Jones Soda Tries to Save Itself Through Layoffs, Strategy Shift

Jones Soda, which had thrived by being as different as possible from Coke and Pepsi, made a huge mistake by trying to take the soft-drink giants on directly, and now it's fighting for its life.

Even in good times, Jones' attempt to enter the canned-soda market would have been ill-advised. Coming as it did just as the consumer economy was teetering and just before the financial markets began to swoon, it can now only be called a major misstep. Jones this week has laid off about 40 percent of its workers, of which there were only about 110.

According to CNNMoney.com, the "21-year-old cult soda company's struggles are a microcosm of the challenges facing small companies in a weakening U.S. economy. With consumer spending down and credit tight, any misstep becomes a potentially fatal mistake."But most other small companies didn't make Jones' mistakes. The brand's identity was tied to its weird, colorful glass-bottled soda products with names like "fufu berry" and "bug juice." People -- mainly kids and young adults -- sick of drinking Coke and Pepsi products out of cans or plastic bottles, but who nevertheless wanted a sugary, carbonated soda, gladly paid a premium for Jones' products.

"But in 2007, CNN notes, "the company posted an $11.6 million loss, created largely by founder Peter van Stolk's attempted expansion into the canned-soda market."

At the end of last year, Jones replaced van Stolk with a new CEO, Stephen Jones (no familial relation to the company) a former Coke executive. He invested big in marketing and sales, trying to get canned sodas onto the shelves of the big grocers. But he did this even as demand for soda was dropping fast as people turned to bottled water and healthier drinks.

Now the company is hunkering down. "You'll see us greatly reduce the number of distributors we have," Jones said. The company will concentrate on its core markets, largely in cities on either coast, and will largely drop its effort to sell through Wal-Mart and other big-box chains. And it will pull back from its effort to sell canned sodas.

Instead, the company will focus on delis, pizza parlors, and other places where younger people hang out or buy lunch. The margins there are far higher, for one thing.

"Recapturing its indie cred would be a savvy move for Jones," says CNN. "But to succeed, Jones Soda will have to manage its turnaround in an economy hurling toward recession, with less cash, less staff and less maneuvering room than it had at the start of this year."