Smith - who founded High Brew Coffee with his wife Elizabeth in late 2013 and started selling his wares in spring 2014 - estimates he’s already reaching 25,000-30,000 stores, and says there’s an enormous amount of white space in the category, particularly in the convenience store channel.
“We’re focusing a lot of energy in the c-store channel as more than 74% of ready-to-drink tea and coffee is sold in the convenience channel, so there’s a lot of opportunity, as we’re only at around 6% ACV there at the moment.”
The Austin-based company, which has raised cash from multiple investors including CAVU Venture Partners and DPSG, has rapidly built a national footprint across multiple channels in a category that is still dominated by regional brands, although this looks set to change as Starbucks and Coca-Cola (via the Gold Peak brand, and potentially the Dunkin Donuts brand) move into the territory, he said.
Longer-term, I’d expect to see maybe three to four national cold brew brands
Speaking to FoodNavigator-USA after expanding a deal with DPSG to reach stores throughout the Midwest, Great Plains, Northern California and the Southeast following a successful roll out in New York, Chicago and Texas in May, Smith added:
“Starbucks is rolling out its RTD cold brew right now, Gold Peak cold brew is going to launch in early 2017, and we’re also seeing a plethora of [smaller cold brew] brands popping up right now, although it remains to be seen where they are in 12-24 months.
“Longer-term, I’d expect to see maybe three to four national brands fulfilling most of the key segments in this category – super premium, premium mainstream, and value brands and private label – just like you see in iced tea.
“It’s hard to build a national presence unless you do a deal with a beer distributor, a DPSG or a Coca-Cola or a PepsiCo, but there is a lot of momentum building behind the category, as ready-to-drink coffee is growing at around 15% year-on-year, but within that, cold brew coffee is growing a lot faster, even though it’s still only a small part of the overall category.
“Retailers are seeing category growth figures for ready to drink coffee and scratching their heads saying why aren’t my store sales keeping up with the category? And we’re saying because you’re only stocking Starbucks [eg. Iced coffee, Frappuccino], so they have been welcoming us with open arms and we have been able to scale up very quickly.
“We don’t disclose revenues, but volumes are growing in the triple digits. We are looking to surpass a million cases in 2016 and two million cases in 2017.”
"I like to say we’re still at base camp looking at Mount Everest in front of us, so it still feels like we’ve got a lot of work to do before we would entertain something like that [a takeover offer from a big CPG company]."
David Smith, co-founder, High Brew Coffee
Even heavy cold brew drinkers still think it’s iced coffee
To make cold brew, coffee grounds are steeped in cold instead of hot water [it’s not the same as iced coffee, which is hot brewed coffee that’s cooled down with ice], which makes for a less acidic, and less bitter-tasting product that is typically more concentrated than regular coffee, and therefore contains more caffeine, said Smith.
Awareness is growing, especially as consumers see cold brew in Starbucks and Dunkin Donuts, he added, but if you speak to coffee drinkers in focus groups, many still assume it just a type of iced coffee.
“Even heavy cold brew drinkers still think it’s iced coffee.”
That said, even if they don’t necessarily understand the process, cold brew appears to have the hallmarks of a sustainable trend, rather than a fad, because it offers meaningful benefits, and has brought new consumers into the coffee category, he claimed.
“The taste profile is very different. It’s smoother and bolder and you get twice as much coffee, and therefore twice as much caffeine.”
We’re still at base camp looking at Mount Everest in front of us
The focus at High Brew Coffee right now is building out higher velocity at existing accounts by raising awareness through sampling in stores and at music festivals and other events, said Smith, who will be unveiling a new line “with added ingredients to increase functionality” at the NACS show in Atlanta later this month.
“Proportionally when you look at our marketing budget relative to revenues, it’s high because we want to educate consumers about the cold brew process and the brand. But it’s worth it because we’re seeing a very good return on investment.”
So what’s the exit strategy for High Brew Coffee, which has generated pretty meteoric growth in a very short space of time? Is Smith – who co-founded Sweet Leaf Tea in 1998 and sold it to Nestle a few years ago - fielding offers from big CPG companies, and will he entertain them?
According to Smith: “I like to say we’re still at base camp looking at Mount Everest in front of us, so it still feels like we’ve got a lot of work to do before we would entertain something like that. But all these big CPG companies are outsourcing innovation to the entrepreneurs out there, so it’s a great time to do what I do.”