THE FIRST DROP BY JEFFREY KLINEMAN
The Kombucha Peloton Hits the Brakes Have we hit a point where the energy is starting to go out of the kombucha “chase pack”? Recent turnover in management teams may indicate that investors are getting impatient. Since the start of the year, three of the biggest brands in what I’ve long termed the peloton of VC-backed independent kombucha brands trying to reel in runaway leader GT’s have seen their original entrepreneurial founder/leaders replaced by new CEOs. At HUMM Kombucha, which has VMG as its lead investor, former Red Bull sales executive Matt Witherell has ascended from President to CEO, replacing co-founder and CEO Jamie Danek. Brew Dr., backed by Castanea, saw founder Matt Thomas cede the CEO role to General Mills veteran Dan Stangler. Most recently, Health-Ade’s co-founder/CEO Daina Trout moved aside for investor Jack Belsito, the former CEO of Snapple and an investor with FBG (nee First Beverage Group) to take the top spot. There are several moving parts here but my own instant reaction was that it’s a shame that in the case of Health-Ade and Humm, a pair of really great female founders, for whatever reason, aren’t going to be at the head of their companies anymore, particularly at a time when consumers, retailers, and, yes, investors are on record as wanting to support more diverse brand ownership. Beyond that, it’s an indication of some of the frustration that investors are likely feeling around kombucha’s potential return on their capital. For years, investors and strategics chased GT Dave, the prime mover and big fish in the kombucha category. Dave basically rejected entreaties from the big investors and brands but nevertheless has built GT’s Kombucha into one of the biggest independent beverage companies in the U.S. With Dave shunning the establishment, and a lot of other entrepreneurs starting to make their own versions of the vinegary stuff, it wasn’t long before food and beverage focused investors started to survey the field looking for their own vehicle for coldcase domination. A few years ago, they were barely blips on the IRI viewscreen, but Pepsi invested in -- and eventually purchased -- Kevita, founded by a former Wall Street executive, Bill Moses, and a brewer, Chakra Earthsong. Alongside Kevita, venture capital searched out a generation of smaller kombucha brands that seemed to have potential. Coming from a variety of regions, they located brands like Health Ade, Humm, Revive, Brew Dr. and Clearly Kombucha, and very quickly, the brands that had started to generate momentum on their own were receiving boosts for the afterburn. Maybe the ship had sailed on GT, but with a cash infusion and the vaunted “value add” of experienced CPG investors and their talent-stacked Rolodexes, the belief was clear that there must be another potential leader in the peloton. Similar things have happened in other categories, of course; among others in recent years, coconut water brands, HPP juices and shots, cold brewed coffee, CBD tonics and plant-based dairy alternatives have all gone through a variety of investor based feeding frenzies; non-alcoholic cocktail alternatives are currently in lockstep with canned cocktails as the current crop of Cinderellas. It’s a tough business, though. Only a few ever pan out. 6 BEVNET MAGAZINE – SEPTEMBER/OCTOBER JANUARY/FEBRUARY 2018 2021
Still, kombucha seemed to offer the greatest potential to marry new age values -- it’s ALIVE in there, for goodness’ sakes -- to a potential carbonated replacement for mainstream sugary sodas. Kombucha’s functional characteristics -- 60 million probiotics have GOT to be good for you, right? -- fit its functional taste profi le, but the thought was, you could get used to it. And there’s no doubt a vast set of consumers has done just that. In the past couple of years, sales for all of those kombucha brands mentioned above have bloomed alongside GT’s as they have slid across retail channels into more mainstream grocery stores. The category is approaching $2 billion in the U.S. But what the chase pack hasn’t done is bring in strategics for a large scale buyout. Even Coke, which had invested in Health Ade both directly and indirectly through its backing of FBG, wasn’t ready to pull the trigger, despite the brand’s fast growth and the functional flexibility its brand name seems to offer. PepsiCo made its bet very early, and Kevita has largely continued to ride the Pepsi system to broader distribution opportunities than anyone else in the chase pack. Revive seemed like it might have a shot in a refrigerated DSD program run by Peet’s coffee, but even after Peet’s bought up the majority of the brand expansion has been slow. Other kombucha brands picked up by strategics, like Clearly Kombucha at Molson Coors, have largely created a collective shrug in the marketplace. So who is left? Coke is out there, although the company’s investment in Health-Ade, along with that of VC fund CAVU, was bought out by FBG and it has pretty much killed off its cold-chain DSD after shedding Odwalla; so is Keurig Dr Pepper. Anheuser Busch has dabbled in products like Kombrewcha, an early spiked kombucha brand, but aside from regular rumors that it wanted to buy out GT’s, hasn’t seemed like a candidate to go after the chase brands. Certainly, there are plenty of potential fi nancing options for many of these brands, from further private equity deals to IPOs to the growing interest in gut health at companies like Nestle and Chobani. But there are growing crosswinds, particularly a growing set of shelf-stable “kombucha-lite” vinegar based sodas like Culture Pop, Poppi, Huzzah, and Olipop that offer gut health benefits of their own that are drawing attention from both influencers and consumers alike. Closer in taste to the traditional soda that kombucha might have replaced, but nevertheless laced with a similar prebiotic or probiotic dose, they could undercut the funkier flavors of kombucha with an easier to adopt model. A fast-growing subset of full-booze kombuchas is also starting to take up a lane on the probiotic roadway, and there’s no telling whether they’ll grow the pie for the chase pack or not. Kombucha brands in that chase peloton see it already, and of late they’ve been going for a variety of product innovations to broaden their appeal, including their own sodas, energy drinks, cocktail mixers and high-octane blends. Whether the intent is to fatten volume through platform expansion or just to succeed through a new route, though, the course isn’t clear, and the race sponsors have clearly gotten antsy. Photo by Samara Doole on Unsplash