Grokking the Industry Unicorn
Dear Client:
Since Mike’s Hard Lemonade was founded on April Fool’s Day in 1999 by Anthony von Mandl, it has been an amazing growth machine. However, while it’s had its starts and stops over the last 20 years, Mike’s really started to grow in earnest seven years ago under the leadership of Phil Rosse, and posted 29% depletions and sales growth for 2018, double 2017’s +15% trend. And while every brand in their portfolio is growing, the standout is obviously White Claw, so we are focusing this piece on that breakout brand.
White Claw is growing at a 300%+ run rate and accelerating, and holds over 50% of the hard seltzer market. But just to illustrate how fast it is growing in its most mature channel — supermarkets — consider this: If you take the other big dollar share gainers: Michelob Ultra, Modelo Especial, Corona Premier, Mich Ultra Pure Gold, and Truly, White Claw’s dollar share growth is 57% of theirs, combined.
That’s why we’re calling it a unicorn: A large margin brand that has survived it’s 3rd Summer and is going into its fourth year with accelerating momentum.
But how big is big? I scoffed when Mike’s chief Phil Rosse and marketing chief Sanjiv Gajiwala predicted it would hit ten million cases two years ago. But now 30 million cases is within reach, and indeed Mike’s founder Anthony von Mandl predicted 100 million cases at a recent conference. So we caught up with Phil and Sanjiv last week to get an update. You, my friends, are a fly on the wall.
BEGIN INTERVIEW TRANSCRIPT
Harry: When I visited you both in Chicago at your headquarters two years ago White Claw was just kinda getting started and you both said you think it would outsell Mike’s Hard Lemonade and I burst out laughing. So you passed that milestone, making me look like a dick, but whatever … It’s not about me.. I also asked at the time, “How big can this get?” And you said, “You know I have a number in my head,” and I said, “Well, what’s that number?” And you said, “10 million cases”. Again I laughed. Did you have any idea that you guys would hit that so quickly?
Phil: Harry, in my experience, you never know what you might have until you get going. And you can set these big hopeful numbers around innovation, but I think that every passing, day, week, month where the momentum just continues to build and sustain itself that we are just thinking bigger and bigger. So when we launched the brand and when you were here [in August 2017] and we said, “Wow, this thing could be 10 million cases” it was because that’s a pretty big number for any new innovation. But we did more than 10 million cases the next year, 2018. So, I’m pretty sure that my prediction or comment, when you were here in the summer of 2017 of 10 million case, did not also come with a prediction that it would happen the next year. But the fact that it did that the next year obviously had us recalibrate what we think the brand could be.
And then this year it’s taken another significant step forward in the first 5 months. For it to be up over 300% in 2019 and now we’re looking at a brand that could be 30 million cases plus this year. There is something special happening here and we don’t know what the ceiling is, but we’re going to keep leaning into it and again we think it could become a macro-brand. Maybe it’s a top ten brand, maybe it’s a top five brand, nobody really knows. But, yes the number could be a lot further north than where it is right now.
Harry: So, I wanted to talk to you about something else that, in my notes that you said is that “culture eats strategy for breakfast.” Can you elaborate on that?
Phil: Businesses today need purpose, and the next generation of employees is looking for so much more than just a job. You need a reason to feel deeply connected to companies and businesses and brands. So for many years now, we have been working hard to make Mike’s a different type of place to work. And by different, we mean something that attracts folks that want to be part of something special that we’re trying to build, and a place where every employee plays a critical role. We want this to be an amazing place to work, where not only the business grows but the employees grow. They get great opportunities in return and they get rewarded for their efforts. Their ideas count, they’re valued, they’re listened to, because ultimately, we all know that all the good ideas don’t come from the top. The ideas come from everywhere, that’s not only within the business but it is also respecting the three tier system; retailers have ideas, distributors have ideas, we’ve obviously got a few. And if you can mobilize your employee population to really feel deeply connected to what you’re trying to build then ultimately, you’re going to get the best out of people.
We have been trying for many years now to create an environment where everybody wins. Obviously, there’s ownership, there’s management, but winning must be felt by all employees and all our partners. We want everyone associated with this business to feel like they are a part of the success and that in our mind is the Mike’s culture and we believe organizational culture can be as much a disruptor in todays world as a new product can.
Harry: And how important is diversity to that?
Phil: It’s critical. I think we’ve been working hard to make sure we have a diverse organization. We all know that our products appeal to a wide variety of consumers, whether it be different ethnicities , gender, or the unique differences you see in regions across the country. We have to make sure that we’ve got our employee population also resembling the marketplace. Our marketing organization is over half female, I think our entire organization is now a third female. That definitely was not the case when I came to the U.S seven years ago. We’re also more balanced, we are very well represented across the generations. Between millennials, Gen X, baby boomers, I think we’ve got a great mix currently in the business. But we are not patting ourselves on the back for what we have done. We are looking at ways to push this thinking even further.
It’s been a pleasant surprise to see a brand like White Claw being consumed from 21 to 65 across gender, across geographies. It’s really a brand that’s connecting with everybody.
Harry: Sanjiv, I’d like to springboard off of that because I think my fiancé Millicent may have offended you at our Beer Summit when she was like “Oh White Claw is a basic white girl drink”. And I said I don’t think that’s true, that might be your perception. How do you cast such a wide net to attract an old dude like me and a 25 year old Hispanic girl?
Sanjiv: We haven’t in our marketing been trying to identify or associate who or what a White Claw drinker looks like. [Ed Note: This is a very different approach to other major bev-alc maketers]. I don’t think if you look at our creative or our positioning that we’re showing White Claw at a yoga class or at a 5K run. We’re talking about the product and we’re talking about the feeling of refreshment which I think is great positioning for an alcoholic beverage brand. And I think consumers are resonating with it.
I think the other piece is we’ve done a really good job of diversifying our flavors to make sure we’re not just offering the same thing everyone else does. And that’s why you’ll see our black cherry and our mango which are unique flavors, as the top performing six pack flavors in the seltzer section.
Phil: In the last 13 weeks, White Claw is the number one selling beer brand at Target. So let’s just think about that for a moment, a 36 month old new to world brand to already be the number one performing brand with a major retailer in the US beer industry. And so when we dream about how big White Claw could be, it’s hard to predict, but allowing yourself to think what’s possible is the fun part of the business, its motivating. Nobody knows exactly what’s going to happen when it comes to innovation, you try things, and when the catch you just lean into them, scale them and ride it. And we’re going to continue to do that, but if I would have told you when you were here two summers ago; “Hey Harry, 24 months from now we’re going to be having a conversation about White Claw being the number one selling beer brand in one of the top retailers in the country”. You would have thought I was crazy….
Harry: Yeah well I already did think you’re crazy…
Phil: We are a little crazy Harry. You have to be.
Harry: Especially for a Canadian…
Phil: We pride ourselves on just trying to think differently. But sometimes you’ve just got to set a really high bar and then do everything you can to reach it. It takes as much energy to think big as it does to think small. Let’s choose to think big.
Harry: One of the traits that you do share with Constellation is that Constellation also has a lot of growth and a lot of continuity of management. But there’s been some distributor grumbling lately about them — how shall I put it? — believing their excrement isn’t odorous. At some point when you’re so successful you start drinking your own Kool-Aid. Is that something you ever worry about?
Phil: One of our core values as a company that we talk about all the time is humility. At the end of the day, we are still a David in both the U.S and the global Goliath beer games. So we absolutely work hard to keep ourselves in check. We want to celebrate, we want to be proud of what we’re doing, we want to make sure that our people do feel the confidence that comes with winning as they go about their jobs every day. And we do believe that we are adding significant value to the industry and our partners that are looking for growth. But in our DNA, in Anthony’s DNA, it’s a company that he started 40 years ago, selling wine out of the back of his car and in a 10×10 square foot office with no resources. We don’t forget that and therefore we will always be extremely grateful. And the more grateful you are, the smaller your ego gets. Its true. It’s not about any one individual, it’s about all of us. And at Mike’s when we say all of us, it includes our partners through the three-tier system that are all making this happen.
Harry: Right, I don’t know if you hear that but my dog Biscuit is very loudly chewing a bone in the background in case you’re wondering what that is.
Phil: Harry, knowing you I figured that was a police dog at your front door. If they still allow one free phone call from prison, feel free to call me back on my cell phone later.
Harry: Duly Noted… but be careful what you promise buddy. So how much are y’all increasing your marketing spend?
Sanjiv: Over the last four years our marketing spend is up over 225%. So we’re spending pretty significantly. I think the key thing though, it’s not about the dollar spend it’s about maximizing our returns smartly in what we’re spending. And I think we’ve been pretty focused about that, we try to focus on campaigns that work.
One of the key things as a marketing team that I have the team remember is, you have to go where consumers are inviting you to go. And if you try to go everywhere, consumers are going to get mad at you, they don’t want you everywhere. And I think from a marketing standpoint we want to remember that and that helps us be really smart and efficient about our investments.
Harry: Well, isn’t there a danger in showing people in commercials with your product and they might not be the people that are actually drinking your product? It might turn people off?
Sanjiv: Yeah I think it’s two things, right: live sports is the right way to reach consumers today, especially on broadcast TV. Whether it’s Baseball Tonight or Wimbledon, whatever it might be where people are tuning in. So we want to make sure we’re there because we know people are watching, and that’s part of our buying strategy.
And then regarding the creative itself, you’re 100% right, all we want to do is share a feeling of what White Claw is. We don’t want to share who we think the White Claw drinker is because to our earlier conversation, everyone is proving to be a White Claw drinker.
So we want to make sure those people understand the feeling of tasting a White Claw and understand the product attributes. So we want to talk about how we are made pure. And that’s really what our creative is supposed to do.
Harry: Right, okay so when you increase marketing that much, do you sometimes get frustrated about the lack of increase in shelf space? Space always drags at least a year behind trends just because of the way retailers set their boxes. What are your thoughts on distribution versus velocity for the brand right now?
Phil: My perspective on category management and shelf sets and space at retail is it has always been our number one opportunity as a company. I think it’s truer now than ever: our number one opportunity as a company. I think if there’s one thing that we could wake up tomorrow and change overnight, it would be increasing the space for our brands. What would our market share in seltzer be if we were always available everywhere consumers want us to be? I know it would be higher than it already is.
The White Claw brand has accelerated so quickly that it absolutely needs more shelf space. We are getting solid display execution that is helping avoid out of stocks on shelves but to keep meeting consumer expectations space on shelf must expand heading into this summer and into the years ahead, as the seltzer category and our leading brand continues to perform the way it is. And we’ve got to continue to push that because the consumers want White Claw hard seltzer and they want it at a greater rate than what has typically been the space allocated to the more flavorful products versus the macro beer brands.
And I think distributors are continuing to see that White Claw is not another FMB. White Claw is broader, it’s bigger. If you look at the velocity on the White Claw hard seltzer variety pack, we’re pulling at similar rates of Corona 12 packs or Modelo 12 packs. White Claw is a macro velocity turning brand. That requires new thinking by all of us.
The White Claw brand so far in 2019 is the 13th biggest brand in the beer industry. The brand didn’t even exist 38 months ago, and now it’s the 13th biggest brand and growing at over 300% YTD. We think it can be a top 10 brand, who knows maybe it could even be a top-five brand. Maybe it can even excel beyond that. None of us know, we just believe the ceiling is high. But when you stand in front of shelves it does not look like at top 15 brand in the marketplace today. That’s a big opportunity.
Harry: What about C-Stores, for the 12 pack, what kind of penetration or acceptance are you getting there?
Sanjiv: I think we’re seeing success in C-Store on two levels, the 12 pack variety pack we’re seeing really great results. And then the other one that I think is an under-reported success story is our 19.2 oz single serve which is performing extremely well. They’re actually one of the top performing overall seltzer SKUs, and if you look at the IRI data, on much lower distribution our 19 oz single serves are doing more volume than some competitors’ 12 packs.
So, I think we’re feeling really optimistic, lots of room still to grow from a distribution standpoint in the C-Store channel and that’s something we’re focused on.
Harry: Well I’m sure you’ve heard me write a couple of times that the beer industry as a whole has a huge opportunity to take on by far the fastest growing and largest vodka brand in the country, which is Tito’s. You know, Tito’s and soda is the drink that’s driving that brand, down here in Texas it’s Tito’s and Topo which is just a Mexican seltzer. And so, how many vodka soda servings are there out there a year?
Sanjiv: There are 300 million beer case equivalents of vodka soda served in America every year.
Harry: That’s just amazing. I think that’s a huge opportunity to get that kind of volume back into beer. It’s all about ‘better for you’ and there’s the perception that vodka sodas are better for you than other alcoholic drinks. So I guess that leads me to my next question, what kind of traction are you guys getting for on-premise accounts that maybe don’t have a liquor license or they need speed of service?
Sanjiv: I actually think on-premise for us is working in many accounts beyond just the non-liquor license accounts. I think we’ve always had success in that type of account because what FMB’s offer. But the thing that’s exciting about White Claw in the on-premise is that it’s working everywhere. And we’re just getting started. It’s about 12% of our total mix which is three times as big as the mix on Mike’s. So this is working in places where it’s not just the VFW Halls without the liquor licenses. And the velocities are great because, to your point, speed of service is critical and White Claw helps satisfy that.
I think bars that are craft beer centered, that don’t offer a traditional session lager option is a great space for us. Venues remain a huge untapped opportunity for us and we see a lot of great velocity there. And what’s driving it Harry, and I think that’s what makes every great on-premise brand, is the bartenders are drinking it too. And when the bartenders are drinking your product, you know it’s going to start to work on-premise.
Harry: Yeah you know, one thing I’ve noticed is that most FMB’s, bartenders they turn their nose up and it’s almost a joke. Like when hard colas came out, it was a half joke, I kind of laughed about it but you don’t see that with White Claw and some of the other seltzers.
Sanjiv: Yeah I think a great story for you is the head chef at the best Italian restaurant in Chicago, Spiaggia, is a huge White Claw fan. And that’s what he drinks in the kitchen after his shift is over. These are the types of places that it’s working.
Harry: One of the things that Anthony has always stressed and we heard Jim Koch [Boston Beer founder] talk about it at my conference, is that it’s really difficult to make a pure base that doesn’t have an aftertaste or off flavors in a drink like this. So what’s your take on basically everybody and their cousin, even really small brewers, getting into the seltzer business?
Phil: We know how difficult it is to make, one, a high-quality flavor malt beverage and two, a high-quality seltzer. And we do talk about it all the time. Anthony has built his entire company around the concept of what’s inside the bottle or the can matter as much as anything. Anthony’s ongoing investment in liquid and lifelong passion and expertise in taste, in my mind is a significant competitive advantage for us because we have a reputation as an organization of making best in class liquids, really great tasting products. There are many reasons why we’re having success with this brand, but if you think more broadly, many of the reasons why we’ve had success as a David vs. Goliath flavor forward company for 20 plus years now is because our owner always delivers us a product that people love the taste of and the teams and our partners are proud to sell and sample. We have always believed that taste matters.
Harry: I wanted to ask about distributors. Obviously, distributors love growth and they also love margins, those things are important and it seems like kind of a lay up for you on those two points. But you guys also operate 100% within three-tier system, you don’t have taprooms, and you’re not out there buying stuff. How important is that relationship with distributors?
Phil: Harry there’s one thing I learned really quickly when I moved to the U.S in 2012 and that was you need to absolutely respect and partner within the system to get the most out of your business and your brands. And in order to do that, you need to give your partners a focused portfolio where you’re investing in those brands. Yes, they’re making solid margins with our exclusively super high end portfolio. If you are big enough to make a difference in a distributor’s overall performance, which we are, and you offer them the super-premium margins and you can achieve our objective of always growing at least double digits every year, you will get the attention, time and resources.
And they will believe in you and your company. We have 400 plus distributor partners across the country servicing the 3,000 plus counties. And I think that over the last handful of years, call it five to seven years, I believe we have earned the opportunity to further leverage what they do every day in their businesses against our brands. They are the local experts, they make things happen, we respect that, we value it. I think we have outstanding relationships, we value those relationships, we spend time with our partners, from my level throughout the organization because it matters. We don’t take it for granted and we’re trying to give them tools to building connection to what the consumer of today and tomorrow is looking for, not strong arming them to continue to execute what the consumer of yesterday was looking for.
Our brands are connecting, we offer outstanding margins and as long as we continue to be laser focused and deliver growth, I believe we will continue to earn more time and attention from our partners. And in return, it will help them achieve their business objectives of growing themselves, we take that role very seriously in the industry. We are a company that you can count on to help offset any challenges your having with your total portfolio and ultimately increase the value of their assets.
Harry: Do you think the White Claw family will overtake a Coors Light or Miller Lite?
Phil: All I know is we are a David amongst Goliaths and humility is an important value for us, so I will not answer that question as it has been asked, but we are thinking really big with this brand. And the stories, whether they’re consumer stories, distributor stories, our own employee stories, etc., that we’re hearing everyday are doing nothing but building further belief that we potentially are onto one of those things that come along once in your career if you’re lucky.
Therefore right now we are not putting any sort of cap on what we think White Claw can be and whether that’s a top 10 brand, top 5 brand, 100M plus case brand here in the US, but an international brand with years of potential and run room? Nobody knows. But let’s keep having some fun seeing what’s possible.
Harry: Thanks for your time, Phil and Sanjiv.
Our August 2017 Coverage:
Mike’s CEO Thinks White Claw Could be as Big as Mike’s Hard Lemonade
August 4, 2017
Mike’s Part II: The Turnaround
August 3, 2017
August 1, 2017
BEER INSTITUTE RESPONDS TO TRUMP’S MEXICAN IMPORT TARIFF THREAT
In the wake of President Trump’s threat to impose ever-increasing tariffs on all goods imported from Mexico, starting at 5%, Jim McGreevy, Beer Institute President and CEO, issued a statement Friday urging “Trump and his administration to reconsider imposing another tax on the beer industry.
“The beer industry is a thriving economic engine for America. Imposing a tax – and tariffs are taxes – on the largest import country of the beer industry would harm the 2.1 million Americans who owe their livelihoods to beer. Whether it be the truck driver, farmer, distributor, local retailer or favorite tavern, every community in America will be affected by this decision,” he wrote.
Of course, ironically, the BI’s two largest members, A-B and MC, would benefit the most from a Mexican import tariff. But it’d be pretty cynical to push a politically charged public policy just to hurt your competitors. Well done BI on keeping it honest.
Until tomorrow,
Harry, Jenn, and Jordan
“Hard work never killed anybody, but why take a chance?”
– Edgar Bergen
———- Sell Day Calendar ———-
Today’s Sell Day: 1
Sell days this month: 20
Sell days this month last year: 21
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: -1