on there Jordan and I'm so glad we've had people since you're I was on your podcast the first time to reach out and say I just I wasn't aware that I could ask for this and I think the Lag in insurance insurance is a archaic industry. They are so slow to change And so it's really on the relationship between you as a brand and your insurance agent, making sure your agent understands your operations as a CPG brand, making sure , they understand, Hey, I'm outsourcing , this portion of my business to a third party.

How does that change , my risk profile? And that sounds like a complicated process. It's really just. Hey, what are you doing on a day to day basis [00:23:00] and what could go wrong? You know, and don't be afraid to share your operations. The idea is that the insurance policy should be constructed to protect you.

 And you can make determinations on whether or not you want to assume the liability for something and say, I need to get this done. And this is how I'm going to get it done. And it is riskier. But I, that's the option I have to take or I want to protect myself to the fullest. And so I'm going to go through these routes.

So yeah, I, yeah, I appreciate you having me on to communicate this to people. 

Jordan Buckner: Yeah. I love that insert. 

Sara Delaney: Thanks. Yeah. I would also say like, just looking at the contract you have with the, you know, , with the co man and Russ has been helpful to take a look at that contract even before I signed my last one.

And also I know Josh at co manufactured. is doing some interesting work, kind of serving as a liaison between brands and co manufacturers. So, you know, , most co mans are not going to want to have anything in the contract that puts them liable for, I guess, a less than perfect product.

But I think with guidance [00:24:00] from someone like Russ and potentially legal just to cover as much as you can as a founder, an emerging brand is really important. I always like to have a gold standard, I call them samples with my co man like, okay, this is what we did before. We decided this is a gold standard product, you know, and it's got to hit.

So how much can we specify in terms of it needs to hit? Like this clarity of liquid, this flavor profile, this pH, this bricks, like all the specs need to be hit for us to consider this to be like ready for retail. And in my opinion, you know, that should also include the packaging. That's where the manufacturer may push back and be like, we're not responsible for the packaging.

Like that's on you or the can company or the box company. But we need to decide together what is the product look like before it leaves that facility. And, like, for me, because I work so closely with the farmers and that's part of our, Brand ethos is like all the way from, okay, we're picking up [00:25:00] tea, you know, from Rwanda.

We're picking up ingredients from different places. We're freighting it in and talking was with Russ about like, okay, we've already paid for anything I've paid for. Like we should own that. We should protect that. Right. So Who's protecting like something when it's on a truck or on a boat?

Like what happens if there's an accident, if there's a fire are we covered for that? So I like that Russ brought up, like really talking through, this is our business model all the way from sourcing ingredients to getting it to the customer. And yeah, I definitely don't need my home office covered on my policy.

That's ridiculous. And it really has happened. So just really being, really explaining like where any of, you know, what you own is being housed and warehoused. We have a fulfillment center too. So. Orders going out from that place. I mean there's so many considerations. Because the last thing, yeah, the last thing you want to do is have like a [00:26:00] major loss of something you've already paid for and then be looking at, like, potentially going out of business.

Jordan Buckner: Sara, thanks so much for being on this, sharing this story and Russ for sharing those insights as well on insurance coverage. I'll include links to both Sara's product and how to get in touch with Russ if you need help with insurance and hopefully we can prevent these from happening to your company or at least make sure that you're covered.

Thanks so much everyone. 

Sara Delaney: Thank you. Jordan.