Gerry’s Insights: Not a Hangover, Just a Toothache: Assessing Fiscal Trends at Year End

“That wasn’t so bad, was it?” So my dentist asked me one year and $15,000 out of pocket into our new relationship last year. And in truth, in the context of domestic division, congressional dysfunction and upheaval and misery in so many parts of the globe, no, I guess it wasn’t. Indeed, he’d been disarmingly frank about his student loan predicament, so I guess I was happy to do my share to help.

(OK, more than my share. ) And after all my years of hard work and sacrifice, my wife had been on me to, just once, go out and spend something on myself. Well, now I had! As we approach the close of 2023, that’s kind of my feeling about the year in beverages.

Yes, inflation hurt some consumers badly. (Never mind that their wages may have gone up even further. ) Yes, growth capital was harder to come by, and those skinflint investors were starting to demand beverage startups find profitability, or if not that, then a path to profitability, or at least do some bushwhacking through the thickets of slotting and field marketing in search of that path.

And yes, the strategics mainly don’t seem to be in buying mode right now. But a rich stream of innovation continued, though more often tempered by business realities like the benefit of pursuing a substantial total addressable market (TAM). So that’s why everyone launched an energy extension! True, there were brand failures, but there always are.

A few of those casualties I was genuinely sad to see subside. But others had been running on fumes for some time. Here’s my take on some of these themes.

Remember that rush of beverage companies to the public markets a few years ago, whether by SPAC transactions or by more rigorous IPOs? When some of those companies priced their new shares at 15X or 20X multiples, it was hard to fault them for greediness when the market immediately bid them up another 20-30%, meaning they arguably left money on the table. Now their valuations are in the tank. It’s bad enough for those that have more or less made good on their articulated strategies.

For those that fell way short of their promises even as they burned tens of millions, the carnage has been even more severe. Valuations in the private realm have similarly faded for many. Except that the investor is always right (except when he’s wrong), it can seem unfair.

But the shift in sentiment has breathed some much needed discipline into our business. Maybe national landgrabs are not for every brand. .

Yes, finding growth funding has become more difficult, particularly for brands whose plans don’t make a lot of sense in the first place. But there is a vast reservoir of capital out there waiting to be deployed. Maybe it’s the next bubble, but creator brands are finding no lack of backers.

Proven winners like Lance Collins can always find outside money. The pounds and euros seem to rain down on weird European brands like Huel and Waterdrop. Icelandic Glacial always finds money! For the rest of us, the increments are likely to be modest and hard-earned.

And hey, brands are being built right now without any recourse to institutional capital. Among the major beer and beverage strategics, one can make the case that only Keurig Dr Pepper has demonstrated a coherent and consistent approach to onboarding and incubating early-stage non-alcoholic brands (and later-stage ones too, like Polar). So if the others are relatively quiescent on the M&A front, that seems to represent a healthy awareness of their own limitations.

Personally, after seeing terrific brands like Honest Tea sacrificed to the strategic whims of their acquirers, I’m fine with that. I like entrepreneurs who’re about actually running a long-lasting business rather than finding a sucker to overpay for their company. In my newsletter I sometimes call them “tinkerers” in contrast to the “carpetbaggers” who seem to be mainly about whether they’ll buy a Maserati or a Range Rover with their exit money.

That newly instilled discipline should serve founders well in building a financially sustainable business. Maybe even one they can pass on to their kids like the AriZona Iced Tea, Milo’s Sweet Tea and Joe Tea guys have done. (What is it about iced tea that supports these family values?) “Total addressable market.

” It’s everybody’s favorite new acronym. What does it mean? It means, by way of example, if you’re a construction company that has invented a cheaper, more sustainable device than a roof – that’s a gigantic TAM! (Pretty much everybody but cave dwellers in New Mexico and unsheltered people on Market Street in SF. ) I actually have more mixed feelings on this one than I let on earlier.

Yes, it’s beneficial for entrepreneurs to focus on opportunities of meaningful scope. But sometimes pursuing your passion, no matter how niche, and course correcting as needed can yield a rich trove of opportunity. It might turn out that your obscure idea solves a problem that’s bedeviled lots of folks.

When you think about it, something like a gut pop, while it boasts a TAM of “ALL OF SODA!!!” had to be a calculated risk in its earliest days. Canned sodas with some kind of thingies in them that help your – microscope, was that? Microsoft? Microbiome! Yet early in, it’s already turned into half-billion-dollar market at retail. This calculation can get complicated.

What’s the TAM on protein water? Is it Vitaminwater + Muscle Milk? Or is it a niche? I really like this category, but it has struggled to ignite. One of the casualties of the past year was the well-crafted Trimino line. The feds have been making ominous rumbling sounds about market concentration.

And yes, they’ve been going after the tech giants. They also seem to have figured out that market-restraining activities like slotting fees might not be such a good thing. But in more prosaic segments of the economy – like the one where gigantic beer wholesalers buy up all their peers without a murmur of objection – they seem to be asleep at the wheel.

Maybe smarty-pants lawyers in Washington simply find warehouses and trucks to be too boring to be worth their concern. Instead of overreaching with the tech giants they might do well to pursue some of the low-hanging fruit in CPG. Assuming the Biden Administration gets four more years to pursue this agenda, some barriers to small brands and innovation may yet fall.

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