March 31, 2025 • 47 mins
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
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
The one thing I always like to say about
business is the pendulum neverreally stops in the center.
You would love for life to bebalanced growth between price,
mix pricing and volume.
It's really never that way.
But let's think about where thepricing opportunity is.
Speaker 2 (00:19):
Hello friends, old and new, and welcome to Drinks
with Caroline.
I'm so happy you've joined mefor what I believe will be
another stimulating conversationwith an industry expert,
founder or otherwise fabulousperson in the consumer industry,
Komal.
Welcome to Drinks with Caroline.
(00:40):
I'm so happy to be cracking andathletic with you.
Komal is a longtime friend anda very well-esteemed Wall Street
analyst who covers the beveragesector, household products, the
healthy pet sector and thehealth and wellness sector, as
defined by Jeffries.
Komal works at Jeffries.
He's also had a long career atUBS and Credit Suisse, so we go
(01:05):
back a long way, Komal, and I'mhappy to be sharing a drink with
you today.
Cheers, Cheers to that.
Speaker 1 (01:10):
These are delicious.
Thank you for sorting outhaving larger pack sizes.
Speaker 2 (01:14):
Oh good, I'm glad you have that.
So I want to start by askingfor people who don't know what
an equity analyst does, just totalk a little bit about day in
the life of Komal Garjewala or aweek in the life of Komal
Garjewala and how you became ananalyst, what made you become a
stock analyst, what pulled youinto the consumer group and
(01:34):
anything else we should knowthat would help us understand
your thinking.
Speaker 1 (01:38):
The life of an analyst can be a million
different things, but ourresponsibility or our mandate is
actually pretty simple it's tohelp asset managers investors
make better investment decisions.
What does that actually mean?
If you save money with a mutualfund or if you have your money
played other places where it'sbeen stored, you want to rely on
the professionals to choosegood businesses to buy, to stay
(01:59):
away from the bad businesses,find good businesses at better
than fair prices so that overtime, the money that you've
saved grows and compounds.
And our goal is to be absoluteexperts in this subsector that
we cover, because if you have aportfolio manager that is
managing the wealth of thousandsor tens of thousands of people,
they want to speak to an expertbefore they buy something like
(02:21):
a beer business or a beveragebusiness.
And that's what we spend ourtime doing is trying as hard as
we can to be the absoluteexperts in the spaces that we
cover.
How did I get into this thing?
That's a I guess that's more ofa.
That's a longer story.
Grew up in a house where fatherwas an engineer for the
Department of Defense and, Ithink, really wanted to be a
more of a finance guy or aninvestor, and he and I used to
(02:44):
watch a show that probablypeople don't remember anymore
called Wall Street Week, withLouis Rukeyser.
Speaker 2 (02:49):
I remember it.
Speaker 1 (02:51):
It was on Friday nights and I wasn't cool enough
to have friends, so I hung outand watched Wall Street Week
with him and he told me thatsecurities analysts make a lot
of money.
And so as young as I was, I waslike a lot of money sounds like
a good idea and eventually gotmyself here, still waiting for
the a lot of money part, buthaving a lot of fun.
Speaker 2 (03:10):
And straight into consumer covering consumer, or
what was the path?
Speaker 1 (03:14):
No, I actually started in what you know at the
time was the hottest job on WallStreet, 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 theinternet industry in the year
2000.
So this is when Amazon andPricelinecom and those of you
that remember Petscom and allthe action that was going on
with the sort of group ofdot-com mania.
(03:34):
I graduated from Rutgers in theyear 2000,.
Graduations in May, for anyonewho might remember, the internet
bubble started to burst inMarch.
So I came out as some sort ofyou know, hot shot kid that was
ready to be a rich securitiesanalyst, expecting to make all
the glorious bars of gold thatcomes with covering internet in
(03:55):
the year 2000, and didn't make acent because I arrived five
minutes too late and all thetech folks, all these tech folks
now are just getting fired andsort of like every two weeks.
It was another sort of group ofpeople, group of people.
Well, and eventually I had theopportunity to cover beverages
and I did it very apprehensivelybecause I thought I was a super
(04:15):
cool tech bro and managementkind of said well, we don't
really need cool tech brosbecause there's too many of them
around.
But if you want to cover Cokeand 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 yoursort of at that time was a very
exciting and fun lifestyle.
Wasn't trying to save for muchand decided to cover beverages,
(04:37):
and that's what connected us too.
So we've now known each other23 years.
Speaker 2 (04:43):
It's been a fun ride.
I think one of the mottos youknow I live by is every day you
should be having fun.
You don't work hard, you workeasy Doesn't mean they're short
hours, but you just make sureyou have some fun in there, and
I think you certainly do thatwith your team, and I try to
make sure I'm always doing thattoo.
So let's turn to talk aboutwhat you're excited about today.
(05:06):
Maybe just talk a little bitabout your coverage, and from
our earlier chats, I thinkyou're pretty excited about
beverages right now,specifically soft drinks.
Speaker 1 (05:14):
So my coverage I cover household personal care,
beverages, better for you food,nutrition.
We call the health and wellnessstuff Halo, healthy, active
lifestyle and outdoor.
We look at healthy living asits own space, just like how
there might be an internetanalyst or a market strategist
or an oil analyst.
We figure there should besomebody who looks at healthy
(05:34):
living.
And within that context we alsoget to cover pet, which is
super fun, especially if youhave one, you'll know, we think,
when it comes to a healthierlifestyle, who doesn't have a
dog?
That doesn't make them happy?
So it's pretty broad.
We are excited about softdrinks.
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.
(05:55):
So this is in the 2000s whereso much of the area of focused
for growth was on expansionglobally, particularly into
those brick countries Brazil,russia, india and China, and
that was really the goal.
It wasn't about how much moneyyou were making, what the
returns were.
It was about do you have astory about how you're going to
expand globally?
And that was a generation agoin this dream of sort of
(06:17):
expansion of Western brands andit was cool and that's what
worked for a while.
Then things started to slowdown.
Speaker 2 (06:22):
I do remember it seemed to start with the dollar
strengthening so that foreignearnings to the extent there
were any in some of thosemarkets became less and less
valuable when you translatedthem as an American company.
But that was really the tip ofthe iceberg, because then you
started to actually seeeconomies break down and demand
change and so on.
So yeah, that was a differentera.
Speaker 1 (06:44):
Yeah, it's important to sort of always remember that
there's these really big megacycles that are impacting
business that are so easy tomiss when you're looking year by
year, by year.
But you had this sort of periodof dollar weakness for multiple
years and the Colgates and theCoca-Colas were doing absolutely
spectacular as that wasoccurring and they went on and
they continue to sell lots oftubes of toothpaste and lots of
(07:07):
cans of Coke, but the money thatwas coming back to New York and
Atlanta was less than it wasbefore.
Speaker 2 (07:12):
A lot less yeah.
Speaker 1 (07:13):
That's a better way to say it it was a lot less and
the response to the slowdown ingrowth by many of these
companies, largely because atthat time now we're moving to
just after the financial crisis2010-ish the biggest success
story at that time really wasAnheuser-Busch Ambev, the
creation of it, from buying SABMiller to Interbrew Ambev coming
(07:36):
together and then eventuallythem buying Anheuser-Busch.
While they were the greatsuccess story, the reason for it
and this is one of the thingsthat you often see in these
management trends that lastthese long cycles the reason for
it and this is one of thethings that you often see in
these management trends thatlast these long cycles the
reason for their success waspointed to specifically
zero-based budgeting and,effectively, extreme efficiency
and extreme costs, and for thosethat were around in the 90s and
(07:57):
2000s, that is, cost saves andefficiency is not exactly where
these companies thrive, and sothere was a lot of room to cut
and a lot of wood to chop andthe focus really went from top
line to bottom line and doesn'thave an impact.
These are pretty goodbusinesses again, different for
smaller, pure plays anddifferent from entrepreneurs,
but when you have these largebusinesses, that cashflow a lot.
(08:19):
If you're making mistakes, youdon't feel it for a long time.
What time happening is?
You had this brand sort oferosion, innovation, erosion,
loss of real muscle from a topline perspective, but it's
usually too late by the time youfind it and I guess towards the
end of the 2010s kind of giveyou 30 years and three minutes.
(08:40):
By the time you get to the endof the 2010s.
A lot of the boards realizedthat they might have made a
mistake and almost every one ofmy companies rinsed their
management teams with entirelynew CEOs, cfos and various sort
of stages within it between thatsort of 15 to 18 era.
This business and that opens upso many doors after a decade of
(09:05):
focusing on efficiency and theopportunity in beverages, never
disappeared.
It's the response to thingsthat was driving some of that
weakness right.
The consumer was still buyingand drinking more things.
It's just less and less of whatthey were selling.
And that brings me to sort ofwhy I'm bullish on soft drinks
now is because you have thisshifting focus from efficiency
to top line and the opportunityand we can get into some of the
(09:28):
details if you like, but theopportunity for many of these
products, given that they'veeffectively opened themselves up
to a market in a way that theyweren't as open before usually
means you're going to havebetter growth than you have.
Speaker 2 (09:41):
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 gotreal pricing power across the
board for consumer staples thathadn't been around for years and
years and years.
And then I think what's oneverybody's mind is has that
been overdone?
I think what you're saying isyou see an opportunity for a
(10:02):
nice balanced growth outlook, ordo you think it's all going to
be volume driven now throughinnovation?
Speaker 1 (10:08):
It'll be a mix.
But I think the one thing Ialways like to say about
business is the pendulum neverreally stops in the center.
You would love for life to bebalanced growth between price,
mix pricing and volume.
It's really never that way.
But let's think about where thepricing opportunity is.
A couple of really major thingshave changed.
The backdrop first is they werestill in the process of
(10:28):
recovering from the Cold Wars inthe 80s and 90s and the focus
on volume Carbonated soft drinksparticularly lagged inflation
for roughly three quarters ofthe years between them.
They're still some of thecheapest things you can find in
a grocery store.
Still many grocers are turningtheir inventory multiple times
before they have to pay their30-day bill.
So it still remains a veryaffordable product.
(10:50):
But what's changed?
And largely this is driven byin order for things to
fundamentally change, the marketleader has to be on board or
has to be the one to lead, andthe leadership from Coke was
shifting from first payingmanagers, from shifting that
from volume to paying forrevenue.
So now just rolling out a bunchof three liters to help make a
(11:13):
volume figure isn't going tomake your number.
You need to work it from arevenue perspective and they're
also paid more on unit growthversus equivalized volume growth
, paidid more on revenue, paidmore on occasions.
So it was much more open of anot open, much better aligned,
I'd say, and it created a muchmore rational industry for
everybody else when you're notjust trying to have the cheapest
(11:35):
product, stack them high andlet them fly, all that sort of
stuff.
It was a different era, thatwas a very different type of
strategy and now we're in a morerational sort of world.
Speaker 2 (11:46):
I think the big surprise yes, it's more rational
is that cola has startedgrowing again.
I mean, Coke, specifically, hasstarted really putting up some
good numbers and so I thinkcertainly sitting in LA, you see
all the innovation and all themove, the trend towards
healthier sodas and healthierdrinks in general, the move, the
trend towards healthier sodasand healthier drinks in general.
(12:07):
It's kind of astounding to seeeven in North America a brand
like Coke is growing again.
So I'm fascinated as to how yousee the balance between playing
in the better for youcategories within soft drinks
and their traditional businesses.
Speaker 1 (12:20):
Coke is really once they got to their front foot and
they started innovating andthey started focusing more on
revenue and revenue growthmanagement and less on just
driving volume, and relied lesson just the fact that they have
the best distribution on theplanet and more on how do you
really sell this stuff in?
Nobody ever really denied thefact that Coke is delicious, so
(12:41):
if it's not working, there'sprobably a different reason.
Now, obviously, they benefitfrom the fact that Coke Zero has
been a massive success.
It's a scientific breakthroughand they've now had it for a
long time, but it just keepskind of getting better and
better.
Sorry, it's Coke Zero Sugar,not Coke Zero anymore.
To be that.
(13:01):
You buy Coke shares because youwanted 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 supposedto be the drag are actually
contributors as well, and that'sa big change since this sort of
revenue growth managementstrategy and if I think about it
(13:23):
being about global rolloutbrick and then it being about
zero-based budgeting ZBB the2020s is going to be about RGM
revenue growth management andyou're already seeing a lot of
the benefits of that and itreally helped many of these
companies make it through all ofthese supply issues, that
supply and inflation issues thatwe're dealing with over the
last couple of years.
Speaker 2 (13:44):
Right, and this has never been more important, with
now risk of tariffs coming in.
I don't know what you thinkabout that, but I think that
there is pressure to takepricing because number one again
, input costs could go upbecause of aluminum and things
like that going up, but theycould also go up because the
consumer is looking for betterquality products.
(14:04):
So that's something else I'dlove to hear your view on.
Speaker 1 (14:07):
Yeah, it's better quality products.
They're looking for permissionto do things.
So an example would besomething like the smaller cans
from Kobuk.
So part of that structuralshift that they made was to
launch smaller cans.
That brought entirely newpeople into the category.
So people who had leftcarbonated soft drinks because
they didn't want the 12 ounce,16 ounce, 20 ounce, whatever it
(14:28):
was, they left the categorybecause that's how much, how
much Coke they wanted to consumeand they didn't want to waste
some.
When you launched the seven anda half or the small eight ounce
can, it was the right amountfor that person and it brought
entirely new people in.
That's how you grow a businessthat's been around for a long
time.
Who's left, why do they leaveand can we give them something
just for that?
In the past, so if you think ofif you want to call it, sort of
(14:51):
the last generation Coke, youwouldn't be bringing pack sizes
down.
You were moving in the oppositedirection.
The idea of bringing it downmight mean less volume, might
mean trading down, it might meana whole host.
It's obviously also moreprofitable.
So that works.
And these days, all of thesethings that we're talking about,
those decisions used to be madeby some sort of brilliant
(15:13):
merchant that had been reallysort of plugged in to the ground
and understands what they'redoing and would have ideas here
or there.
But now you also have thetechnology to help support that.
You have systems and data thatyou can analyze to really figure
out how to dial in preciselywhat package makes sense in what
market.
You know, think about softdrinks, which is, and beer,
(15:36):
which is so unique is.
The consumer is fully aware andfully willing to pay a
completely different price forexactly the same product, and so
if you're at a ballgame and youwant a beer, or if you're
buying a beer from Walmart, youknow that that liquid is exactly
the same but they're worth twovery different things to you,
(15:57):
and that's been established,obviously, since the beginning
of time of beverages, I suppose.
But today you now can have thedata to figure out how much is
it worth, at which place, atwhat time of day and how do you
promote around that and how doyou just have the right offering
for the right time.
This is why there's thisopportunity for growth in what
might be considered a reallymature market.
(16:18):
These sorts of things weren'topen to it and while technology
is doing lots of things for lotsof different industries.
I can't imagine a business thatbenefits more than a business
that has so many different pricepoints for the exact same
underlying product.
Speaker 2 (16:35):
Right.
So we've kind of taken theairline pricing model and
figured it out, and it'sinteresting to remember that it
was the bottlers, in other wordsthe manufacturers and
distributors as distinct fromthe brand company in Latin
America, who have always beenbest at this revenue growth
management and have used packageprice point, channel mix, all
(16:56):
of those things to maximizetotal revenue to the company.
And I think Coke has learned alot from the bottlers.
Now, one thing to talk about isthis view of whether ownership
of distribution, the way Pepsihas versus Coke, which
refranchised and doesn't own itsdistributors it obviously has a
lot of power over them, but itdoesn't own them and then Keurig
(17:19):
, dr Pepper, kdp, somewhere inthe middle, but actually leaning
towards increasing ownership ofdistribution, what do you think
makes the most sense and why?
Speaker 1 (17:28):
Well, it's always nicer to have less assets than
more assets, if you can.
It's nicer to be asset lightlike an energy drink,
third-party manufacturing,third-party distribution,
focusing on the marketing.
Look at any other business.
The marketing departmentusually looks like a lot more
fun than the manufacturing sideof the same operation.
(17:48):
So it's nice if you can have it.
It's hard to have that set up.
Pepsi eventually bought itsbottlers, owns the distribution,
has made the decision to keepit.
It's not entirely clear ifthat's the right decision, yet
Coke was able to franchise itout.
Coke, however, had manywell-capitalized bottlers in and
around the world and they knewthey were able to turn those
(18:13):
assets over to them and thatthey were going to be fully
funded, well-capitalized andinvest behind the business.
Many of them were given moreterritory than they had before.
So you knew they were even moreencouraged to do it, and
franchise operations often makea lot of sense, particularly for
really, really local businesses, and obviously beverages are
super local.
In the case of Pepsi, though,and in the case of KDP, you do
(18:35):
have the Pepsi doesn't reallyhave that same alternative to
send it off to maybe three orfour players, even though
there's, I'm sure, a lot ofpeople would be interested, but
not enough, maybe to turn asmuch of it over as you like.
So I think the way Pepsi lookedat it is like okay, well, how
do we just maximize sweating theassets that we have?
We have these assetsdistribution we know to be
(18:55):
valuable.
Dsd is incredibly valuable.
How do we sweat the assets?
Speaker 2 (18:57):
Can we just clarify DSD is direct store delivery and
that's the process of your ownPepsi person will stock the
shelves as an example.
So that's somewhat unique tobeverages and snacks but it
certainly doesn't happen in allcompanies.
Speaker 1 (19:13):
For everyone listening.
It's exactly the image that youmight have when you think about
a Coca-Cola salesperson with ahand truck outside of his truck,
filling up some cases andwalking down the aisle at a
Walmart.
That's direct store delivery.
Very few businesses do itbecause it's quite expensive to
fill all of those shelves,especially beverages.
They turn very quickly andthey're very heavy, and so you'd
(19:34):
need direct store delivery tobecome of sort of substantial
size.
There's a point at which youcan get to without it, but
eventually you're probably goingto want it.
Speaker 2 (19:44):
Right.
So do you like the KDP hybridmodel or do you think
franchising is the way?
The KDP hybrid model or do youthink franchising is the way?
Speaker 1 (19:49):
I wish it was that black and white.
I think the KDP model makes alot of sense for KDP.
I think the Pepsi structure isa little bit mixed, but the Coke
structure of AssetLite makessense for Coke.
On KDP, what you're seeing is,with all of this focus on growth
, there's also a focus oninnovation.
There's a lot of capital cominginto beverages, lots of
entrepreneurs doing very, verycool things, some of which are
working, and working at scale.
(20:10):
It is nice to have a thirdsystem.
There's the red system,obviously Coke, there's the blue
system, obviously Pepsi.
Now you have KDP, or the maroonsystem, because it's stocked to
pepper, and it's nice to have athird.
And they've quite intelligently,I think been buying up assets
to provide this additionalalternative for people who want
direct store delivery but don'thave the scale to do it.
(20:31):
And what I think they've doneparticularly well, though, is
most of that growth comes fromentrepreneurs, and they have
been open to structuring verydifferent types of deals
depending on the company thatthey were, or particularly the
family or the people thatthey're interacting with.
In some instances, it mightjust be blanket distribution,
capture a margin, move on.
In other cases, it might bebuying the whole business or a
(20:53):
piece of the business or haveequity and push distribution.
For KDP specifically, they allkind of make sense because
anything you add onto yourexisting infrastructure is very,
very profitable.
So, just like any businessyou'll ever look at, the most
value you can ever create is bygetting more out of the existing
asset base, and KDP has beenbuilding up this DSD network.
(21:14):
Now the job is to maximize yourthroughput.
So that person that I explainedsort of envisioned is walking
down the aisle in the Walmart,is always walking with a full
hand truck full of cases.
Speaker 2 (21:25):
Let me just challenge the concept that more is better
through a system, just becauseyou do get the pushback that
it's too hard for that poorsalesperson to stack that many
shelves with so many differentbrands.
It was a lot easier if it wasjust the Dr Pepper brand and
7-Up and so on, so you don'tthink that there's a risk of
(21:46):
spreading too thin as you takeon I mean, kdp has taken on
Ghost, they've got C4.
They have some great new brands.
You think they can handle itand manage it well, in part
maybe because of the improvedtechnologies.
Speaker 1 (21:59):
The technology helps, but it's definitely a risk.
It's a super risk.
We see semi-frequently missioncreep on SKUs.
This is different from justtaking on a bunch of different
partnerships, but mission creepon 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 ofimportant, but they were never
(22:21):
going to get there in scale.
There was too much complexityFor KDP.
They're not there yet, but itis absolutely something to watch
.
There's no doubt that if everycompany had their way, every
Coke truck would only be filledwith Coke, and one of the
reasons why Procter Gamble andthese guys made such a fortune
during COVID is not because wewere scrambling everywhere
(22:42):
trying to buy as much toiletpaper as possible.
It was also because there wasonly one type of toilet paper
and only one pack size and theywere just making boatloads of it
, and so your margins are huge.
Speaker 2 (22:52):
Efficiency, efficiency, efficiency, yes, yes
, it's a beautiful thing.
Speaker 1 (22:55):
The problem is, the consumer doesn't want the same
sort of thing when they havethat option, and so you have to
have an array of goods.
Otherwise you're just out ofmarket for this thing that the
consumer desires.
Speaker 2 (23:06):
Right.
So I mean, I think one of thethemes clearly emerging is
consumer desire for choice andoptionality and, you know, the
blurring of the lines betweensoft drinks and alcohol, and
there's also this health halothat I think brands have to
pursue.
There's a whole new worldcoming in terms of volume demand
because of GLP-1 drugs.
(23:27):
So how do you think the nextfive years play out, with all
these cross-currents and thesort of blurring of lines?
Do you think they will blur ordo you think in the end, alcohol
stays alcohol and soft drinksstay soft drinks, and it's just
a moment in time where it'sgetting a bit fuzzy.
Speaker 1 (23:43):
No, I think, because there's focus on growth.
Everyone's going to go wherethe growth is For years.
If you were coca-cola, the thething about coca-cola, which is
a blessing and a curse, isthere's no better business than
the business of sellingcoca-cola concentrates a great
business and it's an incrediblyhigh margin.
So everything else that youlook at is not as good and that
makes you apprehensive aboutdoing anything else, but the
(24:05):
second sort of thing that jamesquincy did otherwise other than
rg focusing on revenue.
Speaker 2 (24:09):
And James Quincy, by the way, is the CEO, who's now
been in place seven years.
More than that, maybe.
Speaker 1 (24:14):
Seven or eight years is around the average 10 year.
I don't know if that meansanything, but we'll keep that in
mind.
But James Quincy has done aphenomenal job of also saying
we're total growth.
And I mentioned I was aninternet person a million years
ago and I remember when Amazonswitched from just selling books
to selling DVD players and theconcern from analysts like
(24:37):
myself at the time was well,your margins are going to go way
down.
Books is great.
It's a 70% margin business andJeff Bezos was obviously
confused because he makes a 10margin on a $300 DVD player
versus a 70 margin on a $15 book.
It obviously makes more senseto make 30 bucks versus nine and
(25:01):
a half, but that was sort ofthe mindset at the time that you
have this incredibly highmargin product set and Coke is
the same because concentrate isso high margin.
But we can see now, with thesuccess of core power and fair
life and some of these otherthings, the margins may not be
as good as concentrate, but theystill make lots of money in
dollar terms and that's going togrow the pie for everybody and
we use Coke as an example forsomething that's happening so
(25:21):
much more.
Speaker 2 (25:22):
Yeah, and I think investors are very focused on
cashflow and free cashflow, andso that's literally dollars in
the bank and optionality to usethose dollars for share buybacks
or acquisitions.
And I do want to know what yourthoughts are on why the big
players seem to be stepping back, the big ones being the Coke
Pepsis.
I'm not sure about the Europeanbeverage companies, but you're
(25:43):
seeing less acquisition activity, part of it egg on the face
from some bad ones, but there'ssome really amazing innovation
in the market, and so what doyou think is happening there?
Speaker 1 (25:53):
I think they might be struggling to determine which
of the brands will scale.
Often the way that the curveworks is an entrepreneur comes
up with something cool and itemerges and it sort of enters
people's radar screen, and theone that has something cool is
probably dozens that have failed.
But an entrepreneur hassomething cool and you hit a
(26:15):
couple hundred million, maybe insales or something like that.
Now you're on everybody's radarscreen 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 allthose resources it's like being
a child with the keys to theFerrari.
It is very, very hard to goslow, and the way to really
build a business, build a brand,is to go slow.
(26:36):
The reason why Monster worked.
There's 200 to 300 energydrinks launched every single
year globally.
Speaker 2 (26:43):
That is a pretty stunning number Wow.
Speaker 1 (26:45):
And that's been true for every year for 20 years.
And you know everybody wantedto be Red Bull.
Monster was part of the groupof many companies that were
trying to be Red Bull.
We can only maybe come up withfive to 10 collectively of
energy drinks that are of realrelevance after all of this time
Think about collectively over20 years.
And a lot of that has to do withgoing slow enough to make sure
(27:06):
you don't out distribute yourdemand, not putting enough
stress financially andoperationally on your system and
letting money go, saying nowhen you have to so that you can
grow at the pace that you wantto.
And Monster did that by justquietly adding cities across
California and then quietlyadding states, saying no to very
large retailers at thebeginning because they weren't
(27:26):
ready yet from a demandperspective or an operational
perspective at the beginning,because they weren't ready from
a demand perspective or anoperational perspective.
And so lots of others came andwent.
And the others that came andwent sometimes would be from big
strategics like Coke, pepsi,anheuser-busch, molson, coors.
They would launch something andblow it out everywhere where
Diet Coke exists.
It would also come fromathletes that have major
followings.
It would come from celebrities,all of these folks.
But then it was monster, justcreeping and creeping and
(27:48):
creeping, and then they had thisvery strong foundation business
.
It was too late by the timeeveryone else realized what they
were into.
Speaker 2 (27:55):
It's actually quite an extraordinary story and I
want to credit you with sayingto me 15 years ago maybe energy
is the new CSD, it's the newcarbonated soft drink.
There was really a huge debateraging 15, 20 years ago about
whether this was a fad, and itcontinued to be a raging debate
for a long time.
You had regulators sort ofthreatening to come after
(28:17):
caffeinated drinks and MonsterRed Bull.
The industry's done a fantasticjob of pointing out that.
You know there's caffeine inStarbucks.
You know, are we going toregulate that too?
Where is regulation going tostop?
But anyway, what this leads meto ask you is about something
I'm passionate about, which isleadership.
So if you look at the greatcompanies in beverage today, do
(28:38):
you see some common threads andwhat do you think makes a great
leader in the consumer groupthat you've seen over the years?
Speaker 1 (28:44):
I think if we've moved towards the sort of this
growth phase versus the priorphase, probably kind of think of
the history of the last threedecades, I think the first thing
is, first of all, the CEOs seemyounger.
It could be that I'm just 20years older and they've stayed
the same age.
Speaker 2 (29:00):
I think it's because we're older.
Speaker 1 (29:00):
It's unfortunate because they look a lot younger
that I'm just 20 years older andthey've stayed the same age.
I think it's because we'reolder.
Is that what it is?
It's unfortunate because theylook a lot At least I can speak
for myself, they seem a lotyounger, 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 growthmindset that is just different
from an efficiency mindset,which is also different from a
global expansion mindset.
These are very different sortof muscle memory that you need
(29:26):
for each of those things.
There's these periods of sortof waves of entrepreneurs that
sort of arrive and disappear,and it's usually driven by one
or two success stories and thenlots of other entrepreneurs come
and follow and capital followsthose entrepreneurs.
And when you're in that phase,the industry usually grows quite
nicely because people are doingvery cool things.
And this, by the way, is notjust true in soft drinks, this
(29:47):
is also very much true inbeverage alcohol and these folks
are creating things that neverreally existed before.
And if we think about healthand wellness and drinking less
and all of these trends, youwouldn't conclude that that
beatbox would be one of thebiggest success stories at the
moment in beverage alcohol,which is a 12 ABV wine-based
party punch sold in a box.
(30:08):
You wouldn't have made thatguess, but they did something
ultra cool with very coolbranding and it's working really
well.
We also happen to be, though,in this world where the same
consumer is drinking one ofthese is drinking an athletic
brewing because it's more of aconsumer that wants optionality
and willing to do lots ofdifferent things, which really
opens the door for innovation.
So, whether it's beatbox orbuzz balls, or it's real, true
(30:31):
sort of branding and marketingaround adult non-alcoholic, or
whether some of the things we'reseeing on the soft drink side,
with this new wave of energyshifting to performance energy,
or shifting to clean energy,performance energy, healthy
energy, whatever you kind ofwant to call it the consumer is
open to these new and cool ideas, and the entrepreneurs seem to
be there and they want toapproach things differently.
(30:54):
I think liquid death isextraordinary success story,
again driven by some awesomemarketing.
They knew how to do it, theygot it right and they created
this incredible brand that nowlooks like it's even been able
to expand.
I think it's more thancomfortable now, because we have
enough data that it's evenexpanded nicely beyond water
Soon to be sodas.
So you're in this reallyinteresting moment.
(31:17):
In fact maybe you'll recall Idon't is Walmart is now doing
the modern soda set across allof their stores, which will
include Poppy and Olipop and abunch of these other sort of
healthy sodas, modern sodas,whatever you want to call it.
I can't recall the last timethat shelf was reset in that way
.
We're in exciting time.
Speaker 2 (31:38):
It is an exciting time and, as you said, I think
it's happening in alcohol aswell, where I was shocked,
actually, that apparentlynon-alcoholic beer only has 10
SKUs or something on average inand just get an array of
non-alcoholic drinks that adecade ago was you know.
It goes back to theentrepreneur who's willing to do
that incredible heavy liftingand the private equity and
individual investors who arewilling to fund that because
(32:28):
they believe in it.
So maybe this is just thebeginning, in fact, of the
healthier option movement.
It feels like it's been anexplosion, but it's still a tiny
part of the market, right?
Speaker 1 (32:40):
It's a tiny part of the market, but it is now being
treated like its own brand, asopposed to an alternative or a
substitute, which is probablythe biggest change in health and
wellness in the last decade.
Health and wellness used to belooking for substitutes or
restricting your behavior insome way to live a different
lifestyle.
So don't have sugar, don't havecaffeine, don't have carbs,
(33:02):
don't have saturated fat, don'thave fun, don't have whatever.
Speaker 2 (33:06):
Well, that breaks all my rules.
Speaker 1 (33:08):
Yeah, exactly, but today it's what can I do?
What can I consume to have moreenergy?
What can I consume to helpsocialize more of this?
It's just a very differentmindset on what healthy living
is than what it used to be, andthat opens up the door for a lot
of players to pop in when wethink about how they're
approaching it.
Somebody has to do the heavylifting, but we have seen this
(33:30):
before.
If anyone hasn't read the JimCook book I believe it's called
how to Quench your Thirst, orQuench your Own Thirst, or
something like that.
Speaker 2 (33:40):
And Jim Cook is the founder CEO of Boston Beer
Company.
The Samuel Adams brand and alegend in the craft beer
industry, created craft beeragain.
Speaker 1 (33:49):
The absolute founder.
He reads it himself, so if youdo the Audible.
It's also short.
It's a lot of like two pagechapters my favorite sort of
structure of book.
But he talks about how heturned American beer, how he
created craft was up and downthe street pitching this idea
with a bunch of cans in a bagand when you think about what's
happening now in adult,non-alcohol is the same sort of
(34:12):
thing, where the market leaders,like in athletic brewing, are
hand-selling this assistedselling and explaining why to
the retailer this isn't justsome alternative to other things
.
This might be an additionaloccasion.
This might be something you cansell at different times that
are consumed at different times.
It can be a trade-up from justregular soft drinks for people
(34:32):
who don't want to drink.
It might keep people in the barlonger if they're mixing this
in with regular alcoholbeverages.
But it requires a little bit ofan assisted sell as opposed to
I've got this brand and here'sthat brand without alcohol.
It's.
An assisted sell is the sort ofthing that I think is going to
(34:55):
drop this category.
Speaker 2 (34:56):
Come on, I want to throw out a few things for
comments from you.
Glp-1 drugs the big, bigquestion is how much is this
going to affect volume, salesand behaviors?
And I mean, I think one of themost fascinating things to me is
that it appears to turn offsome sort of craving in the
brain that impacts compulsivebehavior that goes well beyond
(35:17):
eating and drinking.
And so the question in my mindis how do you think about how
widespread it could become?
Surely the drug's going to getmuch cheaper.
I think there are alreadycompounders who are making it
quite easily available and it'sactually potentially super,
super beneficial to the healthof this country.
So that could have justdramatic impacts on food and
(35:39):
beverage.
Do you see that as a risk?
Do you see it as someopportunity in there?
Speaker 1 (35:44):
When you have industries that have been around
for a long time, any changeseems like a risk and in almost
every instance, any change is anopportunity.
Who's going to get it right orwrong, who knows?
But things are going to evolveand change.
So the idea of, you know,supersize being in an area of
value and a thing to drive foottraffic for McDonald's some
number of decades ago now is thesort of thing that will
(36:07):
resonate differently now.
We're already seeing, withoutGLP-1 at all, we saw what the
small cans did for Coke.
It worked beautifully.
And so there's going to be thissort of evolution on and the
RGM and the revenue growthmanagement and the data that
comes with it is going to makethis stuff easier to do and
better to identify, becauseit'll be a bigger deal in some
markets than other markets.
But there's going to be someportfolio shifting and I think
(36:29):
the price profit portfoliomanagement exercise will have to
be a little more acute than itwas before.
There's also going to becompanies that make tons of
mistakes.
So maybe like the assumptionthat, 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.
(36:50):
The point is that they don'tdesire to consume that much.
How are you going to be part ofthe things that they do?
And then there's things likeCore Power, fair Life, premier
Protein from Bellring that alsocould be be beneficiaries,
because how do you get yourprotein, which is one of the
most expensive calories and alsoone of the most satiating
calories?
So how do you do that?
Well, shakes ends up being areally great opportunity in that
(37:12):
context.
Speaker 2 (37:13):
Huge, huge opportunity.
Yes, Protein snacks proteinshakes We've obviously seen some
innovation, but maybe there's alot more to do there.
Speaker 1 (37:22):
I think we're just at the beginning on what happens
there, expect a lot more.
The industry has been capacityconstrained, partially because
the growth has been great.
But as it becomes less and lessconstrained, you'll start to
see more innovation, moreplayers, all those types of
things.
Speaker 2 (37:37):
Is.
Speaker 1 (37:38):
Bellring, a play on the protein side.
Yeah, bellring is a play.
It's maybe the best pure playbehind that theme.
It has one of the highest gramsof protein to calorie ratios,
including grams to protein tosugar ratio, and it's very
reasonably priced and sells highvolumes in Costco.
It doesn't focus on the crazyathlete looking for the ultimate
(37:59):
sort of protein concoction.
It is more for mainstreampeople who are looking to have
more protein in their lives andby just being a little more
relaxed about it and not beingtrying to be the next cool crazy
thing, most people on averagewhich is that's the definition
of average and they're justgoing for the average person
that wants to have more protein.
Speaker 2 (38:20):
And boy oh boy, that's where the big bucks are
with the average consumer.
Speaker 1 (38:24):
Yeah, it's the fat part of the curve.
Speaker 2 (38:26):
Yeah or the snake.
So on GLP-1 drugs, do you thenenvision that creeping up to be
used by a greater percentage ofthe population over time?
And then I don't know how youthink about our new Health and
Human Services Minister underTrump as well, and what impact
RFK is going to have on behaviorof food companies.
Speaker 1 (38:46):
I think it's a few things I mean.
The first is that yes, I thinkit's going to be big.
It's going to take a while, butit will be very big.
Back in my internet days, billGates kind of famous for saying
people really overestimate howbig something will be in two
years but dramaticallyunderestimate how big it's going
to be in 20.
This will be part of it.
But you also have to rememberthis is something with an
on-ramp and an off-ramp and youdon't take it forever.
(39:09):
This is not something you takefor life or anything like that.
We'll probably have a bit of ashift and then a bit of a
leveling off and then we figureout how we operate in that
environment.
That's the first thing in thatenvironment.
I think that's the first thingI think on Bobby Kennedy in HHS.
It's interesting because it isactually informing everybody to
be a little bit more focused onwhat's in the food and that is
(39:32):
something that has beenhappening anyways.
Food companies have been sayingwe want to go clean label.
We want to go clean label for areally long time.
You'll remember one of thethings that Frito did very early
in the 2000s was remove transfats yes from their chips.
I think that was 2004, 2003.
It cost a lot of money, um,their margins went down at the
(39:52):
time, but then it was somenumber of years later.
Trans fats were banned and soit's the right thing to do.
They did it and I think they'llmaybe be some of those, those
moments and it's just at the endof the day Maybe not every
decision will be the best one,but I think what it's doing is
actually accelerating a trendthat somebody needed to really
get them a bit of a boost sothat these companies that were
(40:13):
trying to evolve into cleanerlabels actually Yep, it's
definitely a case of watch thespace on the drugs, and it won't
necessarily just be GLP-1s.
Speaker 2 (40:22):
It could be some older drugs, like metformin,
that have been on the market along time and actually have
significant benefits, and Ithink it's fascinating.
I don't know if anyonelistening to us has watched
Never Die, I think it's calledor Don't Die, a movie on Netflix
, brian Thompson, and I thinkthat we're in a phase now where
they're just going to be allsorts of elements discovered
that we can use to enhance lifewithout going crazy like he is.
(40:47):
But you know, adding NAD ortaking out something else using
magnesium lots of new thingsthat will be useful.
Food as medicine.
Speaker 1 (40:57):
It's really this shift from a subtractive,
restrictive definition of whathealth and wellness is to
something that's additive.
That movie would be the extremeexample of just all these
things that you're doing, but itshows that all that's available
to you, right.
There's companies now that'llgive you really good data about
your system, various systems,based on the various samples
(41:18):
that you send to them.
There's infrared therapiesobviously taking off.
Magnesium is taking off, so youhave a lot going on on things
that people want to do, want toconsume, whether it's services,
whether it's something thatyou're, you know, tangible goods
, um, which means the market isis in a better place than I'm
trying to cut down from six cansto four cans to live a
(41:41):
healthier life now they'retrying to find the seventh or
eighth can that's doing for themwhat they want?
I?
Speaker 2 (41:46):
know.
It always amazes me because Ithink my children's generation
my girls are in their twentiesare worried about how they're
ever going to buy a house.
I think it becomes increasinglydifficult if you're having to.
You know, go and get a B1infusion and you know, a little
Botox here and all these thingsto make you live longer, look
younger.
You know, and I live inCalifornia, so now I'm seeing
(42:09):
extreme use Stretch lab, thislab, this other lab, hack this.
It's wild, but you see itenough.
You start thinking maybe Ishould try cryotherapy every
morning, or I could just get inthe freezing cold pool.
I mean, that would work too,but no, I think I'll pay for
that.
Speaker 1 (42:25):
Yeah, in New York, in Chelsea, new York, we have
basically every concept within acouple of blocks next to each
other, and it's a good thing.
At the end of the day, what'sthe best one?
It's all irrelevant, becausethe point is that all those
businesses exist becausesomebody's interested in paying
for it and that leads to ahealthier society.
But that also means there's alot more commerce to do in
(42:45):
something new, as opposed totrying to sort of fight the
fight on declining categories.
Speaker 2 (42:51):
It's fun to watch the innovation and I think we
always learn so much fromyounger generations as well,
sort of rethinking how we lookat 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, maybeit's better not to own
something in LA.
Talk to me about how importantdo you think marketing is today
(43:13):
Marketing advertising, obviously.
The way we do it today haschanged a lot versus a decade
ago.
Is it as important asdistribution has something taken
over, or is it still reallyreally critical?
Speaker 1 (43:27):
I think the biggest error that the strategics make
in launching new products orshortly after doing deals is
over-distribute them, becausethere's marketing, there's
selling, particularly theassisted selling, for if it's
going to be new products, newinnovations, it needs to be
assisted hand selling, likeboston beer and how jim cook, by
the way, boston beer still doesit that way.
(43:48):
They spend more per case onsalespeople than any other
brewer in the country, certainlyprobably maybe on the planet,
for all I know.
Um, that part is critical, butbalancing the right amount of
marketing with the right amountof salespeople, the right amount
of distribution, is actuallythe hard part, um, because
distribution is something you'realways gunning for, you always
want it, you always want it, butare you also being honest with
yourself if you have the demand?
(44:09):
Monster success came from neverout-distributing their demand
and by saying no rather thansaying yes when they didn't
think the cans were going to getthe pull through when they
started to roll out into newmarkets, and that's why a lot of
other energy drinks failed.
And I think marketing continuesto be the most important.
Most critical thing is maybethe definition of what is
marketing has changed, but theother thing is marketing has
(44:31):
become a little moretransactional and the
transactional marketingcomponents has become really,
really enchanting.
And maybe because, again, thependulum never really goes to
the center, some companies areoverdoing it on the whether it's
digital, whether it's social,whether it's just some of these
shorter hits as opposed to theselarger brand building exercises
(44:52):
.
You build a sort of a real brandand you do it over time and
that stays with you as differentfrom going viral and whatever
success you have during thatwindow of time that you're
relevant in a viral world.
And so, again, marketing isstill incredibly critical.
Super Bowl still very, verygood at creating unaided brand
awareness.
Poppy's thing was probably themost successful commercial that
(45:15):
we've seen in beverages for along time, not because it was a
great commercial and all of that, but because so few people knew
what poppy was or knew whathealthy soda was, and actually
Olipop and poppy both benefitedfrom it.
But that has a very differentimpact than if everybody already
knows your brand and you'readvertising on the Super Bowl
and they're just watching it forthe humor.
Poppy ends up absolutelyexploding their sales and they
(45:38):
were ready for it to happen,where, if you're a larger
company and you advertise as youalways do, people laugh and
chuckle and enjoy the ad, but dothey buy any more beer?
And that's the part that's alittle bit different than maybe
what it used to be.
Speaker 2 (45:50):
Yeah, if I think about Olympic sponsorships and
the cost of that, I've alwaysthought it was very hard to make
a return maybe a specificathlete to a specific team but
when you get into the wholemajor, weeks-long events, it
often doesn't present a returnif you're an older brand, but if
you make one breakthrough, asyou said, that can be pretty
(46:11):
exciting.
So, kamal, what are you excitedabout personally,
professionally, as you lookforward in 2025?
Speaker 1 (46:19):
Well, jefferies has some pretty cool things going on
.
We have a big Nantucketconference, which is an absolute
great show.
Private, public companieschatting about a million
different sort of things overthe course of a couple of days.
That's always a highlight ofthe year, and outside of that
it's still ski season andColorado has been dumped on.
So I'll get out there as muchas I can, and I'm getting to
that stage now where thechildren are getting faster and
(46:41):
crazier than me and I'll have tomaybe take lessons or something
to figure out.
Speaker 2 (46:45):
They're keeping you on your toes.
Speaker 1 (46:47):
Yeah, or worse, keeping me on terrain parks and
other sorts of things that Idon't belong on anymore.
Speaker 2 (46:52):
Komal.
Thank you.
This has been so much fun, veryinformative, and I can't wait
to talk to you six to 12 monthsfrom now and see what's panning
out and what's different fromwhere we sit today.
Speaker 1 (47:04):
Yeah, let's do this again.
Speaker 2 (47:06):
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 yourfriends and colleagues.
The one thing I always like to say about
business is the pendulum neverreally stops in the center.
You would love for life to bebalanced growth between price,
mix pricing and volume.
It's really never that way.
But let's think about where thepricing opportunity is.
Speaker 2 (00:19):
Hello friends, old and new, and welcome to Drinks
with Caroline.
I'm so happy you've joined mefor what I believe will be
another stimulating conversationwith an industry expert,
founder or otherwise fabulousperson in the consumer industry,
Komal.
Welcome to Drinks with Caroline.
(00:40):
I'm so happy to be cracking andathletic with you.
Komal is a longtime friend anda very well-esteemed Wall Street
analyst who covers the beveragesector, household products, the
healthy pet sector and thehealth and wellness sector, as
defined by Jeffries.
Komal works at Jeffries.
He's also had a long career atUBS and Credit Suisse, so we go
(01:05):
back a long way, Komal, and I'mhappy to be sharing a drink with
you today.
Cheers, Cheers to that.
Speaker 1 (01:10):
These are delicious.
Thank you for sorting outhaving larger pack sizes.
Speaker 2 (01:14):
Oh good, I'm glad you have that.
So I want to start by askingfor people who don't know what
an equity analyst does, just totalk a little bit about day in
the life of Komal Garjewala or aweek in the life of Komal
Garjewala and how you became ananalyst, what made you become a
stock analyst, what pulled youinto the consumer group and
(01:34):
anything else we should knowthat would help us understand
your thinking.
Speaker 1 (01:38):
The life of an analyst can be a million
different things, but ourresponsibility or our mandate is
actually pretty simple it's tohelp asset managers investors
make better investment decisions.
What does that actually mean?
If you save money with a mutualfund or if you have your money
played other places where it'sbeen stored, you want to rely on
the professionals to choosegood businesses to buy, to stay
(01:59):
away from the bad businesses,find good businesses at better
than fair prices so that overtime, the money that you've
saved grows and compounds.
And our goal is to be absoluteexperts in this subsector that
we cover, because if you have aportfolio manager that is
managing the wealth of thousandsor tens of thousands of people,
they want to speak to an expertbefore they buy something like
(02:21):
a beer business or a beveragebusiness.
And that's what we spend ourtime doing is trying as hard as
we can to be the absoluteexperts in the spaces that we
cover.
How did I get into this thing?
That's a I guess that's more ofa.
That's a longer story.
Grew up in a house where fatherwas an engineer for the
Department of Defense and, Ithink, really wanted to be a
more of a finance guy or aninvestor, and he and I used to
(02:44):
watch a show that probablypeople don't remember anymore
called Wall Street Week, withLouis Rukeyser.
Speaker 2 (02:49):
I remember it.
Speaker 1 (02:51):
It was on Friday nights and I wasn't cool enough
to have friends, so I hung outand watched Wall Street Week
with him and he told me thatsecurities analysts make a lot
of money.
And so as young as I was, I waslike a lot of money sounds like
a good idea and eventually gotmyself here, still waiting for
the a lot of money part, buthaving a lot of fun.
Speaker 2 (03:10):
And straight into consumer covering consumer, or
what was the path?
Speaker 1 (03:14):
No, I actually started in what you know at the
time was the hottest job on WallStreet, 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 theinternet industry in the year
2000.
So this is when Amazon andPricelinecom and those of you
that remember Petscom and allthe action that was going on
with the sort of group ofdot-com mania.
(03:34):
I graduated from Rutgers in theyear 2000,.
Graduations in May, for anyonewho might remember, the internet
bubble started to burst inMarch.
So I came out as some sort ofyou know, hot shot kid that was
ready to be a rich securitiesanalyst, expecting to make all
the glorious bars of gold thatcomes with covering internet in
(03:55):
the year 2000, and didn't make acent because I arrived five
minutes too late and all thetech folks, all these tech folks
now are just getting fired andsort of like every two weeks.
It was another sort of group ofpeople, group of people.
Well, and eventually I had theopportunity to cover beverages
and I did it very apprehensivelybecause I thought I was a super
(04:15):
cool tech bro and managementkind of said well, we don't
really need cool tech brosbecause there's too many of them
around.
But if you want to cover Cokeand 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 yoursort of at that time was a very
exciting and fun lifestyle.
Wasn't trying to save for muchand decided to cover beverages,
(04:37):
and that's what connected us too.
So we've now known each other23 years.
Speaker 2 (04:43):
It's been a fun ride.
I think one of the mottos youknow I live by is every day you
should be having fun.
You don't work hard, you workeasy Doesn't mean they're short
hours, but you just make sureyou have some fun in there, and
I think you certainly do thatwith your team, and I try to
make sure I'm always doing thattoo.
So let's turn to talk aboutwhat you're excited about today.
(05:06):
Maybe just talk a little bitabout your coverage, and from
our earlier chats, I thinkyou're pretty excited about
beverages right now,specifically soft drinks.
Speaker 1 (05:14):
So my coverage I cover household personal care,
beverages, better for you food,nutrition.
We call the health and wellnessstuff Halo, healthy, active
lifestyle and outdoor.
We look at healthy living asits own space, just like how
there might be an internetanalyst or a market strategist
or an oil analyst.
We figure there should besomebody who looks at healthy
(05:34):
living.
And within that context we alsoget to cover pet, which is
super fun, especially if youhave one, you'll know, we think,
when it comes to a healthierlifestyle, who doesn't have a
dog?
That doesn't make them happy?
So it's pretty broad.
We are excited about softdrinks.
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.
(05:55):
So this is in the 2000s whereso much of the area of focused
for growth was on expansionglobally, particularly into
those brick countries Brazil,russia, india and China, and
that was really the goal.
It wasn't about how much moneyyou were making, what the
returns were.
It was about do you have astory about how you're going to
expand globally?
And that was a generation agoin this dream of sort of
(06:17):
expansion of Western brands andit was cool and that's what
worked for a while.
Then things started to slowdown.
Speaker 2 (06:22):
I do remember it seemed to start with the dollar
strengthening so that foreignearnings to the extent there
were any in some of thosemarkets became less and less
valuable when you translatedthem as an American company.
But that was really the tip ofthe iceberg, because then you
started to actually seeeconomies break down and demand
change and so on.
So yeah, that was a differentera.
Speaker 1 (06:44):
Yeah, it's important to sort of always remember that
there's these really big megacycles that are impacting
business that are so easy tomiss when you're looking year by
year, by year.
But you had this sort of periodof dollar weakness for multiple
years and the Colgates and theCoca-Colas were doing absolutely
spectacular as that wasoccurring and they went on and
they continue to sell lots oftubes of toothpaste and lots of
(07:07):
cans of Coke, but the money thatwas coming back to New York and
Atlanta was less than it wasbefore.
Speaker 2 (07:12):
A lot less yeah.
Speaker 1 (07:13):
That's a better way to say it it was a lot less and
the response to the slowdown ingrowth by many of these
companies, largely because atthat time now we're moving to
just after the financial crisis2010-ish the biggest success
story at that time really wasAnheuser-Busch Ambev, the
creation of it, from buying SABMiller to Interbrew Ambev coming
(07:36):
together and then eventuallythem buying Anheuser-Busch.
While they were the greatsuccess story, the reason for it
and this is one of the thingsthat you often see in these
management trends that lastthese long cycles the reason for
it and this is one of thethings that you often see in
these management trends thatlast these long cycles the
reason for their success waspointed to specifically
zero-based budgeting and,effectively, extreme efficiency
and extreme costs, and for thosethat were around in the 90s and
(07:57):
2000s, that is, cost saves andefficiency is not exactly where
these companies thrive, and sothere was a lot of room to cut
and a lot of wood to chop andthe focus really went from top
line to bottom line and doesn'thave an impact.
These are pretty goodbusinesses again, different for
smaller, pure plays anddifferent from entrepreneurs,
but when you have these largebusinesses, that cashflow a lot.
(08:19):
If you're making mistakes, youdon't feel it for a long time.
What time happening is?
You had this brand sort oferosion, innovation, erosion,
loss of real muscle from a topline perspective, but it's
usually too late by the time youfind it and I guess towards the
end of the 2010s kind of giveyou 30 years and three minutes.
(08:40):
By the time you get to the endof the 2010s.
A lot of the boards realizedthat they might have made a
mistake and almost every one ofmy companies rinsed their
management teams with entirelynew CEOs, cfos and various sort
of stages within it between thatsort of 15 to 18 era.
This business and that opens upso many doors after a decade of
(09:05):
focusing on efficiency and theopportunity in beverages, never
disappeared.
It's the response to thingsthat was driving some of that
weakness right.
The consumer was still buyingand drinking more things.
It's just less and less of whatthey were selling.
And that brings me to sort ofwhy I'm bullish on soft drinks
now is because you have thisshifting focus from efficiency
to top line and the opportunityand we can get into some of the
(09:28):
details if you like, but theopportunity for many of these
products, given that they'veeffectively opened themselves up
to a market in a way that theyweren't as open before usually
means you're going to havebetter growth than you have.
Speaker 2 (09:41):
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 gotreal pricing power across the
board for consumer staples thathadn't been around for years and
years and years.
And then I think what's oneverybody's mind is has that
been overdone?
I think what you're saying isyou see an opportunity for a
(10:02):
nice balanced growth outlook, ordo you think it's all going to
be volume driven now throughinnovation?
Speaker 1 (10:08):
It'll be a mix.
But I think the one thing Ialways like to say about
business is the pendulum neverreally stops in the center.
You would love for life to bebalanced growth between price,
mix pricing and volume.
It's really never that way.
But let's think about where thepricing opportunity is.
A couple of really major thingshave changed.
The backdrop first is they werestill in the process of
(10:28):
recovering from the Cold Wars inthe 80s and 90s and the focus
on volume Carbonated soft drinksparticularly lagged inflation
for roughly three quarters ofthe years between them.
They're still some of thecheapest things you can find in
a grocery store.
Still many grocers are turningtheir inventory multiple times
before they have to pay their30-day bill.
So it still remains a veryaffordable product.
(10:50):
But what's changed?
And largely this is driven byin order for things to
fundamentally change, the marketleader has to be on board or
has to be the one to lead, andthe leadership from Coke was
shifting from first payingmanagers, from shifting that
from volume to paying forrevenue.
So now just rolling out a bunchof three liters to help make a
(11:13):
volume figure isn't going tomake your number.
You need to work it from arevenue perspective and they're
also paid more on unit growthversus equivalized volume growth
, paidid more on revenue, paidmore on occasions.
So it was much more open of anot open, much better aligned,
I'd say, and it created a muchmore rational industry for
everybody else when you're notjust trying to have the cheapest
(11:35):
product, stack them high andlet them fly, all that sort of
stuff.
It was a different era, thatwas a very different type of
strategy and now we're in a morerational sort of world.
Speaker 2 (11:46):
I think the big surprise yes, it's more rational
is that cola has startedgrowing again.
I mean, Coke, specifically, hasstarted really putting up some
good numbers and so I thinkcertainly sitting in LA, you see
all the innovation and all themove, the trend towards
healthier sodas and healthierdrinks in general, the move, the
trend towards healthier sodasand healthier drinks in general.
(12:07):
It's kind of astounding to seeeven in North America a brand
like Coke is growing again.
So I'm fascinated as to how yousee the balance between playing
in the better for youcategories within soft drinks
and their traditional businesses.
Speaker 1 (12:20):
Coke is really once they got to their front foot and
they started innovating andthey started focusing more on
revenue and revenue growthmanagement and less on just
driving volume, and relied lesson just the fact that they have
the best distribution on theplanet and more on how do you
really sell this stuff in?
Nobody ever really denied thefact that Coke is delicious, so
(12:41):
if it's not working, there'sprobably a different reason.
Now, obviously, they benefitfrom the fact that Coke Zero has
been a massive success.
It's a scientific breakthroughand they've now had it for a
long time, but it just keepskind of getting better and
better.
Sorry, it's Coke Zero Sugar,not Coke Zero anymore.
To be that.
(13:01):
You buy Coke shares because youwanted 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 supposedto be the drag are actually
contributors as well, and that'sa big change since this sort of
revenue growth managementstrategy and if I think about it
(13:23):
being about global rolloutbrick and then it being about
zero-based budgeting ZBB the2020s is going to be about RGM
revenue growth management andyou're already seeing a lot of
the benefits of that and itreally helped many of these
companies make it through all ofthese supply issues, that
supply and inflation issues thatwe're dealing with over the
last couple of years.
Speaker 2 (13:44):
Right, and this has never been more important, with
now risk of tariffs coming in.
I don't know what you thinkabout that, but I think that
there is pressure to takepricing because number one again
, input costs could go upbecause of aluminum and things
like that going up, but theycould also go up because the
consumer is looking for betterquality products.
(14:04):
So that's something else I'dlove to hear your view on.
Speaker 1 (14:07):
Yeah, it's better quality products.
They're looking for permissionto do things.
So an example would besomething like the smaller cans
from Kobuk.
So part of that structuralshift that they made was to
launch smaller cans.
That brought entirely newpeople into the category.
So people who had leftcarbonated soft drinks because
they didn't want the 12 ounce,16 ounce, 20 ounce, whatever it
(14:28):
was, they left the categorybecause that's how much, how
much Coke they wanted to consumeand they didn't want to waste
some.
When you launched the seven anda half or the small eight ounce
can, it was the right amountfor that person and it brought
entirely new people in.
That's how you grow a businessthat's been around for a long
time.
Who's left, why do they leaveand can we give them something
just for that?
In the past, so if you think ofif you want to call it, sort of
(14:51):
the last generation Coke, youwouldn't be bringing pack sizes
down.
You were moving in the oppositedirection.
The idea of bringing it downmight mean less volume, might
mean trading down, it might meana whole host.
It's obviously also moreprofitable.
So that works.
And these days, all of thesethings that we're talking about,
those decisions used to be madeby some sort of brilliant
(15:13):
merchant that had been reallysort of plugged in to the ground
and understands what they'redoing and would have ideas here
or there.
But now you also have thetechnology to help support that.
You have systems and data thatyou can analyze to really figure
out how to dial in preciselywhat package makes sense in what
market.
You know, think about softdrinks, which is, and beer,
(15:36):
which is so unique is.
The consumer is fully aware andfully willing to pay a
completely different price forexactly the same product, and so
if you're at a ballgame and youwant a beer, or if you're
buying a beer from Walmart, youknow that that liquid is exactly
the same but they're worth twovery different things to you,
(15:57):
and that's been established,obviously, since the beginning
of time of beverages, I suppose.
But today you now can have thedata to figure out how much is
it worth, at which place, atwhat time of day and how do you
promote around that and how doyou just have the right offering
for the right time.
This is why there's thisopportunity for growth in what
might be considered a reallymature market.
(16:18):
These sorts of things weren'topen to it and while technology
is doing lots of things for lotsof different industries.
I can't imagine a business thatbenefits more than a business
that has so many different pricepoints for the exact same
underlying product.
Speaker 2 (16:35):
Right.
So we've kind of taken theairline pricing model and
figured it out, and it'sinteresting to remember that it
was the bottlers, in other wordsthe manufacturers and
distributors as distinct fromthe brand company in Latin
America, who have always beenbest at this revenue growth
management and have used packageprice point, channel mix, all
(16:56):
of those things to maximizetotal revenue to the company.
And I think Coke has learned alot from the bottlers.
Now, one thing to talk about isthis view of whether ownership
of distribution, the way Pepsihas versus Coke, which
refranchised and doesn't own itsdistributors it obviously has a
lot of power over them, but itdoesn't own them and then Keurig
(17:19):
, dr Pepper, kdp, somewhere inthe middle, but actually leaning
towards increasing ownership ofdistribution, what do you think
makes the most sense and why?
Speaker 1 (17:28):
Well, it's always nicer to have less assets than
more assets, if you can.
It's nicer to be asset lightlike an energy drink,
third-party manufacturing,third-party distribution,
focusing on the marketing.
Look at any other business.
The marketing departmentusually looks like a lot more
fun than the manufacturing sideof the same operation.
(17:48):
So it's nice if you can have it.
It's hard to have that set up.
Pepsi eventually bought itsbottlers, owns the distribution,
has made the decision to keepit.
It's not entirely clear ifthat's the right decision, yet
Coke was able to franchise itout.
Coke, however, had manywell-capitalized bottlers in and
around the world and they knewthey were able to turn those
(18:13):
assets over to them and thatthey were going to be fully
funded, well-capitalized andinvest behind the business.
Many of them were given moreterritory than they had before.
So you knew they were even moreencouraged to do it, and
franchise operations often makea lot of sense, particularly for
really, really local businesses, and obviously beverages are
super local.
In the case of Pepsi, though,and in the case of KDP, you do
(18:35):
have the Pepsi doesn't reallyhave that same alternative to
send it off to maybe three orfour players, even though
there's, I'm sure, a lot ofpeople would be interested, but
not enough, maybe to turn asmuch of it over as you like.
So I think the way Pepsi lookedat it is like okay, well, how
do we just maximize sweating theassets that we have?
We have these assetsdistribution we know to be
(18:55):
valuable.
Dsd is incredibly valuable.
How do we sweat the assets?
Speaker 2 (18:57):
Can we just clarify DSD is direct store delivery and
that's the process of your ownPepsi person will stock the
shelves as an example.
So that's somewhat unique tobeverages and snacks but it
certainly doesn't happen in allcompanies.
Speaker 1 (19:13):
For everyone listening.
It's exactly the image that youmight have when you think about
a Coca-Cola salesperson with ahand truck outside of his truck,
filling up some cases andwalking down the aisle at a
Walmart.
That's direct store delivery.
Very few businesses do itbecause it's quite expensive to
fill all of those shelves,especially beverages.
They turn very quickly andthey're very heavy, and so you'd
(19:34):
need direct store delivery tobecome of sort of substantial
size.
There's a point at which youcan get to without it, but
eventually you're probably goingto want it.
Speaker 2 (19:44):
Right.
So do you like the KDP hybridmodel or do you think
franchising is the way?
The KDP hybrid model or do youthink franchising is the way?
Speaker 1 (19:49):
I wish it was that black and white.
I think the KDP model makes alot of sense for KDP.
I think the Pepsi structure isa little bit mixed, but the Coke
structure of AssetLite makessense for Coke.
On KDP, what you're seeing is,with all of this focus on growth
, there's also a focus oninnovation.
There's a lot of capital cominginto beverages, lots of
entrepreneurs doing very, verycool things, some of which are
working, and working at scale.
(20:10):
It is nice to have a thirdsystem.
There's the red system,obviously Coke, there's the blue
system, obviously Pepsi.
Now you have KDP, or the maroonsystem, because it's stocked to
pepper, and it's nice to have athird.
And they've quite intelligently,I think been buying up assets
to provide this additionalalternative for people who want
direct store delivery but don'thave the scale to do it.
(20:31):
And what I think they've doneparticularly well, though, is
most of that growth comes fromentrepreneurs, and they have
been open to structuring verydifferent types of deals
depending on the company thatthey were, or particularly the
family or the people thatthey're interacting with.
In some instances, it mightjust be blanket distribution,
capture a margin, move on.
In other cases, it might bebuying the whole business or a
(20:53):
piece of the business or haveequity and push distribution.
For KDP specifically, they allkind of make sense because
anything you add onto yourexisting infrastructure is very,
very profitable.
So, just like any businessyou'll ever look at, the most
value you can ever create is bygetting more out of the existing
asset base, and KDP has beenbuilding up this DSD network.
(21:14):
Now the job is to maximize yourthroughput.
So that person that I explainedsort of envisioned is walking
down the aisle in the Walmart,is always walking with a full
hand truck full of cases.
Speaker 2 (21:25):
Let me just challenge the concept that more is better
through a system, just becauseyou do get the pushback that
it's too hard for that poorsalesperson to stack that many
shelves with so many differentbrands.
It was a lot easier if it wasjust the Dr Pepper brand and
7-Up and so on, so you don'tthink that there's a risk of
(21:46):
spreading too thin as you takeon I mean, kdp has taken on
Ghost, they've got C4.
They have some great new brands.
You think they can handle itand manage it well, in part
maybe because of the improvedtechnologies.
Speaker 1 (21:59):
The technology helps, but it's definitely a risk.
It's a super risk.
We see semi-frequently missioncreep on SKUs.
This is different from justtaking on a bunch of different
partnerships, but mission creepon 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 ofimportant, but they were never
(22:21):
going to get there in scale.
There was too much complexityFor KDP.
They're not there yet, but itis absolutely something to watch
.
There's no doubt that if everycompany had their way, every
Coke truck would only be filledwith Coke, and one of the
reasons why Procter Gamble andthese guys made such a fortune
during COVID is not because wewere scrambling everywhere
(22:42):
trying to buy as much toiletpaper as possible.
It was also because there wasonly one type of toilet paper
and only one pack size and theywere just making boatloads of it
, and so your margins are huge.
Speaker 2 (22:52):
Efficiency, efficiency, efficiency, yes, yes
, it's a beautiful thing.
Speaker 1 (22:55):
The problem is, the consumer doesn't want the same
sort of thing when they havethat option, and so you have to
have an array of goods.
Otherwise you're just out ofmarket for this thing that the
consumer desires.
Speaker 2 (23:06):
Right.
So I mean, I think one of thethemes clearly emerging is
consumer desire for choice andoptionality and, you know, the
blurring of the lines betweensoft drinks and alcohol, and
there's also this health halothat I think brands have to
pursue.
There's a whole new worldcoming in terms of volume demand
because of GLP-1 drugs.
(23:27):
So how do you think the nextfive years play out, with all
these cross-currents and thesort of blurring of lines?
Do you think they will blur ordo you think in the end, alcohol
stays alcohol and soft drinksstay soft drinks, and it's just
a moment in time where it'sgetting a bit fuzzy.
Speaker 1 (23:43):
No, I think, because there's focus on growth.
Everyone's going to go wherethe growth is For years.
If you were coca-cola, the thething about coca-cola, which is
a blessing and a curse, isthere's no better business than
the business of sellingcoca-cola concentrates a great
business and it's an incrediblyhigh margin.
So everything else that youlook at is not as good and that
makes you apprehensive aboutdoing anything else, but the
(24:05):
second sort of thing that jamesquincy did otherwise other than
rg focusing on revenue.
Speaker 2 (24:09):
And James Quincy, by the way, is the CEO, who's now
been in place seven years.
More than that, maybe.
Speaker 1 (24:14):
Seven or eight years is around the average 10 year.
I don't know if that meansanything, but we'll keep that in
mind.
But James Quincy has done aphenomenal job of also saying
we're total growth.
And I mentioned I was aninternet person a million years
ago and I remember when Amazonswitched from just selling books
to selling DVD players and theconcern from analysts like
(24:37):
myself at the time was well,your margins are going to go way
down.
Books is great.
It's a 70% margin business andJeff Bezos was obviously
confused because he makes a 10margin on a $300 DVD player
versus a 70 margin on a $15 book.
It obviously makes more senseto make 30 bucks versus nine and
(25:01):
a half, but that was sort ofthe mindset at the time that you
have this incredibly highmargin product set and Coke is
the same because concentrate isso high margin.
But we can see now, with thesuccess of core power and fair
life and some of these otherthings, the margins may not be
as good as concentrate, but theystill make lots of money in
dollar terms and that's going togrow the pie for everybody and
we use Coke as an example forsomething that's happening so
(25:21):
much more.
Speaker 2 (25:22):
Yeah, and I think investors are very focused on
cashflow and free cashflow, andso that's literally dollars in
the bank and optionality to usethose dollars for share buybacks
or acquisitions.
And I do want to know what yourthoughts are on why the big
players seem to be stepping back, the big ones being the Coke
Pepsis.
I'm not sure about the Europeanbeverage companies, but you're
(25:43):
seeing less acquisition activity, part of it egg on the face
from some bad ones, but there'ssome really amazing innovation
in the market, and so what doyou think is happening there?
Speaker 1 (25:53):
I think they might be struggling to determine which
of the brands will scale.
Often the way that the curveworks is an entrepreneur comes
up with something cool and itemerges and it sort of enters
people's radar screen, and theone that has something cool is
probably dozens that have failed.
But an entrepreneur hassomething cool and you hit a
(26:15):
couple hundred million, maybe insales or something like that.
Now you're on everybody's radarscreen 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 allthose resources it's like being
a child with the keys to theFerrari.
It is very, very hard to goslow, and the way to really
build a business, build a brand,is to go slow.
(26:36):
The reason why Monster worked.
There's 200 to 300 energydrinks launched every single
year globally.
Speaker 2 (26:43):
That is a pretty stunning number Wow.
Speaker 1 (26:45):
And that's been true for every year for 20 years.
And you know everybody wantedto be Red Bull.
Monster was part of the groupof many companies that were
trying to be Red Bull.
We can only maybe come up withfive to 10 collectively of
energy drinks that are of realrelevance after all of this time
Think about collectively over20 years.
And a lot of that has to do withgoing slow enough to make sure
(27:06):
you don't out distribute yourdemand, not putting enough
stress financially andoperationally on your system and
letting money go, saying nowhen you have to so that you can
grow at the pace that you wantto.
And Monster did that by justquietly adding cities across
California and then quietlyadding states, saying no to very
large retailers at thebeginning because they weren't
(27:26):
ready yet from a demandperspective or an operational
perspective at the beginning,because they weren't ready from
a demand perspective or anoperational perspective.
And so lots of others came andwent.
And the others that came andwent sometimes would be from big
strategics like Coke, pepsi,anheuser-busch, molson, coors.
They would launch something andblow it out everywhere where
Diet Coke exists.
It would also come fromathletes that have major
followings.
It would come from celebrities,all of these folks.
But then it was monster, justcreeping and creeping and
(27:48):
creeping, and then they had thisvery strong foundation business
.
It was too late by the timeeveryone else realized what they
were into.
Speaker 2 (27:55):
It's actually quite an extraordinary story and I
want to credit you with sayingto me 15 years ago maybe energy
is the new CSD, it's the newcarbonated soft drink.
There was really a huge debateraging 15, 20 years ago about
whether this was a fad, and itcontinued to be a raging debate
for a long time.
You had regulators sort ofthreatening to come after
(28:17):
caffeinated drinks and MonsterRed Bull.
The industry's done a fantasticjob of pointing out that.
You know there's caffeine inStarbucks.
You know, are we going toregulate that too?
Where is regulation going tostop?
But anyway, what this leads meto ask you is about something
I'm passionate about, which isleadership.
So if you look at the greatcompanies in beverage today, do
(28:38):
you see some common threads andwhat do you think makes a great
leader in the consumer groupthat you've seen over the years?
Speaker 1 (28:44):
I think if we've moved towards the sort of this
growth phase versus the priorphase, probably kind of think of
the history of the last threedecades, I think the first thing
is, first of all, the CEOs seemyounger.
It could be that I'm just 20years older and they've stayed
the same age.
Speaker 2 (29:00):
I think it's because we're older.
Speaker 1 (29:00):
It's unfortunate because they look a lot younger
that I'm just 20 years older andthey've stayed the same age.
I think it's because we'reolder.
Is that what it is?
It's unfortunate because theylook a lot At least I can speak
for myself, they seem a lotyounger, 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 growthmindset that is just different
from an efficiency mindset,which is also different from a
global expansion mindset.
These are very different sortof muscle memory that you need
(29:26):
for each of those things.
There's these periods of sortof waves of entrepreneurs that
sort of arrive and disappear,and it's usually driven by one
or two success stories and thenlots of other entrepreneurs come
and follow and capital followsthose entrepreneurs.
And when you're in that phase,the industry usually grows quite
nicely because people are doingvery cool things.
And this, by the way, is notjust true in soft drinks, this
(29:47):
is also very much true inbeverage alcohol and these folks
are creating things that neverreally existed before.
And if we think about healthand wellness and drinking less
and all of these trends, youwouldn't conclude that that
beatbox would be one of thebiggest success stories at the
moment in beverage alcohol,which is a 12 ABV wine-based
party punch sold in a box.
(30:08):
You wouldn't have made thatguess, but they did something
ultra cool with very coolbranding and it's working really
well.
We also happen to be, though,in this world where the same
consumer is drinking one ofthese is drinking an athletic
brewing because it's more of aconsumer that wants optionality
and willing to do lots ofdifferent things, which really
opens the door for innovation.
So, whether it's beatbox orbuzz balls, or it's real, true
(30:31):
sort of branding and marketingaround adult non-alcoholic, or
whether some of the things we'reseeing on the soft drink side,
with this new wave of energyshifting to performance energy,
or shifting to clean energy,performance energy, healthy
energy, whatever you kind ofwant to call it the consumer is
open to these new and cool ideas, and the entrepreneurs seem to
be there and they want toapproach things differently.
(30:54):
I think liquid death isextraordinary success story,
again driven by some awesomemarketing.
They knew how to do it, theygot it right and they created
this incredible brand that nowlooks like it's even been able
to expand.
I think it's more thancomfortable now, because we have
enough data that it's evenexpanded nicely beyond water
Soon to be sodas.
So you're in this reallyinteresting moment.
(31:17):
In fact maybe you'll recall Idon't is Walmart is now doing
the modern soda set across allof their stores, which will
include Poppy and Olipop and abunch of these other sort of
healthy sodas, modern sodas,whatever you want to call it.
I can't recall the last timethat shelf was reset in that way
.
We're in exciting time.
Speaker 2 (31:38):
It is an exciting time and, as you said, I think
it's happening in alcohol aswell, where I was shocked,
actually, that apparentlynon-alcoholic beer only has 10
SKUs or something on average inand just get an array of
non-alcoholic drinks that adecade ago was you know.
It goes back to theentrepreneur who's willing to do
that incredible heavy liftingand the private equity and
individual investors who arewilling to fund that because
(32:28):
they believe in it.
So maybe this is just thebeginning, in fact, of the
healthier option movement.
It feels like it's been anexplosion, but it's still a tiny
part of the market, right?
Speaker 1 (32:40):
It's a tiny part of the market, but it is now being
treated like its own brand, asopposed to an alternative or a
substitute, which is probablythe biggest change in health and
wellness in the last decade.
Health and wellness used to belooking for substitutes or
restricting your behavior insome way to live a different
lifestyle.
So don't have sugar, don't havecaffeine, don't have carbs,
(33:02):
don't have saturated fat, don'thave fun, don't have whatever.
Speaker 2 (33:06):
Well, that breaks all my rules.
Speaker 1 (33:08):
Yeah, exactly, but today it's what can I do?
What can I consume to have moreenergy?
What can I consume to helpsocialize more of this?
It's just a very differentmindset on what healthy living
is than what it used to be, andthat opens up the door for a lot
of players to pop in when wethink about how they're
approaching it.
Somebody has to do the heavylifting, but we have seen this
(33:30):
before.
If anyone hasn't read the JimCook book I believe it's called
how to Quench your Thirst, orQuench your Own Thirst, or
something like that.
Speaker 2 (33:40):
And Jim Cook is the founder CEO of Boston Beer
Company.
The Samuel Adams brand and alegend in the craft beer
industry, created craft beeragain.
Speaker 1 (33:49):
The absolute founder.
He reads it himself, so if youdo the Audible.
It's also short.
It's a lot of like two pagechapters my favorite sort of
structure of book.
But he talks about how heturned American beer, how he
created craft was up and downthe street pitching this idea
with a bunch of cans in a bagand when you think about what's
happening now in adult,non-alcohol is the same sort of
(34:12):
thing, where the market leaders,like in athletic brewing, are
hand-selling this assistedselling and explaining why to
the retailer this isn't justsome alternative to other things
.
This might be an additionaloccasion.
This might be something you cansell at different times that
are consumed at different times.
It can be a trade-up from justregular soft drinks for people
(34:32):
who don't want to drink.
It might keep people in the barlonger if they're mixing this
in with regular alcoholbeverages.
But it requires a little bit ofan assisted sell as opposed to
I've got this brand and here'sthat brand without alcohol.
It's.
An assisted sell is the sort ofthing that I think is going to
(34:55):
drop this category.
Speaker 2 (34:56):
Come on, I want to throw out a few things for
comments from you.
Glp-1 drugs the big, bigquestion is how much is this
going to affect volume, salesand behaviors?
And I mean, I think one of themost fascinating things to me is
that it appears to turn offsome sort of craving in the
brain that impacts compulsivebehavior that goes well beyond
(35:17):
eating and drinking.
And so the question in my mindis how do you think about how
widespread it could become?
Surely the drug's going to getmuch cheaper.
I think there are alreadycompounders who are making it
quite easily available and it'sactually potentially super,
super beneficial to the healthof this country.
So that could have justdramatic impacts on food and
(35:39):
beverage.
Do you see that as a risk?
Do you see it as someopportunity in there?
Speaker 1 (35:44):
When you have industries that have been around
for a long time, any changeseems like a risk and in almost
every instance, any change is anopportunity.
Who's going to get it right orwrong, who knows?
But things are going to evolveand change.
So the idea of, you know,supersize being in an area of
value and a thing to drive foottraffic for McDonald's some
number of decades ago now is thesort of thing that will
(36:07):
resonate differently now.
We're already seeing, withoutGLP-1 at all, we saw what the
small cans did for Coke.
It worked beautifully.
And so there's going to be thissort of evolution on and the
RGM and the revenue growthmanagement and the data that
comes with it is going to makethis stuff easier to do and
better to identify, becauseit'll be a bigger deal in some
markets than other markets.
But there's going to be someportfolio shifting and I think
(36:29):
the price profit portfoliomanagement exercise will have to
be a little more acute than itwas before.
There's also going to becompanies that make tons of
mistakes.
So maybe like the assumptionthat, 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.
(36:50):
The point is that they don'tdesire to consume that much.
How are you going to be part ofthe things that they do?
And then there's things likeCore Power, fair Life, premier
Protein from Bellring that alsocould be be beneficiaries,
because how do you get yourprotein, which is one of the
most expensive calories and alsoone of the most satiating
calories?
So how do you do that?
Well, shakes ends up being areally great opportunity in that
(37:12):
context.
Speaker 2 (37:13):
Huge, huge opportunity.
Yes, Protein snacks proteinshakes We've obviously seen some
innovation, but maybe there's alot more to do there.
Speaker 1 (37:22):
I think we're just at the beginning on what happens
there, expect a lot more.
The industry has been capacityconstrained, partially because
the growth has been great.
But as it becomes less and lessconstrained, you'll start to
see more innovation, moreplayers, all those types of
things.
Speaker 2 (37:37):
Is.
Speaker 1 (37:38):
Bellring, a play on the protein side.
Yeah, bellring is a play.
It's maybe the best pure playbehind that theme.
It has one of the highest gramsof protein to calorie ratios,
including grams to protein tosugar ratio, and it's very
reasonably priced and sells highvolumes in Costco.
It doesn't focus on the crazyathlete looking for the ultimate
(37:59):
sort of protein concoction.
It is more for mainstreampeople who are looking to have
more protein in their lives andby just being a little more
relaxed about it and not beingtrying to be the next cool crazy
thing, most people on averagewhich is that's the definition
of average and they're justgoing for the average person
that wants to have more protein.
Speaker 2 (38:20):
And boy oh boy, that's where the big bucks are
with the average consumer.
Speaker 1 (38:24):
Yeah, it's the fat part of the curve.
Speaker 2 (38:26):
Yeah or the snake.
So on GLP-1 drugs, do you thenenvision that creeping up to be
used by a greater percentage ofthe population over time?
And then I don't know how youthink about our new Health and
Human Services Minister underTrump as well, and what impact
RFK is going to have on behaviorof food companies.
Speaker 1 (38:46):
I think it's a few things I mean.
The first is that yes, I thinkit's going to be big.
It's going to take a while, butit will be very big.
Back in my internet days, billGates kind of famous for saying
people really overestimate howbig something will be in two
years but dramaticallyunderestimate how big it's going
to be in 20.
This will be part of it.
But you also have to rememberthis is something with an
on-ramp and an off-ramp and youdon't take it forever.
(39:09):
This is not something you takefor life or anything like that.
We'll probably have a bit of ashift and then a bit of a
leveling off and then we figureout how we operate in that
environment.
That's the first thing in thatenvironment.
I think that's the first thingI think on Bobby Kennedy in HHS.
It's interesting because it isactually informing everybody to
be a little bit more focused onwhat's in the food and that is
(39:32):
something that has beenhappening anyways.
Food companies have been sayingwe want to go clean label.
We want to go clean label for areally long time.
You'll remember one of thethings that Frito did very early
in the 2000s was remove transfats yes from their chips.
I think that was 2004, 2003.
It cost a lot of money, um,their margins went down at the
(39:52):
time, but then it was somenumber of years later.
Trans fats were banned and soit's the right thing to do.
They did it and I think they'llmaybe be some of those, those
moments and it's just at the endof the day Maybe not every
decision will be the best one,but I think what it's doing is
actually accelerating a trendthat somebody needed to really
get them a bit of a boost sothat these companies that were
(40:13):
trying to evolve into cleanerlabels actually Yep, it's
definitely a case of watch thespace on the drugs, and it won't
necessarily just be GLP-1s.
Speaker 2 (40:22):
It could be some older drugs, like metformin,
that have been on the market along time and actually have
significant benefits, and Ithink it's fascinating.
I don't know if anyonelistening to us has watched
Never Die, I think it's calledor Don't Die, a movie on Netflix
, brian Thompson, and I thinkthat we're in a phase now where
they're just going to be allsorts of elements discovered
that we can use to enhance lifewithout going crazy like he is.
(40:47):
But you know, adding NAD ortaking out something else using
magnesium lots of new thingsthat will be useful.
Food as medicine.
Speaker 1 (40:57):
It's really this shift from a subtractive,
restrictive definition of whathealth and wellness is to
something that's additive.
That movie would be the extremeexample of just all these
things that you're doing, but itshows that all that's available
to you, right.
There's companies now that'llgive you really good data about
your system, various systems,based on the various samples
(41:18):
that you send to them.
There's infrared therapiesobviously taking off.
Magnesium is taking off, so youhave a lot going on on things
that people want to do, want toconsume, whether it's services,
whether it's something thatyou're, you know, tangible goods
, um, which means the market isis in a better place than I'm
trying to cut down from six cansto four cans to live a
(41:41):
healthier life now they'retrying to find the seventh or
eighth can that's doing for themwhat they want?
I?
Speaker 2 (41:46):
know.
It always amazes me because Ithink my children's generation
my girls are in their twentiesare worried about how they're
ever going to buy a house.
I think it becomes increasinglydifficult if you're having to.
You know, go and get a B1infusion and you know, a little
Botox here and all these thingsto make you live longer, look
younger.
You know, and I live inCalifornia, so now I'm seeing
(42:09):
extreme use Stretch lab, thislab, this other lab, hack this.
It's wild, but you see itenough.
You start thinking maybe Ishould try cryotherapy every
morning, or I could just get inthe freezing cold pool.
I mean, that would work too,but no, I think I'll pay for
that.
Speaker 1 (42:25):
Yeah, in New York, in Chelsea, new York, we have
basically every concept within acouple of blocks next to each
other, and it's a good thing.
At the end of the day, what'sthe best one?
It's all irrelevant, becausethe point is that all those
businesses exist becausesomebody's interested in paying
for it and that leads to ahealthier society.
But that also means there's alot more commerce to do in
(42:45):
something new, as opposed totrying to sort of fight the
fight on declining categories.
Speaker 2 (42:51):
It's fun to watch the innovation and I think we
always learn so much fromyounger generations as well,
sort of rethinking how we lookat 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, maybeit's better not to own
something in LA.
Talk to me about how importantdo you think marketing is today
(43:13):
Marketing advertising, obviously.
The way we do it today haschanged a lot versus a decade
ago.
Is it as important asdistribution has something taken
over, or is it still reallyreally critical?
Speaker 1 (43:27):
I think the biggest error that the strategics make
in launching new products orshortly after doing deals is
over-distribute them, becausethere's marketing, there's
selling, particularly theassisted selling, for if it's
going to be new products, newinnovations, it needs to be
assisted hand selling, likeboston beer and how jim cook, by
the way, boston beer still doesit that way.
(43:48):
They spend more per case onsalespeople than any other
brewer in the country, certainlyprobably maybe on the planet,
for all I know.
Um, that part is critical, butbalancing the right amount of
marketing with the right amountof salespeople, the right amount
of distribution, is actuallythe hard part, um, because
distribution is something you'realways gunning for, you always
want it, you always want it, butare you also being honest with
yourself if you have the demand?
(44:09):
Monster success came from neverout-distributing their demand
and by saying no rather thansaying yes when they didn't
think the cans were going to getthe pull through when they
started to roll out into newmarkets, and that's why a lot of
other energy drinks failed.
And I think marketing continuesto be the most important.
Most critical thing is maybethe definition of what is
marketing has changed, but theother thing is marketing has
(44:31):
become a little moretransactional and the
transactional marketingcomponents has become really,
really enchanting.
And maybe because, again, thependulum never really goes to
the center, some companies areoverdoing it on the whether it's
digital, whether it's social,whether it's just some of these
shorter hits as opposed to theselarger brand building exercises
(44:52):
.
You build a sort of a real brandand you do it over time and
that stays with you as differentfrom going viral and whatever
success you have during thatwindow of time that you're
relevant in a viral world.
And so, again, marketing isstill incredibly critical.
Super Bowl still very, verygood at creating unaided brand
awareness.
Poppy's thing was probably themost successful commercial that
(45:15):
we've seen in beverages for along time, not because it was a
great commercial and all of that, but because so few people knew
what poppy was or knew whathealthy soda was, and actually
Olipop and poppy both benefitedfrom it.
But that has a very differentimpact than if everybody already
knows your brand and you'readvertising on the Super Bowl
and they're just watching it forthe humor.
Poppy ends up absolutelyexploding their sales and they
(45:38):
were ready for it to happen,where, if you're a larger
company and you advertise as youalways do, people laugh and
chuckle and enjoy the ad, but dothey buy any more beer?
And that's the part that's alittle bit different than maybe
what it used to be.
Speaker 2 (45:50):
Yeah, if I think about Olympic sponsorships and
the cost of that, I've alwaysthought it was very hard to make
a return maybe a specificathlete to a specific team but
when you get into the wholemajor, weeks-long events, it
often doesn't present a returnif you're an older brand, but if
you make one breakthrough, asyou said, that can be pretty
(46:11):
exciting.
So, kamal, what are you excitedabout personally,
professionally, as you lookforward in 2025?
Speaker 1 (46:19):
Well, jefferies has some pretty cool things going on
.
We have a big Nantucketconference, which is an absolute
great show.
Private, public companieschatting about a million
different sort of things overthe course of a couple of days.
That's always a highlight ofthe year, and outside of that
it's still ski season andColorado has been dumped on.
So I'll get out there as muchas I can, and I'm getting to
that stage now where thechildren are getting faster and
(46:41):
crazier than me and I'll have tomaybe take lessons or something
to figure out.
Speaker 2 (46:45):
They're keeping you on your toes.
Speaker 1 (46:47):
Yeah, or worse, keeping me on terrain parks and
other sorts of things that Idon't belong on anymore.
Speaker 2 (46:52):
Komal.
Thank you.
This has been so much fun, veryinformative, and I can't wait
to talk to you six to 12 monthsfrom now and see what's panning
out and what's different fromwhere we sit today.
Speaker 1 (47:04):
Yeah, let's do this again.
Speaker 2 (47:06):
Cheers Bye.
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