The First Drop

By Jeffrey Klineman

Lukewarm Results for Cold Brew Brands

There’s a couple of different ways of looking at the recent transactions involving RTD coffee brands La Colombe and High Brew. The first is that, when you add in the recent sale of Yasso ice cream treats, is that there’s been some thaw in the CPG M&A slowdown.

But the paired deals last month of cold brew brands High Brew (majority sale to Latin American beverage house BeLIV) and La Colombe ($300 million for a 33 percent stake to KDP), are also evidence of the slow road and many detours cold brew brands are going to continue to face on the road to a final exit.

High Brew’s quiet deal arrived for a brand that, despite hard work, an experienced team, and a head start with a solid strategy, ultimately failed to reach its commercial potential via a sale to one of the beverage giants. La Colombe, the majority of which is still owned by Chobani founder Hamdi Ulukaya, raked in a lot of growth capital but still has a long way to go in terms of category dominance. Both brands will continue to be important players in cold brew, but overall the transaction news seemed to go over like, well, lukewarm Joe.

It wasn’t supposed to be this way. Think back just a few years ago, when the coffee business all of a sudden seemed to expand from just the Pepsi/Starbucks distributed Frappuccinos to all manner of cold brewed, concentrated, refrigerated, bottled, canned, ambient and exotic riffs on coffee, with specialty “third wave” shops like Blue Bottle, Stumptown, and Cuvee joining RTD entrepreneurs from Grady’s, Rise, Nitro, Pop & Bottle, Wandering Bear, Califia, Lucky Jack, and more.

Early exits for specific product types - Chameleon, for example, on the strength of its concentrate focus, sold to Nestle early on - coupled with a massive jump in overall quality and a growing thirst for caffeine among consumers ratcheted up interest among entrepreneurs, brands, and investors. Like craft beer, this new wave of canned coffee showed improved taste and hyped up caffeine levels, encouraging founders who could take an alternative attitude and aggressive branding to the store at a very tidy margin, one whose high price point had been buoyed by years of consumers getting accustomed to the prices at fancy chains.

So why haven’t we seen more coffee entrepreneurs sell their brands? After all, there have been so many launches and such incredible innovation, from snap-chilling to Nitro-infusion to functional additions like mushrooms, protein, Ashwagandha, flavor variety, milk and alt-milk variations, small cans, big bottles, shots and plastic reproductions of the typical Greek diner to-go cup.

Oh. Maybe that’s why? At least, over proliferation of varieties, while something that might be great for consumers, isn’t something that has helped the brands. Too many great choices, and too many small variations, with so many changes that they hamper loyalty and repeat purchase. Bulletproof leaned into the keto-diet associated MCT craze, which traded taste for functionality. Forto, another early coffee brand that touted its heavy caffeine content and received investment from KDP, also had flavor problems.

Meanwhile, the pandemic wreaked havoc on the plans of so many of these brands. Just as energy drinks were hit during the pause in grab-and-go business as so many workers stayed home, so too were RTD coffee pick-me-ups. Coffee was easier to make at home, and the rise of brands like Chamberlain Coffee, which started as a D2C bean and bag play, helped distract an in-home audience from the stuff available in stores. For some reason, aside from the North American Coffee Partnership that brought you the RTD Frappuccino, big beverage companies haven’t been able to wrap their heads around coffee distribution. KDP, after all, makes billions of dollars selling coffee machines and pods, but still hasn’t been able to get an RTD brand off the ground (we’ll see how they do with La Colombe). Ditto for Coke, which bought European brand Costa coffee but has still spent years beating the bushes for a domestic brand.

Also -- and this is something that hurt the HPP juice explosion as well – coffee is available everywhere, in so many forms, and just as juice brands competed with the superior products available fresh, the expansion of high-end coffee joints (many of whom also sell their own premium iced drinks) are an effective competitor to the RTDs. Beyond that, the primary consumption state, at least if you’re not from Boston and addicted to Dunkin’s Iced Coffee, is hot, not cold. The founder cohort in RTD has done a remarkable job of rewiring consumer brains to improve the viability of cold coffee as an option, but for most use occasions, a hot cup of Joe still rules, Additionally, in the cold box, while many coffee brands saw themselves making inroads as substitutes for energy drinks, that category is also finding its way into the coffee space as well. Monster Energy’s Java Monster is a huge seller in its own right (and it’s locked down trademarks against competitor Super Coffee abroad) and as with the Frappuccino, it appeals to a generation of C-Store consumers who feel like their coffee energy should come in the form of a sweet treat. There is one insurgent brand, Black Rifle Coffee Co., that has at least partially cut through the clutter, although its ultimate ability to consolidate share is in question because it’s a polarizing brand. BRCC effectively rode early political rhetoric and a bean, cafe, and eventually RTD strategy into a position among category leaders. But after going public via a SPAC, it’s faced a variety of legal challenges and is now judged as much by share price as it is by revenue. Still, its founders cashed in on the brand’s potential in a category where few founders have been able to say the same. Whether there are more deals to come in the space is likely to be the topic of many discussions running late into the evening. At least there’s plenty of product around to keep the conversationalists alert.

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In two weeks I will be turning 75, so allow me to be a bit philosophical. It’s unfathomable to grasp that number, yet here it is. I still think of myself as the hippie I was, spending my twenties on the road. I have been blessed with good health, good friends and, most of all, a great family. They are my reason for being. Having both kids, their spouses, and my granddaughter all living within a half mile of us is the most joyful feeling of all. I’ve also been blessed professionally, spending 32 years involved in the beverage industry. As you get to this stage, most people have a greater appreciation of what’s important in life, personally and professionally. I’m lucky, I guess, in that I’ve always had that appreciation, I’m lucky, I guess.

I still wake up every day excited about coming to my satellite office in midtown Manhattan. I spend my day immersed in the business of beverages. I touch and am touched by so many people that I come in contact with, that the day seems to fly by. I love to hear/see the excitement of a new launch, reposition, new branding and packaging. When someone has a successful funding raise, I’m as happy as they are. I want everyone to succeed. I’m flattered that so many want my advice or taste buds when they are putting together their game plan. I guess seeing and sampling thousands of products qualifies me as an expert. I always try to be honest and transparent in sharing my opinion. Whenever possible I serve as a conduit to bringing people together, be it suppliers, investors, personnel hires and creative sorts that can assist in bringing brands to life. Sometimes, just being a sounding board or shoulder to cry on is one of my most important roles.

I have witnessed the evolution of an industry over these 32 years. I’ve seen generations of beverage marketers come and go. There are so many legends I’ve come to know, and I don’t know that their time will ever be seen again. The climate has changed and so have the larger than life personalities. It’s more of a business now. I guess that’s progress. I’ve seen categories created, formulations unimaginable years ago. branding brilliance and the long overdue movement towards healthier products. The brands coming out are a touchstone of what beverages should be.

I’ve been blessed to be involved in such a great industry, with the greatest of people. It’s been a beverage life well lived; only 25 more years to go before I celebrate a century with you all. Maybe then I’ll get back on the road again.

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Gerry’s Insights

By Gerry Khermouch

Bang Gets Bumped

“Not with a bang but a whimper,” the poet T.S. Eliot wrote in “The Hollow Men.”

With the pun intended, that pretty much sums up the end of Bang Energy’s run as an independent company. As I wrote this, a judge had just approved the sale of the assets of its owner, VPX Sports, to its largest creditor – and intense rival –Monster Beverage. A Federal Trade Commission that at least theoretically is more pugnacious these days certainly had ample grounds to question the potential anticompetitive impact of the #1 energy player buying what until recently was the #3, but the agency punted under pressure from Bang attorneys who warned that the company would spiral into liquidation during the weeks it took to make any such determination. What happens from here remains unclear: if the brand doesn’t slide into the bottling system of Monster’s strategic distributor Coca-Cola but rather into the beer houses Monster cultivates for its alcohol entries and its non-energy entries on the non-alcoholic side, it may retain a vestige of its clout as a profit-maker for the distributors outside the soft drink systems who’ve been so crucial to the path of innovation in non-alcoholic beverages. That’s probably a long shot, and in any case, it enters a Monster Beverage portfolio that already is stocked with the purported Bang-killer Reign and a plethora of lower-priced, “fighter” brands. That doesn’t augur well for the continued relevance of Bang.

So in most ways, it’s the end of an era. Or, as I wrote in my newsletter Beverage Business Insights, the end of an error. Really, a decade-long series of errors, from the branding to the overstepping of its now ousted owner and CEO Jack Owoc and his gratuitous taunting of the coCEOs of Monster. Still, if the whimpering end of the company as an independent player was a fairly predictable outcome of Owoc’s compounded errors, that still doesn’t much soften the sense of loss this event has brought for the brand that inaugurated the performance energy segment and unleashed a broad bout of innovation in a consolidating sector. Certainly, even as the clock ticked in the courtroom, there was no lack of beer wholesalers who thought that, in the right hands, the brand was ripe for resurrection.

So what are some of the errors I’m talking about? For starters, the branding itself was an error. (And not just because the B in Bang had to be quickly changed after Beats headphones marketers cried foul.)

Though Owoc brilliantly leveraged his internal media machine to ride the efficacy of its core “super creatine” ingredient for all it was worth, that turned out to be a lie. There is no such thing as super creatine, as Monster’s attorneys showed in their successful lawsuit over the issue, and that case’s outcome helped to send Bang spiraling into bankruptcy protection last fall. That key identifier now has been stripped off the cans and scrubbed from most online communications, though it’s not clear how many Bang users have noticed or would even care at this stage. As another lawsuit funded by Monster showed, VPX erred in another way: in not taking seriously a warning from Bang brand licensor Orange Bang that it was abusing its rights, using brand far beyond the limited channels it had been granted. That yielded another adverse ruling that contributed to the bankruptcy.

Then there is the heightened 300-mg caffeine level ushered in by Bang and much imitated by other players. Was that another error? It’s too early to say on that one, although as of this writing there are ominous signs that this may be resurging as an issue among our guardians of public health, both institutional and self-appointed. By chance, Bang came along just before energy drink leaders were about to be summoned to Capitol Hill to address concerns that their products were causing health issues, particularly among vulnerable groups like kids. The major companies agreed to revamp their marketing codes and assured listening senators they would keep caffeine content to responsible levels. But that was before Bang ignited. As it did, that assurance got harder for them to uphold. By now, most leading brands except Red Bull have incorporated 300 mg products into their energy portfolios. After those hearings a decade ago, Congress ordered FDA to do a deep dive into the dangers of caffeine but the agency couldn’t find anything alarming and the issue subsided. Some in the energy business have warned all along that it could arise again and it is now, this time in a segment with a lot more brands nudging closer to the FDA’s 400 mg recommended daily caffeine limit. Finally, Owoc definitely erred in his unrestrained personal attacks on his actual and perceived adversaries. Those included his erstwhile distribution partner PepsiCo, whom he publicly “fired,” Trump-style, never mind that his contract didn’t allow him to do that, moving that already strained relationship into its toxic terminal phase. Owoc would have had ample warnings of the risks of that, given a rich history of beverage founders whose intemperate outbursts wore out their welcome at strategic allies. Just as fatally, those targets also included Monster’s co-leaders, Rodney Sacks and Hilton Schlosberg, whom Owoc continually called out on social media. Sacks (a highly successful lawyer before he became an entrepreneur) and Schlosberg were stocked with a formidable corporate arsenal with which to take Owoc to the wall legally, and they dismantled his legal defenses and quasi-defenses brilliantly in the two cases I mentioned earlier. The combined judgments, along with fallout from the unwinding of the Pepsi distribution alliance, put VPX into that financial death spiral that eliminated a true disruptor to the energy segment. Whatever happens to the brand now in the hands of its new, unsympathetic owner, it truly is the end of an era. Sure, Owoc probably had it coming, but among those I talk to, there isn’t much glee in this outcome.