As an eventful 2015 winds down, here are a few milestones that I suggest are worth considering as a harbinger of what 2016, and beyond, might bring.
Seth Goldman moves on from a day-to-day role at Honest Tea
Once an emerging brand gets acquired by a strategic, it’s rare for founders to stay on more than a year or two, certainly not in any kind of meaningful role. Chalk it up to a combination of entrenched corporate cultures that tend to spit out interlopers and the renegade disposition of many entrepreneurs that leaves them little inclined to blend in. Not so Honest Tea cofounder Seth Goldman, who lasted four years as the hands-on steward of the Bethesda, Md., company (and several years before that when Coke was still a minority investor) before disclosing a few weeks ago that he’d be moving on from his day-to-day role. During this time he continued to embody the brand even as his company’s sales and other functions were increasingly consolidated with Coke’s. So what does it say that Goldman was able to break through the PET ceiling? It likely bespeaks a balance and maturity – call it emotional intelligence, maybe – that enabled him to speak the language of his Coke peers, as well as a pragmatic bent that allowed him to figure out which battles were worth fighting. But his extended run also is proof that, at least once in a while, it’s possible for a global giant to buy a special brand, empower its creative force, and keep the brand from becoming not so special a few years out. Not that Goldman is leaving the building; he’ll continue in a more general oversight of the brand, while serving as a brand scout for Coke and also scratching his entrepreneurial itch with a half-time role at a food startup.
DPS opens its checkbook, at least a tad, with investments in Bai and Body Armor
Dr Pepper Snapple Group had made it something of a credo not to invest in the emerging brands it distributes, which DPS brass felt carried an overly inflated sense of their value. (Since those brands are not at the stage of making any real money yet, in capturing the distribution margin DPS is capturing the whole margin anyway.) DPS made a low-ball offer for Vita Coco Coconut Water a few years ago, from what I heard, but CEO Larry Young generally seemed happy to remind DPS shareholders that his reluctance to pay big bucks for intriguing new brands reflected his careful stewardship of their investment. So it was interesting when this last holdout among the Big Three soda makers took the plunge, first with a small investment in Bai (albeit at a very high multiple), then with a more substantial one in Body Armor. Why the change, and what does it mean? My hunch is it offers a good story to put in front of Wall Street skeptics who’ve occasionally wondered why, after all these years of CSD decline, sodas still comprise 80 percent of DPS’ sales. And, as any number of my contacts were quick to point out, it reinforces the notion that, among the bigger companies, “M&A is the new R&D.” For more radical, disruptive forms of innovation, the Big Three seem resigned to looking outside their own campuses.
Reyes Group becomes a Coke bottler
For those of us who’ve been around big beer for a while, it’s been remarkable to watch the flourishing of the Reyes Group, a tight-knit family outfit that started with a smattering of Miller wholesalerships and parlayed those into an operation that is both the envy of the business in execution, and an object of fear at MillerCoors. Though they’ve dabbled in non-alcoholic brands, they’ve been notoriously unimpressed with non-alcs as an object of serious attention, citing slim margins, undercapitalized suppliers and the flight risk to other systems. But now they’re in in a big way, albeit separately from their beer operation, by becoming Coke’s newly designated franchise in the Greater Chicago area and, more recently, in Michigan and other territories too. Though the Chicago operation has been having predictable teething pains, this move seems certain to bring fresh winds blowing into the soda business. Credit Coca-Cola for thinking outside the box on this one, and Reyes for taking on a new challenge. Though it doesn’t seem to be the plan right now, at some point down the road, could Reyes’ fleet carry beer and soft drinks on the same trucks, too? The clan’s bent toward efficient operations would seem to make that inevitable.
Peet’s acquires Stumptown, then Intelligentsia
We seem to be at a remarkable juncture where the so-called third wave of coffee is starting to garner a broad audience, and that second wave winner, Starbucks, is getting its game together to be a credible third wave player, too. (The first wave is the junk you buy off bagel trucks and the canned supermarket brands.) That third wave has brought us innovative preparation techniques wedded to an emphasis on the terroir and roasting style of the beans. Brands like Stumptown, Intelligentsia and Coffee Culture are moving beyond their regional bases and building grocery and foodservice businesses, even as Starbucks expands its Reserve program, bringing microlot coffees to its stores.
In that context, the move by Peet’s and its owner, Benckiser, to acquire first Stumptown and then majority control of Intelligentsia serves as a milestone. It seems to herald a looming landgrab of sorts to stake out the third-wave terrain. As of this writing, there are plenty of questions about the strategy: after all, the three brands are as much rivals as complements, and each is headed by strong-willed, independent-thinking coffee proselytizers. So how will their respective expansions be managed? Will the outsize personalities associated with the three companies be able to work in harmony? Will they share roasting facilities? To me the closest analogy is Anheuser-Busch’s accumulation of regional craft brewers, each seemingly at liberty to expand onto its siblings’ turf. And don’t forget that two key figures on the business side, Peet’s ceo Dave Burwick and Stumptown ceo Joth Ricci, who now reports to Burwick, both are savvy veterans of the ready-to-drink scene, auguring an even more aggressive push behind packaged cold-brew and perhaps other coffee styles. It should make for a fascinating chapter for the third wave. Or, who knows, a fourth?
Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.