Beer Marketer's Insights
Read the labels. That’s gist of Consumer Reports analysis of 40 RTD cold-brewed coffee entries from 7 mfrs that ended up steering its readers to Califia Farms Black & White Unsweetened Cold Brew Coffee with Almondmilk and Chameleon Cold-Brew Black Coffee as preferred choices. Tho cold-brew’s healthier image derives from unsweetened black variety used as base in coffee shops where style originated, RTD versions are different story, review org warns. “When you start looking at bottled versions that have added sugars and cream, milk, or even plant milk, the calorie count can start to climb,” per CR. “Even ones that say ‘not too sweet’ can have a fair amount of added sugars per bottle. And more than half of the bottles CR looked at had ingredients that contained sodium—some with as much as potato chips,” as with Starbucks Cocoa & Honey flavor with 170 mg of sodium per 11-oz bottle. CR encourages consumers to make their own at home, noting it stays fresh for 2 weeks rather than deteriorating immediately as conventional iced coffee does. Net net: review offers further awareness boost for cold-brew style, but projects considerable skepticism about convenient RTDs lately invading store shelves.
SAS Sales & Marketing has been slowly enhancing its consulting and distribution offerings in So Fla, winning authorization as vendor at several key chains and expanding staff to 7. Recall that co whose initials stand for founders Susan and Andy Stallone (he helped build out AriZona Iced Tea brand in Fla in early 1990s) started by offering early-stage brands assistance with strategy and sales calls before building out modest distribution arm in 2017 as way to help its clients garner some in-market traction before they approach established distributors about coverage (BBI, Nov 14 2017). In discussion with Andy yesterday, longtime bev operator discussed SAS brand lineup that includes Rise Coffee, Sprig CBD, PLNT Water, Phocus and Just Chill, serviced by team that includes Andy and 6 colleagues, 4 of them in Miami area and 2 working west coast inland to Orlando. It draws from warehouses in Boca Raton and Tampa. After initially focusing on indie stores, SAS lately has been able to win authorization as vendor at several key chains: Lucky’s, Earth Fare, Nutrition Smart, Earth Origins Market and Chamberlin’s Natural Foods. That’s been helpful with clients like Sprig, which had won chainwide nod from Earth Fare but boasted no DSD partner to support chain’s Fla stores. So SAS has filled gap. SAS has also developed solid working relationship with broadliners UNFI and KeHe, which recognize it as incubator that can help develop enough momentum for a new brand to be worth a bet. And SAS is happy to team with established distributors, such as Bud house Double Eagle, to broaden coverage for clients, as it does now for Sprig.
Tho regarded as influencer market that’s receptive to new concepts, South Florida has been a headache for innovative NAs since indie shop Sand Dollar went under years ago after losing Red Bull brand. Beer networks, particularly Bud houses, have been tuff to crack by NAs. Lately, tho, that’s changing, perhaps as outgrowth of slowing beer trends. “The climate has changed” on Bud side, Stallone reported, with some Bud houses establishing separate NA divs to give those brands greater focus. They’ve proved particularly interested in performance energy brands like Bang, C4 and Celsius (we reported yesterday that Celsius is entering all but 3 Bud houses in state). There’s also “tremendous interest” in CBD, tho most are standing pat until there’s greater regulatory clarity. One exception is Double Eagle, carrying Sprig entry in Palm Beach, Broward and Dade Counties.
Bev Buzz Survey Finds Hot 4th Sales, Rational Promos; Coke Humming, but Pepsi, KDP Encounter Doubts
Despite some grousing about bad weather, c-store retailers told Wells Fargo Securities that their bev portfolios performed well during Q2, tho among major suppliers Coca-Cola drew the most plaudits for deft execution vs a PepsiCo that was seen as overly reactive and a KDP that’s seen as cutting back and still smarting from loss of Fiji Water and Body Armor brands. Promo environment was reported as being rational, performance energy drinks led by Bang continued to spark excitement and several retailers seemed pumped about Gatorade Zero prospects.
“Feedback from our retailer contacts,” in survey of execs operating 15K+ c-stores across US, “was upbeat regarding Q2 & 4th of July trends, as strong consumer fundamentals and favorable weather got the early summer bev selling season off to a strong start,” wrote Wells Fargo sr analyst Bonnie Herzog. Total bev sales “were up a strong +4.8% in Q2 (ahead of +4.0% in Q1) and up a robust +6.1%,” for July 4 holiday. Non-alc bev sales also had solid gain Q2, up 4.4% vs +4.1% in Q1 survey. As another positive to go along with solid sales, “the promo environment is very rational, with non-alcoholic beverage promos up only 1.5% y/y on 7/4,” noted Bonnie. She noted Monster Energy promos “were an outlier,” given co’s BOGO promos in Jun. Herzog’s more authoritative look at environment jibed with our anecdotal perusal of some grocery fliers for holiday weekend, which suggested aggressive but rational stance on pricing (BBI, Jul 3). We report on survey in depth because it offers unadulterated glimpse in key impulse channel of views of retailers, who rarely express those views in public.
Upbeat on KO, Especially Body Armor; Try Not to Kill This Golden Goose, One Retailer Pleads; Costa Coffee Not Comin’ Soon? Coca-Cola sales rose an estimated 2.4% in Q2 in c-stores, “in line” with 2.2% Q1 gain. “Retailers were most upbeat about Body Armor,” noted Bonnie as it “continues to grow well ahead of the category and take share from Gatorade.” One retailer expressed concern that Body Armor momentum isn’t interrupted: “Body Armor is the greatest brand that they have and I hope they do not kill it like they have destroyed Zico, Honest, Smartwater and Vitaminwater. Stop & Shop is running 79-cent sale for July 4th on these brands. I hope they do not do this to Body Armor.” Meanwhile, retailers so far haven’t heard anything about anticipated RTD coffee entries from recent Coke acquisition Costa, a major player in UK and Asia. “No plans have been communicated, not sure if we would carry,” said one survey respondent. One expressed eagerness to see Coke Energy launch. Meanwhile, transition to indie bottlers via refranchising has complicated promo efforts, as one respondent noted. “Coca Cola continues to be very limited on promotions, primarily due to all of the franchise bottlers. Our store network crosses 4 franchise bottlers that all have a different strategy to market, want to activate different promotions and choose their own packages to carry. In an effort to remain with a consistent set across all of our sites, it has limited the promotions with Coca Cola.”
PepsiCo ‘Results Disappoint Again’ PEP c-store sales “were up a very modest +0.4% in Q2,” down from +1.2% in Q1, reported Bonnie. While some retailers were positive on prospects for Bolt 24 and Gatorade Zero extensions, “others remain concerned about PEP’s overall beverage strategy, innovation pipeline and packaging,” she added. “A full 60%” of retailers in survey reported they don’t see an improvement in sales, “despite stepped-up advertising & investment spend, suggesting to us that it might take PEP a very long time to undo years of persistent underinvestment in PEP’s sales in their stores.” Other suggested KO continues to out-execute PEP. “Pepsi was reactive and too late for summer planning after seeing/hearing what Coke had in the works,” wrote one.
Muted KDP Results Keurig Dr Pepper sales rose an estimated 1.3% in Q2, just a tick ahead of +1.2% in c-stores in Q1, “but a significant deceleration from +3.3% in 4Q18,” as retailers “remain disappointed about the loss of Body Armor and Fiji” from portfolio, per Bonnie. That loss “is still stinging,” commented one retailer. “KDP seems to be in a stall. They are shifting folks trying to maximize and gain synergy to recoup the investment made,” added another. While one retailer gave kudos for “great innovation with Forto’s and Peet’s RTD coffee,” another complained that KDP “lost Core water authorization in Whole Foods and several other chains” and is also “struggling with their sugary Snapple brand.”
Solid Outlook on Energy; Hot Bang Keeps Disrupting Energy drink sales “grew by a robust +10.1% y/y this 4th of July, led primarily by emerging brands – which were ahead of both Red Bull (+7% y/y) and Monster (+6.4% y/y), noted Bonnie. Retailers are bullish on category, now anticipating full-yr 2019 growth of +7.8%, up from +6.6% in Q1 survey. By co, retailers expect Monster to grow 4.8% for full yr vs +6% for Red Bull and +11.8% for “others.” There is continued optimism for Bang: as one retailer put it, “Bang in Q2 still continues to perform well & we are still growing sales in energy month after month because of it.” “Bang has seen great growth launching in our stores, grabbed 9.5% share of the energy category,” wrote another retailer. While Monster’s new counter to Bang, Reign, seems to have slowed Bang a wee bit and may hold appeal to some consumers for its less-sweet recipe, some are wary that BOGO-led intro strategy is sustainable. “Brands are not built with Bogos,” warned one. “Monster’s dollar store strategy is going to crumble like a deck of cards.”
Retailers cited the energy players, mainly MNST, as providing the best innovation in Q2. MNST was cited by 33.3% as doing best with new innovation, up from 20% in Q1, and ahead of Bang (26.7%) and Red Bull (20%), while KO, PEP and KDP were each rated below 7% by retailers. Another positive for energy segment: survey found c-stores upped shelf/cooler space “significantly” over last few years for energy category, pushing allocation from 17% up to 32% currently. That said, retailers indicate they don’t plan to further expand space for category, and in fact project it to be down a bit, to approx. 28%, a few years from now. This at time, recall, that those in performance energy space, including Monster with Reign, have been hoping retailers will carve out new sections for emerging segment rather than underspacing them within existing energy set. Judging by one retailer’s comments, this isn’t happening. “Monster would always stress the importance of not losing ground with Monster Green. Now they are [cannibalizing] their own shelf space and coolers with Reign.” What about forthcoming Adrenaline Shoc, via KDP system? “Another sports energy drink that will most likely source all of its volume from existing items on our shelf today,” was verdict of one respondent. “Lots of manufacturers are trying to imitate the success of Bang.”
General Climate: Kudos on Innovation for Monster, Gatorade; Shelf Sets Overcaffeinated by Now? Nestle Pressured by High-End Waters Most welcome innovations? “Make it REIGN!” exclaimed one retailer. “And Monster Mule. Gatorade Zero is delicious as well” . . . Are c-store operators starting to lose patience with stream of new RTD coffee offerings? “We already are oversaturated with RTD coffee drinks between Starbucks’, Monster’s, Dunkin’ and our private label,” wrote one. “Still small part of beverage sales to expand” . . . Growth of newer premium bottled waters is putting pressure on incumbent brands. “Nestle is panicking with their shrinking sales,” wrote one c-store operator. “They are losing sales from premium water such as Essentia and Core.” (One exec cited 50-cent deal on 20-oz Ice Mountain as response. Another comment: “We discontinued many Nestle brands to bring in private label.”)
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.