Beer Marketer's Insights
Kitu Super Coffee yesterday told us they’d signed up LA Distributing to work SoCal market, we heard it that way, and then promptly wrote that they’d signed Haralambos Beverage Co. Wrong! Maybe it’s because HBC so often has been at center of the action in LA and did make a pitch for Super Coffee, but we apologize to all parties for the slipup.
McDonald’s franchisees are griping that traffic-driving $1 drink deals are unsustainable, among litany of menu complaints. Franchisee advocacy group created last fall under name National Owners Assn “has been concerned about eroding profits, lack of control over menu pricing and costs tied to the ‘Experience of the Future’ remodel program,” Nation’s Restaurant News reports. Key focus is value menu that includes $1 for any size drink, promotion that’s “not working for the majority of the US. For those markets that it is, they can continue to support it at the local level.” More broadly, “everyday value at the national level is impossible and ineffective,” NOA argues. But another group, Operator’s National Advertising Fund (OPNAD), argues that among participating franchisees, the $1 drink program “is driving guest counts and resulting in positive incremental sales.” On coffee side, program had initially prompted fears of inspiring price war with more premium operators like Starbucks and Dunkin’, but that doesn’t seem to have materialized. Among NOA’s other complaints is mediocre chicken sandwich recipe that’s driving customers to Chick-fil-A and the importing of popular items from Spain, Netherlands, Australia and Canada markets that “may be favorites abroad, but they are not our customers’ favorites,” per NOA.
Coffee roaster La Colombe plays up its position as rare cold-brew coffee player that’s vertically integrated with a café base in digital and out-of-home campaign that intro’s the tagline, “From our café to your everyday.” Philadelphia-based roaster’s first ad campaign will include outdoor placements with side-by-side images of café and canned cold-brews, in Chicago; Denver; Tampa and Jacksonville, Fla; Charlotte and Raleigh, NC, and Philly, MediaPost reported. Idea is “to expose the simple ingredients of a Draft Latte in a delicious and approachable way,” svp marketing Kathryn O'Connor told marketing site. “It’s smooth cold brew coffee mixed with creamy foamed milk, the drink most often enjoyed in our cafés everyday.” Co operates network of 30 cafes in Philly and Chicago, both represented in outdoor campaign, and also NY, Boston, LA, and Washington DC, which aren’t.
PepsiCo’s top team has pretty much scratched notion of refranchising North American territory, RBC Capital Markets’ Nik Modi confirms from investor meeting he hosted that included new ceo Ramon Laguarta and longtime cfo Hugh Johnston. Recall that, under pressure from activist investors at time of lagging performance, former ceo Indra Nooyi had agreed to reconsider refranchising notion she’d long resisted, tho she made clear she still liked integrated model, stance to which Laguarta indicated he was leaning early in his tenure in Feb (BBI, Feb 15). Note Nik issued this morning confirmed that the notion hasn’t gotten any traction. PEP brass “believes having an integrated business model in beverages (similar to snacks) makes the most sense long-term,” he wrote. “While the company had great internal debate as to whether to refranchise/spin off bottling assets or not, they ultimately came to the conclusion that having an integrated business makes the most sense, given increasing portfolio/channel complexity . . . This is management’s long-term vision so we are unlikely to see a change in course anytime soon.”
Tho Laguarta came to new role after overseas career that left him largely an unknown quantity to Wall Street contingent (and many bottlers), Modi came away from meeting impressed. “While our interaction has been limited, it is clear Mr Laguarta has crafted a well-thought-out strategy and has the interpersonal skills to extract the most out of PepsiCo’s people and its portfolio,” he wrote. But he’s still giving the edge to rival Coca-Cola on execution, he wrote.
About a decade ago, and several management teams back, Celsius Holdings erected a DSD network for its calorie-burning RTD line only to find the resulting velocity didn’t offset the expense and complication of that distribution strategy. With its finances under pressure, co ended up unwinding most of those ties. This time around the planets are better aligned, with Celsius grabbing a role within performance energy set that’s garnering lotsa retailer and consumer excitement, and CELH is a-buildin’ again. Among the latest recruits are A-B powerhouse Hensley in Ariz, Maletis in Oregon, several indie Pepsi bottlers in Pac NW, KDP-aligned bottlers like Choice USA and Carolina Bev in Carolinas, and most of Bud network in Florida. They join such established partners as Polar Beverage in New England and Haralambos and Lenore in SoCal as well as more recently recruited Big Geyser, which came aboard in NY this past spring.
“We’re big believers in DSD,” avowed evp sales Jon McKillop in conversation earlier today. Tho some direct-ship is in mix, Fla-based co prefers “Tier 1 DSD whenever possible.” By now that network numbers nearly 50 partners, with more in the works. Brand has been rolling out thru major retailers like Target, CVS and 7-Eleven.
Anheuser-Busch network’s prominence continues to be storyline, after many exited or downplayed NA bevs following acrimonious departure of Monster Energy several years ago. But sudden rise of Bang Energy has yielded a potential Monster killer that’s been appealing to Bud houses for revenge as well as revenue reasons, and seems to have opened minds to range of other performance energy brands like C4 and Celsius. Jon didn’t discuss that possible dynamic, but noted that in Florida, he’s been able to land all but 3 of Sunshine State’s Bud houses, 2 of them non-starters because of portfolio conflict with Bang. Other A-B houses that have picked up Celsius include Grey Eagle in St Louis. All told, co has gone from 6 A-B partners in Feb to 23 currently.
As last year’s food/bev financing events come into clearer perspective, 2018 is proving to have been more eventful than one might recall, with tech-focused funds backing away from space, more corporations launching off-balance-sheet funds and heavier share of funds going to help promising brands break out than to basic sheer incubation. Those are some of lessons that can be gleaned from Food+Tech Connect’s US Food & Beverage Startup Investment Report, deep dive put together by the “reformed banker” Ryan Williams, now with cold-brew player Rise Brewing. It can be accessed here.
All told, Ryan tallied 247 disclosed food/bev deals totaling $1.45 bil. Tho $114 mil of that went to plant burger co Impossible Foods made headlines, median check size of $2.4 mil actually was down from $3.9 mil in 2017. Avg check size of $7.3 mil was down from $8.9 mil. And tally of 59 M&A transactions was down a bit from 65. Among biggest raises on bev side were altdairy player Ripple ($65 mil), almondmilk/coffee player Califia Farms ($50 mil), Bulletproof Coffee ($40 mil) and Harmless Harvest coconut water ($30 mil). REBBL, High Brew and Spindrift each brought in $20 mil. But it’s the trends that Williams teased out that we found of particular interest. This year, report included 3 new categories: THC/CBD, meal kits and supplements.
For starters, investment was focused more on maturation than incubation last year. The year 2017 “saw the full scale arrival of traditional tech investors, the advent of data-driven funds such as CircleUp, and the emergence of mega rounds backing category leaders. These strategies continued through 2018, albeit directed at the ever widening scope of exciting categories and trends, from plant-based to CBD.” As more money poured into these activities, VCs sought to differentiate themselves via value-added services like online distribution and sales (in the case of Wild Ventures) or intros to retailers and strategics, as well as access to machine learning platform called Helios (CircleUp).
Among most active players were one-time accelerator AccelFood, with 17 deals with partners ranging from cold-brew play Wandering Bear to bonebroth purveyor Bonafide, and Cambridge SPG (special-purpose group), with 7 investments including Vive Organic. New Crop Capital, Powerplant Ventures (launched by Zico founder Mark Rampolla) and Stray Dog Capital have all carved out specialties in plant-based alternatives to meat, seafood and dairy. By contrast, The DTX Company, Elizabeth Street Ventures and Outbound Ventures have focused more on ecomm plays like Dirty Lemon, Rise Brewing and Ark Foods.
Also notable, as Williams points out, was who didn’t come to table. Tech-focused VCs who made big splash in 2017 largely took a pass in 2018, with Accel, Andreeseen Horowitz, Box Group, First Round Capital, Greycroft and GV all failing to pony up once in food/bevs. So that flood became a trickle of deals, like Khosla Ventures’ investment in Ripple. Indeed, of 412 investors tracked in 2017, 160 wrote no checks at all, with just 30 firms accounting for 45% of the 430 tracked checks in 2018. And A-tier firms chose to write fewer but bigger checks: VMG, say, disclosed only 4 investments (including $20 mil to Spindrift and $10 mil to Humm Kombucha).
But more corporate VCs began to invest off their balance sheets, following model of in-house venture ops like Coca-Cola’s VEB. So “ingredient supplier Döhler Ventures, for example, has taken positions in Bizzy, REBBL, Ripple Foods, Vive Organic, Vrai, and Your Super. WeWork’s Food Labs, which wasn’t officially announced until March 2019, had nonetheless begun meeting with brands and touting its global reach before the new year.”
You may recall how viral video of animal cruelty being perpetrated at farm within Fair Oaks Farms collective prompted class action lawsuits against Fairlife brand and led some Midwest retailers to pull brand (BBI, Jun 6). Co-op has taken assertive stance in reacting, pointing out that incidents occurred at single farm that already was cleaning house even before secret video was shot. Fair Oaks brass has vowed to rebuild consumers’ trust in brand whose positioning is based on its humane treatment of its herds.
Ending cannabis prohibition “may be one of the very few issues upon which bipartisan agreement can still be reached in this session.” So said Calif Repub Rep Tom McClintock at subcommittee hearing last week titled “Marijuana Laws in America: Racial Justice and the Need for Reform.” Reflecting bipartisanship, NY Dem Jerrold Nadler said he “had the pleasure of agreeing with every word” McClintock said, except the “last paragraph.” McClintock closed his remarks by criticizing Dems who “decided to play the race card at today’s hearing.” Since the hearing focused specifically on “racial justice,” historic (and ongoing) disparities in enforcement of cannabis laws were center stage, according to several reports. “The foundations of our drug policy are inherently racist,” said one speaker. The architect of cannabis prohibition “targeted blacks and Latinos,” said another. So, issues of how to deal with criminal records of those arrested for cannabis crimes and whether and how to ensure minority businesses can partake in legalized cannabis remain key challenges for reformers. One way or another, that so-called “race card” will have to be dealt – or dealt with.
Again, despite bipartisan Congressional and broad public support for reform, the road remains unclear, as BBI sibling publication Insights Express noted in account of hearing. A handful of bills in Congress include: (1) knocking cannabis off of the Controlled Substances Act and ending fed prohibition; (2) reducing its status in the CSA; (3) limited banking reform; (4) supporting state action. Atty Gen Barr prefers prohibition but said last option would be preferable to current situation, (the STATES Act). But Sen McConnell sez: “I choose not to embrace” hemp’s “illicit cousin.” Indeed, The Height Capital Markets group gives the STATES Act and banking reform bills just a 25% chance of passage in current Congress, reports MarketWatch. “Ultimately, the political divide between the House and Senate will serve as the greatest roadblock,” sez Height. As Congress dithers, states will continue to move on. Hawaii just decriminalized cannabis.
Kitu Super Coffee, which has showed signs of igniting in key Northeast accts like Wegmans, has added 3 key DSD partners out West while augmenting staff that’s grown to 53 full-time employees now from just 7 a year ago. Newly aboard this month as DSD partners are Haralambos Beverage in LA, John Lenore in San Diego and New Age in Denver, joining network anchored by Polar Beverages and Big Geyser on East Coast. The new partners will work with recently recruited Ryan Raish, a Popchips and Honest Tea vet, as director of sales – west, while Hint Water’s former DTC chief Nik Sharma has come aboard to build ecommerce biz. Bryan Wolff, former cfo of Thrive Market, has joined board of parent Kitu Life. They join variety of ex-Honest Tea and other new-age vets recruited in recent months (BBI, Mar 7).
The moves come as the Bulletproof-inspired brand founded by 3 college-athletes brothers named DeCicco has sometimes shocked observers with its pickup in some Northeast markets (BBI, May 17). “Oldest bro” and ceo Jim DeCicco told us today that brand has become #1-selling RTD coffee at chains like HEB, Ahold, Market Basket and Wegmans, where it comprises 45% of total RTD coffee sales. At Polar in New England, he said brand comprises 52% of RTD coffee sales, outselling the rich portfolio of key Polar supplier KDP, which includes Forto, Peet’s and High Brew. And lately it’s been fastest-growing brand at Big Geyser in NY, he noted.
Among newer retail accts to come aboard are Sprouts, HyVee and Harris Teeter as chainwide accts, while national DSD authorizations have been won from Target and CVS. Also aboard are Safeway’s Denver div, Whole Foods Rocky Mountain and Price Chopper.
Operating in quasi-stealth mode these past 4 years, Italy’s San Benedetto Water has been making steady inroads into US on-premise channel, thanks to Terlato Wines alliance, while eschewing the price-sapping retail biz. By now San Benedetto has carved out a role as exclusive bottled water for Four Seasons Hotels, Hilton Hotels, Marriott Luxury, Tao Group and others, scoring nearly 2 mil cases of shipments last year with ambition of doubling that this year. Tho retail will remain a scant part of mix, co is prepping a rash of innovation to broaden mix, including canned items just breaking at Four Seasons chain and US-tuned versions of co’s iced teas and fruit drinks. As #1 bev in Italy worth $1 bil in sales, family-owned San Benedetto offers broad range of products, packages and production capabilities that can be tapped when time is right, said Minta Beverages vet Craig Diss, who’s been quietly orchestrating launch over past 4-5 years, not making himself accessible to media until now.
What’s formally called Acqua Minerale San Benedetto may not have been on your radar much, thanks to sporadic earlier forays that didn’t go much beyond shipping over a container to an importer and hoping for the best. But Diss says he was in same boat 5 years back, before an acquaintance who was food/bev buyer for prestigious Four Seasons chain asked him to scope out an import brand that could maintain consistent superpremium image because its price wasn’t constantly being footballed around at Walmart. Diss helped broker contract with San Benedetto, and soon enough left role at Minta to become San Benedetto’s US brand director via nascent tie with Terlato Wines, which hadn’t played in NA bevs but was looking to hedge reliance on wine portfolio in highly cluttered category. Among distribution opportunities that opened up, San Benedetto found a spot in 16 metros worked by Southern Wines’ Diageo/Moet-Hennessy arm. The water is sourced in Italian Alps, coming in at neutral 7.5 pH, containing no sodium but offering balance of calcium and magnesium that’s easily absorbed into bloodstream. Co was founded 63 years ago by Zoppas family as regional bottler and Diss says he has no doubt its continued independence has played a role in its recent success.
At time every major bottled water brand can be found in Walmart and Walgreens, often undermining efforts to maintain superpremium positioning in on-premise, “We see a ton of runway just in the on-premise,” Diss told us today. He allowed that he’s gotten some blowback from consumers who’d like to buy it at local store, and has made limited exceptions, entering Total Wine and considering regional grocers as possible growth avenues. But for now, “we have no interest in the mass market,” he vowed, tho some of newer tea and juice items might find greater role at retail. Because co operates so leanly in US, with zero expenditures on above-the-line marketing, it’s able to undercut competition on price while still earning robust margin. That means maybe $1.50 less per case than Fiji Water, 10-15% discount to Pellegrino, allowing it to snatch significant amount of biz in Calif from brands like Evian that have lost their superpremium allure. Since exclusives like Marriott’s luxe brands (including St Regis and Ritz-Carlton, where it’s preferred partner) and Tao Restaurant Group can be worth hundreds of thousands of cases, there’s little pressure at this point to look to retail for growth.
Still, several years in, the Austin-based Diss no longer is a one-man show. He recently brought aboard as Calif brand mgr Caleb Davidge, a cofounder of Just Chill who departed after co’s acquisition by Life on Earth. Diss is now seeking an exec in NY area who can expand distribution options there. They all go on the Terlato payroll, and work with wine importer’s national accts team.
With ability to draw upon broad platform in Italy, there’s lotsa innovation on horizon. Tho US mix tilts to 80% glass and just 20% plastic, the building backlash vs single-use PET bottles has encouraged co to bring in some of its canned items, starting with unflavored still and sparkling waters in 330-ml slim cans, which just entered Four Seasons chain. While canned capacity has been considerable industry bottleneck, it’s no problem for San Benedetto, which as a Schweppes and Pepsi producer counts as a major Ball and Rexam customer in Europe. So “it’s an easy pivot,” Diss said. (He noted that co operates 11 bottling facilities in Europe, including largest plant on continent, with 27 lines and 1 mil cases per day of capacity.) Stable of teas and juices in Europe tend to be highly sweetened and contain artificial ingredients, so some revamping has been required to make them US-ready, Craig said. That’s been accomplished on the iced teas, with limonatas and other fruit items next to go under the knife. Among other items in mix is collaboration with Cipriani restaurant family called Harry’s Original Bellini Mix, available thru Total Wine chain.