Read the Tea Leaves, Time to Go Long in the Ready-To-Drink Market
For savvy investors, the winds continue to be at your backs and it’s great time to continuing to deploy capital … the DOW has moved past 23,000, but let’s be smart about “where” we deploy capital!
Here at the Money Street, it’s our goal to not only identify the next potential home runs in hot sexy industries like technology and biotech, but it’s also to uncover potential homeruns in other core industries that provide diversification to our portfolios.
As we look into the factors driving this bull market, we see M&A deals are helping drive market growth and overall valuations. This is due to the fact that many companies continue to look to acquisition targets as a strategic way to fuel their growth and shareholder value.
Just take a look at the $3.3 Billion dollar acquisition of Jet.com by Walmart. On the surface, many observed it as a tech & talent purchase by Walmart, but a major reason why Jet.com was acquired was it was its “lifestyle appeal” to the attractive millennial consumer segment. Jet.com’s unique service offerings attracted millennial shoppers and … Walmart.
Thus, we believe that companies who have a focus on “consumer lifestyle” as part of their service and product offerings seem to be attractive acquisition targets. We would venture to say that types of “consumer lifestyle” companies would also be logical investments opportunities for investors. Industries that have consumer lifestyle companies include apparel, footwear, electronics, and… food and beverage.
As we deployed our screening techniques and in-depth research, we kept finding signals in the food and beverage industry that provided interesting buying opportunities, primarily due to recent highly valued M&A transactions. The deeper we went, we found an attractive investment opportunity in the company Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75 – website). LTEA is positioned perfectly in their category to experience rapid growth and we believe this company could be the next big winner for us.
Food and Beverage Epitomizes Consumer Lifestyle
Companies in the food & beverage industry typically have a portfolio of brands that appeal to lifestyle interests.
It’s not just about nutrients. Companies in the industry have identified the need to appeal to their “target consumers” with taste, healthiness, convenience, cost and image.
Take a look at the big trends that are happening in the world of food: farm-to-table restaurants; artisan bakers and desserts; microbreweries; small batch liquors; pop-up restaurants; food trucks; food truck-inspired restaurants; food halls; vegan; paleo… we can go on and on.
Consumers now associate what they eat and drink to who they are and what they believe in, thus they are seeking out lifestyle brands that match-up to their beliefs. This is compelling to us – remember Walmart’s acquisition of Jet.com.
… AND with over 7.6 BILLION people in the world, coupled with on-going growth of disposable income, this means that there is a large base of consumers with money to spend on food and beverage brands, which gives companies opportunities to create lifetime value with them.
It’s Literally in the Tea Leaves
One of the major reasons is Starbucks’ entrée and growth in offering ready-to-drink teas in all of its stores. To think that one of the largest, most well known coffee retailers has made a focus to offer alternative selection of tea beverages that would directly compete against their core coffee offerings really piqued our interest in the RTD-tea market.
We believe that Starbucks was on to something, as since their push into teas (Starbucks acquired Tazo Tea in 1999 and then Teavana in 2012), we’ve seen a growth in the RTD-tea sector with numerous tea brands and offerings.
AND Starbucks has continued to successfully grow globally where tea has widespread appeal.
As recently cited in World Tea News article, “North America and Europe represent 24 percent of worldwide consumption, the Asia-Pacific region tops the world in sales. And Latin America, Africa and the Middle East are emerging markets. “Ready-to-drink tea is the biggest of the emerging soft drinks categories by volume growth,” said Chairman of Zenith, Richard Hall. “It is also remarkable for the extraordinary range of choice now being offered.””
We believe that it’s no coincidence Starbucks’ consistent growth over the last 20 years is correlated with its expansion into teas and other strategic food and beverage offerings outside of coffee.
Why the Ready-to-Drink Tea Category is Ready-for-Investment
The ready-to-drink tea category is having the greatest growth in the overall tea market. The estimated $5.8-$7.1 Billion market grew by an impressive 40% between 2011 and 2016, far exceeding soda for the last five years.
As cited in a report by Grand View Research, the global RTD tea and coffee market is expected to reach USD $116.13 Billion by 2024, with RTD tea having the majority of the projected market share at $84 Billion. The report goes on to state that part of the growth is based on the fact that “(RTD tea and coffee) drinks are not only perceived as instant energy drinks but also form a part of lifestyles in major countries around the world.”
And according to beverage consultancy Zenith Global:
… NOW THAT is a whole heck of a lot of tea.
Key Trends Impacting the Ready-to-Drink Tea Category
Here are some key trends that are positively impacting the ready-to-drink (RTD) tea market:
Health and Wellness – The ready-to-drink tea category has directly benefited from the rising push of consumers to get and stay healthy. Consumers have continued to have a focus on foods and beverages with functional benefits and naturally healthy offerings.
According to FMI’s 2016 U.S. Grocery Shopper Trends, “shoppers aspire to have healthier diets, and many recognize food as medicine that can improve their overall health.”
Consumers have identified the functional health benefits of tea and have used teas as a better-for-you replacement for sodas and sugar-heavy beverages.
Green tea ranked #7 in the list of top 10 superfoods for 2017 from the What’s Trending in Nutrition survey of more than 1,700 registered dietitians.
Natural Foods – Because of the health trend, consumers are also seeking out foods that are closer to their natural state. Consumers, especially Millennials, are wanting “less processed” food and drink, causing companies to remove artificial ingredients. This greatly benefits teas and RTD teas with natural ingredients and no artificial flavors or preservatives.
Disposable Income – Growth of disposable income throughout the world has afforded consumers with opportunities to explore premium beverage brands and offerings. Have you seen the bottled water section lately? If consumers can afford to pay $5 for a bottle of Evian water, one can easily see why they would spend $5 for a bottle of RTD-tea that contains health benefits.
Brand Connection – A brand’s ability to communicate its story is key to making a connection with consumers. More so than ever, consumers want to be full invested in what they eat and drink, and want to know the origins and history of a brand. Tea-based drinks have a great opportunity to tell their story and leverage the history of tea.
Convenience – Today’s on-the-go consumer views RTD-teas as healthy alternatives to other ready-to-drink beverages on the market, particularly sugar-heavy sodas and juices. As he wants to continue to stay healthy, he’s also pressed for time and will look for products that meet his health needs while also meeting his need for convenience.
Variety and Availability – Consumers continue to seek new flavors and tastes and RTD-teas offer the ability to offer unique and different flavors that cater to consumers changing tastes. RTD-teas can also easily be distributed to retailers, so they offer widespread distribution opportunities.
We believe that these key trends will continue to foster growth in Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75) and the RTD-tea category as a whole.
Financial Benchmarks in the RTD-Tea Category
Below are some interesting press and news from brands in the RTD-tea category that caught our attention. They reinforce how lifestyle tea-brands have become attractive acquisitions and garnered strong valuations due to their success in connecting with consumers and their lifestyle appeal.
Now part of Dr. Pepper Snapple Group, Inc. (NYSE: DPS)
Dr. Pepper Snapple Group Completes Acquisition Of Bai Brands LLC.
PLANO, TEXAS., January 31, 2017 /PRNewswire/ — – Dr Pepper Snapple Group, Inc. (NYSE: DPS) has closed its previously announced acquisition of Bai Brands LLC.
The Dr Pepper Snapple Group, Inc. acquisition for $1.7 billion in cash includes a tax benefit of approximately $400 million on a net present value basis.
“The Bai team has fostered a passionate, winning culture while hitting the bull’s-eye in meeting consumers’ needs for better-for-you beverages,” said Larry Young, DPS president and CEO. “Now that they’re part of the DPS family, we’re going to let them continue to fly and build on the entrepreneurial spirit that’s driven their success while providing them access to the full complement of Dr Pepper Snapple’s resources and capabilities.”
Sold to a privately-held strategic buyer in August 2016 for an undisclosed sum
According to a Bevnet article, there was a First-Beverage-produced presentation about Steaz in 2015 stating that the brand was on track to generate over $17 million in gross sales and was seeking a $30 million asking price. The presentation also highlighted that Steaz was projected to “increase its revenue at a CAGR of 47% from 2013 to 2019 driven by continued growth in the natural channel, expansion into new channels and new product launches.”
We can only speculate that when Steaz sold in 2016, its sale price was higher than the 2015 $30 million asking price given the company continued to successfully grow its distribution and market footprint during that time.
Still privately owned
Chronicled in an April 2017 New Hope Network article, GT Kombucha is credited for creating the kombucha category at retail, and it’s a category that the brand continues to dominate after more than 20 years in business.
The article goes on to further state that “industry sources place kombucha sales at north of $600 million, with GT’s commanding at least 50% of that total. Some quick math then posits GT’s as a $350 million enterprise, and, unlike many of the competitors now surfacing in its wake, the company remains independently owned and operated by its charismatic founder.”
Starbucks sold to Unilever November 2017
Starbucks sells Tazo tea brand to Unilever, focuses on Teavana instead
Starbucks is selling its Tazo tea brand to Unilever for $384 million. The company said it plans to focus its tea efforts on its Teavana brand, though it’s closing its mall-based Teavana stores.
“Over the past five years, we have established Teavana as our primary global brand focused on the premium tea segment,” CEO Kevin Johnson said. “We continue to see significant growth in our tea business through our Teavana brand and this transition supports our strategy to elevate the premium tea experience for our customers.”
Starbucks paid $8.1 million for Tazo in 1999, five years after it was founded. Sold mostly at supermarkets, bib-box and convenience stores, its line-up includes packaged teas, K-Cup pods, and ready-to-drink bottles.
Unilever plc (ADR) notes that the acquisition price for the Tazo Tea brand represents 10 times its pro forma EBIT. The brand pulled in $112.5 million in revenue over the last year and UL believes that there is room for more growth.
This acquisition is the latest in a string of deals by the Anglo-Dutch consumer giant to add smaller, healthier brands to expand its portfolio in a fast-growing specialty tea segment.
Acquired by PepsiCo, a product of The Pepsi Lipton Tea Partnership
An Oct 2017 Fortune Magazine article referenced that PepsiCo has 22 billion-dollar brands, and three non-soda products look poised to join that club: Naked Juice ($923.9 million), Pure Leaf ($873.3 million), Sabra ($618.4 million).
The article cited PepsiCo’s goal that by 2025, it wants two-thirds of its global beverage business by volume to be products with fewer than 100 calories from added sugar per 12-ounce serving, up from 40% in 2016.
Part of The Coca-Cola Company
In 2014, Gold Peak reached a historic milestone – it crossed $1 Billion in sales for Coca Cola. It became the 20th brand in Coca Cola’s portfolio to do so.
Gold Peak is continuing to expand its RTD-flavored teas in 2017 as announced in a Coca-Cola press release. We believe that Gold Peak’s expansion of its product offerings further endorses the sentiment that there are on-going growth opportunities in the RTD-tea category.
Long with Long Island Iced Tea
Now that we’ve provided you with a summary of what’s news about the beverage industry; insights on the tea category and it’s market size, key trends, and recent activities by brands in the category summary, we wanted to highlight an up-coming company that we believe merits a closer analysis and investment consideration – Long Island Iced Tea, Inc. (Nasdaq: LTEA $2.75)
Take a quick listen to the following Interview we located with their CEO and released by the Red Chip Money Report:
After your listen to the above clip, we want to compliment that information with our analysis as to why we see that LTEA has the makings for a home run investment:
- 1 Proven Management Team
- 2 Experienced Sales Team
- 3 Recognized Brand
- 4 Touches on Key Consumer Trends
- 5 Focused Roll-out
- 6 High-Profile Initiatives
- 7 Growth Metrics
1 Proven Management Team
Innovative companies need to have an experienced management team to lead them from concept stage, then up through their go-to-market stage, and ultimately to them growing and establishing market leadership.
We feel like Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75) checks this box…and then some!
Their core executive team – Executive Chairman; CEO, and New York-region VP, have a collective 65+ years of operational and sales leadership experience in the RTD and multi-beverage categories. They have experienced working with and for global and national brands that include Coca-Cola, Vitamin Water, Honest Tea, and Hansen Beverage.
They’ve also had successful exits, with a sizeable transaction of $1.5 Billion to Asahi that occurred in 2011. Click HERE to access bios of key management team.
Additionally, LTEA also possess a diverse Board of Directors with global experience that the Management Team can tap into for additional strategic advice. We find this a key benefit as the company continues to successfully execute on its growth plan. Click HERE to read more about the Board.
2 Experienced Sales Team
Sales are the lifeblood of all companies, and having an experienced sales team is crucial to a company’s success. Experienced sales teams are especially import to beverage companies as the distributor-retailer market place is a very complex market that cannot be navigated without an experienced sales team.
To garner buyer interest and key shelf space placement, buyer relationships are just as important (if not more important) than a large marketing budget. When it comes to retailer placement, we’ve always believed who you know is more important than what you know.
Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75) has recently announced the expansion of their sales team by bringing a group of seasoned beverage industry sales professionals. It’s exciting to see that the company is making the right investments in a core nucleus of experienced sales professionals to execute on its focused rollout strategy.
Similar to its Management Team, prior to joining LTEA, the sales team possesses sales experience with well-known brands such as Bai, Coca Cola and Big Geyser.
You can read more about the sales team’s backgrounds and experience HERE.
3 Recognized Brand
It is not common for a company to already have a well-recognized brand. Luckily for LTEA, “long island iced tea” is a well-known and popular cocktail brand in the US.
According to a 2016 Nielsen CGA survey – On Premise Consumer Survey, “Long Island Iced Tea is the 4th most popular beverage in the United States.” From a branding standpoint, it is claimed that Long Island Iced Tea cocktail was developed in 1972.
When we do the math, we can believe that there’s been 45 YEARS of BRAND recognition that’s occurred on behalf Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75). That translates to millions of dollars of branding and market awareness that’s already been done that the company has benefitted without spending one penny.
This is such a major branding benefit that we feel that LTEA’s experienced management and sales team can and will exploit. To further this point, LTEA’s management team was successful in its attempt to further own the brand by securing a trademark for “Long Island Iced Tea” with the US Patent and Trademark Office.
4 Touches on Key Consumer Trends
As outlined above, tea beverages continue to be a staple of healthy consumers. Tea beverages date back to over 4,000 years ago and are widely known for their health benefits.
LTEA’s RTD-tea beverages check all of the key boxes that consumers would research when looking for a healthy beverage:
Because of how LTEA has developed its products, LTEA’s RTD-teas fall under the “better-for-you” classification. This benefits both retail buyers who are seeking new, healthy brands to stock their shelves and health-conscious consumers seeking lifestyle beverages to quench their thirst.
The company also launched a sleeker and slimmer 18 oz. packaging redesign to further on consumers desire for “grab and go” beverages, while also having a benefit to the company’s margins. It is also attractively priced
It is also important to recognize that having healthy-lifestyle beverages can only help make Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75) attractive to other companies who are seeking to add targeted brands to their portfolios.
5 Focused Roll-out
Many consumer product companies make the mistake of launching products on a national scale. It’s difficult to support a national product rollout due to the massive financial and resource commitments needed to do so.
Successful beverage go-to-market campaigns have shown to be a regional rollout where it can be fully supported and controlled. The market feedback and data that comes with a focused rollout can also be quickly acted up on a regional campaign vs. a national campaign.
One of the best regional markets is the Northeast US as it represents over 14% of the entire US marketing beverage market share. With over 8.5 million people living in New York City, it’s a great market to get a ton of eyeballs to new products that are seeking to further define themselves as a lifestyle brand.
And if you take a look at LTEA’s head of sales and sales team, they primarily come from the Northeast US region. Thus, they are very familiar with the landscape and have the established network and buyer relationships to support Long Island Ice Tea, Inc.’s, (Nasdaq: LTEA $2.75 – website) focused go-to-market strategy.
6 High-Profile Initiatives
It’s not easy to build a lifestyle-focused brand. A key success factor to helping fast track the development is establishing high profile initiatives that provide broad exposure and serve as a springboard to generate sales.
Let’s take a look at some of LTEA’s recent high profile initiatives that can springboard it into revenue generating opportunities:
1. Sept. 2017 – Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75) named exclusive iced tea of Barclays Center. As Barclays is home to both the NBA’s Brooklyn Nets and the NHL’s New York Islanders, LTEA has an amazing opportunity to expose its brand as both professional sports teams start their seasons in the fall and will not end until Spring of 2018. Barclays Center is also the preferred venue of other premier sporting and entertainment events, so there will be on-going brand exposure opportunities to event attendees.
2. Aug. 2017 – Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75) announced partnerships with Costco and Stew Leonard for their grand store openings throughout Long Island. It makes naturally sense to us that Long Island Iced Tea is the preferred non-alcohol ready-to-drink tea for premier retailers in Long Island. These partnerships also further reinforce LTEA’s focused rollout strategy.
3. Aug 2017 – Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75) enters into test program with 97 select locations of Dollar General stores. By establishing a test program, the company will be able to gather crucial market feedback in a controlled environment that it can use to support its additional growth plans.
When you factor in the on-boarding of a seasoned sales team coupled with these recent high profile initiatives, we can only imagine the momentum the company will be carrying thru to the end of the year and into 2018 (and beyond).
7 Growth Metrics
LTEA recently announced its financial performance for the fiscal quarter ending September 30th. Highlights included a 67% year-over-year growth of net sales for its branded RTD-tea business from 2016 to 2017, and an overall 26% year-over-year growth of the company’s Total Net Sales.
The lower overall growth is a result of the company’s shift away from the ALO Juice products, and focusing on its core branded RTD-tea business.
It’s not easy to shift away from revenue, but we commend LTEA’s Management Team in not taking a short-term view, but making strategic decisions to allocate resources and support that we believe will enhance enterprise value.
And when we take into account the product packaging retooling to an 18 oz bottle to further address a market need, and all of the recent initiatives and focused sales activities that the company has put in place, we are very optimistic that Long Island Ice Tea, Inc., (Nasdaq: LTEA $2.75) will continue to execute and expect it to deliver on-going sales revenue growth.
Are You Reading LTEA’s Tea Leaves?
We believe that LTEA’s management team has put in the necessary work and focus to build a solid foundation, and that it truly is poised for growth. We believe that the global market is also starting to take notice as evident by the recent announcement of a distributorship agreement that is taking the LTEA brand into the Asia Pacific markets. Given thhe backgrounds and experiences of some of LTEA’s Board, this is such a natural move and we can see the Company being very successful in its entrée into the Australia and Asia markets.
The nice thing is the company’s stock price (Nasdaq: LTEA) has not yet caught-up with the company’s growth opportunities and initiatives that were put in place throughout 2017.
We can easily see a double, possibly triple in the company’s stock price as LTEA continues to gain market share and success in its rollout strategy.
… AND we’re not even considering the possibility of an acquisition of the brand.
As always, we recommend you doing your own homework. However, don’t take too long as you could stand to miss out and leave some profits on the table.
Remember, with every stock situation, it is crucial that you follow our stated mantra of protecting partial gains on your way up. We are long in LTEA and will specific profit taking intervals that you can follow each and every step of the way at TheMoneyStreet.com.
- The Money Street Consumer Goods Team
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