First Drop: 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.