THE GIST
On Nov. 10, beverage conglomerate Keurig Dr Pepper (KDP) announced a $50 million minority equity investment in non-alcoholic beer company Athletic Brewing. It’s a deal that sees yet another soda maker forge some connection to the broader beer market, as PepsiCo and The Coca-Cola Company have done with beer-adjacent products like hard seltzer and flavored malt beverages like Hard MTN DEW. For Athletic, the investment will help the company solidify itself as synonymous with NA craft beer.
The investment was part of a Series D round that totalled $75 million, with an additional $25 million coming from approximately 25 existing investors, according to Athletic co-founder and CEO Bill Shufelt. Since its founding in 2017, Athletic has raised a total of $173.5 million across five funding rounds, Brewbound reports.
(While not a valuation of the company, this level of investment into Athletic surpasses the price paid for at least one national craft brewery: Sapporo bought Stone Brewing in June for $165 million.)
With its investment, KDP gains a seat on Athletic’s board. Shufelt declined to say how the KDP investment changes the company’s ownership structure, noting that “it's a minority investment pretty in line with some of our other lead investors both in size of interest and rights.” In an analysis of the deal, investment firm Wedbush Securities estimated that KDP's equity stake would be " in the mid-single to high-single digit range" based on presumed 2022 sales of Athletic products totaling about $70 million.
For now, Athletic is leaving its long-stated plan for an initial public offering on the table as it works to achieve profitability this year. Through Oct. 23, Athletic is the number five NA beer brand family in chain retail sales volume tracked by market research company IRI, behind Heineken 0.0, Budweizer Zero, Busch NA, and O’Douls. It’s the 20th-largest Brewers Association-defined craft brewery, and Inc Magazine named it the 26th fastest-growing company in the U.S. this year.
WHY IT MATTERS
As the tectonic plates shift within the NA beer market, Athletic is well positioned to cement itself as the craft NA beer brand among U.S. consumers and retailers. In the way companies like Sierra Nevada, Samuel Adams, and New Belgium are recognized as figureheads of (standard) American craft beer, Athletic has set itself apart from other upstarts in its speed of growth and national and international reach. Accelerating Athletic’s sales and brand recognition is critical at a time when shelf space for NA is widening and new brands—big and small—enter the fray. Athletic current accounts for 9% of all non-alcoholic beer sold in chain retail, as tracked by market research company IRI. It was 1.5% just two years ago.
That market positioning is important, as all non-alcoholic beer producers are fighting for a relatively small sliver of the beer pie: NA beer has grown from 0.4% of chain retail beer volume three years ago to 0.6% in 2022. This does not include on-premise or direct-to-consumer sales. And some retailers sell a greater proportion of NA beer; Shufelt told Beer Business Daily that Nielsen data puts NA beer at 8% of Whole Foods’ total beer sales so far this year, just behind White Claw.
But nationally, unless the NA pie grows significantly, there’s likely to be shakeout among smaller craft players who see the price to produce and sell a niche product as too expensive. Already this year, Durango, Colorado’s Bootstrap Brewing has discontinued its line of Strapless NA beers, which it launched in 2020 with both in-store and direct-to-consumer sales. Bootstrap co-founder Leslie Kaczeus said the process of brewing the NA beer was “just too labor intensive and cost prohibitive.”
Shufelt maintains bold predictions for the category, however, saying that he wouldn’t be surprised to see NA beer grow to 10-20% of all beer sales sometime between 2025 and 2030. That would mean in chain retail, at least, NA beer’s slice of the U.S. beer market would need to be roughly 16 times larger than it is currently—an unprecedented growth rate that has never been accomplished by any category in standard, low-, or no-alcohol. Whether or not that level of growth happens, Athletic’s name recognition and enviable sales numbers are already paying off at retail.
Stacy Vicroy, beer buyer for Discount Drug Mart grocery and drug store in Columbus, Ohio, says that Athletic is one of the only NA beer brands that the area’s wholesalers seem to get behind. Vicroy’s store expanded its NA beer selection with a dedicated cooler three months ago, and Athletic has become the store’s top-selling NA brand. With more shelf space for NA beers, Vicroy been on the hunt for almost any option she can get her hands on—but wholesalers are less enthused.
“Cavalier [Distributing] is pretty excited that they have Athletic, which they should be. Other than that, I feel like I'm having to drag it out of sellers,” Viceroy says. “I’m like ‘Hey, do you have NAs that I can bring on?’ And they have to go check.”
What does KDP gain by hitching its cart to a leading horse? It’s the last of the big three soda companies, behind PepsiCo and The Coca-Cola Company, to stake a claim in the beer space, which includes flavored malt beverages like Hard MTN DEW and Topo Chico Hard Seltzer. While traditional beer has floundered a bit, its adjacent categories—including non-alcoholic beer—now enjoy a steadier sales pace. Athletic provides an introduction to beer distributors without some of the investor risks of KDP going full-in on alcohol manufacturing, according to Ryan Lake, director at Arlington Capital Advisors, a boutique investment bank focused on consumer businesses. (Lake has no inside knowledge of the Athletic-KDP deal.) Potentially, pension funds and insurance companies with investments in KDP wouldn’t be able to own stock directly in alcohol manufacturing.
“But if KDP has aspirations to do things in alcohol or in channels where beer distributors are better than soda bottlers, this is a way to get a foot in the door,” Lake says.
He also sees a potential for KDP to move from minority investment to acquiring Athletic outright in the future, as it did with Bai in 2016 (KDP was then known as Dr Pepper Snapple). In 2018, KDP acquired Core Nutrition, a bottled water company that it previously distributed, for $525 million. The company stated last year it is willing to spend $20 billion on acquisitions.
“KDP doesn’t have the route-to-market, but if they did end up buying [Athletic] part of this could be getting them a route-to-market through beer distribution,” Lake says. “We’ve seen this in other cases: Monster buying CANarchy was really just about route-to-market.”
Athletic isn’t talking about acquisitions, and maintains that an initial public offering is still on the table.
“There isn't anything set in stone outside of Athletic just picking up a great new investor partner,” Shufelt says.
Words by Kate Bernot