Drinks With Caroline
Caroline Levy, a veteran Wall Street analyst, delves deep into the world of beverages with some of her hero's.
Caroline’s quick wit, empathetic approach, and vibrant personality allow leaders to be vulnerable and speak truths not typically heard outside of closed-door conversations.
Drinks With Caroline
Kaumil Gajrawala, Beverage Guru at Jeffries; A Professional Approach to Investing
An Analyst’s Guide to Beverage Stocks
Climb inside the mind of a pro for a road map to understanding the beverage industry. We journey through the eras of global expansion (creation of beer giant ABI) and volume-at-any-price ($0.89 2-liters) to the newer driver of value creation, namely “revenue growth management”, i.e., the skill of managing price, package, channel and brands to deliver profitable growth.
Learn about the birth of modern sodas, non-alc adult beverages and protein drinks. We will get you thinking about GLP-1s, food-as-medicine and much more.
Some companies discussed: KO, PEP, KDP, ABI, MNST, Red Bull, Liquid Death, Olipop, SAM, Athletic Brewing Co., Bellring Brands
The one thing I always like to say about business is the pendulum never really stops in the center. You would love for life to be balanced growth between price, mix pricing and volume. It's really never that way. But let's think about where the pricing opportunity is.
Speaker 2:Hello friends, old and new, and welcome to Drinks with Caroline. I'm so happy you've joined me for what I believe will be another stimulating conversation with an industry expert, founder or otherwise fabulous person in the consumer industry, Komal. Welcome to Drinks with Caroline. I'm so happy to be cracking and athletic with you. Komal is a longtime friend and a very well-esteemed Wall Street analyst who covers the beverage sector, household products, the healthy pet sector and the health and wellness sector, as defined by Jeffries. Komal works at Jeffries. He's also had a long career at UBS and Credit Suisse, so we go back a long way, Komal, and I'm happy to be sharing a drink with you today. Cheers, Cheers to that.
Speaker 1:These are delicious. Thank you for sorting out having larger pack sizes.
Speaker 2:Oh good, I'm glad you have that. So I want to start by asking for people who don't know what an equity analyst does, just to talk a little bit about day in the life of Komal Garjewala or a week in the life of Komal Garjewala and how you became an analyst, what made you become a stock analyst, what pulled you into the consumer group and anything else we should know that would help us understand your thinking.
Speaker 1:The life of an analyst can be a million different things, but our responsibility or our mandate is actually pretty simple it's to help asset managers investors make better investment decisions. What does that actually mean? If you save money with a mutual fund or if you have your money played other places where it's been stored, you want to rely on the professionals to choose good businesses to buy, to stay away from the bad businesses, find good businesses at better than fair prices so that over time, the money that you've saved grows and compounds. And our goal is to be absolute experts in this subsector that we cover, because if you have a portfolio manager that is managing the wealth of thousands or tens of thousands of people, they want to speak to an expert before they buy something like a beer business or a beverage business. And that's what we spend our time doing is trying as hard as we can to be the absolute experts in the spaces that we cover.
Speaker 1:How did I get into this thing? That's a I guess that's more of a. That's a longer story. Grew up in a house where father was an engineer for the Department of Defense and, I think, really wanted to be a more of a finance guy or an investor, and he and I used to watch a show that probably people don't remember anymore called Wall Street Week, with Louis Rukeyser.
Speaker 2:I remember it.
Speaker 1:It was on Friday nights and I wasn't cool enough to have friends, so I hung out and watched Wall Street Week with him and he told me that securities analysts make a lot of money. And so as young as I was, I was like a lot of money sounds like a good idea and eventually got myself here, still waiting for the a lot of money part, but having a lot of fun.
Speaker 2:And straight into consumer covering consumer, or what was the path?
Speaker 1:No, I actually started in what you know at the time was the hottest job on Wall Street, was working in equity research, which is what I do, but for the internet industry in the year 2000. Which is what I do, but for the internet industry in the year 2000. So this is when Amazon and Pricelinecom and those of you that remember Petscom and all the action that was going on with the sort of group of dot-com mania. I graduated from Rutgers in the year 2000,. Graduations in May, for anyone who might remember, the internet bubble started to burst in March. So I came out as some sort of you know, hot shot kid that was ready to be a rich securities analyst, expecting to make all the glorious bars of gold that comes with covering internet in the year 2000, and didn't make a cent because I arrived five minutes too late and all the tech folks, all these tech folks now are just getting fired and sort of like every two weeks. It was another sort of group of people, group of people.
Speaker 1:Well, and eventually I had the opportunity to cover beverages and I did it very apprehensively because I thought I was a super cool tech bro and management kind of said well, we don't really need cool tech bros because there's too many of them around. But if you want to cover Coke and Pepsi, which sounded boring to me at the time, then you can, and so, of course, people got to work at that time. You know, got to board your sort of at that time was a very exciting and fun lifestyle. Wasn't trying to save for much and decided to cover beverages, and that's what connected us too. So we've now known each other 23 years.
Speaker 2:It's been a fun ride. I think one of the mottos you know I live by is every day you should be having fun. You don't work hard, you work easy Doesn't mean they're short hours, but you just make sure you have some fun in there, and I think you certainly do that with your team, and I try to make sure I'm always doing that too. So let's turn to talk about what you're excited about today. Maybe just talk a little bit about your coverage, and from our earlier chats, I think you're pretty excited about beverages right now, specifically soft drinks.
Speaker 1:So my coverage I cover household personal care, beverages, better for you food, nutrition. We call the health and wellness stuff Halo, healthy, active lifestyle and outdoor. We look at healthy living as its own space, just like how there might be an internet analyst or a market strategist or an oil analyst. We figure there should be somebody who looks at healthy living. And within that context we also get to cover pet, which is super fun, especially if you have one, you'll know, we think, when it comes to a healthier lifestyle, who doesn't have a dog? That doesn't make them happy? So it's pretty broad. We are excited about soft drinks.
Speaker 1:There's a few things going on, but if you go over the arc of history, there was this decade, really the first decade of work. So this is in the 2000s where so much of the area of focused for growth was on expansion globally, particularly into those brick countries Brazil, russia, india and China, and that was really the goal. It wasn't about how much money you were making, what the returns were. It was about do you have a story about how you're going to expand globally? And that was a generation ago in this dream of sort of expansion of Western brands and it was cool and that's what worked for a while. Then things started to slow down.
Speaker 2:I do remember it seemed to start with the dollar strengthening so that foreign earnings to the extent there were any in some of those markets became less and less valuable when you translated them as an American company. But that was really the tip of the iceberg, because then you started to actually see economies break down and demand change and so on. So yeah, that was a different era.
Speaker 1:Yeah, it's important to sort of always remember that there's these really big mega cycles that are impacting business that are so easy to miss when you're looking year by year, by year. But you had this sort of period of dollar weakness for multiple years and the Colgates and the Coca-Colas were doing absolutely spectacular as that was occurring and they went on and they continue to sell lots of tubes of toothpaste and lots of cans of Coke, but the money that was coming back to New York and Atlanta was less than it was before.
Speaker 2:A lot less yeah.
Speaker 1:That's a better way to say it it was a lot less and the response to the slowdown in growth by many of these companies, largely because at that time now we're moving to just after the financial crisis 2010-ish the biggest success story at that time really was Anheuser-Busch Ambev, the creation of it, from buying SAB Miller to Interbrew Ambev coming together and then eventually them buying Anheuser-Busch. While they were the great success story, the reason for it and this is one of the things that you often see in these management trends that last these long cycles the reason for it and this is one of the things that you often see in these management trends that last these long cycles the reason for their success was pointed to specifically zero-based budgeting and, effectively, extreme efficiency and extreme costs, and for those that were around in the 90s and 2000s, that is, cost saves and efficiency is not exactly where these companies thrive, and so there was a lot of room to cut and a lot of wood to chop and the focus really went from top line to bottom line and doesn't have an impact. These are pretty good businesses again, different for smaller, pure plays and different from entrepreneurs, but when you have these large businesses, that cashflow a lot. If you're making mistakes, you don't feel it for a long time. What time happening is? You had this brand sort of erosion, innovation, erosion, loss of real muscle from a top line perspective, but it's usually too late by the time you find it and I guess towards the end of the 2010s kind of give you 30 years and three minutes.
Speaker 1:By the time you get to the end of the 2010s. A lot of the boards realized that they might have made a mistake and almost every one of my companies rinsed their management teams with entirely new CEOs, cfos and various sort of stages within it between that sort of 15 to 18 era. This business and that opens up so many doors after a decade of focusing on efficiency and the opportunity in beverages, never disappeared. It's the response to things that was driving some of that weakness right. The consumer was still buying and drinking more things. It's just less and less of what they were selling. And that brings me to sort of why I'm bullish on soft drinks now is because you have this shifting focus from efficiency to top line and the opportunity and we can get into some of the details if you like, but the opportunity for many of these products, given that they've effectively opened themselves up to a market in a way that they weren't as open before usually means you're going to have better growth than you have.
Speaker 2:Well, what is interesting to me is, for years it was volume at any price, particularly for Coke and Pepsi and soft drinks. And then, with COVID, you got real pricing power across the board for consumer staples that hadn't been around for years and years and years. And then I think what's on everybody's mind is has that been overdone? I think what you're saying is you see an opportunity for a nice balanced growth outlook, or do you think it's all going to be volume driven now through innovation?
Speaker 1:It'll be a mix. But I think the one thing I always like to say about business is the pendulum never really stops in the center. You would love for life to be balanced growth between price, mix pricing and volume. It's really never that way. But let's think about where the pricing opportunity is.
Speaker 1:A couple of really major things have changed. The backdrop first is they were still in the process of recovering from the Cold Wars in the 80s and 90s and the focus on volume Carbonated soft drinks particularly lagged inflation for roughly three quarters of the years between them. They're still some of the cheapest things you can find in a grocery store. Still many grocers are turning their inventory multiple times before they have to pay their 30-day bill. So it still remains a very affordable product.
Speaker 1:But what's changed? And largely this is driven by in order for things to fundamentally change, the market leader has to be on board or has to be the one to lead, and the leadership from Coke was shifting from first paying managers, from shifting that from volume to paying for revenue. So now just rolling out a bunch of three liters to help make a volume figure isn't going to make your number. You need to work it from a revenue perspective and they're also paid more on unit growth versus equivalized volume growth, paidid more on revenue, paid more on occasions. So it was much more open of a not open, much better aligned, I'd say, and it created a much more rational industry for everybody else when you're not just trying to have the cheapest product, stack them high and let them fly, all that sort of stuff. It was a different era, that was a very different type of strategy and now we're in a more rational sort of world.
Speaker 2:I think the big surprise yes, it's more rational is that cola has started growing again. I mean, Coke, specifically, has started really putting up some good numbers and so I think certainly sitting in LA, you see all the innovation and all the move, the trend towards healthier sodas and healthier drinks in general, the move, the trend towards healthier sodas and healthier drinks in general. It's kind of astounding to see even in North America a brand like Coke is growing again. So I'm fascinated as to how you see the balance between playing in the better for you categories within soft drinks and their traditional businesses.
Speaker 1:Coke is really once they got to their front foot and they started innovating and they started focusing more on revenue and revenue growth management and less on just driving volume, and relied less on just the fact that they have the best distribution on the planet and more on how do you really sell this stuff in? Nobody ever really denied the fact that Coke is delicious, so if it's not working, there's probably a different reason. Now, obviously, they benefit from the fact that Coke Zero has been a massive success. It's a scientific breakthrough and they've now had it for a long time, but it just keeps kind of getting better and better. Sorry, it's Coke Zero Sugar, not Coke Zero anymore. To be that.
Speaker 1:You buy Coke shares because you wanted access to emerging markets, but if you look today, you're getting similar growth out of the developed markets, like the United States, as you might be getting in EM. So the parts that were supposed to be the drag are actually contributors as well, and that's a big change since this sort of revenue growth management strategy and if I think about it being about global rollout brick and then it being about zero-based budgeting ZBB the 2020s is going to be about RGM revenue growth management and you're already seeing a lot of the benefits of that and it really helped many of these companies make it through all of these supply issues, that supply and inflation issues that we're dealing with over the last couple of years.
Speaker 2:Right, and this has never been more important, with now risk of tariffs coming in. I don't know what you think about that, but I think that there is pressure to take pricing because number one again, input costs could go up because of aluminum and things like that going up, but they could also go up because the consumer is looking for better quality products. So that's something else I'd love to hear your view on.
Speaker 1:Yeah, it's better quality products. They're looking for permission to do things. So an example would be something like the smaller cans from Kobuk. So part of that structural shift that they made was to launch smaller cans. That brought entirely new people into the category. So people who had left carbonated soft drinks because they didn't want the 12 ounce, 16 ounce, 20 ounce, whatever it was, they left the category because that's how much, how much Coke they wanted to consume and they didn't want to waste some. When you launched the seven and a half or the small eight ounce can, it was the right amount for that person and it brought entirely new people in.
Speaker 1:That's how you grow a business that's been around for a long time. Who's left, why do they leave and can we give them something just for that? In the past, so if you think of if you want to call it, sort of the last generation Coke, you wouldn't be bringing pack sizes down. You were moving in the opposite direction. The idea of bringing it down might mean less volume, might mean trading down, it might mean a whole host. It's obviously also more profitable. So that works.
Speaker 1:And these days, all of these things that we're talking about, those decisions used to be made by some sort of brilliant merchant that had been really sort of plugged in to the ground and understands what they're doing and would have ideas here or there.
Speaker 1:But now you also have the technology to help support that.
Speaker 1:You have systems and data that you can analyze to really figure out how to dial in precisely what package makes sense in what market.
Speaker 1:You know, think about soft drinks, which is, and beer, which is so unique is. The consumer is fully aware and fully willing to pay a completely different price for exactly the same product, and so if you're at a ballgame and you want a beer, or if you're buying a beer from Walmart, you know that that liquid is exactly the same but they're worth two very different things to you, and that's been established, obviously, since the beginning of time of beverages, I suppose. But today you now can have the data to figure out how much is it worth, at which place, at what time of day and how do you promote around that and how do you just have the right offering for the right time. This is why there's this opportunity for growth in what might be considered a really mature market. These sorts of things weren't open to it and while technology is doing lots of things for lots of different industries. I can't imagine a business that benefits more than a business that has so many different price points for the exact same underlying product.
Speaker 2:Right. So we've kind of taken the airline pricing model and figured it out, and it's interesting to remember that it was the bottlers, in other words the manufacturers and distributors as distinct from the brand company in Latin America, who have always been best at this revenue growth management and have used package price point, channel mix, all of those things to maximize total revenue to the company. And I think Coke has learned a lot from the bottlers. Now, one thing to talk about is this view of whether ownership of distribution, the way Pepsi has versus Coke, which refranchised and doesn't own its distributors it obviously has a lot of power over them, but it doesn't own them and then Keurig, dr Pepper, kdp, somewhere in the middle, but actually leaning towards increasing ownership of distribution, what do you think makes the most sense and why?
Speaker 1:Well, it's always nicer to have less assets than more assets, if you can. It's nicer to be asset light like an energy drink, third-party manufacturing, third-party distribution, focusing on the marketing. Look at any other business. The marketing department usually looks like a lot more fun than the manufacturing side of the same operation. So it's nice if you can have it. It's hard to have that set up.
Speaker 1:Pepsi eventually bought its bottlers, owns the distribution, has made the decision to keep it. It's not entirely clear if that's the right decision, yet Coke was able to franchise it out. Coke, however, had many well-capitalized bottlers in and around the world and they knew they were able to turn those assets over to them and that they were going to be fully funded, well-capitalized and invest behind the business. Many of them were given more territory than they had before. So you knew they were even more encouraged to do it, and franchise operations often make a lot of sense, particularly for really, really local businesses, and obviously beverages are super local.
Speaker 1:In the case of Pepsi, though, and in the case of KDP, you do have the Pepsi doesn't really have that same alternative to send it off to maybe three or four players, even though there's, I'm sure, a lot of people would be interested, but not enough, maybe to turn as much of it over as you like. So I think the way Pepsi looked at it is like okay, well, how do we just maximize sweating the assets that we have? We have these assets distribution we know to be valuable. Dsd is incredibly valuable. How do we sweat the assets?
Speaker 2:Can we just clarify DSD is direct store delivery and that's the process of your own Pepsi person will stock the shelves as an example. So that's somewhat unique to beverages and snacks but it certainly doesn't happen in all companies.
Speaker 1:For everyone listening. It's exactly the image that you might have when you think about a Coca-Cola salesperson with a hand truck outside of his truck, filling up some cases and walking down the aisle at a Walmart. That's direct store delivery. Very few businesses do it because it's quite expensive to fill all of those shelves, especially beverages. They turn very quickly and they're very heavy, and so you'd need direct store delivery to become of sort of substantial size. There's a point at which you can get to without it, but eventually you're probably going to want it.
Speaker 2:Right. So do you like the KDP hybrid model or do you think franchising is the way? The KDP hybrid model or do you think franchising is the way?
Speaker 1:I wish it was that black and white. I think the KDP model makes a lot of sense for KDP. I think the Pepsi structure is a little bit mixed, but the Coke structure of AssetLite makes sense for Coke. On KDP, what you're seeing is, with all of this focus on growth, there's also a focus on innovation. There's a lot of capital coming into beverages, lots of entrepreneurs doing very, very cool things, some of which are working, and working at scale. It is nice to have a third system. There's the red system, obviously Coke, there's the blue system, obviously Pepsi. Now you have KDP, or the maroon system, because it's stocked to pepper, and it's nice to have a third.
Speaker 1:And they've quite intelligently, I think been buying up assets to provide this additional alternative for people who want direct store delivery but don't have the scale to do it.
Speaker 1:And what I think they've done particularly well, though, is most of that growth comes from entrepreneurs, and they have been open to structuring very different types of deals depending on the company that they were, or particularly the family or the people that they're interacting with. In some instances, it might just be blanket distribution, capture a margin, move on. In other cases, it might be buying the whole business or a piece of the business or have equity and push distribution. For KDP specifically, they all kind of make sense because anything you add onto your existing infrastructure is very, very profitable. So, just like any business you'll ever look at, the most value you can ever create is by getting more out of the existing asset base, and KDP has been building up this DSD network. Now the job is to maximize your throughput. So that person that I explained sort of envisioned is walking down the aisle in the Walmart, is always walking with a full hand truck full of cases.
Speaker 2:Let me just challenge the concept that more is better through a system, just because you do get the pushback that it's too hard for that poor salesperson to stack that many shelves with so many different brands. It was a lot easier if it was just the Dr Pepper brand and 7-Up and so on, so you don't think that there's a risk of spreading too thin as you take on I mean, kdp has taken on Ghost, they've got C4. They have some great new brands. You think they can handle it and manage it well, in part maybe because of the improved technologies.
Speaker 1:The technology helps, but it's definitely a risk. It's a super risk. We see semi-frequently mission creep on SKUs. This is different from just taking on a bunch of different partnerships, but mission creep on SKUs and then eventually the company cuts a quarter of them. Coca-cola did that. They called them zombie brands, which were very cool brands or maybe regionally very sort of important, but they were never going to get there in scale. There was too much complexity For KDP. They're not there yet, but it is absolutely something to watch. There's no doubt that if every company had their way, every Coke truck would only be filled with Coke, and one of the reasons why Procter Gamble and these guys made such a fortune during COVID is not because we were scrambling everywhere trying to buy as much toilet paper as possible. It was also because there was only one type of toilet paper and only one pack size and they were just making boatloads of it, and so your margins are huge.
Speaker 2:Efficiency, efficiency, efficiency, yes, yes, it's a beautiful thing.
Speaker 1:The problem is, the consumer doesn't want the same sort of thing when they have that option, and so you have to have an array of goods. Otherwise you're just out of market for this thing that the consumer desires.
Speaker 2:Right. So I mean, I think one of the themes clearly emerging is consumer desire for choice and optionality and, you know, the blurring of the lines between soft drinks and alcohol, and there's also this health halo that I think brands have to pursue. There's a whole new world coming in terms of volume demand because of GLP-1 drugs. So how do you think the next five years play out, with all these cross-currents and the sort of blurring of lines? Do you think they will blur or do you think in the end, alcohol stays alcohol and soft drinks stay soft drinks, and it's just a moment in time where it's getting a bit fuzzy.
Speaker 1:No, I think, because there's focus on growth. Everyone's going to go where the growth is For years. If you were coca-cola, the the thing about coca-cola, which is a blessing and a curse, is there's no better business than the business of selling coca-cola concentrates a great business and it's an incredibly high margin. So everything else that you look at is not as good and that makes you apprehensive about doing anything else, but the second sort of thing that james quincy did otherwise other than rg focusing on revenue.
Speaker 2:And James Quincy, by the way, is the CEO, who's now been in place seven years. More than that, maybe.
Speaker 1:Seven or eight years is around the average 10 year. I don't know if that means anything, but we'll keep that in mind. But James Quincy has done a phenomenal job of also saying we're total growth. And I mentioned I was an internet person a million years ago and I remember when Amazon switched from just selling books to selling DVD players and the concern from analysts like myself at the time was well, your margins are going to go way down.
Speaker 1:Books is great. It's a 70% margin business and Jeff Bezos was obviously confused because he makes a 10 margin on a $300 DVD player versus a 70 margin on a $15 book. It obviously makes more sense to make 30 bucks versus nine and a half, but that was sort of the mindset at the time that you have this incredibly high margin product set and Coke is the same because concentrate is so high margin. But we can see now, with the success of core power and fair life and some of these other things, the margins may not be as good as concentrate, but they still make lots of money in dollar terms and that's going to grow the pie for everybody and we use Coke as an example for something that's happening so much more.
Speaker 2:Yeah, and I think investors are very focused on cashflow and free cashflow, and so that's literally dollars in the bank and optionality to use those dollars for share buybacks or acquisitions. And I do want to know what your thoughts are on why the big players seem to be stepping back, the big ones being the Coke Pepsis. I'm not sure about the European beverage companies, but you're seeing less acquisition activity, part of it egg on the face from some bad ones, but there's some really amazing innovation in the market, and so what do you think is happening there?
Speaker 1:I think they might be struggling to determine which of the brands will scale. Often the way that the curve works is an entrepreneur comes up with something cool and it emerges and it sort of enters people's radar screen, and the one that has something cool is probably dozens that have failed. But an entrepreneur has something cool and you hit a couple hundred million, maybe in sales or something like that. Now you're on everybody's radar screen and the first view of the strategics is typically huh, that's pretty cool, we should do it ourselves. And then they try. And the problem with having all those resources it's like being a child with the keys to the Ferrari. It is very, very hard to go slow, and the way to really build a business, build a brand, is to go slow. The reason why Monster worked. There's 200 to 300 energy drinks launched every single year globally.
Speaker 2:That is a pretty stunning number Wow.
Speaker 1:And that's been true for every year for 20 years. And you know everybody wanted to be Red Bull. Monster was part of the group of many companies that were trying to be Red Bull. We can only maybe come up with five to 10 collectively of energy drinks that are of real relevance after all of this time Think about collectively over 20 years.
Speaker 1:And a lot of that has to do with going slow enough to make sure you don't out distribute your demand, not putting enough stress financially and operationally on your system and letting money go, saying no when you have to so that you can grow at the pace that you want to. And Monster did that by just quietly adding cities across California and then quietly adding states, saying no to very large retailers at the beginning because they weren't ready yet from a demand perspective or an operational perspective at the beginning, because they weren't ready from a demand perspective or an operational perspective. And so lots of others came and went. And the others that came and went sometimes would be from big strategics like Coke, pepsi, anheuser-busch, molson, coors. They would launch something and blow it out everywhere where Diet Coke exists. It would also come from athletes that have major followings. It would come from celebrities, all of these folks. But then it was monster, just creeping and creeping and creeping, and then they had this very strong foundation business. It was too late by the time everyone else realized what they were into.
Speaker 2:It's actually quite an extraordinary story and I want to credit you with saying to me 15 years ago maybe energy is the new CSD, it's the new carbonated soft drink. There was really a huge debate raging 15, 20 years ago about whether this was a fad, and it continued to be a raging debate for a long time. You had regulators sort of threatening to come after caffeinated drinks and Monster Red Bull. The industry's done a fantastic job of pointing out that. You know there's caffeine in Starbucks. You know, are we going to regulate that too? Where is regulation going to stop? But anyway, what this leads me to ask you is about something I'm passionate about, which is leadership. So if you look at the great companies in beverage today, do you see some common threads and what do you think makes a great leader in the consumer group that you've seen over the years?
Speaker 1:I think if we've moved towards the sort of this growth phase versus the prior phase, probably kind of think of the history of the last three decades, I think the first thing is, first of all, the CEOs seem younger. It could be that I'm just 20 years older and they've stayed the same age.
Speaker 2:I think it's because we're older.
Speaker 1:It's unfortunate because they look a lot younger that I'm just 20 years older and they've stayed the same age. I think it's because we're older. Is that what it is?
Speaker 1:It's unfortunate because they look a lot At least I can speak for myself, they seem a lot younger, but I also felt like the interns kept getting younger, but I guess they're also staying the same age. But there is like this growth mindset that is just different from an efficiency mindset, which is also different from a global expansion mindset. These are very different sort of muscle memory that you need for each of those things. There's these periods of sort of waves of entrepreneurs that sort of arrive and disappear, and it's usually driven by one or two success stories and then lots of other entrepreneurs come and follow and capital follows those entrepreneurs. And when you're in that phase, the industry usually grows quite nicely because people are doing very cool things.
Speaker 1:And this, by the way, is not just true in soft drinks, this is also very much true in beverage alcohol and these folks are creating things that never really existed before. And if we think about health and wellness and drinking less and all of these trends, you wouldn't conclude that that beatbox would be one of the biggest success stories at the moment in beverage alcohol, which is a 12 ABV wine-based party punch sold in a box. You wouldn't have made that guess, but they did something ultra cool with very cool branding and it's working really well. We also happen to be, though, in this world where the same consumer is drinking one of these is drinking an athletic brewing because it's more of a consumer that wants optionality and willing to do lots of different things, which really opens the door for innovation. So, whether it's beatbox or buzz balls, or it's real, true sort of branding and marketing around adult non-alcoholic, or whether some of the things we're seeing on the soft drink side, with this new wave of energy shifting to performance energy, or shifting to clean energy, performance energy, healthy energy, whatever you kind of want to call it the consumer is open to these new and cool ideas, and the entrepreneurs seem to be there and they want to approach things differently.
Speaker 1:I think liquid death is extraordinary success story, again driven by some awesome marketing. They knew how to do it, they got it right and they created this incredible brand that now looks like it's even been able to expand. I think it's more than comfortable now, because we have enough data that it's even expanded nicely beyond water Soon to be sodas. So you're in this really interesting moment. In fact maybe you'll recall I don't is Walmart is now doing the modern soda set across all of their stores, which will include Poppy and Olipop and a bunch of these other sort of healthy sodas, modern sodas, whatever you want to call it. I can't recall the last time that shelf was reset in that way. We're in exciting time.
Speaker 2:It is an exciting time and, as you said, I think it's happening in alcohol as well, where I was shocked, actually, that apparently non-alcoholic beer only has 10 SKUs or something on average in and just get an array of non-alcoholic drinks that a decade ago was you know. It goes back to the entrepreneur who's willing to do that incredible heavy lifting and the private equity and individual investors who are willing to fund that because they believe in it. So maybe this is just the beginning, in fact, of the healthier option movement. It feels like it's been an explosion, but it's still a tiny part of the market, right?
Speaker 1:It's a tiny part of the market, but it is now being treated like its own brand, as opposed to an alternative or a substitute, which is probably the biggest change in health and wellness in the last decade. Health and wellness used to be looking for substitutes or restricting your behavior in some way to live a different lifestyle. So don't have sugar, don't have caffeine, don't have carbs, don't have saturated fat, don't have fun, don't have whatever.
Speaker 2:Well, that breaks all my rules.
Speaker 1:Yeah, exactly, but today it's what can I do? What can I consume to have more energy? What can I consume to help socialize more of this? It's just a very different mindset on what healthy living is than what it used to be, and that opens up the door for a lot of players to pop in when we think about how they're approaching it. Somebody has to do the heavy lifting, but we have seen this before. If anyone hasn't read the Jim Cook book I believe it's called how to Quench your Thirst, or Quench your Own Thirst, or something like that.
Speaker 2:And Jim Cook is the founder CEO of Boston Beer Company. The Samuel Adams brand and a legend in the craft beer industry, created craft beer again.
Speaker 1:The absolute founder. He reads it himself, so if you do the Audible. It's also short. It's a lot of like two page chapters my favorite sort of structure of book. But he talks about how he turned American beer, how he created craft was up and down the street pitching this idea with a bunch of cans in a bag and when you think about what's happening now in adult, non-alcohol is the same sort of thing, where the market leaders, like in athletic brewing, are hand-selling this assisted selling and explaining why to the retailer this isn't just some alternative to other things.
Speaker 1:This might be an additional occasion. This might be something you can sell at different times that are consumed at different times. It can be a trade-up from just regular soft drinks for people who don't want to drink. It might keep people in the bar longer if they're mixing this in with regular alcohol beverages. But it requires a little bit of an assisted sell as opposed to I've got this brand and here's that brand without alcohol. It's. An assisted sell is the sort of thing that I think is going to drop this category.
Speaker 2:Come on, I want to throw out a few things for comments from you. Glp-1 drugs the big, big question is how much is this going to affect volume, sales and behaviors? And I mean, I think one of the most fascinating things to me is that it appears to turn off some sort of craving in the brain that impacts compulsive behavior that goes well beyond eating and drinking. And so the question in my mind is how do you think about how widespread it could become? Surely the drug's going to get much cheaper. I think there are already compounders who are making it quite easily available and it's actually potentially super, super beneficial to the health of this country. So that could have just dramatic impacts on food and beverage. Do you see that as a risk? Do you see it as some opportunity in there?
Speaker 1:When you have industries that have been around for a long time, any change seems like a risk and in almost every instance, any change is an opportunity. Who's going to get it right or wrong, who knows? But things are going to evolve and change. So the idea of, you know, supersize being in an area of value and a thing to drive foot traffic for McDonald's some number of decades ago now is the sort of thing that will resonate differently now. We're already seeing, without GLP-1 at all, we saw what the small cans did for Coke. It worked beautifully. And so there's going to be this sort of evolution on and the RGM and the revenue growth management and the data that comes with it is going to make this stuff easier to do and better to identify, because it'll be a bigger deal in some markets than other markets. But there's going to be some portfolio shifting and I think the price profit portfolio management exercise will have to be a little more acute than it was before.
Speaker 1:There's also going to be companies that make tons of mistakes. So maybe like the assumption that, oh, these people are on various weight loss drugs, therefore we're going to pitch them zero calorie products, well, that's not really the point. The point is that they don't desire to consume that much. How are you going to be part of the things that they do? And then there's things like Core Power, fair Life, premier Protein from Bellring that also could be be beneficiaries, because how do you get your protein, which is one of the most expensive calories and also one of the most satiating calories? So how do you do that? Well, shakes ends up being a really great opportunity in that context.
Speaker 2:Huge, huge opportunity. Yes, Protein snacks protein shakes We've obviously seen some innovation, but maybe there's a lot more to do there.
Speaker 1:I think we're just at the beginning on what happens there, expect a lot more. The industry has been capacity constrained, partially because the growth has been great. But as it becomes less and less constrained, you'll start to see more innovation, more players, all those types of things.
Speaker 2:Is.
Speaker 1:Bellring, a play on the protein side. Yeah, bellring is a play. It's maybe the best pure play behind that theme. It has one of the highest grams of protein to calorie ratios, including grams to protein to sugar ratio, and it's very reasonably priced and sells high volumes in Costco. It doesn't focus on the crazy athlete looking for the ultimate sort of protein concoction. It is more for mainstream people who are looking to have more protein in their lives and by just being a little more relaxed about it and not being trying to be the next cool crazy thing, most people on average which is that's the definition of average and they're just going for the average person that wants to have more protein.
Speaker 2:And boy oh boy, that's where the big bucks are with the average consumer.
Speaker 1:Yeah, it's the fat part of the curve.
Speaker 2:Yeah or the snake. So on GLP-1 drugs, do you then envision that creeping up to be used by a greater percentage of the population over time? And then I don't know how you think about our new Health and Human Services Minister under Trump as well, and what impact RFK is going to have on behavior of food companies.
Speaker 1:I think it's a few things I mean. The first is that yes, I think it's going to be big. It's going to take a while, but it will be very big. Back in my internet days, bill Gates kind of famous for saying people really overestimate how big something will be in two years but dramatically underestimate how big it's going to be in 20. This will be part of it. But you also have to remember this is something with an on-ramp and an off-ramp and you don't take it forever. This is not something you take for life or anything like that. We'll probably have a bit of a shift and then a bit of a leveling off and then we figure out how we operate in that environment. That's the first thing in that environment. I think that's the first thing I think on Bobby Kennedy in HHS. It's interesting because it is actually informing everybody to be a little bit more focused on what's in the food and that is something that has been happening anyways.
Speaker 1:Food companies have been saying we want to go clean label. We want to go clean label for a really long time. You'll remember one of the things that Frito did very early in the 2000s was remove trans fats yes from their chips. I think that was 2004, 2003. It cost a lot of money, um, their margins went down at the time, but then it was some number of years later. Trans fats were banned and so it's the right thing to do. They did it and I think they'll maybe be some of those, those moments and it's just at the end of the day Maybe not every decision will be the best one, but I think what it's doing is actually accelerating a trend that somebody needed to really get them a bit of a boost so that these companies that were trying to evolve into cleaner labels actually Yep, it's definitely a case of watch the space on the drugs, and it won't necessarily just be GLP-1s.
Speaker 2:It could be some older drugs, like metformin, that have been on the market a long time and actually have significant benefits, and I think it's fascinating. I don't know if anyone listening to us has watched Never Die, I think it's called or Don't Die, a movie on Netflix, brian Thompson, and I think that we're in a phase now where they're just going to be all sorts of elements discovered that we can use to enhance life without going crazy like he is. But you know, adding NAD or taking out something else using magnesium lots of new things that will be useful. Food as medicine.
Speaker 1:It's really this shift from a subtractive, restrictive definition of what health and wellness is to something that's additive. That movie would be the extreme example of just all these things that you're doing, but it shows that all that's available to you, right. There's companies now that'll give you really good data about your system, various systems, based on the various samples that you send to them. There's infrared therapies obviously taking off. Magnesium is taking off, so you have a lot going on on things that people want to do, want to consume, whether it's services, whether it's something that you're, you know, tangible goods, um, which means the market is is in a better place than I'm trying to cut down from six cans to four cans to live a healthier life now they're trying to find the seventh or eighth can that's doing for them what they want?
Speaker 1:I?
Speaker 2:know. It always amazes me because I think my children's generation my girls are in their twenties are worried about how they're ever going to buy a house. I think it becomes increasingly difficult if you're having to. You know, go and get a B1 infusion and you know, a little Botox here and all these things to make you live longer, look younger. You know, and I live in California, so now I'm seeing extreme use Stretch lab, this lab, this other lab, hack this. It's wild, but you see it enough. You start thinking maybe I should try cryotherapy every morning, or I could just get in the freezing cold pool. I mean, that would work too, but no, I think I'll pay for that.
Speaker 1:Yeah, in New York, in Chelsea, new York, we have basically every concept within a couple of blocks next to each other, and it's a good thing. At the end of the day, what's the best one? It's all irrelevant, because the point is that all those businesses exist because somebody's interested in paying for it and that leads to a healthier society. But that also means there's a lot more commerce to do in something new, as opposed to trying to sort of fight the fight on declining categories.
Speaker 2:It's fun to watch the innovation and I think we always learn so much from younger generations as well, sort of rethinking how we look at life and what's important and maybe owning a house is. You know, it's a nice to have, but I have to tell you, after the fires you're like, oh, maybe it's better not to own something in LA. Talk to me about how important do you think marketing is today Marketing advertising, obviously. The way we do it today has changed a lot versus a decade ago. Is it as important as distribution has something taken over, or is it still really really critical?
Speaker 1:I think the biggest error that the strategics make in launching new products or shortly after doing deals is over-distribute them, because there's marketing, there's selling, particularly the assisted selling, for if it's going to be new products, new innovations, it needs to be assisted hand selling, like boston beer and how jim cook, by the way, boston beer still does it that way. They spend more per case on salespeople than any other brewer in the country, certainly probably maybe on the planet, for all I know. Um, that part is critical, but balancing the right amount of marketing with the right amount of salespeople, the right amount of distribution, is actually the hard part, um, because distribution is something you're always gunning for, you always want it, you always want it, but are you also being honest with yourself if you have the demand? Monster success came from never out-distributing their demand and by saying no rather than saying yes when they didn't think the cans were going to get the pull through when they started to roll out into new markets, and that's why a lot of other energy drinks failed. And I think marketing continues to be the most important. Most critical thing is maybe the definition of what is marketing has changed, but the other thing is marketing has become a little more transactional and the transactional marketing components has become really, really enchanting. And maybe because, again, the pendulum never really goes to the center, some companies are overdoing it on the whether it's digital, whether it's social, whether it's just some of these shorter hits as opposed to these larger brand building exercises.
Speaker 1:You build a sort of a real brand and you do it over time and that stays with you as different from going viral and whatever success you have during that window of time that you're relevant in a viral world.
Speaker 1:And so, again, marketing is still incredibly critical. Super Bowl still very, very good at creating unaided brand awareness. Poppy's thing was probably the most successful commercial that we've seen in beverages for a long time, not because it was a great commercial and all of that, but because so few people knew what poppy was or knew what healthy soda was, and actually Olipop and poppy both benefited from it. But that has a very different impact than if everybody already knows your brand and you're advertising on the Super Bowl and they're just watching it for the humor. Poppy ends up absolutely exploding their sales and they were ready for it to happen, where, if you're a larger company and you advertise as you always do, people laugh and chuckle and enjoy the ad, but do they buy any more beer? And that's the part that's a little bit different than maybe what it used to be.
Speaker 2:Yeah, if I think about Olympic sponsorships and the cost of that, I've always thought it was very hard to make a return maybe a specific athlete to a specific team but when you get into the whole major, weeks-long events, it often doesn't present a return if you're an older brand, but if you make one breakthrough, as you said, that can be pretty exciting. So, kamal, what are you excited about personally, professionally, as you look forward in 2025?
Speaker 1:Well, jefferies has some pretty cool things going on. We have a big Nantucket conference, which is an absolute great show. Private, public companies chatting about a million different sort of things over the course of a couple of days. That's always a highlight of the year, and outside of that it's still ski season and Colorado has been dumped on. So I'll get out there as much as I can, and I'm getting to that stage now where the children are getting faster and crazier than me and I'll have to maybe take lessons or something to figure out.
Speaker 2:They're keeping you on your toes.
Speaker 1:Yeah, or worse, keeping me on terrain parks and other sorts of things that I don't belong on anymore.
Speaker 2:Komal. Thank you. This has been so much fun, very informative, and I can't wait to talk to you six to 12 months from now and see what's panning out and what's different from where we sit today.
Speaker 1:Yeah, let's do this again.
Speaker 2:Cheers Bye. If you enjoyed this session, please do comment, rate and follow us on Apple Podcasts, spotify or wherever you listen, and please share this with your friends and colleagues.