Beer Marketer's Insights
Vancouver-based BevCanna Enterprises, which has ambitions to be one-stop-shop for those wanting to play in cannabis bevs, is taking Corona-style fun-in-sun approach with new brand of its own, an infused-tea line called Gruv that offers 1-to-1 ratio of CBD and THC. Line infuses tea into alkaline water base in 375-ml bottles. Chief commercialization officer Emma Andrews said formula harnessing 5 mg of THC to 5 mg of CBD aims to provide users with “mild yet effective cannabis experience,” in synch with positioning as way to unwind after day in the sun or at the office. It’s launching in US and adding Canada in Oct once legalization of infused bevs kicks in. No initial word on pricing or distribution. BevCanna operates 100-acre cultivation area in British Columbia’s winemaking Okanagan Valley, and 40K-sq-ft plant with bottling line that can do annual rate of 72 mil bottles on single shift. Bottling operation on Anarchist Mountain lent its name to first bev line announced by BevCanna last month, Anarchist Mountain Beverages, that will use region-specific inputs “inspired by Cascadia,” starting with RTDs, shots and powders, due in Oct in Canadian market. Besides wielding its own brands, BevCanna is seeking to become go-to partner for those looking to play in infused-bev space, with partnership on branding side with local design agency Dossier Creative. Co trades on Canadian Securities Exchange under BEV symbol.
By now UK’s Huel claims to have sold 50 mil meal replacement drinks and powders across 80 countries in just 4 years of existence, currently operating at run rate of 50K meals per day, over 1.5 mil meals per month. It’s anticipating nearly $100 mil in sales this year and approaching breakeven, ceo James McMaster told us last week. But in contrast to fast-growing US-based equivalents like Soylent, it’s hardly drawn any media attention in States, including in BBI. That’s despite frenzy of activity over past year or so that’s seen brand establish offices in Brooklyn and LA to augment push in US, which already accounts for $30 mil in annual sales, all direct to consumer. Early this year, it finally entered RTD sector with bottled Berry and Vanilla flavors priced at $5 per half-liter bottle and in recent weeks added Chocolate addition that’s soared to top seller, said McMaster, who was in NY on something of media tour. Each bottle contains 20 g of protein but less than 5 g of sugar. As with Soylent, arrival of bottles augurs retail push, tho so far brand is only in smattering of stores as co weighs best strategy for challenging channel, including mode of distribution and whether to open its own Huel-branded store as experiential peg. Arduous development process on bottled Chocolate entry pushed back that strategizing process, McMaster said.
Founder Julian Hearn, who’d already done well via affiliate marketing biz called Mash Up Media, started Huel (short for “human fuel”) as a hobby, literally in his garage, said McMaster, himself a vet of entrepreneurial ventures like Gu dessert brand and Ella’s Kitchen kids food (which exited to Hain Celestial). At time James joined 2 years ago, co employed barely 20 and generated most volume in UK, but it’s since added dozens of countries and US has joined UK among top 2 markets. Office in Williamsburg section of Brooklyn houses customer experience team that’s been managing email and social media outreach and is about to turn on MyChat. Product sold in US already is mainly made here, and warehouse base has expanded from 1 site to 3.
Plant-based entry is positioned as convenient, affordable and having minimal environmental impact, offering high levels of protein and fiber via blend of peas, brown rice, oats, flaxseed, sunflower oil and coconuts, but little sugar or salt, and all 27 essential vitamins and minerals. Two scoops, providing 400-calorie meal, run as low as $1.75 for those buying in bulk or via subscriptions. Huel also offers small pouches of Flavor Boosts that allow users to customize their drinks with hit of Banana, Apple Cinnamon or Chai taste, 8 options in all. Co harnesses cadre of endorsers it dubs Hueligans, including members of boy band One Direction, Ironman endurance athlete Sophie Radcliffe and karate champ Dan Van Zandt.
Jones Soda stayed stubbornly stuck in neutral in its 2d qtr, with its fountain biz way down on tuff comparison to last year and its Lemoncocco canned Italian-style refresher plunging because of out-of-stocks caused by production capacity squeeze. But on investor call late yesterday afternoon, ceo Jennifer Cue was able to point to newly signed strategic deal with cannabis player Heavenly Rx and dangle prospect that Seattle soda marketer will soon be playing in CBD space at side of ally already established in space. As part of that deal, Heavenly Rx named former Kellogg execs Paul Norman and Clive Sirkin to board, replacing food-biz finance vet Raymond Silcock and former La Croix marketer Vanessa Walker, who were said by JSDA to have resigned for personal reasons. Norman is chmn/ceo of Heavenly Rx, a unit of SOL Int’l. JSDA shares haven’t budged much today, as investors seem to have kept the faith that’s seen near doubling in share value since Feb despite the latest disappointments.
For period, revenue declined 11% to $3.49 mil and net loss widened to $576K from $363K. Tho co has held out fountain biz as future growth engine, it plunged 54% because of tuff comparison vs several limited-time offers a year earlier at unnamed fountain customer, leaving fountain as just 8% of total biz vs 15% last year. That offset 44% increase in co’s 7-Select controlled-label bottled line with 7-Eleven chain, which added the 1,000 locations it picked up via acquisition of Sunoco gas chain and did well with new Airheads Cherry Pineapple Blast soda entry. So that alliance, which has had its ups & downs since early 2016 inception, now reps 16% of Jones biz vs 10% a year earlier. Also a blot on qtr was noncarb Lemoncocco, plunging 37% to mere 3% of Jones biz, as production issues left sales on table that would have yielded upward trend. Cue said issue had been resolved as of July 31. Gross margin contracted to 22.6% from 23.2% a year ago, decrease blamed on factors like switch to natural flavors and colors in its sodas and load-in to Walmart, into whose US stores brand has been rolling out.
Among bright spots cited by ceo were rollout of new Ginger Beer entry in Kroger in US, while in Canada co scored successes with LTO of 6 Pride-celebrating cream soda labels in alliance with Egale Canada Human Rights Trust and Watermelon flavor offered to 7-E. In co’s more developed regions of Pac NW and Southwest, LTO celebrating 50th anniversary of Apollo launch proved a winner, too.
As for foodservice biz, that’s still viewed as holding great growth potential as Jones seeks to convince quick-service chains to toss out their mass brands in favor of craft entries like Jones. Big banners have proved elusive targets so far, but in core market, move by Zeek’s Pizza to oust Coke items in favor of Jones and Lemoncocco has been well received by diners, and other QSRs eventually should come around, Cue argued.
The Heavenly Rx deal was signed after close of Q2 and thus wasn’t material to period, but it not only should ease move into CBD but also buttress Jones general sales & marketing efforts, while also enabling co to pay down its line of credit and putting $8 mil in cash on books to support expansion. New board members Norman, who ran Kellogg’s N Amer ops, and Sirkin, who served as cereal maker’s chief growth officer, “bring a significant amount of expertise and knowledge in growing CPG brands,” Cue said. “Both of them have proven backgrounds in implementing and executing various strategies to expand the portfolios and footprints of household brand names. We believe they will be invaluable assets as we look to accelerate growth within our current portfolio and enter into new markets.” With departure of Walker and Silcock, JSDA has 2 vacancies on 7-member board.
JSDA had been known to be developing a CBD suite on its own, and Cue reported that co’s own ideas have now been merged with those of Heavenly Rx, tho she wasn’t ready to offer specific timeframe for launch or what reaction has been from major distributors and retailers. (Unlike some others entering space, Jen consistently said “CBD-infused” rather than “hemp-infused.”) “When the time is right, as soon as possible,” is all a questioner could get out of her yesterday afternoon.
New Age Beverages rode its Morinda acquisition to record net revenues of $66.3 mil while hoping that sales & marketing savvy of newly acquired incubation firm Brands Within Reach can help ignite co’s still-sluggish collection of packaged bevs like Bucha kombucha, Xingtea, Marley relaxation brands and Coco Libre coconut waters. And with Morinda prexy Randall Smith abruptly retiring last week for health reasons, NBEV decided to revamp org along geographic lines, elevating BWR founder Olivier Sonnois to run North America, while seeking an Asia chief to run lucrative biz there and promoting Morinda sales & marketing chief ShonWhitney to run rest of world. Josh Hillegas continues to run Denver DSD operation. “There are some components of the company I’m not happy with, and the addition of the Brands Within Reach team addresses one of those sources of dissatisfaction,” said ceo Brent Willis, seeking to reassure investors who’d driven shares down upon Jun announcement of BWR acquisition, which closed in Jul.
For period ended Jun 30 net revs soared to $66.3 mil from $13.4 mil thanks to multilevel marketing co Morinda, which promotes noni bevs to client base mainly in Asia. That Morinda biz, at $52.1 mil in qtr, would have been even higher were it not for “draconian” clampdown on MLM marketers in China that was easing just as qtr was ending, per Brent, as well as difficulties keeping up on production side. Biz was up in all other markets, including 2% gain in biggest market Japan after decade of stagnation, along with 40% growth in promising new territories in Latin America and Southeast Asia and slight gain in US. The rich margins on Morinda jolted gross margins to 63% on corporate level from just 13% a year ago, pre-Morinda, when co mainly relied on packaged bevs and distribution biz for revenues.
Co’s financial filings indicate that things are a lot quieter at what was core biz in pre-Morinda times. That segment, dubbed New Age, rose modest 6.9% to $14.29 mil in sales, per 10-Q filing yesterday. Since that # includes multiple brands like Xingtea, Marley, CocoLibre and Bucha as well as DSD operation in Denver, that suggests none has broken out in meaningful way yet. For 6-mo period, New Age revs actually are down 2% to $24.4 mil because of what filing indicates are higher billbacks and discounts from 2 key distributors who were shorted on inventory during co’s past cash squeeze as well as “changeover charges related to one of the products in the Coco Libre brand and one of the products in the Marley brand which we are discontinuing to focus on products with higher future sales potential.” (Filing offers no breakout among individual brands, most of them struggling entries that NBEV picked up at low multiples.) And because of Morinda tilt, $49.4 mil out of total $66.35 mil sales occurred outside US, mainly in Asia.
Among bright spots within New Age segment, Xingtea just shipped chainwide into Circle K c-stores, as well as Bucha kombucha in chain’s 2 largest regions, even if it’s proving hard to get NBEV brands actually on shelf at newly authorized Walmart and 7-Eleven chains. And BWR acquisition brings such familiar client brands as Volvic Water, Nestea and Illy to portfolio. Still, harkening back to his years at Anheuser-Busch InBev, Willis indicated it’s important to get existing brands growing faster, rather than just acquiring more. “At A-B InBev nobody ever talked about organic versus external growth, they just wanted the growth,” he reflected. “Here I get asked that question all that time.”
Recall that, before Morinda deal, it was NBEV’s announced CBD push that had attracted greatest investor interest. That is making a bit of progress, with topical items out in NY and Hong Kong, and partnership established with Privateer-backed Docklight Brands, which has Marley Naturals license. But like other publicly traded players NBEV is holding up on CBD bevs until greater regulatory clarity is available from FDA and some overseas regulators. Farm Bill’s passage had prompted New Age to race to get samples ready and retailer commitments in hand back in Q4, until FDA made “navigation as murky as the Straits of Hormuz,” in Willis’ phrase, thereby conferring advantage on thousands of smaller companies with less to lose than publicly traded entities like New Age. Still, on call Sonnois took philosophical view. “Would I like to have CBD out? Of course, but the chance to do it more strategically might be an even greater opportunity.”
Along with CBD, China continues to be big imponderable in co’s future. The restrictions on MLMs have now been lifted, just as Morinda was convening business summit in Jun with 4,500 of its reps, but Morinda is operating “very delicately,” Willis indicated. And count NBEV as another bevco seeing first-hand the effects of Trump trade war with China. Tariffs on aluminum and glass have taken a bite, but just as ominously, tensions have prompted “highly charged rhetoric” by gov’t and media vs US, not helpful for Morinda biz that’s constantly recruiting new sales reps. Willis said he’s hopeful that’s just a short-term problem, and co is moving ahead with expansion beyond its current 10 provinces.
Unlike some cos’ more tightly focused quarterly calls, Willis structures his quarterly calls almost like a podcast, offering reflections on strategy, laments on share price, mea culpas, pungent phrases (“murky as the Straits of Hormuz”) and bringing on guest speakers from co’s exec team. Speaker this qtr was BWR’s Sonnois, who described rationale for acquisition. Tho he was able to operate at breakeven on his own, he struggled to get sufficient resources to scale up. “There is only so much you can do on your own,” he said. Meanwhile, New Age owns some great brands, but they lack the recognition of a brand like Nestea, with almost 90% awareness. “They needed us, not just for our brands, but for our well-organized sales structure, system, processes” that could be put to work for long haul. “We are indeed going to build a force to be reckoned with under my leadership,” Sonnois promised.
Thanks to Morinda acquisition, New Age Beverages hit record quarterly revenue of $66.3 mil in Q2, and boosted gross margins to 63% from 13%. (Conference call partly overlapped with that of Keurig Dr Pepper so we’ll offer detailed report tomorrow, readers) . . . Reed’s Inc, which has struggled to put a definitive end to production glitches that led to massive out-of-stocks and ultimately cost prior ceo his job, has recruited recently retired PepsiCo ops expert to its board. Over 40-year career at PEP, Louis Imbrogno Jr had served in wide range of operating positions culminating in elevation to svp of worldwide technical operations, where he managed quality assurance, concentrate operations, R&D and contract manufacturing.
Alkaline Water Sales Surge 29%; Focusing on Expanding in Northeast; Adding Cans, Potentially CBD
The Alkaline Water Co reported a 28.8% surge in revenues to $10.2 mil in its Q1 for its fiscal year 2020, as co enjoyed its highest-ever monthly sales in Jun. Gross profits were up 22% to $4.1 mil with gross margin of 41%. Co’s net loss of $5 mil and EPS loss of $0.12 were attributed to one-time, non-cash compensation for changes in non-employee stock options as well as expected expansion costs as co builds org, moves deeper into Northeast region and builds presence in c-stores. Execs noted Alkaline has $10 mil in cash on hand which positions it well thru next Jun. “We have laid the infrastructure for continued sales growth” for 2020 and years ahead, said prexy/ceo Ricky Wright, referring to over 4K new retail accts co has scored over past 6 mos. Co is now up to approx. 2K c-store locations after adding around 1K this past year; going forward, it hopes to add many more via distrib relationships with Crossmark, which focuses on large c-store operators, and EA Berg, aiming at “mom & pop” shops. Alkaline88 is strongest in Southeast and Southwest mkts, with Midwest just behind. Co has added new full-time sales rep in population-dense Northeast, with potential to become co’s largest region but where it only numbers ShopRite and Shaw’s among major grocery chains, Wright indicated. On call this morning, Ricky stuck with revenue guidance co shared in Jun, estimating revs will end fiscal year 2020 in $46-50 mil range. That includes sales of its Alkaline 88 and flavored infused brands but not newly intro’d hemp-infused Soothe line that could potentially add to that if time proves right to move forward. Remember, not long ago Alk88 was mainly jug brand lurking on bottom shelves of grocers in Sun Belt, operating in shadow of more single-serve-oriented brands like Essentia and Aquahydrate, but now it’s expanding into numerous other formats and flavors.
Lots popping at Alkaline beyond its core brand. As noted earlier this week (BBI, Aug 6), WTER just announced new 16-oz aluminum cans for Alkaline88 as well as its flavor infused brands in Watermelon, Raspberry, Lemon and Blood Orange. It will can several flavors of its CBD-infused waters as well. Expansion into can offerings came at urging of natural food retailers, Ricky noted on call, and he pointed to recent decision to ban plastic at San Francisco airport as another reason co is getting beyond plastic. Count WTER as yet another bevco waiting on feds to give greenlight on CBD products, as its Soothe hemp-infused waters have drawn “outstanding” response from retailers, per Ricky. Soothe “has the potential to be a terrific product” for co he argues is “well positioned” to capture “significant share” of nascent mkt.
Celsius Holdings scored 73% jump in revenues to $16.1 mil in Q2 as it rides wave of insurgent “performance energy” brands that are carving out increasing swaths of retail space and destabilizing category. That growth was balanced across multiple regions and channels, with N Amer sales 69% to $14.44 mil and European market riding new flavors to 64% growth, to $1.26 mil. Operating loss narrowed to $1.13 mil from $3.31 mil. For the first 6 months revs are up 40% to $30.6 mil and operating loss has narrowed to $1.63 mil from $6.15 mil.
On investor call this morning, ceo John Fieldly promised more radical innovation than the flavor and format extensions we’ve mainly seen to date, as co targets “new verticals and adjacent categories” in US starting in 2d half of year. Tho he wasn’t ready to disclose details, one signal might be emerging in Europe, where co has intro’d nootropic line under Celsius Unlimited brand that contains yerba mate, turmeric, vitamins D and B12 and antioxidants, in Grapefruit Breeze and Strawberry Breeze flavors, with view to improving mental focus. Lower-caffeine item is seen as extending brand’s reach into occasions currently served with bottled waters.
In meantime, flavor extensions seem to be hitting the mark. Its Kiwi Guava flavor has moved to #1 in many accounts and brand’s 9th sku, Sparkling Fuji Apple Pear, has hit fitness and vitamin channel, including 1,800 GNC stores and some 7-Eleven units. In China, where co has done a reset, moving to licensing model with local partner to stop the cash burn, new Cucumber Lime flavor has opened doors. There are plans to extend flavor range of Celsius powders, which are growing fast online and in gyms and seem to have found use in homemade smoothies of active users.
Filling DSD Voids Is Key Priority as Chains Await Full Coverage One key priority: flesh out voids in DSD network so major chains like Target and CVS can cut over their stores in region and avert out-of-stocks caused by Celsius “outselling retailers’ internal replenishment systems,” as Fieldly put it. That network numbers 50+ houses now, including such major additions as NY’s Big Geyser and expansion of Bud-system partners from 6 to 23 since Feb. Regions where brand enjoys best coverage include most of Southeast as well as Texas, Mich, NY, New England, Calif and Las Vegas, but many are pocked with voids that force distributors to focus just on indie accounts until retail chains can be offered full coverage to warrant cutover. Still, enlisting DSD partners has gotten easier now that “there is definitely a transformation happening in the energy category,” Fieldly said, citing remark of Monster Bev ceo Rodney Sacks yesterday that retailers are carving out more space for performance-style energy plays including Celsius. CELH is aiming to have network built out in no more than 12-15 months, he said.
At retail level, Fieldly reminded that even within existing accounts there are ample opportunities to increase velocities by moving to more preferable parts of store, as brand did within Sprouts Farmers Market chain, where it started on dry shelf, then added cold box as results warranted, then was moved to front checkout coolers, spurring further velocity increase. In Rite-Aid chain, Celsius proved one of top sellers in GNC-branded cooler, winning green light to be added to energy door. And with c-store channel dominating energy category, move into Speedway is just first step in building ACV that currently sits at 10.9%.
Moves into Esports via Echo Fox On marketing side, co continues to work Tough Mudder events across 23 US cities and recently made its first foray into esports via role as official energy drink partner of Echo Fox gaming league via deal signed in Apr for events like League of Legends Championship Series.
Ready to Roll on CBD Asked about CBD category, Fieldly said innovation team has product ready but is watching regs to gauge when would be a safe time to launch via its existing trade partners, many of whom are skittish about venturing into segment yet. Celsius has “no definitive timeline today, but we will be ready,” he promised.
Monster Beverage scored strong Q2 with 8.7% rise in net sales to $1.1 bil, but that was off Wall Street consensus of +11% and shares initially tanked on concerns that it’s not reacting quickly enough to challenge posed by so-called performance energy brands like Bang Energy. Tho its new Reign Total Body Fuel is off to solid start, core Monster brand flagged, declining 1.4% in period, -3.9% in key c-store channel, per Nielsen data cited by chmn/ceo Rodney Sacks on investor call late yesterday afternoon. On call, Sacks made case that relationship with strategic partner Coca-Cola remains durable and that extensive innovation suite will be coming to market later this year, including ginger-based Monster Mule; Orange Creamsicle, Strawberry Sublime and Mango Magic extensions of Reign, and Mango Magic and Red-Red extensions to higher-strength Monster Maxx line. He also teased Java Monster extension he wasn’t ready to discuss yet.
All told, outlook is good, Sacks argued: energy category continues to grow, and Monster generally is growing ahead of the category. Tho performance energy brands have made incursions, Monster’s holding its own, much as it’s done in overseas markets where value brands have been the disruptors. Reign is just getting started, entering Dollar General and, in past week, Walmart and soon heading overseas. China and India remain fertile growth markets. New Coke bottlers are coming aboard in some markets.
With July seeming to come in at brisk 16% growth rate, that implies 12% run rate for Q3, a bit ahead of Wall Street expectation, Credit Suisse’s Kaumil Gajrawala penciled out. So while it may take time to address the competitive activity, co has momentum now, he wrote in investor note. And past history shows market has often overreacted to quarterly earnings beats or misses, he reminded. So he still rates co an “outperform.” At RBC, Nik Modi took similar view: “Nothing really changed this quarter to suggest the go-forward growth profile is lower.” And as Consumer Edge Research’s Brett Cooper noted, even Monster’s lately beaten down shares are trading at a 25% premium to multiples of other consumer staples, if not at the 50% premium it enjoyed over 10-year stretch. So compared to other CPGs, investors still see plenty of gold in them hills. Reflecting that sentiment, by press time shares had recovered nearly all their losses of past day.
As on recent investor calls, Wall Streeters seem obsessed with performance energy segment that some seem to view as existential challenge to MNST, despite co’s continued strong results and signs that its response, Reign, is working so far. Tho MNST filing in lawsuit vs Bang marketer VPX indicated that co has projected Reign to hit $235 mil in sales this year, they’re likely to lag that target a bit after missing internal projections in May and Jun, Sacks indicated on call. (He made it clear that, the legal filing aside, MNST won’t be diverging from longstanding stance of not offering projections for individual product lines. He also said he wouldn’t address questions about the VPX litigation.) Tho some analysts fastened on extensive bogo deals Reign offered to seed market, Sacks said brand’s consistent sales in and around bogo periods suggested they haven’t exerted marked influence on sellthru. And while rivals like Bang, C4 and Celsius are getting on shelves, in some cases that’s encouraging retailers to expand their space in c-store coolers and other channels, potentially making more room for unconventional items from MNST too, not just Reign but also items like noncarb Hydro.
One area where the heat from analysts subsided this go-round was ongoing relationship with Coke. Sacks addressed issue head-on in his prepared remarks, saying partners continue to value relationship despite dispute over Coke-branded energy line that arbitrator resolved in KO’s favor. As signs that partners remain on same page, NY territory transitioned from indie house Big Geyser to Liberty Coca-Cola in Apr and brand rode red system into Azerbaijan, Paraguay and Saudi Arabia during Q2. (And as reported here, Kalil territory in Ariz is transitioning to Swire Coca-Cola.)
For Q2, co’s gains were focused on the Monster Energy segment (including Reign), where sales rose 9.6% to $1.02 bil, while Strategic Brands that include likes of NOS, Full Throttle, Predator and Burn slipped 0.8% to $79.1 mil. Net sales to overseas customers surged 16.8% to $343.3 mil, rising to 31% of total sales from 29% a year earlier. Operating income rose 6% to $379 mil but gross margin contracted as product mix shifted to more expensive items like coffees and juice-based energy drinks and Monster brand outgrew cheaper-to-make, concentrate-based strategic brands in overseas markets. MNST also has struggled with copacking logistics in Europe/Middle East/Africa region but says it’s gotten better handle on issue now. For 6 months, MNST net sales are up 9.8% to $2.05 bil and operating income is up 8.3% to $690.5 mil.
Nielsen data cited by Sacks indicated that while Reign grabbed 3.4 share of crucial C&G channel, that wasn’t enough to offset 4.2-point decline for Monster. On coffee/energy side, Java Monster continued strong run, +6.6%, but newer coffee innovations like Caffe Monster and Espresso Monster collectively dropped 3%. (Pepsi/Starbucks energy coffee line soared 18.3% and grabbed 3.4 share points.) No explanation was offered for relative weakness, which comes at time Coke has been stocking portfolio with other coffee entries under brands like Dunkin’, McCafe and now Costa, and even invested recently in small cold-brew player called Slingshot (BBI, Aug 6).
Keurig Dr Pepper turned in solid Q2 performance with underlying sales growth of 2.6%, tho reported sales # suffered anticipated hit, thanks to changes in makeup of allied brand portfolio, as newer entries failed to offset departures of Fiji Water and Body Armor. Net sales slipped 0.4% to $2.81 bil, but chmn/ceo Bob Gamgort reminded investors on call this morning that co held or grew share in most categories in year in which it was preoccupied with unprecedented feat of welding together large-scale hot-bev and cold-bev cos that together employ 25K. Underlying growth of 2.6% reflected gains in both volume/mix (+2.1%) and pricing (+0.5%). Adjusted operating income rose nearly 10% to $702 mil despite 3%+ headwind vs gain last year stemming from $16 mil gain on Big Red acquisition and $5 mil reimbursement from resin supplier. Co is delivering on its promised $200 mil per year synergy target and also paid down debt.
On hot-bev side, coffee system sales rose 4.3% to $990 mil, as Keurig platform continued to recruit new households thru such innovations as Keurig Duo brewer, which makes both pod-based single cups and conventional batch brews. Duo, which launched on Amazon Prime Day, will be at heart of stepped-up marketing campaign breaking this qtr that brings back James Corden as endorser and extends across both traditional and digital media. Keurig Café unit, which makes espresso-based drinks, and entry-level Keurig Mini, also performed well. Pod sales rose 5% at time new plant coming onstream next year in Spartanburg, SC, should rev up efficiencies. One lurking challenge, Gamgort warned: Trump trade war vs China. If President follows thru on latest threatened round of tariffs, that will exact headwind of $10-15 mil over rest of year, with little time left to mitigate impact ahead of holiday peak selling season. Steps being taken to diversify supply base should benefit KDP if issue lingers into 2020. For qtr, adjusted operating income advanced 8.2% to $331 mil.
On cold-bev side, packaged bevs suffered 4.9% sales decrease to $1.31 bil as departure of Fiji and Body Armor exacted 6.3% hit. Concentrate sales rose 3.1% to $370 mil. Gamgort ranked as strong CSD performers Dr Pepper, fueled by Spider-Man tie-in, and Canada Dry, helped by Lemonade and Orangeade extesions. On noncarb side, strongest performers were Core Hydration, Peet’s and Forto RTD coffees and Snapple juice drinks. While Fiji and Body Armor departures exacted severe hits, ceo argued that allied brand strategy remains compelling even if filling void will take time. Both Peet’s and Forto coffees are performing well, Evian is just getting going and while Core – generating $250 mil in annual sales and still growing by 40% - has graduated via acquisition to KDP-owned portfolio, that brand’s creator Lance Collins has teamed with co to launch performance-energy play called Adrenaline Shoc as allied brand. In keeping with co’s stance of not being forced to overpay for brands it helped incubate, KDP has already set exit structure with A-Shoc founder, Gamgort reminded listeners. Further augmenting energy portfolio is Runa Energy, owned by another allied brand partner, Vita Coco.
But Bai was a blemish in quarter – not because of brand issues, Gamgort insisted, but because of distribution losses a year ago that are now being reversed, with in-market support being increased to provide further lift. By now Bai generates more than $400 mil in sales, growing 6% on 52-week basis, as brand’s Super Teas fly off shelves, core line is “reasonably healthy” and Bai Bubbles sags. Execs have analyzed situation extensively and concluded that all the softness is “driven by distribution changes not velocity changes.” While maturing brand can expect to taper off from 20-30% pace, “none of us are happy” with negative performance, he assured. He didn’t offer rationale for why distribution slipped.
“Has SoHo Become One Big Wellness Popup?” So asks headline of recent NY Times takeout on wave – some say plague – of short-term marketing spaces employed by range of cos as experiential brand-building environments. Sub-head leaves no question about stance of writer: “CBD stores and face mask pushers are going to destroy us all.” But along way, story offers insight into solid rationales that keep brands coming back to nabe with arty vibe that’s heavily trafficked by both locals and tourists.
Story opens by describing 5 matcha tea stores within half-mile radius under banners MatchaBar, Matchaful, Cha Cha Matcha (twice) and Matcha n’ More, at time Soho is suffering closures of long-time health-oriented retailers like Integral Yoga Natural Foods and Angelica Kitchen that served once-thriving artistic community that pioneered area before being driven out by rising costs. (So it’s not strictly popups that are discussed here, and several are not even in Soho but rather in somewhat grittier neighbor, NoLiIta, “north of Little Italy.” Soho name is contraction of “south of Houston Street.”) “Instead there is By Chloe, a vegan fast food restaurant, which sells a quinoa taco salad for $12.45; Brodo, which sells cups of bone broth for $10; the Good Market, which sells pineapple raspberry kombucha organic slushies for $4.50; Welleco and the Nue Co, both supplement stores; the Hemp Garden, where CBD sheet masks sell for $29.99; the Detox Market, where the Vintner’s Daughter Active Treatment Essence face oil is $225” – you get the picture. (Editor’s note: Come on! $4.50 isn’t so bad for kombucha slushie. It’s organic!)
Many of newcomers don’t stick around long – snack maker Kind stayed 2 days with “high-tech bodega” hosting “Sweeteners Uncovered” campaign exposing sugars in seemingly healthful rivals, while menstrual products co Blume hosted slumber party and panel discussion in its space in Feb. Tho many of cited brands are in personal care segment, discussion is relevant to bevs, which have been heavily represented; popups profiled in past coupla years by BBI range from Dirty Lemon to Pure Leaf Tea and Organic Valley, along with more permanent-seeming outlets from brands like hemp player Recess. Times story quotes Justine Monsul, founder of Brooklyn-based Monfefo refrigerated shots, on why she’s enduring her own difficult search for affordable popup space. “Trying to find a place in New York is like winning the lottery,” she said. “I want to share my story and have more of a relationship to my customers. You don’t just want a store, you want an experience. You want some palo santo burning.” Story can be read here.