Brewbound Podcast: What’s Big Beverage’s Plan with Bev-Alc?

[00:00:00] Jessica Infante: Convergence is all the rage in the brewing industry. We're gonna talk about it on the Brewbound podcast. Hello and welcome to the Brewbound podcast. My name is Justin Kendall and I am the editor of Brewbound and I am joined by Brewbound managing editor, Jessica Infante. Hello, Jess. Hi, how are you? I'm well. And we're also joined by Brewbound reporter Zoe Licata. How's it going, Zoe? Oh, hello. So guys, it's Super Bowl week. And what are your Super Bowl plans? And I'm going to ask Zoe first, because she's more into the sports ball than you are, Jess.

[00:00:48] Zoe Licata: True. I will be making my annual batch of Super Bowl-themed sugar cookies and bringing them to a friend's house where we will be rooting on the Bengals because we don't want the Rams to win.

[00:01:05] Jessica Infante: Any reason why you do not want the Rams to win?

[00:01:08] Zoe Licata: I would rather root for an underdog like the Bengals than root for a team that could potentially beat us in another season.

[00:01:16] for BevNET: Tell me about these cookies. That's like way more my bag than anything else we've talked about.

[00:01:21] Zoe Licata: Yeah, I always make just like a batch of gingerbread cookies turned into football players, like the cutouts. But with sugar cookie or gingerbread? Sugar cookies, yes. Nice. And decorate them in the various whatever colors the teams are for the year. That is my contribution. Those cookies are a major undertaking. Kudos to you, ma'am. It takes a very long, it's like a two day process.

[00:01:45] Jessica Infante: Yeah. Jess, what are your plans?

[00:01:48] for BevNET: Well, my plans are to stay home and make some snacks that probably all involve melted cheese and or buffalo sauce and watch the Super Bowl, but pay more attention to the commercials because we're going to talk about it for the next podcast episode.

[00:02:02] Jessica Infante: Fair enough. That's a good plan. I like that you're bringing it back to work.

[00:02:08] for BevNET: Well, like we used to, like we have good friends who have always hosted Super Bowl party that we always go to. And that hasn't happened with COVID, but like everybody talks over the commercials and that's what I'm here for. So love my friends, but would way rather watch Super Bowl alone.

[00:02:24] Jessica Infante: I will also be, I think, watching the Super Bowl. We'll see if an eight week old child allows it and also paying attention to the Super Bowl ads, which we've seen. And I'll probably be rooting for Joe Burrow as well, since he was born in Ames, Iowa. And there's this weird thing that we as Iowa staters do, which is attached to people like Joe Burrow, who was born in Ames, Iowa, but moved at age five. And even though he considered Iowa State, didn't go to Iowa State and turned us down twice or you know, picked somewhere else, but you know, hey, we still love you, Joe Burrow, especially in that fur coat. If he's wearing that fur coat, they're winning, man.

[00:03:05] Zoe Licata: That's very stylish. It's a lot.

[00:03:08] Jessica Infante: Yeah. Although I do like Matthew Stafford. That man has toiled with Detroit.

[00:03:14] for BevNET: How is he still in the NFL?

[00:03:16] Jessica Infante: I mean, how is Tom Brady or Ben Roethlisberger or Aaron both retired this year?

[00:03:23] for BevNET: So Tom Brady is not a real person.

[00:03:26] Jessica Infante: Stafford's like four or five years younger. Yeah, yeah.

[00:03:30] for BevNET: So my connection to Mr. Stafford is tenuous at best, but my first job out of college, I was at a tiny community newspaper and my beat was the township of Stafford, New Jersey. And their website was ridiculously hard to remember. It like made one of those like gobbledygook URLs that made no sense. So I'd always have to Google. And instead of getting my town's website to see when the next council meeting was, I would get like stuff about him. And that was a long time ago.

[00:03:53] Zoe Licata: Do you have a bit of vendetta against him though?

[00:03:56] for BevNET: No, not at all. I just can't believe he's still, I can't believe I am still in journalism and he is still in the NFL.

[00:04:04] Jessica Infante: Two careers that had converged in the oddest of ways, clearly. Clearly. Let's get to these Super Bowl ads that we've seen so far, though. And I'm going to say the best of the bunch so far is the Boston Beer commercial. Again, I liked last year's Clydesdale commercial, and I like this year's robot commercial. Yeah. It's not even begrudging. I like the cousin. I know you don't like the cousin, but I feel like there is a bit of begrudgement that you may have since you're not a cousin fan.

[00:04:39] for BevNET: Well, I think the cousin's growing on me. And I think it's because his writing is getting a little smarter. You know, I feel like in the beginning he was very like stereotypical mothhole. And now he's into like clever situations and he makes me laugh from time to time. And I did enjoy his robot party.

[00:05:00] Jessica Infante: his robot party, which Zoe, in person with the Boston Dynamics robots, was that thrilling or was that terrifying?

[00:05:11] Zoe Licata: A little bit of both. Those robots are scarily, like they just seem like they have a mind of their own. Even though you know you're watching a man control them with a controller, they're just very real and freaky. One poured me a beer. It was quite the experience, but it was like, I'm not ready for this form of robot. I'm scared it's going to come after me.

[00:05:38] Jessica Infante: Black Mirror has sort of brought all the fears of those robots to fruition, or at least we could see it playing out in this dystopian world. You can go watch that on Netflix. But yeah, I mean, I'm going to say I'm glad that we sent you, and I'm glad that Jess and I stayed home.

[00:05:58] for BevNET: Thank you for risking your life with the robots.

[00:06:01] Zoe Licata: Of course.

[00:06:03] Jessica Infante: How was the pour? Can the robot pour?

[00:06:05] Zoe Licata: The robot can pour, I didn't give it a correct angle, so it was a little foamy. So I'm scared that the robots are mad at me about it. But then they did a second pour with the Boston Dynamics person, and it was much better.

[00:06:20] Jessica Infante: That robot has your DNA now.

[00:06:23] Zoe Licata: Yeah, probably. It probably does. I'm glad that they're at least training it to party with your cousin rather than come after people, at least from what we saw.

[00:06:35] Jessica Infante: Maybe someday Boston Beer will go all AB with like the Bud Knight and, you know, use the robots to kill off the cousin, but probably not. I imagine that they probably won't go as far as AB did. You remember this Super Bowl commercial, right? Where they murdered the Bud Knight?

[00:06:53] for BevNET: Yeah. Oh no, I can't forget that. No, but I mean, that seems even darker than killing the Bud Knight. Killing the cousin? My God, where would his celebration of life be, at a Dunkin'?

[00:07:04] Jessica Infante: It totally would be at a Dunkin'. Yeah, absolutely.

[00:07:11] SPEAKER_??: Yeah.

[00:07:11] for BevNET: I like the Bud Knight and his universe. They could have written that for years. Like that extends to so much stuff, like point of sale in store, online gamification, so many things.

[00:07:23] Jessica Infante: Well, and they really like seemingly devalued the Bud Night over time. And I mean, those Bud Light Platinum ads ended up like treating him like a loser, which was very odd. I don't know. You can go back and watch those if you want. I don't think that we need to like go too deep into that. AB has released some of its slate of Super Bowl ads and none of them so far have that sort of typical like AB feel of like, Hey, this is hilarious. Like there was a Michel truck commercial that came out that had a lot of like athletes in it. Peyton Manning, Jimmy Butler, Serena Williams, and it had that big Lebowski feel to it that I think that came out earlier this week. And then, you know, the Clydesdales are back and it's a, I'm just going to say it's an emotionally abusive ad. You hurt me Budweiser with this one. And I don't know, there's no like typical Bud Light ad though. I don't even think there's a Bud Light ad. There's just Bud Light next and that's not aimed at 44 year old me clearly.

[00:08:31] Zoe Licata: I will say they did bring in a little bit of humor with the Bud Light seltzer ad with Guy Fieri. That one was a bit more along those entertaining funny lines.

[00:08:44] Jessica Infante: I'm not a Guy hater. It was all right.

[00:08:47] for BevNET: I love Guy Fieri unironically and without reserve. He is one of my favorite people.

[00:08:53] Jessica Infante: I like putting on diners, drive-ins, and dives in the background if I'm doing something, and every now and again I'm like, oh, Kansas City, you know, and I see some place that I used to go or something, and it's mildly exciting and, you know, 44-year-old dad life.

[00:09:08] for BevNET: Guys, grocery dreams, great show, like for a plane ride. Like if you've got like a jet blue flight and you're like trying to do some work, great thing for the background. He just seems like a nice person. We went to his place in Vegas after a work, like in my old life, a work event. And we were like deliriously tired from like passing out beer and stuff. And his menu is like an Italian fat kid's fever dream.

[00:09:32] Jessica Infante: That's amazing.

[00:09:33] for BevNET: Delightful.

[00:09:34] Jessica Infante: Well, we want to hit one more Boston beer item before we go here. And that is, we're going to talk a lot about convergence here. And Zoe, you wrote about Twisted Tea and they're going year round with their ad campaign.

[00:09:47] Zoe Licata: Yeah, so Boston Beer announced that it's investing $5 million in a Twisted Tea winter ad buy. So traditionally, Twisted Tea has been all about the summer months and drinking it on the beach or in some other warm weather occasion, barbecues and tailgates and things. And they've decided to make this year round push for Twisted Tea in all seasons. They are making an ad similar to the ones of the summer with these tea drops where they surprise fans with these drop offs of a bunch of Twisted Tea products and party related supplies. But this one is on top of a wintry mountain to show you can still enjoy your tea even if it's freezing cold outside. Interesting to see how successful that is. I mean, Twisted Tea has still been able to grow. As I said, I think it's double digit growth year over year for more than a decade. And that's just with that summer focus. So we'll see if that improves that even more with a winter focus as well.

[00:10:46] Jessica Infante: And this is a big deal because this is the number one F&B brand right now, right?

[00:10:52] Zoe Licata: It finally surpassed Smirnoff, Diageo's brand. It had been below Smirnoff for quite some time and it finally passed it in December in all of our track channels.

[00:11:07] Jessica Infante: A lot more icing has to be done to make this a competition now. So let's get to that featured interview. A convergence is taking place between the alcohol and non-alcoholic beverage industries. Pepsi, Coca-Cola, Monster, Arizona, and others have formed partnerships with major producers. Meanwhile, spirits companies are also forging their own partnerships with beer companies for ready-to-drink canned malt beverages with an eye on the cold box. And Pepsi is launching its own distribution business for alcohol called Blue Cloud. Here today to discuss are Martín Caballero, editor of Brewbound's sister publication, BevNET. Welcome, Marty. Hey, guys. Nice to be here. Welcome for the first time. I can't believe it's taken us this long to have you on the podcast. You messed up, but I forgive you. Yeah. Well, we'll atone now. And also joining us for the first time is Nik Modi, the Managing Director for RBC Capital. Thanks for being here, Nick. Yep. Thanks for having me. I really appreciate it, Justin. Nick, we were talking before we started recording, and you guys have actually been writing about this for what, the last six years or so?

[00:12:17] Nik Modi: Yeah. Convergence was a topic that we started writing about in the beverage category in 2016, actually. It really started kind of when ABI started making big, broad statements about wanting to be a player in non-alcoholic beverage. I think they had targeted 20% of their net sales in North America coming from non-ALC products. And then they had that partnership with Starbucks doing that Teavana ready to drink tea. And so it kind of made us think, it's like, hey, if you look across what's going on in the industry, everyone is starting to kind of play in everyone else's backyard. And that really kind of got us going on this whole topic and we're seeing it play out. And quite frankly, I'm surprised it's taken this long.

[00:12:56] Jessica Infante: Why do you think that this is the moment that we're seeing things sort of take off?

[00:13:01] Nik Modi: A lot of these companies have really big market shares in the categories, the core categories that they play in. At some point, you start thinking about, hey, we got to start figuring out ways of creating incremental growth. I think that's part of driving, but I think the more important thing is this whole notion of getting out of these category vacuums and getting back to the consumer, right? Because the consumer doesn't wake up in the morning and say, hey, you know what? I'm going to drink a beer today, a milk today, a juice today. They wake up and they drink based on an occasion that they have in that given day. And I'll give you an example in my own household and how this manifests. So one night, I'm up with my wife in the evening, and we're having some chocolate and wine, just kind of talking, relaxing. The next night, I'm having milk and Oreos with my kid at the same hour. So now think about it. That same 8.30 o'clock time slot, milk and wine just became competitors. This is what's happening, right, is that I think it's an average consumer drinks eight beverages a day. This is what all the companies are now starting to think about and look at, saying, hey, enough of the we're trying to optimize market share in this category, that category. We really need to optimize share of stomach and the share of those occasions. And I think that's what's happening.

[00:14:16] for BevNET: Marty, how do you guys see the convergence going on? Cause I know, you know, I know our take on it, but on your non outside of things, how do you guys read this situation?

[00:14:26] Martín Caballero: Yeah, I mean, I think I agree with a lot of what Nick just said there. I mean, I think it is about increasing your use occasions and sort of being more dynamic. I mean, we've certainly seen if we're talking about some of the major companies like Coke and Pepsi, obviously being the clear leaders, there's been a clear intent to shift away from some of the categories that they've been known for in the past. Obviously, sugary sodas becoming this total beverage company is a term that they really like to use. So I think we've certainly seen some of the same things there. I think it's been interesting as well as Coke and Pepsi try to evolve. It's been interesting to see how they've been using some of their legacy IP to sort of enter this segment and give that a fresh new look. I mean, the things that we've seen in terms of Fresca, Simply recently, Mountain Dew as well. It's been a way to take that awareness and that affinity for existing IP and give it sort of a fresh, different approach that it can use to move into this segment, which I think it has more license to now, as Nick was saying, consumers are more open to that kind of thing. I think also there's some things in terms of some of the pieces that have been moved around in recent years with Rockstar and Pepsi, with Monster and Coke in terms of contracts. sort of being in situations where these kind of things and different kind of extensions are possible. So I think that's played a role as well.

[00:15:45] for BevNET: The three of us know all too well what effect COVID has had on the beer industry, but what has COVID done to the non-alcoholic beverages industry? I assume some of the situations are the same, particularly the can crunch.

[00:15:57] Martín Caballero: Certainly beverage manufacturers are finding it harder and harder not just to get cans, but also to get certain ingredients. The supply chain gridlock has affected them in major ways and caused some companies to change their formats and make various sort of changes behind the scenes. As it relates to this, companies are seeing sort of these opportunities to be more dynamic and to sort of diversify where their revenues are coming from. Certainly, when we think about some of the affiliations and some of the partnerships that we've seen in this space, I think these large corporations are realizing and taking advantage of their specialties or sort of their presence in various areas in terms of being able to work on either side of alcohol and in terms of being able to help each other out, whether it's distribution or manufacturing or actually developing the brands themselves. So yeah, I mean, I think for sure there's been a desire to just sort of be flexible and nimble and find ways to work around some of these supply chain issues that have certainly affected non-alcoholic beverages as a whole.

[00:17:00] Nik Modi: And then on the COVID, if I could just add on, on the COVID impact, if you really think about what COVID did, it just accelerated trends that were already happening, right? So you think about the fact that people were already starting to stay at home a lot longer and more frequently even before COVID happened. people were starting to buy more and more of their products online before COVID happened, and then COVID accelerated. But I think the one incremental change was that because people were at home so much, they were getting into the habit of buying multipacks and cases of packaged beverages again, whereas maybe prior to that, they weren't doing as much of that. And that kind of created a habit which we're starting to see. To the earlier point about the can shortage, we have to understand why we're seeing the demand as high as it is, even after mobility has started to improve. It's because I think people have gotten back into the habit of drinking packaged beverages again. That is probably another minor driver that is causing a lot of this stuff to happen right now.

[00:18:02] Zoe Licata: A lot of these partnerships are just been announced recently. We're still kind of in the early days of them, but we've seen similar partnerships kind of fizzle out in the past. Do you guys see this as being a little bit different this time? And if so, why?

[00:18:18] Nik Modi: I could take that first. I mean, look, egos and differences are always going to exist. So that's why a lot of those partnerships fizzled prior. I don't think that's going to all of a sudden change. I really think it's going to come to a case by case basis. For instance, Boston Beer and PepsiCo, right? Dave Berwick, CEO of Boston Beer, he used to work at PepsiCo as a senior executive there, knows all the players. My suspicion is that that might have a little bit more longevity than some other partnerships. The Coke, Molson Coors, and Constellation partnership, they're binded by the Reyes family, right? And the fact that Reyes is their biggest distributor across all three companies. that will probably have a little bit of longevity, right? And then maybe you can get to some of these other, you know, partnerships where the relationships aren't as strong, and small differences could kind of derail the entire situation. But the bottom line is, every company is going to try to have a little bit more patience because they realize how important this convergence is to future growth. I think you're going to have a lot more patience when it comes to this kind of stuff.

[00:19:24] Martín Caballero: To Nick's point, I mean, I think, and to your point as well, Zoe, I mean, I think maybe this second time around, well, hopefully we'll have both parties sort of learning from their past experiences and, and hopefully, you know, having that experience in their past will benefit them this time around. And in terms of, you know, some of the specific ones, I mean, if you think about just the Koch and Molson's partnership for Topo Chico, I mean, What Coke brings to the table there really, you know, first and foremost, I think is that brand recognition, that awareness, and that sort of easy entry point for a lot of people to sort of get into this category. And obviously we've seen that expand in recent months. So being sort of more focused on playing to the strengths of either side could be a beneficial thing.

[00:20:06] Jessica Infante: Nick, I'm curious, we heard the rumors about Constellation and Monster and ultimately we saw Monster acquire or, you know, it's in the process of acquiring the Canarchy Craft Brewery Collective. I guess what I'm curious about now is do you see this ultimately setting up even deeper relationships in the future, potentially acquisitions by some of these companies that are maybe you know, starting to feel each other out, whether that's Pepsi and Boston Beer or Pepsi and Beam or whomever that may be at this point.

[00:20:40] Nik Modi: Look, I think it's inevitable, right? I mean, I hate to be so definitive, but I really that's just the way I see it. The reality is, you know, everyone's dancing right now and the dating will start at some point down the line. But to me, it makes absolute sense. that we will see a complete collapse of the lines between beverage alcohol and non-alcohol. And look, the US is a unique market in its regulatory infrastructure and framework. Internationally, it's a little different, right? Like on many trucks internationally, you could put Bev-Alc and Non-Alc on the same truck, no problem. In fact, many bottlers globally do that for the Coke and Pepsi systems. So there's a big international angle here as well for a lot of this convergence. But yeah, I think consumer insights also. I mean, look, the reality is all these companies are trying to sell to the same people, right? So having that cross kind of understanding of how consumers behave, I think, is also very instructive. One reason why Constellation plays in all three BevVal categories.

[00:21:43] Zoe Licata: Marty, Pepsi seems to be going basically all in on Baobab and it's even started its own alcoholic beverage distribution business. What do you believe is the end game for Pepsi when it comes to getting into this territory?

[00:21:59] Martín Caballero: That's a good question. I'm not too sure that I could speculate clearly about their endgame. You know, I'd probably defer to Nick. I mean, I think that, you know, I definitely agree that the boundaries are blurring between beverage alcohol and non-alcoholic. And some of the numbers reflect that in terms of there's not only, you know, this increased interest in non-alcoholic drinks, which plays into what Pepsi and these brands are already doing. But I think that, you know, this interest is, it's about having more options and sort of both sides of the divide there. Clearly, you know, you have one of the biggest beverage companies in the world and in the country, you know, it makes sense that they'd be looking at, you know, and talks about getting a closer relationship with those brands. It makes sense that M&A would certainly be on the table.

[00:22:41] Nik Modi: Yeah. And if I could just follow up on Marty's comments, I mean, look, Ramon LaGuerta, Pepsi CEO was the former head of the international business. So he's seen this play out in the marketplace, but he's also very growth oriented, very growth oriented. And so to me, the end game is he wants probably to be a complete beverage company and be able to offer a portfolio to as many consumers as possible for as many occasions as possible. So I think that ultimately is the end game. And quite frankly, I think that's the end game for every company in the beverage space right now.

[00:23:16] for BevNET: Last week was just out in San Diego at our colleague Beer Business Daily's Beer Industry Summit and Pepsi Blue Cloud had a whole team at the conference, you know, meeting people and mingling and, you know, clearly I think they're in it for at least the long haul, if not for the end of times. Sounds darker than I would have meant.

[00:23:38] Martín Caballero: I'll just throw in there too about Pepsi. I mean, they've, you know, obviously covering the non-alcoholic space like we do. I mean, a couple of their notable releases the past year was their mixer products that were developed in-house and, you know, started with sort of a more conventional mixer sort of replacement for the, you know, mass brands, and then released a second one that's sort of a more upscale, you know, more premium type of brand. So clearly sort of working on both sides of that space. And, you know, again, we keep talking, going back to this point about more of a total beverage company. certainly giving themselves a lot of options to attract different people, you know, along that line of alcohol.

[00:24:17] for BevNET: Yeah, for sure. So back to beer briefly for a little bit. Nick, how much of Monster's planned acquisition of Kanarchy actually involves around the craft beer brands versus the infrastructure?

[00:24:28] Nik Modi: I think this was really about the infrastructure. You know, Monster has already filed trademarks for multiple beverage alcohol brands in the ready to drink spirits and hard seltzer space, Beast, Greenlight, Trident, right? So it's very clear that they're just looking for a capability to actually make the product. Look, at their heart, Monster is a marketing organization. They barely have any fixed infrastructure. At the end of the day, they're a marketing organization. They've done a phenomenal job of building lifestyle brands in the energy drink category, very, very competitive space, and they've been able to stand out. You can apply those core capabilities to a lot of other categories, but you just need the ability to actually make the product. If you're a marketing organization, you don't want to be partnering with another company where they might have a say, and how the brand is being built, right? Because Monster obviously has a very finite way of doing it. So I absolutely believe, look, I think they got some craft brands in the process, but this is really about the capability.

[00:25:31] Zoe Licata: When they're more focused on that infrastructure, what does that mean for those craft beer brands?

[00:25:38] Nik Modi: I think that's a great question. I would expect them to try to build local heroes, right? Like they've done with their monster brand. Think about how monster scaled so quickly. They basically used local heroes to grow a national brand. It's almost reverse of the craft phenomenon, right? Where you kind of use a national kind of presence to grow local brands, right? And so I think there's some, some learnings in there that monster can apply and learn from canarchy as well. But this is, going to be less about the craft brands and then really trying to accelerate that growth and more about innovation and creating new platforms of growth.

[00:26:14] Jessica Infante: And getting those products into a cold box, I imagine, is probably near the top of the list of priorities as well as full distribution trucks. Absolutely. When you look at this CanArchie-Monster deal, what do you see as their end goal? And how much of this do you see as maybe them trying to force Coca-Cola's hand in actually making a move with them?

[00:26:41] Nik Modi: I personally believe at this point, Monster has come to the conclusion that Coke is not going to buy them, which is why they went ahead and they did this deal to try to expand their growth opportunities going forward. Now, imagine if you're Coke and the Coke management team, and you go to the board, you're like, We want to buy Monster. And they're like, well, hang on a second. It's three times the market cap of when we did the initial distribution deal. Shouldn't we have just done it back then? I mean, it's a big nugget to buy Monster. I mean, that's not a small company now. So I think there's some challenges there on this foregone conclusion that Coke is going to, at some point, buy Monster. I just think it's going to be a little bit more challenging than that.

[00:27:20] for BevNET: they announced that the Canarchy acquisition in the morning and then late afternoon, they had an investor call and Justin and I logged in and we're used to covering beer company earnings calls all the time. And that's classical music on the hold and then it's very whatever. And all of a sudden, when the Monster program starts to kick in and it's really loud, heavy metal, and there's images of snowboarders and skateboarders, and I was like, oh my goodness, we are not in Kansas anymore, Toto. This is different.

[00:27:52] Nik Modi: It's a different vibe. It's a different approach. It's just different, right? And that's why they've been so successful, because they are different.

[00:27:59] Jessica Infante: I also think it's interesting that they are very steadfast, it sounds like, in not having an alcoholic beverage with the Monster name on it. Does that sort of surprise you guys that they wouldn't go in that direction? I mean, they've cited the issue being, you know, they don't want that underage drinker to have that product. So clearly Pepsi's gone in a different direction with Hard Mountain Dew, but Monster is steadfast there. Does that surprise you guys?

[00:28:30] Nik Modi: It doesn't surprise me at all. I mean, you know, they dealt with their fair share of product, you know, liability claims with the whole caffeine level and all that kind of stuff. Remember, the founders of Monster are former bankruptcy lawyers. They are very sensitive to the law and making sure that no boundaries are crossed. So it absolutely makes sense. I mean, then we saw what happened for Loco. And, you know, I think there's a lot of learnings in the marketplace where, you know, they're probably approaching it the right way.

[00:28:56] Martín Caballero: Yeah, I think so, too. I think they've built this entire brand on energy, and they've really built clearly a strong brand on just that proposal of energy, whereas Mountain Dew has been sort of interchangeable. I mean, it does have a core product, but it's sort of been used in different stuff like that. So it would make sense to me that they'd want to sort of protect maybe the integrity of that. I mean, we've even seen that with the True North seltzer, which doesn't really have any monster branding. And I guess the same you could say about the rain as well.

[00:29:26] Nik Modi: Yeah, and you know what's really interesting about Rain is that it's actually incorporated under a different company. Their whole thing is like, wait a second, we're going to do this 300 milligrams of caffeine. What if there's an issue? We've got to protect Monster. So it's just, if you really get into the minds of Rodney and Hilton, you can see that they're very, very smart and shrewd when it comes to this kind of stuff.

[00:29:46] for BevNET: One thing Jim Cook pointed out when he was discussing the hard Mountain Dew deal last week was that 80% of Mountain Dew drinkers are legal drinking age. So I think they assessed that situation, decided there wasn't that much of a risk.

[00:29:59] Nik Modi: Consumer research will say one thing and then regulators, if something happens, will say another, and that's the risk, right? It's not necessarily the insight of, hey, this is going to be okay. how it gets executed in the market, how the consumer responds, and then how the regulators respond. And that's always a black box.

[00:30:18] Zoe Licata: So, Nick, where do you see the biggest opportunity areas in this space? Where is there still some white space left?

[00:30:26] Nik Modi: Obviously, the ready to drink space, you know, has already been on fire, but I think we're very, very early in infancy. I mean, when you think about the convergence of health and wellness, we talk about more convergence, health and wellness and convenience. Which is effectively, think about what the hard seltzer category was initially supposed to be. It was basically vodka tonic, vodka soda in a portable package, effectively. Now, you can apply that perspective to almost any cocktail variant. We now see tequilas are going, ranch waters are doing well. I think we have a very long curve for this RTD category. Of course, once we get more regulatory clarity around CBD and THC and all that kind of stuff, which might take many years, I think that's going to create an entirely new opportunity of growth.

[00:31:13] Martín Caballero: Yeah, I would agree. I mean, I think it's going to be interesting to see where consumers are going to be sort of asking for this category to go or just sort of the space in general. To me, I think I wonder about sort of the tension between convenience and complexity. You know, as we've seen more products on the market, consumers are going to get sort of more used to how things taste. Maybe are they going to be looking for something that's going to be a step up and more sophisticated, or is it going to be sort of more about that, um, you know, availability play and just, you know, establishing a large presence. If we're talking about RTDs, are we going to see spirits also becoming involved in this equation as well? So I think it's just going to be interesting to see where consumers are taking this. Cause they're really the ones driving it.

[00:31:55] for BevNET: But on the subject of complexity, Marty, it's interesting to me that you bring that up because if you remember back in the early days of hard seltzer, a lot of the flavors were very, you know, a lot of like sense of place from the ingredients. Like, you know, one of the original Truly flavors was like Kalima lime and grapefruit pomelo. And now we've gotten to a place where everything is just lemon, lime, grapefruit. You know, I think maybe we tried to give consumers something that had a little bit more of a craft credential and it turns out consumers kind of don't give a fig.

[00:32:25] Martín Caballero: I think there's that sort of you kind of get to that good enough level where diminishing returns for whatever the improvements are in terms of flavor and stuff like that. So I think, yeah, I think there's a sort of a level where consumers are like, OK, this is this is good enough. And, you know, I don't necessarily need to be really active in discovering new stuff at this point.

[00:32:45] Zoe Licata: Marty, do you see other CBG companies like outside of beverage exploring this space at all?

[00:32:52] Jessica Infante: Are those Cool Ranch Doritos, Vodka Tonic, you know, spirits-based hard seltzer on the table?

[00:32:59] Martín Caballero: Again, it kind of goes back to the consumer. It goes, where is the consumer sort of, you know, looking for those things to develop? I mean, we were talking about rain a minute ago. And just to go back to that example of that sort of high caffeine energy drink category right now is being dominated by these sort of licensed candy flavors like Sour Patch Kids and Skittles and Starburst. So all these kinds of things that may seem like an SNL skit, if the consumer is asking for it, the consumer is asking for it. So maybe there is the potential for that thing. I certainly wouldn't expect any of the companies to sort of be holding back innovation that they think is going to be successful. So yeah, I mean, if consumers are getting kind of tired of the same old flavors and yeah, we may see some weird stuff out there. If there's a, if there's a market for it, I'm sure there'll be an attempt to put it in the can.

[00:33:48] Nik Modi: Ultimately, food and beverage companies, you might actually see them also converge, but that is way down the line. I would tell you, because I cover all of consumer staples, I look at personal care, beauty, household companies, the beauty and personal care companies are thinking more about self-care and OTC, so there is convergence happening. On the food side, you're seeing center of store and more indulgent snacking converge, right? So they're having their own convergence right now. But ultimately, if you were to ask me what I think is going to happen in 2032, do I think that we're going to see combinations of beverage and food companies? Absolutely. No question. And I think cannabis potentially could bind them, right? Because at the end of the day, then now you're getting some really crazy convergence in terms of occasion usages, right? I think that could actually accelerate some of this combination.

[00:34:44] Jessica Infante: I missed the opportunity to say Cool Ranch Doritos Ranch Water. That's what it should have been. And you make a good point. That's what it should have been. Nobody wants a vodka tonic of Cool Ranch Doritos.

[00:34:58] Zoe Licata: It's very nice that you bring up cannabis, though, Nick, because we saw that both Monster and Tilray, which is a very large global cannabis company, have really leaned towards craft beer with their acquisitions. So do you get a sense that this is something that is going to continue? Are they the only ones or is there going to be more deals involving makers of traditional beer with these companies?

[00:35:20] Nik Modi: I think when you think about cannabis, we have to kind of reframe the way we think about it. It's not the product. It's the ingredient with the benefit. And so a beverage, and we see this with Canopy out in Canada, the ability to deliver that ingredient in a beverage makes good business sense, right, effectively. And so I think what you're seeing is these companies saying, hey, we need the capability to make this stuff in a beverage. And then we also need some of the relationships, because this is probably going to be a three-tier type of situation. That is really the impetus and the incentive and the motivation, which then would say, yeah, you probably will see more of this happen as we go forward.

[00:36:04] Martín Caballero: Yeah, I completely agree with Nick. I mean, I think that's really the way to think about it is like this is an ingredient that can be processed in many different ways. And certainly in like, you know, food and beverage and packaged CPG and that kind of thing is a huge one. And also, I think there's probably a, you know, you guys probably know more than me about this, but in terms of a little bit of playing defense and sort of setting up companies to be able to serve that need and anticipation of possibly contracting some of their consumer base or just sort of being able to play to those adjacencies that are going to be in beer, alcohol and cannabis.

[00:36:40] Jessica Infante: Of these new products that we know they're on the table, whether that's Hard Mountain Dew, Fresca Mix, Simply Spiked, whatever it may be, which ones are you guys most excited to see in the market and see how they resonate with consumers? And I'll start with you, Nick.

[00:36:56] Nik Modi: Look, I think the Fresca one is interesting. I'm not sure about the Simply. We'll have to see about that. Mountain Dew, I'm mixed on Mountain Dew. But I think the Fresca, I think Topo Chico, I think when you have these brands that are strong brands, but are not well known for a particular thing in a certain market, like most people in the US don't even know about Topo Chico as a seltzer, let alone a hard seltzer, right? I think that is smart, and the way Coke is doing it is very smart, because they're basically selling the concentrate at a high margin to the beer companies, and that's how you're making the product. It's actually a really interesting business model that Coke has thought of, and they're not taking a lot of risk with their big brands. Mountain Dew is a big brand for PepsiCo. Topo Chico is not a big brand for Coca-Cola. Fresca is not a big brand for Coca-Cola. In this area, I think Coke has approached it a little bit in a better way, I think, a little less risky way than PepsiCo.

[00:37:53] Martín Caballero: That's a great point that Nick brings up is that I think for Coca-Cola, this is about repositioning and giving sort of a fresh look to these old IPs that, you know, are kind of dormant more or less. Well, simply I should, simply is doing well, but Fresca clearly, you know, it's kind of like a older generation IP. So different kind of approach there. I think I'm kind of interested in seeing how Mountain Dew Hard Seltzer performs just because as you mentioned, you know, it is a bigger bet in terms of using that brand. And I'm curious to see, you know, if maybe some of that data that Jesse referenced earlier is like really we're going to see come through in terms of a lot of crossover there. So I'm probably most curious about that one. But then again, simply spiked is just so weird to me that I'm really just I want to see how that just rolls out in the market because that one is just kind of a bit of a bit of a head scratcher. So we'll see.

[00:38:40] for BevNET: I know nobody asked me but I am friggin pumped for fresco mixed. And Bill Newlands mentioned during his conversation at beer summit that he's also a gigantic fan of Fresca with tequila. So I assume he will be excited as well. Thank you guys so much for joining us. Got a final final for you. We've talked a whole lot about the convergence of beverages, but it's coming up this weekend. What are you going to be drinking Super Bowl Sunday?

[00:39:10] Nik Modi: Oh, everything, everything. We have an important basketball game, and if we win, I celebrate. If we lose, I drink. Anyway, you slice or dice it, and then the Super Bowl comes. I'll probably have some seltzers. I like the Truly Margarita. I actually do enjoy some of those flavors, and I'll have some wine. I can't drink beer, all beer, because I have celiac, so that kind of restricts some of the stuff that I can drink, but that's kind of what I'll be doing. And plenty of water to stay hydrated.

[00:39:47] Martín Caballero: Stay hydrated, yeah, of course. Yeah, I think for me, I mean, you know, the Super Bowl, I have to say, I'm not the biggest NFL guy over the past few years. And it's sort of drifted a bit from my beloved Baltimore Ravens. But I love the Super Bowl because it's like one of the few like legit American holidays left where everyone sort of stops and everyone is kind of like doing the same thing at once. So, you know, what could be more American than that, than just cold domestic beer? That's what I'm going to be drinking. Nice. Maybe out of a cooler with some ice to keep it extra real.

[00:40:24] Jessica Infante: Well, we'll check back to make sure that you guys followed through on both of those plans. But Nick, Marty, it's been great having you here. We'll have to have you both back in the future. Thanks again for doing this. Yeah. Thanks, guys. Appreciate it. been a pleasure. Thanks. And that's our show for this week. Thanks to our one man audio team, Joe. Thanks to Jess and Zoe for hanging out with me. Thanks to all of you for listening. Please like rate and review. We will be back next week.