Beer Marketer's Insights
Molson Coors in Jan will change its corporate name to Molson Coors Beverage Co, reflecting its intent to play well beyond the beer segment. But on non-alcoholic side, it hasn’t had much of a game: a bottled chai tea brand called Bhakti that’s mainly retreated from retail to focus on foodservice and a smaller kombucha player called Clearly that has just been getting onto the beer trucks in past few months. Now growth-challenged brewer is hoping to make up for lost time in NAs by aligning itself with decade-old incubation firm LA Libations, with which co has signed multi-year partnership that includes “significant non-controlling equity investment” by MC. The investment gives brewer a stake in new items launched by LA Libations and exclusive access to “brand creation, brand building and consulting/insights services” from Libations, which over the years has been involved in incubation of successful brands like Zico Coconut Water and Body Armor and boasts category captain role at retailers like Walmart and Walgreens. MC gets option to purchase in full any brands created by Libations or, where that doesn’t prove appealing, to ride any upside via its stake in Libations’ ownership of brand. MC also places 2 execs on board of LA Libations, which had been seeking strategic partner after longtime ally Coca-Cola began to distance itself over past year amid flux in KO’s development activities under new ceo. Formal announcement was made by MC ceo Gavin Hattersley this morning at Beer Marketer’s Insights seminar in NY. Specific terms weren’t revealed.
Deal allows MC to quickly install bev accelerator without need to build in its own infrastructure, emerging growth prexy Pete Marino said Fri as he and Stepper outlined arrangement. LA Libations was appealing partner because it plays “on leading and bleeding edge” and is extremely well connected in entrepreneurial and retail circles. Marino has known Stepper 8 years, going back to his days running pr firm that interacted with Danny in his ongoing role at Madison & Vine unit of Relativity Media. (Among Stepper’s side projects in entertainment have been trio of soccer-themed movies under title Goal!) In early years alliance will focus on NAs in US market, but it’s possible alliance could expand overseas and perhaps eventually include alcoholic brands, Pete told us. In past year, MC was believed to have held at least preliminary talks about potential alliance with Chicago-based Argo tea co (BBI, Feb 21) tho we hear those discussions have been discontinued. MC also has been rumored to be in queue of strategics kicking tires of fast-growing Essentia Water. MC hasn’t commented on either of those reports.
MC/LAL alliance helps resolve conundrum for big brewer that’s come late into NA game compared to archrival Anheuser-Busch InBev. ABI, of course, boasts high-end Teavana tea line co-developed with Starbucks, acquired Hiball organic energy brand, bottled water partner in Icelandic Glacial and range of incubation investments in categories ranging from colonial-style switchels to cap-activated probiotic bevs, tho collectively they’re still not meaningfully moving the needle for ABI’s own growth challenges. With its beer biz challenged, MC is intent on finding other growth vehicles its wholesalers can ride, tho it may have selling job with some of its distribution partners, notably Reyes Group, who’ve remained skeptical about throwing NAs on their beer trucks. Partners’ efforts, Stepper said in Fri discussion, would be combo of leading-edge categories with heavy consumer education burden, as well as legacy categories that can be disrupted with natural ingredients and other upgrades, as Body Armor has done with sports drinks and Libations-created Arriba brand has done with cheladas. Both Marino and Stepper emphasized that not every NA brand will prove a logical fit with MC beer network in brand’s early days, so they would adopt flexible approach in getting items out to retail and deciding whether brand should ultimately be owned and distributed by MC.
Deal comes at equally crucial time for LA Libations, which lately had seen its long partnership with Coca-Cola erode as soda giant switched from retainer structure to straight commission, then disinvested from Gloe Brands spinoff (BBI, Aug 13, and Sep 19). So Libations’ principals had been scrambling in recent months to land more committed strategic partner. “This is probably the first time that LA Libations has been properly capitalized,” Stepper exulted on Fri, hailing “the alignment, the fit, the people.” He added that agility and purpose he’s seen in new partner have been “incredibly refreshing.”
LA Libations was created a decade ago by Stepper, Pat Bolden and Dino Sarti, friends and colleagues who broke away from Icelandic Glacial Water, now in ABI orbit. Tho it’s mainly incubated outside brands, LA Libations has created a few of its own: Aloe Gloe and related turmeric and other brands, via spun-off co called Gloe Brands run independently now by Sarti, and all-natural Arriba Chelada created in partnership with Langer Juice (BBI, Jul 30 2018). On call Fri, Marino and Stepper said it was too early to say whether either would make their way onto Molson Coors trucks, nor what bev categories would be priorities. Among Libations’ current client brands are Limitless caffeinated sparkling waters, from co based in Chicago like MC, as well as Space Shake keto line and Well Well functional line, which just pulled in $3.9 mil Series A round led by Sweat Equities. Libations serves as category captain for innovative bevs at chains like Walmart, Costco and Walgreens, and just reclaimed Sprout’s Farmers Market natural chain as partner after change in mgmt there. Of course, in challenging new-bev space, not all LA Libations clients have thrived, with discontinued efforts ranging from heavily funded FRS quercetin-based energizers associated with cyclist Lance Armstrong to more modest chia play called Chia/Vie.
Tho many eyes have been on publicly traded dairy giant Dean Foods’ Chapter 11 filing, privately held Acosta has more quietly been undertaking similar journey, tho objective is to reduce debt load of co that, unlike Dean, is operationally healthy. In past week, sales, marketing & merchandising giant has set stage for pre-packaged Ch 11 reorgs of its US affiliates that allows co to continue operations as usual while moving to convert all of $3 bil in bank and bond debt to equity and receive infusion of $250 mil in cash.
Dean Foods won bankruptcy court approval to access $475 mil of the $850 mil it’s lined up in debtor-in-possession financing, as one-third of its bond holders argued in court that deal it’s cutting to sell to Dairy Farmers of America cooperative isn’t a good one, and is likely to arouse antitrust resistance, too. While Dean is “focusing exclusively” on a combination with the co-op, that option won’t be “value-maximizing,” attorney argued in front of Judge David Jones in US bankruptcy court for Southern District of Texas in Houston, as Bloomberg reported. “We don’t want a quick sale, a fire sale, without a true market check or opportunity for other potential bidders to put in a real proposal,” said attorney Bob Britton of Paul, Weiss, Rifkind, Wharton & Garrison. He said bondholder group had approached Dean to offer alternatives, including capital to invest in standalone restructuring plan and alternative financing, but proposal “made no headway,” as Bloomberg reported. In its Chapter 11 plan, DF had indicated that it would evaluate other deals before finalizing any transaction with DFA (BBI, Nov 12).
In meantime, media have been bandying blame among range of villains: some have cited oatmilk and other plant-based alternatives, which now account for about 20% of combined category, while others have cited drop in cereal consumption that’s dragged milk consumption down with it. MarketWatch pointed to another villain: it cited 2017 IRI analysis that shows 53% of lost milk volume went to bottled water – a major concern of trade group MilkPEP, which devised marketing campaigns a coupla years ago urging moms to steer their kids back to milk (BBI, Jan 5 2018). If blame is being thrown around, BBI would humbly suggest another possible target: former ceo Gregg Engles, who orchestrated spinoff of WhiteWave unit that represented growth engine in categories like organic milk and soymilk. In telling move, Engles opted not to stay with parent co Dean but to segue to WhiteWave, which later sold out to Dean rival Danone for $12.5 bil, even as Dean undertook arduous task of rebuilding presence in areas it had spun off. Tho no longer running WhiteWave, Engles sits on Danone board, while also operating private-equity firm out of Denver called Capital Peak Partners.
Rough Week for Cannabis Shares as Canopy, Cronos, Tilray Disappoint; New Scrutiny from Investors
It’s not just likes of Uber, WeWork and Twitter that are running up against investor concerns over massive losses racked up during landgrab phase of newly developing category. Now those gimlet eyes are focusing on Canadian cannabis players who’ve been riding wave of euphoria over new biz whose opportunity in short term has often been measured in tens of billions of dollars. But to get there from here key players have been racking up hundreds of millions in losses, at time regulatory climate in US remains so murky it’s still not clear when category will be fully exploitable. Issues came to a head this week when trio of biggest publicly traded players – Canopy Growth, Cronos Group and Tilray – announced quarterly performances ranging from middling to dismal. Organigram Holdings also issued warning that revenues wouldn’t come close to expectations in Q4. All these misfires “extend an epic slump for an industry marred by largely elusive profits and other missteps,” as Investors Business Daily put it. Wrote MKM analyst Bill Kirk: “We continue to struggle with earnings expectations for the industry,” in noted cited by MarketWatch, adding, “with inventory levels too high at the provinces and absolute and relative pricing pressures, we don’t see a near-term industry catalyst for improved profitability.” Note that only a tiny percentage of these cos’ activities currently are comprised of bevs, which only got green light for Canadian retail sales last month even as US market is mishmash of conflicting local, state and federal regs and enforcement stances that have kept big players on sidelines so far.
“The last two quarters have been challenging for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations, and Cannabis 2.0 products are yet to come to market,” Canopy CEO Mark Zekulin said in statement accompanying release, tho he assured investors that co is over the hump of biggest investments. CGC recorded C$374.6 mil loss on C$76.6 mil in sales, down 15%.
Among many issues afflicting those cos is reliance to date on formats like oils and softgel. “We believe the apparent lack of consumer interest in these products highlights the importance of the second wave of products forms, coming in December/January, which have had more proven consumer demand in US markets," per Piper Jaffray analyst Michael Lavery, in research note quoted by IBD. Regs greenlighting bevs and other edibles, as well as vaping gadgets, took hold in Canada last month. Canopy’s beer partner is Corona and Modelo marketer Constellation Brands.
Earlier in week, Cronos, which is aligned with tobacco giant Altria, similarly missed sales estimates. Tilray, which is allied with Anheuser-Busch InBev, met sales expectations only because of acquisition of Manitoba Harvest (BBI, Feb 25), but losses exceeded consensus view.
Face it, the guy hung around a long time. More than 11 years after selling a minority, and then majority, stake in Honest Tea to Coca-Cola, cofounder and “tea-eo emeritus” Seth Goldman finally is moving on, marking end of unusually long spell that a bev entrepreneur and exit partner have been able to suffer each other’s company. Seth posted departure message yesterday on HonestTea.com, site of organic tea and juice marketer that continues to operate from site in Bethesda, Md, where he founded brand with his Yale prof and mentor Barry Nalebuff nearly 22 years ago. Co will continue to be operated on day-to-day basis by Clare Verdery, Coke vet who relocated to Bethesda 2 years ago after earlier experiment with gm who operated brand out of Atlanta didn’t work out so well. “The brand definitely has enough of its own life so that I’m not abandoning a helpless child,” Goldman joked in conversation this afternoon. After initially selling new brand into 17 Whole Foods stores in Mid-Atlantic region, Honest Tea now is available in 140K outlets in N Amer and thousands more overseas, Seth noted in message to his consumers. That’s $600 mil in sales, well on way to hitting $1 bil mark that KO regards as milestone of success for innovations. Goldman will see 2019 out before making exit.
More often than not, it seems, entrepreneurs are unable to last even thru contracted transition period of 2 or 3 years before culture clash, restlessness, skeletons uncovered in closet or differences over strategy hasten their departure. In Goldman’s case, KO set up unusual structure when it closed on majority of co by leaving him a sliver of shares as incentive to continue his intense focus on brand. Judging by responsiveness to BBI inquiries and finger on details, that involvement never wavered. That earnout arrangement concluded in 2011, he told us today, and he sold last of his shares in 2017, meaning his close involvement over past two and a half years was on basis of more orthodox compensation scheme of salary and bonus rather than any outsize gains to be enjoyed. Along way, in 2015, he began to devote half his time to plant-based protein player Beyond Meat which earlier this year enjoyed explosive IPO that’s believed to have netted Goldman and several of his colleagues there far more than they made from their Honest Tea exploits. (Today, Seth noted with satisfaction that, unlike many IPOed cos with no sightline toward profitability, Beyond Meat reported its first period in the black last qtr.)
Given exec’s high energy level – in note on HonestTea.com he says his wife once observed that he needs to spend “75% of my time on Beyond Meat and 75% of my time on another enterprise” – another venture is in the offing, tho Seth declined to offer many clues, except to say that it won’t be in bevs, since Honest Tea platform is capable of supporting any concepts he might be inclined to launch from scratch. Washington (DC) Biz Jnl offered this clue: new venture will focus on addressing climate change and need for healthier, more nutrient-dense food options, with details to be unveiled early in new year, after his run at KO has concluded. Among other options, Goldman is known to have considered a run for Maryland gov in 2022, but ruled it out on lifestyle and other grounds. As for some speculation over the years that he might assume broader sustainability role within Coca-Cola, Seth said that was never a consideration, as “I’m about the pure play,” where all one’s energies can be harnessed in pursuit of single goal, as Beyond Meat is on making meat substitute from plants. To Goldman, that’s more personally satisfying and, he believes, provides a competitive advantage vs rivals with broader constituencies to think of and revenue streams to protect.
Among his proudest accomplishments at Honest Tea, Goldman’s note cites acceptance of Honest Kids drinks in fast-food chains like McDonald’s, Wendy’s, Chik-fil-A and Subway, swapping in 35-calorie drink for 80-calorie alternative, as well as 8 mil lbs of organic ingredients during Coke’s tenure and $500K+ in Fair Trade contributions to its growers’ communities for schools, clean-water systems and other infrastructure. Still, severing connection to brand has left him with “surreal” feeling, entrepreneur readily allowed today.
Kombucha Entry Will Test Early Next Year We’d approached Goldman to discuss status of kombucha launch, before we heard he was moving on at year-end. That’s more trivial topic now, but still, where’s it stand? Small pilot will go forward in unidentified markets during first qtr of new year, Seth said. It’s refrigerated entry infused with fruit juice, with great pains taken to insure it remains alcohol-stable. As with modest test underway with Honest-branded coffee line, it’s effort to test an “unused muscle for the Coke system.” Recall that Honest Tea ventured into kombucha realm nearly a decade ago, but launch came at inauspicious time when Whole Foods and its main distributor UNFI pulled entire category over alcohol concerns, prompting Honest Tea and its partner Coke to beat a hasty retreat. Of course, kombucha segment was far less developed then.
PEOPLE: Fiji Water Prexy Stephenson Quietly Moves On; Had Job of Masterminding Post-DSD Strategy
Elizabeth Stephenson, who as Fiji Water prexy had challenging job of managing move to post-DSD strategy after brand’s exit from Keurig Dr Pepper, has moved on, a rep at owner Wonderful Co confirmed. In interim, Wonderful co-owner Stewart Resnick, co’s chmn/prexy, is stepping into role. Resnick and his wife Lynda operate co that includes among its brands POM Wonderful, Teleflora and several wine brands. Recall that Fiji rocked bottled water biz by electing not to stay with longtime partner Dr Pepper Snapple after that co’s acquisition by Keurig Green Mountain, instead exiting DSD in favor of direct approach backed by co’s own merchandising team.
Can a move into ginger ale segment rightly be called a pivot, if you’ve been marketing ginger beer for 3 decades? Maybe that’s a conundrum that imbibers of Reed’s Inc’s forthcoming Moscow Mule entry can discuss following surprise announcement on earnings call yesterday afternoon that REED intends to play in ginger ale under moniker Reed’s Really Real Ginger Ale. Reed’s, of course, has been on attack vs Canada Dry and other mainstream brands for the paucity of ginger they employ compared to its own ginger beers. So why not go at heart of market?
That was reasoning unveiled yesterday by chmn and interim ceo John Bello, who took reins from former ceo Val Stalowir after production meltdown led to share collapse a few months ago. After all, ginger ale segment grew by 14% at Walmart last year, and Reed’s is able to muster a sugar-free, lighter, more refreshing entry with more ginger than market leaders “with virtually none.” So it’s time to “go fishing in a broader pond,” Bello said, with new line anticipated to be ready by Q2 2020, in time for summer resets. “Ginger ale is the star of the carbonated soft drink category, and we have a ginger ale that has ginger in it.” Having a ginger ale in the mix should make it easier for co to succeed with another key priority, cracking c-stores.
Context of announcement was Q3 earnings call in which Reed’s disclosed that net sales dropped 19% to $8.7 mil as result of production snafus. But core brands managed to grow 5% despite losing out on $1.2 mil in orders that couldn’t be filled because of inventory shortage and another $300K or so in planned innovation that couldn’t reach market as co moved into triage situation on production front. “As we build redundancy, we should accelerate growth,” Bello assured investors. Virgil’s brand, which was first to undertake restage and addition of zero-sugar entry, enjoyed 22% volume gain, while Reed’s Ginger Beer declined 5%. Exit from non-core products including private-label items made by now-sold LA plant cost $2.3 mil in gross sales.
Under recently recruited coo Norm Snyder, Reed’s has been building in redundancy to copacker network to prevent reoccurrence of production snafus that twice now in recent years have interrupted co’s growth. East and West Coast copackers were fully operational late in Q3, he and Bello reported, with no further shelf space lost, and even some expansion commitments won at retailers like Albertsons/Safeway, HEB, Harris Teeter, Trader Joe’s and Winn-Dixie. REED is on-boarding additional copackers with aim of deploying network of 2 anchor plants on each coast that each can make all core sku’s and perhaps others to support innovation. Ginger beer is migrating to concentrate model to make it easier to recruit copackers, initiative begun under Stalowir, and co offloaded Moscow Mule production and sales to Full Sail Brewing in Hood River, Ore, to take that off its plate, collecting royalty stream as sales commence next year. All told, Snyder said he anticipates having 5-6 copackers operational by start of new year. “It’s not just about capacity and redundancy but efficiency, for better margin,” he said.
As for hemp-infused line, that’s been slow progress given regulatory uncertainty around CBD, Bello explained. It is selling thru in initial couple of markets, and a new copacker has been enlisted who can produce it in quantity. Still, broad-based drug retailer “was really interested,” but decided not to move ahead until regulatory situation settles out. “Same with most of our big distributors,” Bello added.
Asked how search for permanent ceo is going, Bello chuckled at question. “You’ve got the best ceo on the planet sitting in the chair now,” was his response. He added, “I don’t like being on the stage coach as we’re driving through the pass.”
Still riding benefit of acquisition spree, New Age Beverages reported 427% net sales gain to $69.8 mil in its 3d qtr, and dramatic gross margin boost to 57% from 13%, tho net loss widened to $10.7 mil from $3.5 mil. Topline was comprised of about $55 mil from Morinda multilevel marketing arm and $15 mil from rest of co, ceo Brent Willis told questioner on investor call this morning, meaning panoply of owned and partner brands still are individually doing modest biz. Brands brought in via recent acquisition of incubator Brands Within Reach generated only $2 mil in qtr, vs $15 mil annual run rate cited at time of deal, a temporary result of “some transitional things,” Willis said. Still, NBEV “met or exceeded our guidance for the 3d quarter in a row,” Willis reported, as co continued its recovery from out-of-stocks caused by liquidity squeeze last year.
More than ever, co that seems to be styling itself in its communications as NewAge these days (sans “beverages”) is one with “plenty of moving parts,” as Willis put it, between its owned brands like Xingtea and CocoLibre, its partner brands like Marley, Evian and Illy, its Denver distribution operation, its nascent cannabis biz and the tail that wags the dog these days, its Morinda multilevel marketing unit acquired nearly a year ago. The accumulation allowed ceo Brent Willis and his cfo Greg Gould several times this morning to remind investors that Brent has grown co’s revenues by 10,000% in just 3 years, after starting with just a foundering Bucha kombucha co. “It’s not easy” to grow at that rate, Willis observed on conference call this morning.
Among key components of co, Morinda enjoyed best month of year in Sep, with Japan biz up 15%, China up 5% on sales of $7.6 mil as co navigated gov’t crackdown on MLM cos. Those are Morinda’s 2 largest markets. DSD division from which New Age took corporate name had strong quarter with 18% organic growth and added a # of snack brands and NA bevs, including fast-growing Celsius. Latest deal was relatively small one for Brands Within Reach but it put into NBEV system such partner brands as Evian Water, Nestea and Illy, all earlier fumbled by Coca-Cola as their US partner. So far, co has made most progress moving Illy out into NBEV’s network of 130 DSD partners. Still, the low quarterly sales # disappointed one investor, and Willis allowed that it’s slow process. Major intent of doing BWR deal “was not for the additional brands, though we love those brands, but it was to get the team, the organization, the system, processes, supply chain structure” assembled by BWR owner Olivier Sonnois, who’s now running NewAge’s N Amer biz. Addition boosted sales team to 20-25 range vs 2-3 earlier. Willis noted that key partner, Classic in LA, which just acquired Haralambos Bev, will serve as anchor distributor that takes entire portfolio, including New Age’s historic brands and the ones coming in via BWR deal. So progress is occurring unifying brands at distribution level. “At the retailer we’re not seeing the benefit yet, to be quite honest,” Brent allowed to questioner on call.
NewAge has been cautious on cannabis front, not including that biz in its revenue guidance as it navigates complex regulatory maze. But its int’l biz added Hong Kong and Japan, where it took 9 months to get thru country’s narcotics board and other regulatory bodies but was first to get approved, with bevs entering mix in past week. “Selling everything we can make,” Willis reported. Tho co has led with creams and other topicals under NHanced brand name, Noni Plus and Marley-branded bevs have been entering market, too. For US, where Marley licensing relationship recently was expanded to a decade, publicly traded NBEV has handed entire biz over to partner Docklight to shield co from any risks, collecting 50% profit share. “CBD in the US, however, is not the strategy,” and 7-8 more int’l markets should come aboard within 60 days. NewAge strategy is to “win internationally and gain first-mover advantage as the regulatory landscape unfolds in each market.” So far, co has done over $5 mil in biz with enhanced CBD lines.
Willis offered interesting discussion of how co has handling Japan effort. By his account, moving thru MLM network – “independent product consultants” is how he styles them – is ideal for high-touch product that requires education, compared with 15 seconds a customer might get at drug chain or mass merchandiser. Instead, message is conveyed by “somebody you trust in your home for an hour.” For initial launch, co went with limited-time offer exclusively thru MLM network, with full launch of creams, lotions and topicals occurring in late Nov or early Dec and bev lineup due in late Dec or early Jan. (Japan has exacting requirement of 0.0% THC in CBD bevs, rather than minute amount allowed in N Amer.) Broader communications program will ramp up in Q1 as co gets ready to move beyond MLM network.
Looking for greater presence in fast-growing sparkling water biz, Danone Waters of America has picked up sales & distribution duties for Italian brand Ferrarelle. Starting in Jan, importer of Evian and Volvic still-water brands will bring in Ferrarelle’s glass bottle in 11.6-oz and 25.4-oz sizes for on-premise channel . . . Announcement this week of long-term contract brewing deal with Pabst “accelerates our ability to move forward with an investment program to expand our facilities and enhance our capabilities,” said City Brewing ceo George Parke in announcing deal running hru 2040.
As concern grows over where billions of plastic and aluminum single-cup coffee pods end up after use each year, pair of entrepreneurs have established new co called Smile Beverage Werks that’s offering potential solution: completely compostable capsules that are compatible with Nespresso and Keurig brewing systems. The duo are Michael Sands, a familiar name over the years from his runs on brands like Rolling Rock, Snapple, Ben & Jerry’s and LesserEvil as well as his Fenway investment arm, and Frank Schuster, former sustainability dir at Signature Construction Group. Operating jointly as Smile, they hold exclusive license for N America for technology from unidentified European patent owner. During recent meeting in NY, Sands displayed unbranded Nespresso-style capsule that’s being pitched now to potential hospitality and foodservice clients, as well as K-Cup-style capsule that he said should be ready by first half of 2020. Co is out raising capital and holding discussions with range of potential partners and clients. Michael declined to say whether Nestle and Keurig themselves are in mix, as they grope toward solution for disposal issue that’s put over 13 bil K-Cup and Nespresso pods into landfills just in 2017, where they take hundreds of years to degrade, per data cited by Smile. Note tho that even without buy-in from brewer mfrs, 3d-party suppliers are free by now to offer compatible pods for those systems. Smile’s licensor, whom Sands declined to identify for now, has been working to get the capsules to degrade in under 4 weeks.
Provisional website at SBWerks.com indicates that its “guilt-free capsule” is made in Germany from at least 90% renewable materials using renewable energy sources, and is biodegradable, commercially compostable and sealed with paper lids printed with food-grade ink. It’s usable in “all common Keurig and Nespresso machines,” per site, tho K-capsule is described as still being “in the final stages of certification.”