(Chris at jury duty so speaking softly and keeps jumping in and out of call, with CFO and COO picking up at various points).
Private Label (PL) up due to better contract terms
Kombucha (K) responsible for gross margin decline (plant and labor intensive)
K margins higher than others
Paid down $77,000 in long term debt
• Q3 usually has less YOY growth
• Main activity at HQ is the launch of K
• Data suggests that they have a winner in a tough category
• One company (GT Synergy) is dominating the Kombucha market with 90% of the business
o Estimated at $150-$200 million in wholesale sales with no defined #2 competitor.
• Reed’s still tinkering with plant efficiency, but Reed’s has pushed the limits with their technology because of things like the curved glass with a label on it
• Efficiencies are working themselves out and they expect that Q1 will smooth out completely
• Results of coming in of Kombucha
• Didn’t ignore others, new distribution agreements
• Geyser agreement came because of Kombucha
• Told sales team that their whole commission structure is going to be based for the next couple months on Kombucha
• Kombucha line dollars sales could anywhere from 33% to 200% of core business, too early to tell now.
• Bidding smarter on the private labels, anticipate better margins moving forward on that
• Lots of PL accounts have come back, lots of new business for 2013.
• Hopefully Kombucha is the biggest driver of growth for the company.
• K has over 800 new accounts, the universe is probably 10,000 accounts with reed’s that they could put K in, 3,500 whole foods type stores as well.
• They will be developing new K flavors, will most likely have some new ones in Q1. Already getting lots of requests. Chemical engineers have been developing them.
• PI helped with the development of K flavors because they have been knocking off sodas for the PI.
• It would be shocking to Chris if their prediction that they move into the #2 competitor slot as they believe they will.
• Going into 2013 is the most exciting time in the company’s history.
• Haven’t even tapped into convenience yet.
o Insider acquisition – Why did 2 insiders buy stock that is greater than their annual salaries?
• Undervalued tremendously to start the year, switched IR to in-house, Chris is on the road talking about the stock (5-6 days this Q) and would do more but too busy, Annie’s Natural went public and that had a effect because it opened peoples eyes to natural foods.
o Rollout of Kombucha into Trader Joe’s or Publix?
• Have already started picking up some supermarket chains, but initial rollout in the Southeast will be with Whole Foods. TJ’s has not made up their mind on if they will sell Kombucha.
o Spend to launch for Kombucha for the 800 stores? Margin?
• In a perfect world it’s a little bit more per bottle to produce than a bottle of ginger brew but you can charge twice as much. To morph plant into Kombucha production facility cost some money but it should level out. Believe they are producing it more efficiently than most because of their brewing experience.
• It would be disappointing if they didn’t have at least $5 million in K sales within the first 12 months of this launch.
o Rolled out aggressively with K, you will see some BOGO type offers but they will be specific. No big slotting expense with K which is great, it’s a one-time slotting fee.
o Secondary pull through with K, some stores have 3-4x pull through. It’s all about taste, not even because of marketing.
o How many people does Reed’s reach?
• Quite frankly, whole US.
• DSD, whole west coast is covered. Pretty much covered in Maine down to Florida.
• Working our way in.
Just opened up Chicago. Got Utah.
• Won’t be long before they have the whole country covered.