Reed’s CEO Val Stalowir has never been shy about the dire state of the company before he joined in July 2017. Now, nearly two years later, the ginger beer maker is at the end of a three-step recovery plan that Stalowir hopes has it on solid ground to hit its ambitious growth targets.
Earlier this month at Natural Products Expo West, Stalowir described the turnaround as a lengthy but structured process that has culminated with comprehensive rebrands of the company’s Reed’s and Virgil’s lines, a new organizational structure, and capital from a recent $16.2 million underwritten public offering.
The Reed’s CEO told BevNET that phase one, initiated in 2017, was meant to assess the state of the business and raise the rights offering capital. During phase two in 2018, the company hired new board members and a new management team, cut 100 SKUs, refinanced its credit line to reduce interest rates and expenses. Reed’s also sold its manufacturing plants and transitioned exclusively to a sales and marketing business model.
Now in phase three, the company’s goal is to use the rebranded product lines to improve margins and re-accelerate growth on the Reed’s Ginger Beer and Virgil’s Soda lines.
“This was not magical rocket science, this was basic beverage business brand building fundamentals,” Stalowir said. “There were always some surprises in there, but the basic need is hiring strong, great people who will lead certain functions and add value — you have to have that. If your plan is to double and triple you have to have an infrastructure ready to do that.”
At Expo West, the company showcased a rebranded look for its core Reed’s Ginger Beer line, including refreshed packaging on the bottled line and new 12 oz cans. The line is now composed of three SKUs — Original, Extra and Strongest, with the latter flavors respectively containing two and three times the ginger content of Original. Each flavor also has a Zero Sugar version sweetened with a proprietary blend of erythritol, stevia, and monk fruit.
The refresh was based on last year’s rebrand of Virgil’s, which also included new 12 oz cans and a zero sugar line. According to Stalowir, Virgil’s grew 30 percent in the fourth quarter following the rollout and the line is now in 6,000 stores nationwide.
“We believe we have a modern relevant brand platform for both,” Stalowir said, noting that both brands have new advertising campaigns emphasizing the use of real ingredients. He cited a recent class action lawsuit filed against ginger ale maker Canada Dry, which claimed the product only contained two parts per million of ginger flavor extract, despite claiming to be made from real ginger on its labels.
”It’s our job to go out there and communicate that ginger ale is the older generation and that we want to bring in a new generation of ginger beverage going forward,” he said.
Stalowir said the company is now predicting its core brands will grow between 20-30 percent this year and add between 5,000 to 10,000 new doors. As well, the company is focused on improving margins. When Stalowir joined in 2017, he said, gross margins were at 13 percent. Now, the company is reporting 30 percent margins between the Reed’s and Virgil’s lines and that is forecast to grow to 32 percent in the second half of this year.
Reed’s is also exploring products with higher 50 percent margins by embracing new categories: alcohol and CBD.
At Expo West 2019, Reed’s also debuted a new canned Moscow Mule. Available in full flavor and zero sugar varieties, the line contains 7 percent alcohol by volume. The line will retail for $9.99 per 4-pack and will launch in California and the Pacific Northwest market.
For its CBD line, the company partnered with proprietary nanotechnology company Nano Biologics to produce a ginger beer with 15 mg of hemp extract and 2000 mg of ginger. The line will be available in full flavor and zero sugar varieties for a suggested retail price of $3.99 per 12 oz can. Stalowir said that he hopes that as the line scales the price for the product, which launched earlier this year in Seattle, will come down to $2.99 per can.
“With hemp and alcohol product add-ons we have dimensionalized the company into new portfolio,” Stalowir said. “We’re still using the same distributors, we use the same co-packers but now have a higher margin ring.”
According to Stalowir, Reed’s is now seeking to expand its retail footprint outside of the natural and specialty channels — where he said the company has roughly 80 percent penetration. The brand is using Alliance as a broker for the grocery and mass channels, where the brand has only 40 percent penetration. Stalowir said the company hopes to expand in the channel and that a “major new customer” which will add “thousands of doors” will be announced next month.
Reed’s has also partnered with broker Advantage Solutions to break out into the convenience channel, where the brand has been largely non-existent. Stalowir added that the company has also secured a private broker to focus on the club channel. As well, the addition of canned products has given Reed’s an opportunity to breach the on premise channel.
“Bartenders prefer cans [to glass], which are lighter not breakable, and we can now really give that channel the focus and the products that it deserves,” he said. “So as you can see there’s thousands of doors per channel available to us that we haven’t really put the effort in.”
The company is also preparing to launch a new ginger shots line, which would be sold in retail and through e-commerce, Stalowir said.
Last month, the company raised $16.2 million through an underwritten public offering of more than 7.7 million shares of its common stock. According to Stalowir, the round will fund the expansion, covering expenses including broker fees, slotting fees, trade programs, coupons, and sampling. Stalowir noted the company’s stock “held up nicely” after the round closed and as of this writing was up 4.21 percent to $2.97 per share.
“We’re kind of agnostic on where this eventually leads to, but what we do know is the decision in front of us is to build two great brands and build larger categories out of the two that we’re focused on,” he said. “For us it’s about dominating these two categories, growing them and driving accelerated growth with high margins”