Hi, everybody. Good afternoon. My name is Jim Salera. I run the packaged food and beverage practice at Stephens, and today I'm delighted to have with us Amy Taylor, CEO of Zevia, a better-for-you beverage company. Thank you to ICR for hosting this event, and Amy, thanks for being here with us today.
Yeah, thanks for having me. Just so it's not awkward, for those of you that are here live, there's some cold Zevia in the back, so it's not rude to get up and grab one now - or as we go.
Yeah, anytime throughout the presentation, feel free. We will not be offended. Maybe to start at a high level, for someone who isn't familiar with Zevia, how is your product differentiated from other zero-calorie sodas we might be familiar with?
Sure. I mean, you know, the short answer is clean ingredients. So what's exciting right now is carbonated soft drinks are back to growth. Carbonated soft drinks growth is being driven by zero calories, zero sugar, and then our point of differentiation within that, which is experiencing even greater growth, is a plant-based or naturally sweetened solution to the same, right? So zero sugar, zero calorie, naturally sweetened sodas. And the other kicker is that Zevia tastes great, 'cause really, the tension within the category is between health and taste. You know, we've all grown up in a soda environment where you had to pick one, you know, pick taste or pick health, and this is a product that tastes great, and it's good for you through and through, meaning no sugar and then, naturally sweetened.
Great. If we trace back kind of the history of Zevia, you guys have your roots in the Natural channel, have a strong presence there, but also have a presence in traditional retailers.
Mm-hmm.
What do you think it'll take to take this brand from the Natural channel and take advantage of that white space opportunity within traditional retailers and meaningfully expand there?
Yeah, sure. So we're the number one soda in Natural, as you may imagine, having kind of established the category as a credible player in that space, and we're actually, as a good proof point, the number one carbonated soft drink on the world's largest e-retailer, right? So in Amazon. And as we grow, we're in 85% of grocery stores in America. What we're finding between our brand refresh, our taste improvements, and now starting to expand distribution, both mental and physical availability, is that we're finding traction with just a very mainstream consumer.
I've been in this role, leading the organization, about a year and a half, and one of the early insights that I grabbed onto that I made sure to share with our sales team, and then for our sales team to share with the retailer, is this: in about 65%-70% of baskets of people purchasing Zevia across a 12-month period exist Oreos and Doritos. And so what's my point? These are just regular folks, like, trying to do a little bit better. So potentially a cross-merchandising program for us at, like, the world's largest retailer shouldn't be with kale chips, but rather just with regular snacks or maybe with ice cream for your float, right? So these are really mainstream shoppers. The other thing that's exciting from a retailer lens is that who's coming to carbonated soft drinks these days?
Like, same old, same old, you know, Gen X and Boomers like me, but more and more Millennial and Gen Z looking for zero sugar and really reading the labels and scrutinizing the ingredients. So we bring a younger shopper, which is very attractive. Our shopper is a, is, one that is less price sensitive at all income levels, so we are bringing a shopper that's spending 30% more than average shoppers in-store in retail and 40% more than your average beverage shopper on beverage. So it's a really attractive beacon within an already very high foot trafficked environment that brings velocity and margin, and it's a very sustainable proposition in the sense that the world is moving away from sugar. We have a clean ingredient, great-tasting version of a solution for that preference.
Great. You mentioned there the brand refresh and some of the in-store positioning and where this can be found. You guys recently had a brand refresh, changed the packaging, changed kind of the in-store visibility. Could you just walk us through that, give us the highlights and how you think that'll help improve kind of the billboard effect when consumers are shopping the aisle and see Zevia?
Yeah. I mean, the most important thing is that a consumer, like not a shopper, but for a second, a consumer feels like this is a cool brand that resonates with them, that they want to carry, that they want to be seen carrying up, and down the street or sitting on their desk, you know, in college or at work, right? The packaging is consumer in mind. But you're right, it also has a retail effect. It's a. There's a billboard effect to great on-shelf visibility. So we're super happy with the brand refresh. It's been a real success. There's a couple things I can share with you, and then talk retail.
First of all, Mintel did sort of a write-up of all of 2023 beverage and featured our brand refresh among all that were done across all of CPG, featured our brand refresh sitting next to some of the big guys in the write-up as a real strength of new looks in 2023. And then recently, Dieline, which is a publication in the design space, named the top 10 brand refreshes of 2023 across all of business, and we landed number three, so we're really proud of that. So just, you know, I guess objectively, if you will, from a design perspective, really happy. But most importantly, we've had tremendous improvement in on-shelf visibility with the brand refresh. There's a great brand block that you see now with Zevia. Zevia is the beacon brand when you're looking for a better-for-you soda.
Retailers are realizing that and increasingly putting us at eye level, which is critical because you often see Zevia featured on the bottom shelf as we've slowly grown into mainstream grocery. With the help of the brand refresh, we're starting to cut through into a proper brand block, and we're starting to really support the retailer to use us as a beacon for that better-for-you section within soda.
I think that's a great segue into talking about how consumers come to the Zevia brand initially. Obviously, there's been kind of a resurgence of consumer focus on better-for-you products. Zevia fits the mold there very well... How do you typically see a consumer come to the Zevia brand, and how does that affect your thoughts around driving, you know, increased household penetration?
Sure. So today, the three biggest drivers of how a consumer discovers Zevia: one is in-store, and that's by far the number one. Two is an e-commerce shopping environment, and thirdly is word of mouth. So that's pretty reflective of what we have or haven't done all of these years. So for 10, 12 years now, Zevia has been sold at retail, and very little has been invested out-of-store to sort of build brand or stoke excitement, or trigger, you know, conversion, for your average consumer. Instead, there have been investments made in the e-retail shopping environment, and at retail to trigger purchase, you know, at the point of purchase. So our opportunity now is to, of course, continue to support those drivers of awareness, retail, e-com, and kind of stoke word of mouth.
But really, for the first time ever, in 2024, now that the brand refresh is fully on shelf, the supply chain is stable, and the upside is really clear, we've hired a new chief marketing officer that started at the end of last year, and we're really ready to step change a focus into out-of-store marketing. So we're looking at an advertising plan which we haven't engaged in before, both digital and potentially targeted out of home. We're looking at scaling some of our existing sampling programs out of home. We're looking at social, which for us is really ripe because, you know, people that are thinking about health and fitness are super engaged in social. And so those that post about Zevia that have hundreds of thousands of followers in a very organic fashion are natural brand ambassadors for us.
So there's ways to turn them on to start to spread the word about Zevia in a very credible fashion. Then there's just the general 360 marketing approach, and we have a very practiced marketer in Kirsten Suarez, who's former P&G, worked at Taco Bell for a bit, and then worked at a small, better-for-you brand, so knows how to do kind of the scrappy growth stage brands, and has a passion for global health. So with her expertise and these very ripe 360 marketing opportunities, we're excited to bring more people into the franchise. Zevia net-net has a pretty low awareness rate at this point, so all this business we're doing today is on six points of household penetration. So mental and physical availability is the key for us to start to grow this business at a faster rate.
Great. And I heard a couple cans crack in the audience-
Pretty good.
Maybe the ICR conference-
Cheers
as a way to add.
The ICR conference, one at a time, gang.
Given... You know, we talked about the better-for-you characteristics and obviously beginning of the year, kind of the New Year, New You season. Can you talk about just if that represents an opportunity for you to push the brand to new households and maybe if you can give us some detail on any promotional activity you guys have in the market right now?
Yeah, for sure. So beverage is seasonal, right? And we, like many other, most other beverage companies, really ramp up in May through September as the high season for beverage. But unique to Zevia is that ours is also January. And why? Well, you can probably predict. People are still doing that same old, same old, which is to wake up on January first and plan to change your habits, right? So for a consumer who's just trying to do a little bit better, remember the Oreos and Doritos? For consumers that are just trying to do a little bit better, Zevia is a great choice to kind of start off the year. And so we have that in mind when we think about our promotional programming.
I mean, off the top of my head right now, what's exciting, you know, we've got big retailers like Kroger doing a mega deal right now, featuring, and displaying Zevia front of store. We have a program going throughout the Publix chain, where we're growing really, really fast, which is a buy one, get one, which is pretty unusual for us, but in this case, it's the right thing to do. We have a new rotation going with Costco in the Southeast, and that's all in January. But when I think broadly more into Q1, I would say the most exciting thing is our two fastest-growing flavors, Creamy Root Beer and Vanilla Cola, are just now going national with retailers like Whole Foods and Albertsons, to name a few. So those are some of the drivers of excitement for the brand here at the start of the year.
Maybe if you can give us some detail on how both those promotions and then obviously the flavor innovation helps get better in-store positioning, end caps, floor displays, and how that increases the visibility for the brand.
Sure. So today, we are mostly a direct brand, meaning we don't have direct store delivery. We don't have a wholesale distribution partner nationwide. And with that, what we rely upon to drive display is just exciting promotions periodically. So we're learning every year more and more about how we can optimize spend, and we're learning to spend less and get a bigger lift, and central to that is display. And so we're working with retailers at a central call point, as well as through regional call points, to drive display, to interrupt the shopper at multiple points of interruption through the store, and then critically, also to get cold. So all of this business we've been doing in Zevia, 6% of household penetration gained, and double-digit velocity growth, etc., has all been gained on the back of multi-packs.
And it's only in this past year that we've started selling single, sleek canned soda. And now, finally, you can spend $5 or $6 and get 3 flavors of Zevia cold, and so that's another critical point of interruption, let's say, the deli in the cold box or in the cooler up by the register at a grocery store. So some of those are some of the ways that we're focusing on driving trial.
I'll skip ahead to the cold availability since you just brought it up. I think you've mentioned in the past you have some markets where you have branded fridges. If you can just tell us how that increases the visibility, and maybe if you can paint us a picture for what the shelves look like in the fridge and you know, how some of the other products we haven't talked about, energy and tea, play a role in filling out that fridge.
Sure. Yeah, so we have both Zevia soda and Zevia Energy drinks and Zevia tea distributed cold really across the natural channel. But increasingly, we're starting to drive cold availability for soda in mainstream grocery, and that's been a real driver of growth for us. We're really excited about the singles business for the future... What you're referencing is really kind of the holy grail, when you get a branded cooler upfront near the register for that impulse purchase. And for us, that's oftentimes two shelves of Zevia soda, which is the style that we're famous for, one shelf of Zevia Energy drinks, and a shelf of tea. And you'll see that in fewer, but certainly flagship stores.
As we start to rethink route to market and to enhance our route to market, to increase our merchandising capabilities and expand into channels like convenience, and to start to improve our ability to merchandise in grocery and mass, then you'll start to see more of that branded equipment, and those are steps for the future.
That's great. If we think about the price positioning, obviously, better-for-you brands usually carry with them the premium perception and, you know, premium price point to the consumer. Can you just tell us a little bit about your pricing strategy, how Zevia's priced compared to other, you know, traditional zero, low-calorie sodas, and then also compared to some other, better-for-you, you know, health-focused sodas?
Yeah. I, I think that's actually a pretty good set of benchmarks to consider. So first of all, I think as we go into price, it's important to mention why it is that we get out of bed every day, like, why we have this business in the first place, other than to deliver shareholder value, of course. And the nice thing, we have aligned incentives. As we deliver shareholder value and as we grow, we're also executing on our mission, and our mission is really focused on global health, so reducing sugar consumption to drive improvements in global health, to do so without using plastic, so we sell aluminum cans, and then finally, to make better-for-you foods affordable. Oftentimes, better-for-you beverages and food are often sort of singled out for rich people in inappropriate channels.
So for us, when we think about pricing, we take price to sort of follow the market and remain, in general, the same indices that we remain in today. So about 63% of non-alcoholic beverages in America are more expensive than Zevia, so we're in and around the 36-37 index, from a pricing perspective for a single-serve beverage. To compare that, though, into some of the benchmarks that you were mentioning, we're a couple cents an ounce more expensive than mainstream soda, and our belief is the consumer will pay those couple cents an ounce more for clean ingredients. So if you compare us to mainstream soda, if mainstream soda is about $0.04-$0.05 an ounce, then Zevia is a couple cents more at $0.07-$0.08.
Then, if you look at functional beverages, sort of the higher end of the spectrum, sort of probiotic and gut health beverages, we're gonna be one-third the price per fluid ounce as those offerings. And then you'll find some of the other natural sodas somewhere in between Zevia and those functional beverages. So we, we believe the consumer will pay $0.02 an ounce more for clean ingredients, and it's on that proposition that we think this is a very mainstream brand.
That's helpful. As we think about... You know, we talked a lot on soda. You do have a tea and an energy drink component of the portfolio that we mentioned briefly. Can you just walk us through the positioning for those two parts of the portfolio compared to, again, you know, kind of mainstream energy, mainstream tea?
Sure. I mean, I think what we want to be famous for is really simple, that we taste great and we have clean ingredients, yet you don't have to have any sugar in the equation, right? That remains true in any category that we play in, 'cause we're a trusted brand, so the consumer knows that if they're entering the brand through Zevia, they can trust there's clean ingredients, and there's no sugar. So how that plays out in tea is that we're a great-tasting flavored tea with no sugar, with simple plant-based ingredients, and that's actually kind of a hole in the market in tea. There's a lot of great-tasting tea out there with flavor, but it all has sugar.
And so for us to be able to offer an organic product, clean ingredients, great flavors, it's tea is not a fast-growing category, but it's an interesting category for us to kind of harvest in selected outlets and channels. Energy drinks is a real nascent opportunity for us in the sense that what matters in energy drinks is that they work. It needs to function, it needs to work, but it also has to taste great. And as a long-standing energy drink veteran, I can tell you, not many of them do. And so what's exciting about Zevia, again, it works, it tastes great, and there's zero sugar, and again, clean ingredients.
One of the biggest barriers to energy drinks is that people are like, "Ah, I'm not really sure what's in that stuff." And again, as we become the trusted brand mark for clean ingredients, it brings an entire different consumer set, potentially, into energy drinks. So you'll see an increased focus on energy drinks over the next few years as we carve that space out. That energy drink category has changed a lot, and we think there's a consumer that still rejects that category, but that would come over if they felt they could trust the ingredients. And they also will discover that our product tastes great, which certainly helps.
Great. We talked about a couple of different channels, you know, natural channel, obviously, traditional grocery. You mentioned how you guys perform very well on e-commerce. Can you just walk us through what's differentiated about the Zevia brand that allows it to do so well on e-commerce?
Sure
... and what positions the portfolio?
Yeah, I mean, I think part of it. So we are the number one soda on the world's biggest, like, e-commerce platform. And yes, part of it is because we focus there, and not every beverage company focuses there. But there's another dynamic that is something we can really fuel, and we do, and we learn more from it each time. Each year, we kind of take a crack at it, continue to grow and improve that business from a profitability perspective, and that is the shopper in an e-commerce environment. They are younger, they are a high-information consumer, as is a lot of folks that are health conscious are a high-information consumer online, looking to learn more. And so what do you know? They're also shopping online.
So what we found is it's a really ripe environment to sell Zevia for two different segments. One is very highly engaged consumers that drink a ton of Zevia, like our heaviest users, through a subscription model that stock our products across all flavors in their household, and that's a great business for us. It's growing, and it's profitable. But the other thing is, it's a discovery environment…. So through specific marketing tactics that we really think we have right, as well as a great operational partnership with the world's largest e-com operator, we feel like we have a great opportunity to continue to grow household penetration and grow volume through that channel in a really healthy way.
Great. Talked a lot about the sales drivers for the business. I think it'd be remiss if we didn't at least say one question on operations.
Mm-hmm.
In 2023, you guys saw a big step-up in gross margin. Obviously, a lot of that deliberate actions undertaken. We're kind of in the mid-40s now. If we think about steady state gross margin moving forward, what's an achievable kind of long-term gross margin rate, as you think about the business long term?
Yeah. I think without putting a timeline on it, I can talk about what I think is possible and what the business will yield, and a little bit of how. So today, we're delivering mid-40s gross margin, and we've delivered pretty steady sequential improvement upon that, and intend to continue to do so. And we think this business model yields, over time, a 50+ gross margin. And why I say that is not just a mandate to the supply chain, it's not just as simple as increasing price or finding ways to improve net price through promotion allocation, nor is it just through taking costs out of the system through scale and expertise as we really drill into supply chain.
But we also have portfolio management changes that we can make that continue to enhance gross margin, whether that be right pack more efficiently through the right channel, whether that be reducing cost of goods around special packs, or whether that be through ensuring that we have the right price points and the right packages for the right shopper through a more, let's call it, rigorous channel strategy. So our gross margin improves through efficiencies back home, through unit economics, but also through improving selling costs in our production, repacking, and route to market. So there's a lot of upside for us in gross margin, simply by doing things right and building scale upon the somewhat entrepreneurial business that we've built today.
In 2023, you guys also underwent some operational changes. You're trying to reduce the size of the footprint, warehouses, and tightening up the supply chain. Can you talk about where we are now as we approach 2024? And then maybe as we wrap up, just any high-level thoughts for Zevia beyond the operations-
Sure
... in 2024.
Yeah, yeah, that's all put very gently, Jim. Thank you. The shorter way to say it is that we went too hard and fast on a supply chain transformation and broke our supply chain for a good portion of 2023, and thus, net sales took a big hit, customer fulfillment took a big hit in the middle of summer, and we took on some short-term costs that were reflected in Adjusted EBITDA losses in the middle of the year. Fortunately, I can very confidently say those days are behind us. Of course, the back half of 2023 in full was materially impacted, but we've got a great set of leaders across our supply chain team, and we are starting now to realize the benefit of that supply chain transformation, which was very much the right thing to do for Zevia.
It just needs to be done in a disciplined, thoughtful manner, and it needs to be time-bound, stage by stage by stage. I think what we're finding now is we're realizing some of the benefits of that supply chain transformation. We see them forthcoming in our annual operating plan for 2024, but almost most importantly, in the scalability of it for the next several years. So we're really bullish on our supply chain's ability to go back to excellent levels of delivery, as Zevia has a reputation for over the last 10+ years. All through COVID, all through the aluminum can crisis, always delivered for our customers, and that was our reputation. So standing on that reputation, putting those fixes in place, and now starting to scale that supply chain, we're quite bullish on that.
When you asked sort of what are we excited about in 2024? 2024 is our first full year, where our brand refresh is fully lit. We are a beacon for a category around which there's a lot of excitement. I mean, with new entrants coming from sort of the gut health sodas, et cetera, this idea of, like, a better-for-you soda, it's a thing now. Like, these rising tide float all boats, and we are an affordable, accessible, great-tasting option within that set that offers limitless enjoyment, meaning you can drink Zevia across multiple usage occasions, all of your family members, multiple flavors, and different styles, from soda to energy drinks to tea.
This is a ripe environment for us, sitting right now at 6% household penetration, to start building mental and physical availability through scale distribution and our first ever efforts in out-of-store marketing. There's a lot of upside for this brand, and it's really right on time for the consumer, and especially the consumer of today and tomorrow, in the form of Gen Z and Millennials.
Great. I think that's a great note to leave it on. Amy, thank you very much for being with us today. ICR, thanks for hosting us.
Thanks, everybody. Grab a Zevia for the road. Appreciate it. Yeah.