The Business of Being Bethenny
The ultimate cocktail: mix frothy Bravo star with hot margarita line. Result? $120 million. How Bethenny Frankel has bucked the reality system -- and changed dealmaking strategies.
I want a sauvignon blanc. do you want a sauvignon Blanc? I'm having a Sauvignon Blanc." It's March 25, lunchtime, and Bethenny Frankel is every bit as energetic -- some might even say spastic -- as she appears on her Bravo series, Bethenny Ever After. Her hair pulled back in a tight ponytail, Frankel, 40, draws a long sip from her wineglass. "It's Friday," she says. "I'm done with work. My weekend can begin." Sitting in a tucked-away corner of the BLVD restaurant at the Four Seasons Beverly Wilshire, the wound-up reality star and executive producer of her own series visibly begins to relax. Frankel removes the oversized shawl she calls her "moosh" and tugs at her gray sweater underneath. "It's Club Monaco," she notes without prompting. "I love their tops. I don't have a lot of tops, but everything I buy is on sale. I never pay full price." She buzzes on for a few minutes about her controlled spending and how her husband of one year, Jason Hoppy, recently encouraged her to purchase an $800 Chanel handbag she was eyeing. "I couldn't do it," she says. "I didn't need it."
Any other day, her animated tangent about frugality might have seemed unremarkable, but this week Frankel was celebrating the acquisition of her Skinnygirl cocktail line (featuring a 100-calorie margarita) by the world's fourth-largest spirits company, Fortune Brands' Beam Global -- which distributes the likes of Jim Beam bourbon and Sauza tequila -- for a price tag insiders have placed at $120 million. It's a feat never before seen in the spirits marketplace by a single celebrity (typically, the transactions are pure endorsement deals), unless you count Ciroc's nearly $100 million deal to bring on Sean "Diddy" Combs as part-owner of its premium vodka for promotional value.
The former natural-foods chef, who developed the cocktail line in 2009 with partner David Kanbar (formerly of Skyy Vodka), has become the next personality-turned-mega-entrepreneur on a growing (but still somewhat short) list of reality stars who have turned the tables on producers and networks and found a way to capitalize on their fame through business ventures wholly their own.
Earlier this year, THR reported that the Kardashian family pulled in a combined $65 million in 2010 through a laundry list of endorsement deals and commercial projects. Even the less palatable stars -- like Jersey Shore's Mike "The Situation" Sorrentino, who brought home a $5 million paycheck by the end of last year for a range of deals including a book, a workout supplement and a vodka endorsement -- are finding ways to broaden their reach in the reality marketplace independent of their shows. And now, this new-age business model for stretching a person's 15 minutes into an entertainment empire has become a larger phenomenon that has reality stars coast to coast scrambling for opportunities that might send their careers (and bank accounts) into an entirely new stratosphere. It also has left networks scratching their heads as they look for ways to also cash in on their talent's outside endeavors.
Seemingly, though, no personality has leveraged reality quite as well as Frankel. As cameras prepare to roll on the third season of Frankel's irreverent series following her personal and professional life in New York (the first-season premiere was Bravo's highest-rated series bow to date), it bears noting that this one-woman, low-cost operation made more money through her liquor sale than what David O. Russell's layered, complicated, Oscar-nominated film The Fighter grossed domestically ($93.6 million).
To this day, Frankel operates largely independent of Bravo, the network that put her on the air in 2008 on The Real Housewives of New York. Under her personal business umbrella called Bethenny Frankel, the reality star has amassed a fiercely loyal social media following (Twitter, Facebook and Bethenny.com), lucrative endorsement deals (Pampers, Bluefly, Hanes), a successful publishing franchise, a Body by Bethenny workout DVD, Skinnygirl extensions (including a shapewear line, a diet cleanse and weight-loss supplements), speaking engagements, a stint on ABC's Skating With the Stars and, of course, that epic liquor deal. It is likely Frankel ranks among reality TV's wealthiest self-made stars.
But it is empires like Frankel's that have network heads scurrying to renegotiate talent deals; they have even begun including clauses in new talent contracts that would award the network a stake in any business venture created as a result of a talent's time on the show. "It's indeed becoming the trend," one network development insider says. "Our attorneys are constantly telling us that we need to cover our butts in case the talent blows up. If we are responsible for their success, we should get a piece."
Four years earlier, though, when Frankel joined the Housewives series, such clauses were far less common. And Frankel's personal circumstances were far less fortunate.
Living in a 700-square-foot apartment on Manhattan's Upper East Side, Frankel recalls having just a few hundred dollars in her bank account. The chef and founder of the gluten and dairy-free meal delivery service BethennyBakes had gained a certain level of notoriety as a finalist on the ill-fated NBC series The Apprentice: Martha Stewart but was struggling to take her business to the next level. "I didn't know where I was in my life," Frankel says of her pre-Housewives days. "I was still taking the subway to events because I couldn't afford the $20 for a cab."
Not long after her stint on The Apprentice, Ricochet Television came knocking. The production company was interested in casting the outspoken Frankel on its new Housewives series for Bravo. At first, the rarely camera-shy Frankel was hesitant about jumping on board, saying no for two months before finally agreeing to join the cast. "I was worried that it would ruin what I had going," recalls Frankel, who at the time had signed on as a Pepperidge Farm spokesperson and had appeared on NBC's Today show for a cooking segment.
After more consideration, Frankel decided that television might provide an enormous opportunity to grow her business at a national level. And Bravo had no qualms about her plugging her own products on the show. "I went on the show single-handedly and exclusively for business," Frankel says of the now common practice among reality stars. "I knew it was a risk and I had the most to lose, because I already had a platform. When I went on the show, no one was going on for business, no one had done anything."
At first, Bravo was reluctant to cast Frankel despite Ricochet's endorsement. The network was seeking to find fresh personalities for its audience instead of dipping into the already existing reality pool. "She was one of the last, if not the last, woman we cast on the show," says Bravo Media president Frances Berwick. "We had a few reservations and were a little on the fence since we don't take reality stars and put them on the network." After seeing Frankel's tape, where she was alone in a town car engaging the driver in playful banter, Berwick and her team decided that even though Frankel was somewhat of a known New York personality, they were willing to take a chance on her. Unbeknownst to the network -- or the existing "Bravo-lebrities" -- Frankel would soon become the network's most recognizable face.
In October 2008, the series revolving around five affluent Manhattan women debuted, and for three seasons, Frankel's sharp wit and tell-it-like-it-is attitude attracted an enormous fan following that she painstakingly cultivated. Now, with roughly 500,000 followers on Facebook and Twitter, Frankel attributes much of her success to the show's audience.
"I'm not running around buying diamonds and getting facials," Frankel says of her time on the series. "I just decided to be totally honest and own it. You can't do something you don't stand for just to make money. It's a smart audience, people will realize it." To that end, Frankel was careful to maximize her screen time to create a fanbase and incessantly promote her side projects, like her book and cocktail, on air. The goal for herself and the company she set forth to create was simple: creating practical solutions for women. "Everything I create is a solution to a problem that women have," Frankel says. "I don't like to wear lingerie, but my husband loves it. So I created lazy lingerie. You wear it under a blazer or sweater during the day, but when you pull it off, you have on lingerie. It solves a problem."
From the beginning, Frankel had little intention of opening her life to the cameras in return for a single paycheck from the network while the show lapped up precious ad dollars. Instead, in what's becoming a natural offshoot for many reality stars, Frankel decided first to try publishing. While many find only nominal success (see page 63), Frankel's first book, Naturally Thin, was snatched up by Simon & Schuster -- in a deal Frankel calls "very lucrative" -- and appeared on The New York Times best-seller list for 18 weeks after its March 2009 release. Nine months later, she released a second book, The Skinnygirl Dish. Today, the two have sold more then 480,000 copies worldwide.
Frankel's husband has joined us at the table, carrying the couple's 10-month-old girl, Bryn. The new mom pushes aside the appetizer plate of smoked tofu she ordered ("I had steak last night," she explains), and everyone joins in on a single chorus of "If you're happy and you know it, clap your hands."
The idea for her low-cal mixed drink evolved organically, she says. A lover of margaritas, Frankel was looking for an alternative to the high-calorie options available. She developed the concept for Skinnygirl margarita mix and began taking the idea to distributors. But peddling her low-cal mix in the male-dominated liquor community proved futile. "No one was interested," she says. "Instead of giving up, I said, 'I want this, and I know other women will want this, so I'm going to make it.' "
First, Frankel had to find a business partner with a liquor background that could help her navigate unfamiliar waters. Deciding to collaborate with former Skyy Vodka exec Kanbar (who helped sell the vodka company to Gruppo Campari in 2001 for more than $200 million), the pair began research and consulting work with mixologists to find the right blend for her margarita.
"It all started with Bethenny, her partner and I having breakfast in New York, tasting different formulations and trying to picture what the brand was," APA's Brian Dow says. After 12 months of nurturing the idea, the first shipment of Skinnygirl margaritas hit the shelves of select East Coast stores. The demand was soon so great that the newly formed company could not keep up. "One month you would get 3,000 cases ordered and you're dealing with that revenue. Then the next month you all of sudden get 30,000 cases ordered," Dow says. By summer 2010, the most popular season for margaritas, the mix was sold out. "Trucks would come from our bottler in Montreal, and there was no point in sending them to California, the No. 1 margarita market, when we couldn't even satisfy the demand in New England," Dow says. In total, before the brand's acquisition by Beam Global, Skinnnygirl cocktails shipped and sold nearly 150,000 cases of the margarita (about 2 million bottles). Realizing that her small-scale production shop would never keep up with demand, Frankel made the decision to sell this part of Skinnygirl to a distributor, one that would agree to keep Frankel involved with creative license.
"It became really clear that they had a winning business model very early on and we felt Beam could really add the distribution muscle lacking," says Beam Global's Pryce Greenow, regional GM of western U.S. business. As for Beam's commitment to keeping Frankel on board, "No one knows the brand better than Bethenny, and we don't want to break something we just bought," he says. "Plus, she gives us access to consumer feedback with just one tweet that would take us three months of focus groups to compile."
After six months of back-and-forth -- and "enough money to buy a very nice house in legal fees," Frankel says -- the Skinnygirl creator and her partner struck a deal with Beam Global to produce the Skinnygirl margarita worldwide and to develop new, low-calorie Skinnygirl cocktails.
"It was a pretty significant transaction," says attorney Shaun Clark of Sheppard Mullin, the law firm representing Frankel's Skinnygirl. "Bethenny had a high-profile startup and needed assistance taking it to the big leagues." The approximately $120 million deal gives Beam Global complete ownership of Skinnygirl cocktails and any alcoholic beverage under the Skinnygirl umbrella. "This isn't a typical acquisition," Greenow says. "It's more of a venture capital investment for us: high growth, early investment." Because of a strict confidentiality clause, details of the contract are under wraps, but a source close to the transaction says Frankel is being "well incentivized" to keep promoting the product and making it a continued success (through benchmark and bonus arrangements).
Spirits writer and consultant Jack Robertiello explains that the bulk of Beam's purchase price was to access the built-in demographic and platform that Frankel brings to the table. "Beam has been very active in creating brands skewed toward younger demographics and health-conscious women," Robertiello says. "Could they have developed this cocktail on their own? Absolutely. The recipe is not the hard part. They paid for the marketing."
To put the deal in context, Robertiello points to Bacardi Limited's purchase of Grey Goose Vodka in 2004 for $2.2 billion. Sure, Grey Goose had distributed and sold more than six times the volume of Frankel's Skinnygirl before its acquisition (more than 1 million cases), but in the end, Grey Goose received triple the amount per case than what Skinnygirl received.
And whatever happened to those other liquor distributors that were so quick to dismiss the idea of a low-calorie cocktail? "Now, every company I pitched this idea to has either tried to buy Skinnygirl or has copied it," Frankel relishes. "I created a sub-category that never existed. I wasn't an expert -- I was just another person bothered by a 700-calorie margarita," she says with a shrug, taking a swig of her wine.
Despite her show's popularity -- the second season of her series averaged more than 1 million viewers a week -- and the network's desire to keep Frankel on air ("I'm hoping this partnership is a long one," Berwick says), Frankel only anticipates another season or two of Bethenny Ever After. "I like to leave a party when it's in full swing," she says. "I don't want to be there at 3 in the morning with the scary guy in the bad sweater with no teeth. I like to leave when everyone still has their teeth."
Instead, Frankel aspires to parlay her on-air talents into more of a "conversation" with her fans -- a TV format that allows a dialogue beyond 140 Twitter characters. A talk show, perhaps? "Yes, like a talk show," she says. According to a recent report, Frankel is in fact in talks with Telepictures Productions (the company behind The Tyra Banks Show and Ellen) about the prospect. Her rep would not confirm or deny the report.
Frankel says she will continue to grow her brand, revealing that a national retailer has approached her to develop a complete in-store Skinnygirl lifestyle experience.
"It is incredibly unusual to have a beverage alcohol brand to not only be operating but be successful in other categories like nutrition," Clark says. "Skinnygirl transcends those boundaries."
In five years, Frankel moved her business from her tiny one-bedroom on the Upper East Side to one of global exposure. On the way, she even managed to scoop up a husband and have a daughter. But Cinderella she is not. "There's no little fairy with pixie dust here," says Frankel's publisher, Simon & Schuster's Stacy Creamer. "Cinderella does everything she should and in the end she still gets screwed until her fairy godmother comes. She didn't need to wait for that magic. This is all Bethenny."