Brewbound 2024 Beyond Beer Company of the Year: Surfside

Speaker 1 [00:05] Let's meet our next Brewbound Award winner, the 2024 Beyond Beer Company of the Year. It's Surfside, the popular ready to drink canned cocktail brand. Joining me now is Clem Peppa, CEO of Stateside Brands. Congratulations, Clem.

Speaker 2 [00:22] Justin, thank you so much. Really appreciate the award and the honor.

Speaker 1 [00:26] Hey, it is our pleasure. So, Surfside has definitely earned it. You're having another great year. You're chasing 5 million cases this year. What do you attribute the growth to this year?

Speaker 2 [00:39] You know, as far as, as, um, surfside, we feel like we've just really, um, been fortunate on a number of fronts, and I think it's, it's not really one thing, it's a combination of, of everything, right? It's, it's kind of like, you know, the, the three-legged stool that's only a. As, as, you know, its weakest leg. And so, um, I think we've been fortunate to have great partners. Um, I think we have a brand that resonates and a liquid that resonates and it's meeting, uh, you know, basically a consumer need that was, was not met prior to Surfside. You know, if you look back over time, um, you know, you had the rise of White Claw as the first malt-based RTD. Uh, and that obviously was meeting a huge unmet consumer need. Uh, but pretty quickly, Gallo figured out how to do a vodka version, right, with, with High Noon, and then, uh, that's taken off with a lot of momentum. And I feel like we were fortunate to be able to step in and. At a time when RTDs and particularly spirit-based RTDs had already proven that they could scale, um, you know, in the, in the case of High Noon. And so we felt like, hey, there was really an opportunity with iced tea and lemonade. That's a natural for a vodka base. Um, and so I think we've been, you know, fortunate with the timing to be able to step in at a time, uh, when, when spirit-based RTDs are really taking off.

Speaker 1 [01:59] You also hit on a time that consumers are really seeking uh non-carbonated options.

Speaker 2 [02:06] Yeah, absolutely. And it's funny, sometimes it's better to be lucky than good, right? We, um, we, we really felt like, um, iced tea and lemonade should not be carbonated. And I think there was a, there was a minute there at the, the sort of the height of the malt seltzer craze when, um, just every kind of flavor of seltzer was coming out, right? And there was, um, you know, iced tea flavored seltzer and lemonade flavored seltzer, and that kind of just always struck our sensibilities. It's like, you know, iced tea really shouldn't be carbonated, right? And And so, you know, when we felt like, hey, we want to come out with an iced tea, we want to be clear that it wasn't carbonated, um, more really to prevent consumer confusion because there were a number of products out there that were seltzers and I think that, um, consumers intuitively, uh, assume that a can is pressurized, right? It's, it's carbonated. So we really kind of led with that non-carbonated message. When we actually put the product out on the market, um, and, and we led with that statement of no bubbles, um, we thought that would be more of a point of clarification than an actual selling point. And it turns out that there was a huge demand for this type of product. Uh, and a lot of people that were just thrilled to be able to have, uh, a drink that wasn't carbonated and, and didn't bloat and so forth.

Speaker 1 [03:24] Surfside has really built out its national distribution map this year. Why was it important to move so fast with that?

Speaker 2 [03:34] Yeah, I think, you know, going back to the, you know, previous part of the conversation about the point in time here, right? And, and so this category, has moved very quickly and we feel like it's going to continue to move quickly. Um, but we do feel like the music's gonna sort of stop, so to speak, at a certain point, right? And the category will become mature and there will sort of be, um, you know, a, a handful of winners and a handful of sort of categories that will be winners, and there'll be a long tail of entrants that, you know, came in and, and, um, didn't succeed. And so, you know, we certainly want to be in that former category and not the latter. And you know, we felt like, boy, we, we put this out in, in kind of our local home market and, and the reception was just so strong, um, really on an organic basis we felt like we, we know we have something here. Um, we, we, we obviously, you know, you put something out in the world, you're not sure how it's going to be received. Um, it was beyond whatever our wildest expectations could have been and so we felt like, hey. There's a real opportunity here, as I said, in the spirit and um you know, spirit, tea and lemonade category that we think is a natural. We feel like we've been able to hit it with the branding and the liquid and so forth, but if we don't get it out there nationally, um, you know, we, we could potentially lose that race and have, you know, other competitors come in and get in front of us. And so, um, we felt like, hey, we needed to build out the footprint. Obviously for a lot of the country, uh, the brand is, is not very well developed, um, but you know, before you can develop the brand you've got to at least sign up distribution and get a foothold and so for a lot of the country, um, particularly once you move west off the, uh, the immediate, you know, eastern seaboard, uh, this year was really about getting the distribution network, getting our sales force stood up, um, starting to see. Independence liquor channels on premise. Um, and when we roll into 2025, that's when, you know, now that we have the distribution and we've, we've proven success in a lot of markets, um, we think we'll see a huge increase in chain distribution. So, um, that's when we really think like start to, you know, actually scale in some of these markets, uh, that this first year was really just kind of dipping our toe in the water.

Speaker 1 [05:46] What have you learned from expanding a spirits-based brand nationwide?

Speaker 2 [05:51] Yeah, boy, um, where to begin, right? So, um, as, as dicey as beverage alcohol is in general with the various states and the rules, um, RTDs are really in a category of themselves because they don't conform nationally um to either kind of the beer channel or the spirits channel, right? And so there are many states, um, you know, which are controlled states but have now deregulated. Uh, RTD, spirits, RTDs below a certain ABV, uh, into the beer channel. So for Indiana, for example, we waited until July because the law changed, uh, in July and it allowed beer distributors, uh, to start carrying RTDs. Um, so, you know, there's just a ton to learn. Every market has its own story. Um, Texas presents a unique challenge, right? We have, um, Class B situation there. So basically, you know, the route to the on-prem goes through specs. So that becomes a really important, um, customer to work with. And you know, we, we feel we need to develop our brand in the on-premise to drive. Uh, trial and awareness and, you know, the old adage brands are built in the on-premise. Well, if you want to accomplish that in Texas, you know, you, you basically have to go through four tiers. Um, so, you know, again, I don't want to bore the audience with, with going through state by state by state, but there, there's a lot of complexity and, and, um, as fast as the legal and regulatory landscape is changing, uh, state by state, it, it's that much more to, to swallow and, and digest.

Speaker 1 [07:27] Even your home state of Pennsylvania made some changes, I believe this year.

Speaker 2 [07:32] It's just been, uh, about 2 months, so that's been a big win for us. We're really excited about it, you know, previously we were, uh, as far as off-premise goes, we're really only allowed to sell through the state stores, uh, and Pennsylvania does operate their own stores, um. And you know, they, they really weren't set up for it, right? So not really like no refrigeration in these stores. Um, a lot of them are really more set up as bottle shops, so they, they did a pretty good job with it, but now that we're available in grocery, the Home D's are still, uh, big players in Pennsylvania as well. It just opens us up to, uh, a much larger market.

Speaker 1 [08:09] Well, Surfside launched a lemonade variety pack earlier this year in your core market of the Mid-Atlantic. How has that performed so far?

Speaker 2 [08:20] It's been, um, really beyond our expectations. So, um, we, we got caught a little bit because we didn't know how much to produce, right, with a, with a new uh product coming out this year. Um, but putting out that lemonade variety pack, um, in many cases, it's sold at par or even in some of the newer markets, it's sold above, um, where our original starter pack, what we call, um, with, with mostly iced tea flavors in it. Um, so that was, you know, really a very resounding success, and, and we think that part of the market is probably just as big as the tea market, um, potentially maybe even bigger, uh, on the, on the spirits RTD side. So, uh, definitely a huge win and we're we're excited to roll that out to the rest of the country.

Speaker 1 [09:06] How incremental has that been to the tea business?

Speaker 2 [09:09] 100%. We've seen virtually no cannibalization. Yeah, I mean, if you look at our, um, You know, our, our core volume and our core states, um, it was up triple digits and, and, you know, the lemonade was, was all incremental on top of that.

Speaker 1 [09:25] You mentioned the on-premise channel. How much ground has Surfside gained so far there?

Speaker 2 [09:31] Yeah. So we're we're about 30% um on-premise volume. Now, as our volume grows, the share of on-prem has decreased a little bit. It was um about 34% a year ago. Now it's it's about 30%. So it's decreased a little bit, but, you know, in the meantime, the, you know, the brand has tripled. Um, and so, you know, obviously, classically you see closer to an 80/20 number. Um, but, you know, it plays very, very well in the on-prem. Um, it's, it's a huge opportunity for us certainly to introduce new consumers to the brand, um, getting the cans in hands, having that billboard effect. Um, but, you know, the other thing I wanted to mention, um, have you heard of this, uh, relatively newer company called Beer Board? That does the on-premise. So they track a number of regional and national on-premise chains and while we don't have the breadth of distribution to win uh any of the sort of volume contests there in terms of uh velocity surf side, half and half is actually the number one velocity RTD that they track.

Speaker 1 [10:34] You're in year 3. What, what have you learned about who the surf side consumer is at this point?

Speaker 2 [10:43] Yeah, and we're, we're, um, always trying to learn more. So, um, you know, give you some sketch of what we know and, uh, with the caveat that, uh, we're, we're digging into some of those, uh, some of those questions and, and trying to learn more, but we're seeing, uh, you know, biggest consumer is, you know, LDA through 39, right? So, relatively younger, but also does well, um, in, you know, the next kind of age bracket up as well and, um. You know, certainly not our core demographic, but even, you know, an older demographic in, you know, 50s, 60s, 70s, um, these are still approachable products, right? So if you think about playing on a golf course and having an Arnold Palmer, um, we're not asking people to try something that's, you know, really out of their wheelhouse or something totally new. Um, but we track extremely well with, um, active lifestyle. Um, so people that are out there getting outdoors, doing, um, exercise, hiking, skiing, boating, um, all those sorts of things that, that sort of psychographic tracks well. And, you know, certainly, as I said, the kind of LDA through like mid to late 30s is really our core consumer.

Speaker 1 [11:54] What do you see as sort of like the blueprint for, you know, growing this thing to where you think it should be within the next 2 to 3 years?

Speaker 2 [12:04] You know, we put that out basically looking at High Noon as the model, right? And so when you think about spirit-based RTDs, obviously, you know, they're far and away the leader in the category. And um when you look at the depletion rankers, they're up there, they'll be between probably 25 and 30 million case depletions this year. Uh, we think we'll be number two, probably somewhere between 4.6 and 5 million cases this year. So there's a, there's a big gap, um, between number one and number two. And then, you know, there's, there's probably another million case gap between number two and number 3. So, you know, when we put that out, we really look at that as like, hey, we, we see the velocity uh when we look at the data that we are above actually high noon, we're the category leader in velocity, uh, but we don't have the distribution. Um, so like sort of simple looking at Nielsen numbers, right? We'll, we'll have 25 to 30% higher velocity metrics, um, but our distribution is maybe only a quarter, uh, of where a high noon or even, you know, uh, a brand like Neutral or Cut Water has really, you know, strong distribution. So that's where when we look at the path, um, and you look at High Noon has now been out, I think 7 or 8 years, um, that's really what we look at as a model for what our growth could be. And so, you know, again, I mean, I think how do we get there? It comes back to what we talked about. We we've got to continue to execute at that level um in more geographies. We have a number of markets that are. You know, very, uh, I would say, you know, early in the, in the development stage and some markets which are kind of in the middle, uh, and some markets which have had it obviously since year one, and I think the exciting thing for us is, um, kind of Pennsylvania, New Jersey, Delaware, um, are our core original three markets where we launched Surfside and you know we're we're all signing up for at least 50% growth on a pretty healthy base, uh, in those markets next year. And when you look at, you know, mid-stage markets, big markets like Florida and New York, uh, we're signing up for 100% growth there. Um, and then when you get to a little more far afield markets in California and some in the Midwest, um, that's where it's, you know, more of a wide open space where, um, percentages get silly, but, you know, we think we have a lot of room to grow there.

Speaker 1 [14:28] Any new big bets that you're going to be making in 2025 as far as new products or new lines go?

Speaker 2 [14:35] Yes, we'll be, we'll be rolling out with a green tea variety pack. So last year, um, we floated in, in a couple of core markets, um, just a single green tea, and that was met with, uh, with a lot of success. So we've got a variety pack now that'll have, uh, multiple variations on, on green tea, including one I'm, I'm pretty excited about. It's, it's half lemonade, half green tea. So sort of the green Arnold Palmer, if you will. And uh we're we're excited about that one as well as a mango and a peach green tea. So, um, that'll be rolling out to a number of markets as well. Their big piece is uh is the 24 ounce, or as we call it on the spirit side, the 700 mL can with a with a fun resealable closure. Uh, that we're required to have, um, by regulation. So, uh, that's an exciting package for us. We think it presents an opportunity, uh, particularly in states where we can be distributed into convenience channel. Um, you know, it's, it's the lowest point of entry, uh, into, into our brand and our category, right? And so, you don't have to buy an 8 pack and, and potentially, you know, risk $20 you know, for, for a small markup to a FMB, you, you know, you could, uh, you could try a Surfside instead of whatever else it was that you might have grabbed out of the cooler.

Speaker 1 [15:54] We're excited to see where it all goes in 2025. So, congratulations, Clem, to you and the Surfside team.

Speaker 2 [16:02] Justin, thanks so much. Really appreciate it. It was uh great to be with you and uh appreciate the award.

Speaker 1 [16:08] Absolutely, it's our pleasure.