Hey hey, Kombucha Freaks!
Michael Peter here, RBC CEO and Kombucha.com founder. Here at RBC, we like it raw, and that’s exactly how we plan to lay it down — raw, unfiltered, and uncut. This blog will serve to tell our story as a company — and my story as a CEO trying to play the biggest part I can in changing the way the world feeds itself.
When I sat down to write this article, not gonna lie, I got really anxious…I wasn’t sure what I was going to say, and I (literally) started to sweat. I used to love to write, and I was pretty good at it — but somewhere along the lines I stopped. As a business owner there’s always so much to get done, and you need help, so I became an editor of other people’s work more than anything else. Starting a business has a way of forcing you to set aside the things you really love to do in your business for the things you feel are most important to get done.
The one thing I did know: I wanted to be real. So here’s my pledge, traditional marketing and fakery be damned: the good/bad/great, the struggles/rewards, and the roller coaster ups and downs of building a food business, I’m going to share my experience trying to take a regional kombucha brewery into a global good-for-you food & beverage powerhouse.
That’s the dream, and that’s the goal. And now it’s in writing for everybody to see and the universe to soak in…boom! People look at me crazy sometimes when I say that. I say it takes a little bit of crazy to make change for the better.
So here it goes…like most, our brewery had humble beginnings. We started in a small retail space in West Palm Beach, FL that operated as a kombucha brewery and vegetarian ramen house — One Kombucha & Ramen Bar. We made awesome ramen, sold other local food products, and of course sold a ton of our delicious kombucha in growlers to go.
Over the years, we grew production, started to get local accounts and by 2015 we needed more space. We gave up the ramen business and leased a 12,000 square foot facility in Pompano Beach, FL — just 20 miles south of our original location.
It was a no-brainer. The industry was rapidly growing and we were one of the first commercial breweries in Florida. So we bought (much) larger equipment, a bottling line (clear long neck bottles), and built out our space. We got organic certified, we started producing, and we went out door to door and started getting more accounts. Vegan restaurants (my business partner was a vegan, so it helped), local markets, ramen restaurants, juice bars, etc. We hired a sales guy, a driver to make deliveries, did farmers markets on the weekends, art shows, local events, etc. We went from producing 5,000 bottles a month to 20,000 in less than a year. We were killing it in terms of growth, and it was helping to pay the bills. But after all the expenses, none of it really turned a profit. And it was a major grind (constant order follow ups, chasing owners to get paid, etc.) — so we started to pursue wholesale distribution. Our production capacity was about 30,000 bottles per month back then.
We built a tradeshow display and went on the road. We did dozens of shows all around the country, got on planes to go to meetings with grocery chain buyers, pounded the phones, and hounded buyers via email. It paid off, and in the end we landed three massive accounts: national distribution through Sysco (the largest food distributor on earth), 2 distribution centers through Publix (one of the nations largest grocery retailers), and the whole state of FLorida through Whole Foods (the nations largest natural foods retailer). Huge wins for us. But it came at a cost. With finite resources, there was only so much we could pursue — we got laser focused on distribution, and in the meantime we lost many of the small accounts because we failed to maintain those personal relationships, follow up on orders, etc. It sucked, but it was a conscious decision; we thought it was worth it, and it was a sacrifice we were willing to make.
In mid 2018 we went live in close to 500 Publix stores. But not without a lot of pain. We were in a long-neck bottle, and Publix gave us an ultimatum 6 weeks before going live: we’ll take your product, but it can be no taller than 6.5 inches tall, and it can’t be a pry-off cap. And while that may seem like a simple task, it wasn’t given how little time we had (less than 4 weeks to find a new package, find a new machine to pack it, and get it all to our warehouse to get the order out in time). We finally settled on a stubby bottle out of Canada, with a pull-tab cap out of Sweden. And we bought a new $100,000 bottling machine, because there was no way we could get our old one to work with the new bottle. But hey, the first order was for a 2 x six packs of each flavor for every store — 36,000 bottles. So we were sure it would be worth it. In the end, the bottling line didn’t get there in time, and we bottled that first order by hand. Talk about crazy…we built our own manual filling station, made a human assembly line, and for 10 days straight, everybody bottled…girlfriends included. It was miserable…but wow was it rewarding and exciting.
We were also sure that with Whole Foods going live just months later, and volumes with Sysco growing, we weren’t going to have enough production capacity, so we bit the bullet and bought even bigger fermentation tanks. We found a great deal on some 1-year old tanks, jumped on it, and nearly 15x-ed the production capacity of the brewery to close to half a million bottles per month. And we bought a canning line.
As soon as the product went live at Publix, we hit the ground running. Demos, specials, buy on get one free. As much marketing as we could do. But there was one problem: Publix didn’t just add us. They added more than half a dozen other kombucha brands as well — the section was huge, and every week somebody (if not multiple brands) were on bogo (buy one get one free). Then within a few months we started to realize something: the only time we were getting significant re-orders was the week after a bogo. This was a major problem. Why, you ask? Because when we’re doing a bogo, we’re selling it to Publix for 50% off. Which means we’re selling it at a loss. And when 80% of your volume is from bogo, you’re bleeding bad.
In Spring 2019 we stopped bogos, and by September Publix decided to cut the brand. After only about 15 months on the shelf. Ouch.
So at the end of 2019 I was forced to take a deep look within our business, within myself, and within the industry as a whole. The first question I needed to answer was this: why did our One Kombucha brand fail at Publix? (The first time I read this article aloud to somebody here at the brewery, my eyes teared up and I couldn’t even get out the words…”One Kombucha brand fail at Publix”. Saying it out loud made it feel so much more real, and it really hit me. But the reality is when you take big risks, sometimes they don’t pan out. My Dad used to tell me “lessons in life and in business almost always have a couple things in common…they’re expensive, and they hurt!” But what are you going to do…not take them? NO! This one hurts to own, and it was for sure expensive, but it’s the truth of what happened.) And here’s my thoughts as to why:
- Packaging. The stubby bottle with the pull-tab cap. Americans aren’t familiar with the caps, and they really just kind of suck. They can cut people, are tough for older people to open, and have a significant failure rate. Like, I don’t care how delicious it is (and our product is freaking delicious) — if you can’t get it open or it cuts you, or you spill it trying to open it, you’re never buying it again. But…I didn’t have this problem with my other accounts (coffee shops, vegan restaurants, etc…for local brand cohesiveness, we had started distributing stubby bottles to them as well). WHY didn’t we?! I called a few customers and asked. The answer: because the cashier is there educate the consumer on the bottle closure — and sell the product (it’s easy because it’s usually the best tasting, best priced, living/healthy product on the shelf — and they and the other staff drink it themselves).
- Branding. One Kombucha — the yoga/chakra thing was cool as a little retail store in the neighborhood we were in. But as a retail brand it was kind of just some made-up bullshit, that didn’t reflect who we were as a company, and didn’t reflect who we wanted to be.
- Promos. We couldn’t afford to lose money to build loyal customers anymore, so we stopped doing bogos. Other brands that had taken outside investment and/or who sold for stupid everyday prices didn’t stop. We had always self-funded, never took big investment, and wanted to be the every-day-low-price regional guys.
- Pricing. We were the least expensive everyday price on the shelf. But it didn’t matter…because somebody on bogo was always cheaper! Had we sold for a higher price, maybe we would have been able to continue bogos without bleeding so badly.
The next question I needed to answer was how did I personally fail as a CEO in getting us in that position?
- Small Accounts. I let the small accounts slide trying to build up the big accounts. In retrospect, one good coffee shop was as good as 5 big box stores. That hurt us in a major way.
- Rash Decision Making for Packaging. Not a single one of us liked the stubby bottle, pull-tab cap…nobody. But we were under the gun and we wanted the Publix account. There were other options; we should have looked (and thought) harder.
- Failure to act. We should have changed the packaging immediately once I realized, at the beginning of 2019 when I started doing more due diligence and found this. I mean these guys had to take out a national ad campaign to apologize for using a cap we were trying to build a retail brand with. And we didn’t change it — because we didn’t want to eat $100,000 on a package change.
- Failure to diversify the RBC product line. All the awesome new products coming out in 2020 should have been out years ago!
Would #2 and #3 have changed the outcome at Publix? Who knows. But #1 and #4 likely would have changed the current situation.
Then I had to think about what’s going on in the industry. And here’s what I came up with:
- There are still opportunities in traditional kombucha, but it is mostly oversaturated. Kombucha was a $1.4B industry in North America in 2019. But this is retail level sales, which means at the wholesale level it was more like $700M. This $700M is the money the breweries actually see. By all accounts GT has at least 60% market share — or $420M of the $700M pie. Coca-Cola, Pepsi, and a few others make up about 30%, or $210M. At the end of 2019 there are probably 400 kombucha breweries operating in North America. $700M-420M-210M means there’s $70M for 390 of them to split — $180,000 per brewery per year. Generally not enough to keep the doors open.
- There are lots of breweries that need help. There’s no doubt about it: the kombucha wars are in full swing, and the casualties are starting to pile up. The battle for shelf space is basically over, and the price battles are starting to heat up. The industry is still growing rapidly, and rising tides lift all boats…those who survive will be those who adapt and plug the holes quick enough.
Bottom line, there’s a lot going on in the world of Kombucha these days, and I’m going to be your industry insider. I’m all in go-big-or-go-home, and in true Raw Brewing Co. fashion, my goal is to cut through the bullshit, open up the world of commercial brewing and home brewing, and be the go-to source for all things fermentation, kombucha, and industry. Things will always be raw and unfiltered here at RBC. There’s way more to come.
And now that you know a little about where we’ve been, I hope you keep up with where we’re going. Click any of the links below to follow us on instagram, facebook, youtube, and other social media.
It’s Saturday evening here at the brewery in sunny South Florida, and I’ve got friends downstairs waiting to play cornhole and sip some hard kombucha. So I bid you farewell for tonight and wish you happy health.
2020 is looking bright…stay tuned!
All the best,