Microbrewery American Brewing Co. Inc. is tapping out after five years of producing award-winning beers to focus on a new venture – the trendy fermented tea drink kombucha.
The public company, whose stock is traded over the counter, has moved quickly over the past month to gear up for the pivot. The firm hired former Coca-Cola Co. and Anheuser-Busch InBev executive Brent Willis last month as chief executive, moved its headquarters to Torrance from Edmonds, Wash., and filed papers this month to change its name to Bucha Inc.
About to walk into a business that was facing mounting debt and limited distribution of its craft brews, Willis said he advised American Brewing to sell off all its beer-related assets before coming on board. The switch, he explained, would allow the firm to start fresh and focus exclusively on the kombucha market, which still lacks a true leader.
“I know a lot about the beverage industry,” said the 56-year-old Willis. “I looked at this opportunity and said, Boy, it is just a hidden gem. (American Brewing) was just a beer company – one of 4,200.”
American Brewing is entering an increasingly competitive market – even if it is one without a dominant player. One of its main rivals is West L.A. kombucha maker Health-Ade, which raised more than $7 million in venture funding from CAVU Venture Partners last month and is planning to build a manufacturing facility – also in Torrance.
Some say the switch to kombucha is a risky bet for American Brewing – a company that’s been bleeding cash for the last three years and has limited experience in the sector.
In its most recent financial report, filed with the Securities and Exchange Commission earlier this month, American Brewing said it had a net loss of more than $1 million for the nine months ended Dec. 31. The company tallied a loss of $890,000 in 2014 and a roughly $300,000 loss the year before that.
Rebecca Brooks, co-founder of downtown L.A. market research firm Alter Agents, said even though kombucha is a hot category as more Americans are becoming aware of the fizzy drink, American Brewing’s success will depend on its distribution.
“I would be concerned about getting into distribution as quickly as possible for the next year and maximizing shelf space,” Brooks said. “If you think about the growth curve, they’re entering kombucha earlier than they entered craft beer, but it’s still a competitive time. It’s not wide open.”
First sip
American Brewing, founded in 2010 by Neil Fallon, went public in August 2014. Its initial public offering raised about $285,000 with the plan to expand distribution of beers dubbed Breakaway IPA, Flying Monkey Dogfight Pale Ale, and Caboose Oatmeal Stout. It had raised about $700,000 several months prior to help increase its production capability with additional equipment, according to regulatory filings.
The company acquired Torrance-based kombucha company B&R Liquid Adventures a year ago for $900,000 in cash and stock, and subsequently moved into its facility. Chuck Santry helped broker the deal through a mutual business relationship and was then brought on as its chief operating officer. B&R’s product was sold under the brand name Bùcha Live Kombucha. Fallon then sold American Brewing’s beer business in the fall to Pacific Brewing & Malting Co. in Tacoma, Wash., for $750,000 in cash and stock.
“With our recent purchase of Bùcha Live Kombucha, our focus has been shifted to functional beverages on a national level,” Fallon said in a statement. “Investors all over the country cannot buy our beer in their local markets. This hinders the growth of the stock and frustrates shareholders.”
Fallon transitioned from chief executive to executive chairman and director upon Willis’ March 24 arrival.
Willis acknowledged the company’s financial troubles but said he is undeterred. Having served as president of Coca-Cola’s North Latin America division and as chief commercial officer and president for Anheuser-Busch InBev’s Asia Pacific zone, he has experience in building brands and managing distribution.
“We’re really right at the precipice of being cash-flow positive,” he said. “As we expand distribution, given our margin structure and the profitability of the business, that will generate a lot of revenue that we expect to spend back toward driving our business.”
The company is also in financing talks with private equity firms and individual investors.
Mass appeal
American Brewing’s Bùcha label consists of 10 flavors, including Blood Orange, Verbena Rose, and Raspberry Pomegranate. It’s distributed in 2,000 stores across the United States and Canada, including major retailers such as Whole Foods, Ralphs, and Vons. Health-Ade can be bought in 3,000 stores in 42 states.
Brooks, the market researcher, said American Brewing has laid a solid foundation as its distribution is large enough for other retailers and distributions to take them seriously.
But the real test is yet to come as the company vies to become the market leader.
Willis said American Brewery has an aggressive plan to increase distribution to 20,000 stores in the United States and is already in talks with retailers to that end.
“We’re outselling the competition, and we have the most stable product with the longest shelf life so that really makes it easy on them from a distribution standpoint,” he said.
He’s also counting on Bùcha Live’s clean tea finish to help the brand appeal to a wider group of consumers and separate it from competing drinks, which he said often have a sharp vinegar taste.
Entering the kombucha market has its challenges, Brooks said, but it shares many parallels to the early days of craft brewing because consumers have yet to establish brand loyalty.
“It’s sort of the Wild, Wild West of people trying a lot of brands,” Willis said. “We’re at the tipping point where the mass-market population is starting to get interested in this product.”
