My name is Jim Salera. I'm the Packaged Food and Beverage Analyst here at Stephens. With us today from Zevia is Girish Satya, Chief Financial Officer. Girish, thanks for joining us.
Thanks for having me, Jim.
I think a good place to start. You know, you've been at Zevia, I think, for eight months now.
Yeah.
Could you just share your views on the business and what you see as maybe some of the most exciting growth fa ctors?
Yeah. Yeah. So, I mean, I think when I joined, you know, what I initially saw was sort of a diamond in the rough, right? You had a, despite their, despite a number of challenges, you know, we have a differentiated scaled brand at the heart, which has, at the heart of it is a sort of clean label, great tasting product, and, you know, with, with a really approachable price point. And you've also seen a massive shift in consumer preferences, into sort of this better for you category, which is still a nascent category, but, you know, with the broader embrace of health and wellness, consumers really shifting towards what Zevia has always been offering, right? Which is a great tasting product, Better -for- you at an approachable price point.
Once you sort of look past some of the issues that we've moved quickly to address, you know, what you see as a real opportunity to build kind of this next, you know, breakthrough brand, which is what we're really excited about doing.
So I think an interesting change in kind of the carbonated soft drink aisle is there's a lot of compositions of what product are featured on shelf and how that's been, you know, historically and how that'll be positioned moving forward. As I think about, you know, Zevia's competitive set, in my mind, I kind of break it into two sets. One is, you know, you're in a group of better for you sodas that are competing against traditional soda, where Zevia is kind of allied, so to speak, with the other Better- for- you sodas. And then the other one would be within the Better- for- you soda category where, you know, Zevia competes for share and household penetration. I guess first question, is that how we should think about the landscape?
Yeah.
And then maybe breaking those into two different pieces, what do you think is better or what do you think is the core value proposition for the Better- for- you soda group relative to, you know, legacy soda?
Yeah, so I think, you know, better for you is, as I touched on earlier, still like an emerging category, right, and so there's still a lot of room to run. I think we're still competing with all CSD, to some extent. You know, I don't know that the consumer looks at it and says, "Oh, that's a Better- for- you soda, and that's a regular soda." I think they just all see it as soda, but knowing that there's a bit of a halo effect. But I do think the better for you soda will be sort of an overall catalyst to the category growth.
And, you know, as competition has grown, but so that means awareness grows and sort of it. I think we're in this unique position where sort of a rising tide is lifting, you know, lifting all boats. I think as you think about what makes Zevia, which I think is at the heart of your question, like how does it really differentiate itself versus the other better for you, you know, players? So, you know, I think first the clean label, right? Clean label all natural. I think is a huge sort of underappreciated part of this story. You know, we are zero calories, zero sugar. I think secondly, it's really the taste and flavor profile.
I think we've managed to really develop a really great tasting, stevia-based beverage, which I think is, you know, a lot of people tried and, and failed in the past, and so we're really leaning into enhancing the taste and flavor, not only of our existing portfolio, but also of really filling the pipeline with new product innovation that really sort of focuses the consumer on really understanding what, you know, what a great product we can really deliver, and just getting some excitement around product innovation. I think you're drinking one of our newest, most, you know, and candidly most successful LTOs. You know, we're, we've actually sold out six months ahead of schedule, on the Salted Caramel, so it's a, you know, just a testament to, if you bring innovative flavors, the consumer, innovative flavors that taste good, the consumer is going to react to that.
And so we're clearly seeing that. And again, I think that's where, you know, when you combine that with sort of a really approachable price point, you know, we're a little bit of a premium to carbonated soda, but a significant discount to the other better for you players. I think it really opens up the aperture on the opportunity, and how big this can really be.
So a lot of good threads to pull on there, but maybe thinking about, you know, you mentioned at the outset, really the consumer just views it as soda, right? You know, we can make the distinction of Better- for- you, and maybe that's part of the value proposition. What do you think Zevia, or again, your better for you cohort has to do to win households from the mainstream soda brands? And is there a set of characteristics that are important to convey to the consumer?
Yeah. So I think to your point, you know, we have to really do a better job of letting consumers know that there's an alternative to traditional soda and that you don't have to sacrifice taste to get a Better- for- you soda. I think, you know, if I think about the from a Zevia lens in the past, we've really focused on sort of education on, you know, why you should drink Zevia. But I think really what we're, you know, what we've discovered is it doesn't matter, right? It really matters about taste, right? Taste and flavor innovation, taste generally and flavor innovation secondly are really important. We want to make sure that we're elevating our messaging to really be focused on that and ensuring that our product tastes, you know, as good as it can.
And so, you know, ramping up that product innovation pipeline, both improving the taste of our existing product as well as launching new flavors is incredibly important, really helping people understand, again, driving top, you know, top of funnel marketing that, again, this idea of you can really have limitless enjoyment. You don't have to sacrifice taste. You don't have to make massive lifestyle modifications, but you can still enjoy your soda and do so in a way that's slightly better for you, right? That's really where we're leaning in and, you know, freeing up resources on the P&L to drive more top of funnel marketing because we know that, you know, that's a message that resonates, and so I think that's really. There is still an element of investing in consumer education.
It has to be done in a way that resonates and it has to be done where you're really emphasizing flavor and taste.
I think at least initially you've already seen some of your retail partners kind of recognize the opportunity for the Better- for- you soda set. You know, recently you announced expanded distribution with Walmart. They have this new set called Modern Soda. I think that name is very interesting because it speaks to again these changing consumer dynamics and preferences. As we think about you know that set and you know Walmart's obviously sizable share in grocery, if it's successful there, is that kind of the first domino to fall to really push other retailers to follow suit with you know similar?
Yeah. I think it's a really important validating step, you know. I think retailers across the country are still trying to figure out what do I do with this category and how do I define it, and I think Walmart sort of putting a stake in the ground and saying, this is how we're going to, you know, begin to put definitions around this category. It really validates this whole idea of better for you soda, like as we were talking about earlier, like, yes, we may see it as soda, but making a more distinct set like this really does then drive the differentiation between, okay, this is the better for you set, you know, than the traditional sort of, you know, CSD set, so too early to tell, but it is an important validation step.
I think it, you know, I know you'll ask at some point, but we're literally live this week, right? Across the network of Walmart stores. So we're still, you know, very early, but we're going to learn a lot.
It is one week too soon for me to ask you how it's going?
Yeah. One week is too soon. The one thing I can share, it's not even a full week, but, so we've actually, as we talk about product innovation, you know, pack size innovation is also sort of another big lever. And so we've, excuse me, we've launched our first retail variety pack, which we've never had before. And so in the very short amount of time that we've been selling, the retail variety pack is actually the number one seller. So again, an important vehicle to drive trial, especially now that we'll have significantly expanded distribution, than we have in the past.
Touching on that or following up on that, do you think that, you know, one of the things that the Better- for- you soda players have to do is have these kind of traditional formats that people are used to consuming soda in, whether it's the variety packs or, you know, maybe we'll talk about it a little more later, but limited time offerings, you know, distribution and convenience, things where you have both immediate consumption options as well as, you know, the traditional, like large case and packs?
Yeah. Yeah. I think what we've found is, you know, variety. Again, singles is obviously an important trial-driving, you know, opportunity and package. Variety packs have been a surprising, trial-driving opportunity. And I think we have various different formats, whether it's the retail-specific formats, the club-specific formats, or even Amazon-specific formats, and we've also found that, you know, we can kind of differentiate pack size across channel, to optimize whether it's a six pack, eight pack, a 12 pack, and I think one of the unique parts about this business is, you know, the substantial multi-pack distribution that we do have. And so we're building off a very solid base.
And so, you know, driving more innovation, driving more, but both from a pack size, variety and flavor, as well as innovation is really going to be, you know, hugely incremental as we think about how do we continue to grow this business.
What do you think some of the challenges that Better- for- you soda faces when trying to increase its on shelf presence, ideally beyond, you know, just kind of two, two shelves each and, you know, blowing it out much larger?
Yeah. I mean, I think it's always a challenge, as you know, to convince retailers to change up the planograms, you know, or change up the sets. And I think we've sort of approached it in a multi-pronged way. I think first we've taken really a category creation mindset or a category captain mindset and really tried to use data to help your shopper data and scan data to help retailers think about this as a set, think about this as a category. And I think we're again. The Walmart decision is a bit of a validation as to how we've kind of pitched this as a category. Because again, there can be multiple winners in this category. There isn't. It's not just. It's not going to be a winner take all category.
And so, you know, this, it reinforces the sort of rising tide lifts all boats. I think we've also embraced DSD, right, as a trial driving opportunity. As I mentioned before, this is really a multi-pack business, whereas historically most beverage businesses grow singles first and then into multi-pack. And so we're, we're sort of rebuilding that trial opportunity with DSD and then, and obviously with convenience as well and, and trying to really sort of build our playbook as we think about expansion into the convenience channel, which is the immediate consumption channel, pack size innovation, right? How do we create variety packs to serve different audiences, to drive trial, to get them comfortable with, you know, with the product and with the brand. And so I think all of those are kind of the, and then of course there's the marketing piece, right?
Which is we need to really sort of drive a more consistent, elevated, message and, and one that's really rooted in great tasting, clean label, you know, approachable price points, which, you know, you'll start to see. But again, all of those things I think are, how we sort of build that demand flywheel, which will eventually get, you know, more consumers into the brand, into the category, and that will eventually lead to, you know, being able to claw back incremental space from, you know, XYZ players.
You mentioned DSD delivery.
Yep.
You have a network in Pacific Northwest that you're utilizing that launched in May. Can you just give us a sense for how those stores have performed relative to the rest of your geographies? And then maybe as a part two to that, I believe on your last call, you mentioned another partnership in Arizona. Just kind of initial thoughts on or progress there and why, you know, Pacific Northwest, Arizona, how do you think about the kind of geographical cadence?
Yeah. So I mean, Pacific Northwest was an important test for us. And I think what we've seen, the hypothesis has played out, I'd say 60%, as we expected, which is the response in grocery has been really impressive in terms of the outperformance of our grocery customers versus rest of market. I think convenience is a longer burn, right? And I think we've had initial success and we've had some initial challenges in convenience. And I think where we really are is honing that playbook and trying to understand what is the right product for the right consumer, because this is not an energy drink, right? This is not, nor is it Coke and Pepsi.
And so I think we have to really create and carve out a differentiated playbook, which is part of the learning that we're going through right now. So we're still excited about it, you know. And that's the reason why we've continued to build out the DSD network. I think we're really mapping it to, you know, we did the Pacific Northwest and I'm using an imaginary U.S. map, but Pacific Northwest. And then, you know, we're going to do the Southwest, so think, you know, Nevada, Arizona, Southern California. And so again, we're, you know, building it out in a responsible way. As you know, it's also quite costly. And so, you know, we're continuing to free up room on the P&L, to be able to invest in that.
And so I think we're also trying to pace the cadence of investment so that we're, you know, continuing on our path to profitability, but also driving, you know, strategically important initiatives.
You mentioned earlier, you know, one of the key ways that a lot of these brands usually grow is kind of single first and immediate consumption first and then into multi-pack. C-store is very important for that immediate consumption. Could you just talk about, you know, so I think you brought up, you know, maybe that was something that wasn't quite on pace with how you initially thought in the Pacific Northwest. What you're seeing in C-stores, is that a function of the flavor offerings, the format of the cans? And then what it takes to get more cold availability, whether it's in C-stores or at retail in, you know, the deli aisle or a cash wrap, you know, as you're on your way out.
Yeah. I think what we've seen is that it's a combination of a few things, right? One, it's continuing to educate the consumer about what Zevia is, what Zevia stands for. I think we have very low sort of brand awareness. And I think that's been one of the things we realized that we have to, you know, think a little bit more long term because, you know, they're just not going to put it in there. They're going to know what it is, right? Like, so it's thinking a little bit more long term. I think what we've seen is that we've had success in certain convenience formats versus others.
And I think, there are certain regional chains, in the Pacific Northwest who have what I'll call more of a Better- for- you offering than say, you know, an example, sometimes they use it like my local gas station, which has a convenience store. And honestly, that's probably not the right, you know, that's not going to be the right format for a Zevia or the Zevia consumer, right? It's likely not going to be there. So I think what we started to realize is that there is a play, which is a differentiated convenience play. And it has to be a little bit of a different playbook than maybe we initially had thought. And so I think that was a really important learning.
That's what gives us confidence as we think about expanding: that, you know, we saw that. Okay, there is a path and there is a unique playbook, and that's what we're going to be executing against.
If I think about the importance of, you know, cold availability in driving trial at retail, is there an opportunity? So, you know, traditional grocery or a mass, is there an opportunity to increase the cold availability there? And I believe you guys have, in at least the Pacific Northwest, some branded fridges.
Yeah, that's, and that's absolutely right. Like, and that's where I was alluding to on the grocery side that has actually been a success, right? And, and I think it's really, it's unlocking the, the convenience side. And so grocery, both from a multi-pack, like closing out of stocks, incremental displays have all been, exceeding what we initially thought. Driving cold availability and singles availability has been, a huge opportunity that we've been unlocking as we speak. And I think really it's, it's how do we, you know, take some of those learnings and, and apply that to the convenience, you know, channel as well. And, and again, convenience is going to be a long burn. We've always said it's going to take, you know, you're not going to start seeing it in the P&L till 2026, anyway.
And so, you know, it's going to take some time, but we're optimistic about what we've seen. And obviously we wouldn't be signing new, you know, DSD partners if we were concerned about that.
Yep, the first three quarters of 2024 all saw year-over-year sales declines. What has been the major obstacle that you face this year, and is it from your retail partners? Is it from consumers? What's kind of been the driving force of that trend this year?
Yeah, I think, you know, really, I'd say it's been more on the retail partners than it's been on the consumers. And I think there's been two main headwinds. One has been the decision by Target to delist us and put their own private label product on shelf, which volumetrically has been a big impact, then you know, I think Club has been the other headwind where I think historically this was a business that was overly reliant on Club, and then maybe we've swung the pendulum back too far in the other direction, so I think it's really being able to leverage, really being able to sort of fix the mix, if you will, fix the channel mix and get Club to be a more reasonable sized part of the business.
And I think that's where, you know, we're still obviously in discussions with our Club partners on what model makes the most sense and the cadence and timing of rotations. And as you know, it's a crazy kind of in and out channel anyway. And so, I'd say that's what you're seeing in the data right now. But then as we sort of think about Q4 and beyond, like we're going to be really lapping a lot of that noise, you know, a lot of that will start to fall off, particularly in Q1.
And so really what we're excited by is that our grocery business, which is really the biggest part of our business and what we sort of refer to a lot of times when we talk about scan data on our calls because it is so significant. Like we're seeing continued strength in our multi-pack distribution. We haven't, you know, really lost any distribution in our core retail accounts, and we're seeing improved velocities, and then when you layer on the Walmart, you know, growth on top of that, you know, what you start to see is, you know, we're kind of inching our way to that inflection point, right? Where, you know, it's, we're getting the product right. We're getting the P&L right. We're driving innovation. We're driving more top of funnel marketing and the distribution is starting to follow.
And so again, it's not going to be perfectly linear. It never is. But I think all the pieces are starting to fall into place to really sort of unlock what I talked about at the beginning, right? This really has the opportunity to be, you know, a breakthrough brand. And I think we're sort of now getting all the pieces in place to make that happen.
So you touch on this, but maybe drilling down on, you know, 4Q, obviously your guidance points to a reversal in that trend, and then return to growth. And I think for investors who are trying to get more confident in that pathway ahead, you mentioned obviously the, you know, easier [comps], but beyond that, what are some of the tailwinds that give you confidence in, you know, that kind of re-acceleration?
Yeah. Yeah. And so, you know, I think it's all said with the caveat, you know, we're in the midst of retailer conversations right now. And so, you know, we're not going to have any of the real final decisions about, you know, ads, deletes, swaps, et cetera for, you know, several more weeks. That being said, I'll continue to point to their strength and the strength and accelerating scan data in our core grocery channel. Obviously Walmart expansion from 800 stores in eight SKUs to 4,300 stores in 11 SKUs is a significant tailwind.
You know, I, given some of the initial conversations we've had with our Club partners, I do believe there's an opportunity, you know, to get back on a rotational basis next year in a way that's sustainable for us, both from a P&L perspective, but also for, you know, giving them the value that they crave. And so, you know, I think I look at all those things and I see a business that's stabilizing, certainly on the bottom line and on the top line.
And as you pointed out, there's those softer comps where that's a lot of that noise is going to fall away and what you're going to see is a really healthy, stable underlying business that has the opportunity to, you know, sort of really grow as we, as we drive, you know, more differentiated marketing, as we drive differentiated product offerings, differentiated pack sizes, and yeah.
I want to drill down on some of the marketing, but maybe just tie off the thought.
Oh yeah, of course.
I think the point that in your core business, I guess that's grocery, your same philosophy is very good. What does that mean? Where was that three years ago? Like give a little more detail,
so I think there's a couple of nuances. One, of course, is the company had pulled back considerably on promotional spend, and so we've kind of re-upped promotion back to what I'll call historical levels, and so, you know, and we don't disclose like customer-specific scan results as you can imagine, but what we've seen is that, you know, one, getting those back to, you know, the historical levels has driven, you know, significant lift, that, you know, again, was just sort of not evident before.
I think, too, to your point, we've been able to really differentiate sort of pricing between our six packs and our 12 packs to sort of, you know, drive incremental velocity and really fix the mix, because there was definitely an opportunity to. I give one example, which is Creamy Root Beer, which is one of our, you know, fastest-selling items, but it isn't necessarily as widely available as it should be. And so I think there's a lot of those sort of levers that we've been pulling to drive velocities. And so I think from the conversations we're having with, you know, retailers today, they've all been very, you know, supportive and constructive in their feedback around, okay, we're seeing the impact that you're having.
Some of it is also about driving sustainable growth because historically, and again, this is where the comparisons get tough. Historically, this was a company that also grew via product expansion, meaning they launched kids' lines, Mixers lines, energy drinks, tea. We've really pulled a lot of that back, right? As we said, we're getting out of kids or getting out of mixers that's non-core. Teen energy is going to be supported, but only in the natural channel. Really focusing the business on the core soda business. All of that is sort of driving some incremental noise, right? Because kids and mixers fall out of the scan data, but soda, you know, stays. All else being equal, you'll get out a lot of that noise next year.
But again, when you strip all of that away, we're seeing strength in the core business.
Maybe to tie the knot on some of the channel mix thoughts. You know, you mentioned getting back in Club. If you're able to give us just like what was Club as a mix percentage and then what would be a healthy level that we should think about that?
Yeah, I would say, you know, I think about Club as sort of a, it should be eight to 10% of the mix. I think it should be higher than that. It's obviously very accretive on a gross margin dollar basis. It's dilutive on a gross margin rate basis. But it is an important trial vehicle. I think historically it's been an important trial vehicle. I think as I look forward, it'll be less of a trial vehicle partly because, and again, it's only one week of data, but we suspected that the retail variety pack would be the biggest seller. It has been in the one week of data at Walmart. It has gotten a lot of interest from our other retail partners as well because it's the first time we've been able to offer one.
And so I think going forward, that will actually be the, you know, a real key trial driving opportunity for us, because it's a 12 pack, you know, 12 pack, eight pack, variety pack, which is pretty unique.
Yeah,
maybe zooming out and thinking about just kind of the broader CBG peer set. Obviously they've also had to deal with a lot of challenges this year, particularly, you know, volume softness across FDM, consumers being more deliberate with their spending. How should we think about Zevia's price positioning relative to peers? And then maybe, you know, we touched on this a little bit, but I guess one relative to mainstream and one relative to the better for you.
Yeah. Yeah. So I mean, I think we have a very, very attractive price point. Like we're obviously, you know, priced at a premium to conventional soda, but we're at a pretty significant discount to the better for you, particularly the, what I'll call the more functional, beverages. And I think, again, it's probably something we've not really been communicating clearly or loudly enough, about the relative value price proposition. And I think that's something that will be much clearer about, again, marrying this idea of we think that from a taste, from a clean label, from a price perspective, like nobody has that combination that we do.
And so being able to sort of really articulate that and educate the consumer about this, about the, you know, what we think is really an unmatched value proposition, I think is going to be really important. And promo has been an important trial driving opportunity for us, but so has these, you know, these new innovations, as have been, you know, these sort of new retail variety packs. So I think we're really launching sort of a pretty aggressive, you know, move, to really, you know, get ourselves out there and educate the consumer and drive trial and awareness and ultimately revenue.
You've talked about, you know, reinvesting some of the savings and allocating incremental dollars to elevated marketing. Can you just elaborate on what that means and how we should think about, you know, how that interacts with the consumer?
Yeah. So I think we're really in sort of the first phase of that, right? And I think as I alluded to, the company historically had been very focused on sort of consumer education, but I think what we really are focused on is really how do we drive awareness? How do we drive people understanding sort of that, again, our value proposition of great taste, clean label, approachable price points? And so you're going to start seeing a lot of that in, you know, it's going to be primarily first focus on digital, right? Between obviously social media and all the various social media platforms, digital advertising.
You're also starting to see out of home. We're starting to do out of home advertising, whether that's, you know, billboards or radio ads or, well, I wouldn't say that's an issue out of home, but you'll start to see a lot more out of home and you'll start to see a lot more, not that, you know, over the top television. You'll start to see a lot more just promotional events, for lack of a better term, event marketing, and so you're. I think that's where we're really pushing for, and then it's really, as I said, we're kind of in phase one of really building that sort of marketing ecosystem. And then as we kind of build that out, you know, we'll continue to sort of build on top of it.
Thinking about the relative price points and like you mentioned, you know, you're at a premium to mainstream, but a significant discount to some of the other, you know, functional or Better-for-you. How does that interact? How important are those price gaps when trying to convert somebody from, you know, Mainstream soda to Better-for-you soda? Because on one hand, you know, you want them to have you in the consideration set and say, oh, you know, this is, I'm just making a choice of sodas. But then on the other hand, if it's priced more expensive than Mainstream soda, is that a barrier or does being priced at a modest premium, but then having the health halo effect, you know, really sell the better-for-you offering? Just how should we think about that?
Yeah. No, I think it's a great question. And I think that's again, where sort of promo comes into play, right? Where I think the effectively using promo to break that barrier of price has been a really effective tool for us because what we do find is that, you know, we have a relatively loyal customer base. So once people are in the brand, they stay. And so if we can, you know, to your point, even if it's, they're buying it in a promotion and it's maybe a, you know, maybe it's on par with conventional soda or slightly a decrease, we know they'll come back and they'll purchase again. So I think promo has been an important lever to overcome that barrier. But once they're in, we find that that becomes less of an issue.
Because to your point, there's a health halo. They realize they like to taste, and that they can sort of enjoy it without the guilt, right?
Girish, you've been a great support on answering all these questions on sales, but obviously as CFO, we got to talk margins as well. If we think about, you know, most recently, Q3 gross margin was modestly below 49%. I believe that's a record since Zevia became a public company. What drove those strong results and, and how should we think about gross margin and the unit economics on a go forward basis?
So, I mean, I think we're obviously, you know, pretty excited about the work that we've been able to do in really a short amount of time. And so, you know, there's sort of a few levers that we pulled. Product costing is one lever. You know, really meaningful reduction, sort of excess and obsolete inventory, really continuously optimizing our co-manufacturing network and then exiting to a lesser degree the kids and mixers lines, which were gross margin dilutive on a rate basis. And so all of these actions, as well as reducing sort of the input costs, have really helped drive gross margins up. And I think it's important to note that that gross margin is also reflective of returning promotion spend to historic levels.
And so, you know, we do think we'll continue to be able to deliver gross margins in that upper 40s, mid- to upper 40s. Some of it's going to be dependent on channel mix and how quickly we go with DSD and other markets. But I think what we've showcased is really, you know, we can move the needle on margins. And, you know, I think there's, you know, as we talked about on the last call, like, you know, we've actually increased our annual cost savings target. And again, it's going to be that balance between ensuring we're investing to drive top line growth and then, you know, continuing to drop dollars to the bottom line, with that goal of being, you know, adjusted to be profitable in 2026.
You brought up some of the increase in the annualized cost savings. I believe it was a $3 million increase from previous. What drove that increase? And maybe if we think about, you know, the optionality for you to deploy that across, you know, is it investing in promos, investing in more marketing? How should we think about where those dollars get deployed?
Yeah. So, I mean, I think it's a mixture of, you know, continuing to find more opportunity in the supply chain than we had anticipated. Again, this turnkey model is a very powerful, you know, the sort of asset-light outsource model is really a powerful one. And given our size and scale, it's perfect for us. And so we've continued to find, you know, ways to optimize that. Some of it's also going to come out of, you know, SG&A as we continue to drive, you know, more thoughtful ROI-focused spend. And so I think as we think about reinvesting, I think we're at a place where promos are actually at the right level.
So, I don't necessarily foresee a lot more incremental promotional spend, but I do foresee more incremental marketing spend because we do think that getting people to really sort of getting people and again, using a DT C framework, but getting people on the top of the funnel is super important because, you know, they convert and when they convert, they come back. And so it's really about now, how do we get people on top of the funnel?
Thinking about risk to margins, should we keep our eyes open for anything on the commodity segment, you know, limited commodity exposure, but I know aluminum had been an issue in the past. And then maybe if there's anything that you have tariff exposure to, just as we think about, you know, potential risks on that.
Yeah. Yeah. I mean, I think, you know, aluminum is one of the obviously the biggest component because that's the biggest component of our COGS. We benefit from being able to piggyback on the aluminum contracts of our co-manufacturing partners because they're buying, you know, cans at five to ten X the rate we would be. And so I do think that we should have the ability to offset cost increases with cost savings. Like, you know, it may counteract what we can drop to the bottom line, of course. But I do think we'll be able to manage. I'm not horribly worried about tariffs or commodity exposure right now. But you know, who knows, right? I mean, if I had a crystal ball, we probably wouldn't be sitting here.
Yeah. We'd be vacationing in the train. How do you feel about your cash position and, you know, you mentioned the 2026 positive adjusted EBITDA, just line of sight to that?
Yeah. I'm actually feeling really good about the line of sight to profitability or Adjusted EBITDA profitability in 2026. You know, I think we just continue to make progress against all the initiatives that we've outlined internally, and I think, you know, kudos to the team for really sort of getting on board and pushing it forward. I think, you know, from a cash perspective, you know, we've done a great job of managing the balance sheet, and I think if you were to look, we were operating cash flow positive, you know, for the first nine months of the year, and so I think what we've really seen now is we've stabilized, you know, the business both from a cash perspective and from a, you know, continuing to bring down the losses.
So, you know, I think we have plenty of cash to not only manage the business, but also to invest if we, you know, find compelling opportunities to do so.
Girish, as we wrap things up, maybe a high level question to finish on. If we think about, you know, 2025, what are your baseline expectations for the health of the consumer? And are there maybe a couple of catalysts that would either drive better or worse engagement with Zevia and from the consumer?
I mean, I think the consumers continue to be, show that they're pretty resilient. And so I'm not as, worried about that, as maybe I might have been about a year ago. I think, you know, we still continue to, you know, guide people to sort of modest growth expectations in 2025 because we are lapping. There will be a number of sort of, you know, distribution laps that fall off, but we'll obviously have a number of new, and exciting distribution opportunities as well.
And so I think, you know, given our value proposition, you know, I think we are. I don't want to say we're insulated, but I think we're at an advantage because, you know, we are not at a massive premium. We're at a very slight premium to CSD, but significantly less expensive rather than our competitive set. So I think we're actually set up pretty well in an environment where, you know, if the consumer turns, you know, I think our price value proposition is strong enough to withstand that.
Great. Well, I think that's a great place to leave it, Girish. Thank you very much for your time and your thoughts today. And everybody, thanks for joining us.
Yeah. Thanks.