ICR 2023: Black Rifle, UNFI, SunOpta & Zevia Share Updates

This week, a cross-section of public and private companies from across industries is meeting in Orlando, Florida for the 25th edition of the annual ICR conference. The invitation-only event featured a full-slate of daily presentations from publicly traded companies on its opening day today, including from Black Rifle Coffee, UNFI, SunOpta and Zevia. Here’s what you may have missed.

Fueled by Retail Expansion, Black Rifle Coffee Targets Profitability in 2023

Black Rifle Coffee Company is expecting to achieve profitability this year as it moves to scale its wholesale coffee and RTD businesses, co-CEO Tom Davin told an audience at the ICR Conference in Orlando today.

The Salt Lake City-based coffee brand announced its long-term goals and projections during the presentation, targeting around 30% annual revenue growth, 45% gross margin and 20% EBITDA margin, with adjusted EBITDA expected to be in the “low to single digit” area for 2023.

During the presentation, Davin said that the company grew total revenue to a preliminary estimate of $301 million last year, up from $233 million in 2021, reflecting a 54% CAGR from 2018 when annual revenue was just $82 million.

Of that total, Black Rifle’s wholesale coffee business is continuing to play a larger role in the brand’s strategy, comprising 43% of Q3 2022 coffee revenue versus 14% for the full year 2020. Direct-to-consumer sales, meanwhile, now make up 50% of revenue as of Q3, versus 84% in 2020. The company’s brick and mortar “Outpost” cafes grew from 2% of sales in 2020 to 7% in Q3 2022.

Founded in 2015, Black Rifle has established itself as a lifestyle brand targeted towards military veterans and “anyone who loves America,” Davin said. The branding, he noted, has at times superseded the coffee as clothing and other merchandise sales account for about 8% of revenue.

With a majority of the business still online, Davin said Black Rifle has about 278,000 subscribers with a monthly churn rate of about 3.5%-4%, even after price increases last year.

However, growing the retail business will be the key to achieving profitability, Davin said, and Walmart has and will continue to be one of Black Rifle’s key partners. The brand is now available in around 4,400 Walmart stores nationwide as of September with 24 dry coffee SKUs including grounds, bagged beans and K-Cups. Within the mass chain, Black Rifle has become the ninth best selling coffee brand, surpassing Community Coffee, Peet’s and Death Wish. Davin noted that the bulk of its sales have come from Folger’s and Maxwell House consumers “trading up” to the premium brand, as well as some Starbucks shoppers.

Expanding the wholesale business, he added, is key to Black Rifle’s profitability plans and the company is now preparing to invest up to $30 million to expand its Manchester, Tennessee roasting facility, increasing capacity to about $1 billion worth of coffee per year.

“If we’re shipping a bag of coffee to your home, we’re probably going to spend upwards of $5 just in shipping costs, we’re going to spend another dollar in handling and logistics,” Davin said. “When it comes to Walmart and [food, drug and mass] accounts we’re shipping truckloads of coffee, that works out to be about 4 to 5 cents per bag – a fraction of what it would cost in the direct-to-consumer world.”

Meanwhile, the company is also working to increase its ready-to-drink business, which launched in 2020 with four SKUs and is now available in about 70,000 stores nationwide with a 38.3% ACV and 2.5% market share in the convenience channel. In the 26-week period ending December 3, according to NielsenIQ, Black Rifle’s RTD sales grew 73% to $25.7 million. Davin said the footprint for the RTDs will expand to about 100,000 accounts by the end of the year.

This year, Black Rifle will launch several new RTD varieties including permanent line additions such as Espresso Salted Caramel and Vanilla Bomb Triple Shot flavors and seasonal Pumpkin Spice and Berry, White & Blue lattes that were previewed last fall at the National Association of Convenience Stores (NACS) 2022 trade show. The brand has also partnered with the NFL’s Dallas Cowboys to create a limited edition team can set to launch in the fall.

With high inflationary pressure last year, the company increased prices for its dry coffee products and is preparing for another price increase on its RTD line next month. However, Davin said the increases have, so far, not led to a drop in velocity and the company will also seek to leverage marketing and other corporate costs this year to leverage profit and losses.

“We will continue to take price selectively, for those who follow the coffee market you’ve seen that coffee futures have now stabilized, thankfully,” he said. “But the price increases we took last year would suggest there is not a lot of demand elasticity with consumers, so we’ve been able to take price and have not seen evidence of trade down or people drinking less coffee.”

UNFI Sees Services and Tech Platform As Growth Opportunity

Wholesale distributor United Natural Foods Inc. (UNFI) believes doubling down on execution and increasing the capabilities of its services platform, which includes data and analytic products, will be key as the company aims to “outsize margins” and continue creating value for shareholders as it emerges from three years of “survival mode.”

According to UNFI CEO Sandy Douglas, who assumed the role in August 2021, fill rates are improving and the wholesale business is moving towards a “more normal rhythm.” Now, he said, his priorities lie in making sure the business is attracting the right talent and properly training the teams already in-house.

Douglas said the company will also focus on growing relationships with existing clients, whether that’s by adding new banners from a multi-banner retailer or expanding the categories it supplies to an existing partner. In 2023, he said the wholesaler will increase resources devoted to its national account capabilities and continue to support the growth of its fresh program as well as its presence in bakery and deli.

Although UNFI aims to spur growth from within, Douglas said the company would entertain inorganic opportunities like M&A if the deal would help build capability and provide excellent financial returns. The answer was in regard to a question about the potential for divested stores if the Kroger/Albertsons merger goes through, to which Douglas said UNFI would likely only be “by the side of a potential acquirer.”

Although M&A is not a top priority for UNFI’s growth right now, in 2018 the company bought competing wholesaler Supervalu, acquiring its automated warehouse. Looking forward to the upcoming year, UNFI has partnered with tech company Symbotic and plans to activate up to five additional fully-automated, robotic distribution centers in a move to continue streamlining its capabilities.

SunOpta Banking On Co-Manufacturing Expertise, Oat Milk Demand

SunOpta CEO Joe Ennen and CFO Scott Huckins discussed the benefits of being a co-manufacturer in the plant-based beverage space and the potential of its new production facility in Texas, during a fireside chat today.

In the discussion, which was moderated by Brian Holland, managing director of sustainable food and healthy living at consumer research firm Cowen, Ennen said the natural food company’s focus on co-manufacturing has been key to its success. It has allowed the business to operate easier in uncertain economic times, such as the record inflation seen during the most recent fiscal year, because much of the rising costs can be passed through to customers. The company reported in its Q3 2022 earnings call that it had passed along “about 95% coverage of cost inflation” during the second and third quarters.

As well, Ennen pointed out that SunOpta benefits from the security of multi-year contracts with customers.

“This is a capacity constrained environment, meaning there is more demand than supply. And so our customers are just as interested in long term contracts, long term relationships as we are because the alternative is there isn’t a lot of available capacity in the marketplace,” he said.

SunOpta, which produces a variety of private label and branded plant-based milks as well as fruit-based food and beverages like fruit snacks, is strategically positioned to capitalize on being an industry leader in a “$3 billion” category that is in 53% of U.S. households.

The plant milk maker recently began operations in its new production facility outside of Dallas where it is capitalizing on the huge demand for oat milk. Three years ago, the company didn’t sell any oat milk and today it makes up the largest part of SunOpta’s portfolio, Ennen said.

“We’re just happy to move with the consumer as they ebb and flow,” he said.

Part of that ebb and flow is moving into categories where SunOpta currently does not operate, he said. The new Texas facility will also be producing plant-based protein shakes, which is an “under-supplied” category and continuing to grow, according to Ennen. Protein shake production also shares a similar manufacturing process to the company’s current portfolio so the company will be able to maximize its existing capabilities and tap into its customer base to grab market share in the $6 billion category.

SunOpta expects to start production in shakes in the second quarter.

Zevia’s Brand Refresh Expected To Drive Trial

During its presentation, zero-sugar beverage maker Zevia outlined plans to utilize a brand refresh and new sales strategies to drive customer trial.

Speaking on stage today, CEO and president Amy Taylor – who replaced longtime owner and current chairman Paddy Spence in August – and CFO Denise Beckles shared how the mission-based soda brand is capitalizing on its growth in specialty and natural channels to expand into more mainstream retailers.

Taylor emphasized that Zevia needs consumers to view its stevia-sweetened sodas, energy drinks and iced teas as the “premium but accessible brand that’s appropriate for all households.”

“Instead of being in the specialty section and maybe at knee level, or are on the bottom shelf, our aspiration is to be at eye level in the high traffic carbonated soft drink aisle and we’re starting to see that now in mainstream grocery,” she said.

One way to accomplish that is a brand refresh that the company is expecting to begin rolling out in March. Taylor assured attendees that the upcoming rebrand is not a relaunch because “the fluid remains the same,” but the packaging will be redesigned with a modernized logo that is expected to help the products pop out on shelf in the contemporary carbonated soda drink category.

The company opted to do a rolling launch of the rebranded drinks, and it expects to run through old inventory by mid-summer. The decision to not pull product from shelves when the relaunch occurs will minimize write-offs, but is also more in line with the company’s perspective on sustainability, Taylor said.

Taylor also spoke candidly about how retailers have been tightening inventories recently and how that impacted the brand’s shipments, especially during Q3. Yet, scanner data stayed strong showing Zevia that even with inventories low, the brand was still seeing good traction among its consumer base.

“Consumer pull-through didn’t slow down at all,” she said. “We’re quite confident that ‘23 won’t be impacted materially by something like destocking by a limited number of customers.”

Despite building a healthy business on the back of multipacks, the company is now planning to move the brand into single-serve in order to get more cans into consumers’ hands. Initially, the single-serve cans launched in natural grocery accounts where the brand has seen success over its 10 years in business. But as single-serve has expanded into conventional grocery cold boxes it has become the fastest growing offering relative to the rest of the portfolio mix.

“Most importantly, what [single-serve is] doing is it’s proving price points, merchandising strategies, etc. So that when we go into the true immediate consumption channels like food service and convenience, we’ve got some great data, great proof points that this is what the consumer wants,” Taylor said.