Gerry’s Insights: Public Eyes

I wrote this column during one of four periods in the year when my chosen profession of journalist starts to blur with that of stenographer: I’m in the thick of earnings season, when publicly traded beverage companies come (mainly) clean to their investors on how the past three months have gone financially and operationally. True, this was a calendar obligation through all the years I’ve done this job, since the likes of Coca-Cola, PepsiCo and Nestle have long been publicly reporting entities. (As I recall it, the information flow wasn’t always as wide open as now, and in my early days as a journo it helped to buy a single share of each company I followed to gain access to their events. Now I’m not supposed to buy any.) The past few years, though, those ranks of publicly traded beverage companies have swelled as many took advantage of a rare window of opportunity, both for strait-laced IPOs and for those kind of creepy SPAC deals, at a time potential exits to strategics were getting more elusive. There can be days now that I spend four or five hours dutifully chronicling the utterances of CEOs and CFOs on the webcasts, all while wishing I’d learned to type quicker.

Some of these reporting companies are exceedingly small entities, revenue-wise, and I occasionally wonder whether they’re worth the time and effort. But I always decide they are, if for no other reason than that some serve to highlight the blunders and overreaching that can sabotage the prospects of companies that otherwise have an appealing concept at their core. Unlike private companies, they more or less have to fess up to these blunders at some point, so these calls collectively provide an interesting laboratory of case histories with lessons for brand builders operating in both the public and private realms.

Let’s ponder the tradeoffs of taking the public route. Over the years, many – maybe most – senior leaders of publicly traded beverage companies of modest size have at some point confided to me that they regretted the whole idea. The expensive and time-consuming reporting requirement itself is pretty unwelcome, particularly for early-stage companies that have barely built sufficient infrastructure to generate revenue (meaning, like, sales guys). It kind of distorts their staffing priorities. Then there’s the fact that you render yourself naked to your competitors, disclosing what would otherwise be closely guarded information on your cost of goods, gross margins and salaries. There are less apparent ones too.

One that particularly irks me is the impulse to bring in senior managers with big-company resumes that may dazzle investors but who may be poorly suited to the all-hands-on-deck scramble of an early-stage company. Don’t get me wrong: there often comes a time when the gifted amateur running a public company needs backstopping, or outright replacement, but on the private side we’ve seen any number of youthful entrepreneurs show an impressive capacity to grow into the job. (Mike Kirban at Vita Coco, for instance.) The public markets don’t have the patience for that kind of evolution.

I question whether Flow Beverage’s recruitment of a semi-retired Nestle executive really added as much to its capabilities as it touted to investors. Whether because that proved to be true or because a depressed share price soured his dreams of quick riches, he soon enough moved on, the founder reclaimed that role and, honest, Flow’s operations seem tighter now than then as it fights through a thicket of challenges and tries to get the share price up again. (On that note, kudos to Celsius’ board for going with a bright but youthful bean counter for its CEO choice a few years ago rather than some of the fancy-resume types I heard it was pursuing. The results speak for themselves.)

Then there’s the need to continually placate those pesky investors. Let’s start with individual investors. Read the stock bulletin boards or listen to some of the questions that come up on the earnings calls of small-cap companies and it’s hard to maintain any belief that these people all are highly schooled in imputing performance trajectories from the minutiae of earnings statements and balance sheets. But the little people don’t matter, right? It’s those smart and ruthless institutional guys who count. The sad truth seems to be that these professionals can change their deeply held investment principles on a whim. Like consumers, they’re always right. So if the same investors who enthusiastically bought into your growth-at-all-costs plan suddenly have turned skittish and hammered down your shares because you’re not making money, that’s not just their problem, it’s yours. If they’re being smart now, then they couldn’t have been that smart when they bought in just two years ago, right?

Obviously, we’ve seen a lot of that. Take the case of Oatly, whose road show on the path to its IPO didn’t include much discussion of profitability. The oatmilk pioneer painted a picture of an advantaged first mover that would plow every dollar of gross profit into building new extraction plants across the globe as it marched on to world domination. Investors clearly didn’t have any problem with that vision, sending its $10 billion valuation on its IPO issue date even further into the stratosphere, by a few billion. In the space of less than a year, market sentiment did a U-turn and investors turned on Oatly, sending its valuation down to the $1.25 billion range as I write this. In desperation, the company even briefly resorted to touting a suddenly “asset-light” operating model, which really meant spinning off a few filling operations to outside partners. Never mind that the brand continues to conquer new markets and new channels. Of course, dozens of other beverage companies are in the same boat.

So go on the public stage and be prepared to be showered with rotten tomatoes. It’s worse, of course, for the companies that really do stumble. For those operating early-stage beverage companies, there are lots of lessons to be gleaned listening to those quarterly calls. Take the case of Laird Superfood, the Oregon company founded by big-wave surfer Laird Hamilton, his volleyball-star wife Gabrielle Reece and their friend and business partner Paul Hodge. Honest, over the years I’ve rarely encountered a Laird product that didn’t wow me. Kudos to the team for creating and continually improving good-tasting but functional products, whether their coffee creamers, coffees or hydration powders. But did it really make sense to be building and refining five separate product platforms with a collective top line of under $40 million, essentially all self-produced? All while the ecomm-built company had to navigate a dramatically changed DTC and Amazon environment? Hodge wore out his welcome as CEO and was replaced by a CPG veteran, Jason Vieth, who’s been systematically rethinking the premises by which Laird operates. The production plant is gone. Laird has found ways to slash its DTC spend by two-thirds without dire consequences. So far he’s continuing all the product lines. As it turns out, Vieth is adept at explaining the headwinds the company has to push through. Whether or not he’s able to get Laird out of the woods, his quarterly discussions offer an informative primer on the changing economics of ecomm, and the levers one needs to pull to build a grocery-based business. Some day the company may be the subject of a formal business school case history, hopefully a positive one. In the meantime, you could do worse than follow Vieth’s narration on how the company is trying to get to a better place. And you don’t even need to own any shares to listen.

Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.