Motley Fool Article - 7/25 - "The kombucha launch could be the catalyst for Reed's to get acquired"
Can't post a link, but here's some of it...
Shark and Minnows: A Look At Three Soda Companies
By Delian Naydenov - July 25, 2013
As seen from the table below, Reed's has the highest growth rate but the lowest gross margin and it barely makes an operating profit, followed by National Beverage, and Coca-Cola. It is much easier to grow a company with annual sales of $30 million, in the case of Reed's, than a company with $48 billion in sales, in the case of Coca-Cola. Both National Beverage and Reed's are niche players due to their smaller sizes and implied flexibility.
However, of the two companies, only Reed's has a double digit growth rate. For example, only in the past year Reed's launched a new line of beverages (Culture Club Kombucha) and entered into a number of new distribution partnerships. It seems that both Coca-Cola and National Beverage are managed for profitability by sacrificing growth. This is evident by the volatility of their stocks as measured by beta. Reed's is the only company in the group that has beta over one signifying the company's effort to grow in the mature nonalcoholic beverage industry and the risks that come with it.
Reed's is the company that has the widest variety of products compared to the number of brands. It offers ginger soda, root beer, cream soda, sparkling juices, ginger chews, ginger ice creams and, most recently, kombucha drinks. Importantly, Reed's makes its products with natural ingredients and sells them primarily in natural-food stores (such as Whole Foods Market, Trader Joe's, Earth Fare and Sprouts), gourmet restaurants, and delis.
Culture Club Kombucha is the latest drink Reed's has launched and its sales should become material part of the company's 2013 revenues. Kombucha, which Reed's launched in the second half of 2012, represented 7% of the case volume shipped by the company in the most recent quarter. Kombucha is a cultured drink known for its cleansing and energy properties and the variety that Reed's markets is made of tea. Importantly, kombucha is a low-calorie and low-sugar drink.
Coca-Cola, National Beverage and Reed's are three companies primarily marketing nonalcoholic beverages. Coca-Cola is the largest company, which is barely growing. In fact, its most recent quarterly sales declined by 3%. At the same time, Reed's most recent quarterly sales increased by 24% compared to the same period in 2012 while those of National Beverage rose by 1.5%. National Beverage offers the best balance between growth and profitability but its lack of natural products make it less likely to continue to grow. Coca-Cola is a value play as the company is likely to keep losing market share due to backlash against soda products and increasing polarity of coffee and tea drinks. However, Coca-Cola should be able to manage costs well due to its economies of scale.
Finally, Reed's is the riskiest but the fastest growing company. It has the smallest portfolio of brands but it is a niche player that offers natural drinks and is expanding into tea-based kombucha. If successful, the kombucha launch could be the catalyst for Reed's to be acquired by a larger company with larger resources and growth need.
The companies discussed above will be helped by the recent record-high temperatures. Coca-Cola is a major company operating in the nonalcoholic beverage industry and it is the company, that usually benefits the most from weather swings. However, due to a secular move away from corn-syrup based soda, Coca-Cola is likely to continue to lose market share.... And Reed's is the smallest but nimblest company, which should also benefit from its focus on natural products and the recent launch of Culture Club Kombucha. Reed's is the riskiest investment but it also offers the largest gain potential. Given the company's long history and a solid management team led by the company's founder and largest shareholder, Christopher Reed, investors should feel more confident about the company.