Nonalcoholic Beer: Might Surprise You

Welcome to Friday Business #4. Let's get to the headlines.

🗂️1/ Headline Roundup:

A brief review of a few interesting headlines you might have missed this week.

🎧TechCrunch: Spotify is no longer just a streaming app, it’s a social network

Spotify continues to make the platform more than just music. They’ve added a comments feature, creating more opportunities for podcasters to communicate with their listeners. 2023’s big update was adding a discovery feed that feels like TikTok. The capability for artists can sell tickets and merchandise is already there, and the integration with social platforms like Instagram is already really smooth. Five years ago, Twitter was likely one of the main ways to reach fans. Is that the same today, and what if the streaming service becomes the way to talk to them in the future?

🛒Costco to Lift Membership Fees for First Time in Seven Years

Costco is increasing their annual membership from $60 to $65 in September. They’ll also increase their reward cap from $1000 to $1250. Historically, Costco has raised prices about twice a decade, and this move is roughly in line. Membership fees historically don’t make up a huge part of Costco’s revenue, coming in at 1.9% of their $242B in revenue in 2023. This is a pretty small jump when compared to just how much prices have risen on many other categories post-Covid. Caught my eye because of how small the increase was.

🕶️Apple Vision Pro U.S. Sales Are All But Dead, Market Analysts Say

Bit of a sensationalist headline from the folks at Gizmodo, but it appears that Apple’s 2024 Vision Pro launch hasn’t exceeded expectations (and maybe hasn’t even met them). With a price of $3499, it’s quite an expensive gadget, so price is likely a big factor. Apple is known to play the long game, so I wouldn’t count them out of this AR/VR game just yet. But for now, even though the consensus seems to be that it’s got tons of impressive engineering, can’t call this one a resounding commercial success. We’ll see what happens from here. Also, this TikTok is a delight.

💵 2/ Cheap Strategy 

Each week, I'll write up a short business strategy recommendation for a firm, brand, or startup I've got no connection to and very little experience with. I'll make two promises each time - it'll cost them nothing and may be worth the same.

🍺This week: We're taking a look at Athletic Brewing, a nonalcoholic beer brand that just closed a financing round valuing them at $800MM.

My read on the situation: With that $800MM valuation, Athletic Brewing isn’t going to be knocking on the door of the giants anytime soon. AB InBev, Budweiser’s parent, dwarfs it with a market cap of $120 billion, and even challengers like Heineken ($55B) and Coors ($10B) are miles ahead in terms of size. But if I’m one of those big brewers, I’m nervous, because this appears to be the next wave in the beverage space. Tastes and preferences are changing, with 62% of people under 35 saying they drink alcohol, compared with 72% two decades ago. The supply of nonalcoholic options is light years beyond where it was five years ago, and it appears demand is changing too - as of December 2023, Generation Z had the lowest alcohol consumption of any adult age group in America. Last year, Athletic Brewing crossed $90MM in annual sales. That's an awesome story, but it’s still a small dent in the beer business. That said, were I a betting man, I’d wager that dent is going to get bigger.

Our case study for today: How do you adapt if you’re competing in a category that’s this dynamic? Gosh, I don’t know. I think the alcoholic beverage space would be a really difficult one, because it’s just constant whiplash. Imagine this rollercoaster (as I see it) over the last two decades if you’re a big beer company:

• Craft beer starts to gain in popularity, as niche brands like Deschutes (Oregon), Brooklyn Brewing (New York), and Bell’s (Michigan) start gaining rapid traction. This creates an opportunity to cash in, and we saw craft breweries in the US triple from 2002 to 2022, likely siphoning off market share from the legacy domestic beers like Bud. 
• As a reaction, those larger companies begin buying regional craft breweries like Four Peaks (Arizona) and Revolver (Texas) to capitalize on the craft beer trend. 
• In parallel with this, craft cocktails had steadily gained popularity since the early 2000's, meaning niche liquor brands continued to raise the level of competition beer had on its hands.
• In the summer of 2019, a new wave officially arrives: It's officially the summer of White Claw. The seltzer entrants had a lot going for them: Lower calories than many craft beers, well suited to warm weather so they get the halo of “summer”, has the packability of canned beverages without the sweetness of existing beer alternatives like Smirnoff Ice.
• To counteract that, the big breweries all launch their own seltzers to compete with the upstarts, to varying levels of success. 
• After a few more years of “peak seltzer” a new trend begins to emerge, and it’s not a new entrant, but a threat to all of ‘em: Younger generations are just drinking less. 

So, how the heck do you compete in that world? If I’m in charge of one of the big beer companies, here’s how I approach it:

• You go buy Athletic Brewing, don’t mess with their operations at all, but see what you can learn from them. If you’re AB InBev, your market cap is more than 100X their latest valuation, so if I’m doing the math right, it’d be less than a 1% dilution to purchase them outright. That’s very manageable. 
• You prioritize building a parallel supply chain that’s nimble enough to do small production runs on lots of little trends that may or may not become big. Anybody ever had a can of Ghia? What an interesting nonalcoholic spirit that I’d bet a plant manager at Heineken or Yuengling would never want to sign up for. Small quantities, different packaging, different raw ingredients and process, etc. It's a totally different game.
• You create the conditions for your marketing, R&D, sales, and finance people to take small risks (and win some, lose some). I’ve never worked in the beverage space but it seems to just be in constant flux. If you’re a big beer company and you want to adapt a market that never looks the same twice, gotta be ready to place a lot of little bets on the craps table and know you’ll lose many of them.
• You hire a mix of talent from the D2C world and then bring ‘em alongside your seasoned category veterans. The more exposure I get to people who built a career in that space, their skillset is just different. I recently got to visit with a guy who’s launched a beef jerky brand in Austin, and he’s asking questions that are lightyears different than anything I’ve ever had to solve. Bureaucracy is something that world is less familiar with, but they seem pretty good at cobbling together 80% solutions for 20% of the time/money/headcount.
• You figure out how to build a telescope to younger demographics. We’ll never be cool again but we can at least have a pulse on what is. Get Casey Lewis on your payroll as a consultant to provide monthly updates using what might already be the Nielsen panel of the modern age if you know how to sift through it: TikTok. And you build the world’s best intern program so that new grads want to come be a part of the future of beverages. When they’re in your office with their peers a few days a week, you’ll learn a lot.

🍫 3/ An Andes Mint Before You Go

At Tex-Mex restaurants in Dallas, it's very common to be presented with one Andes Mint per person when paying your tab at the end of a meal. I think it's a lovely touch after I've housed five bowls of tortilla chips, and this is my attempt each week to round this thing out the same way.

🎉Today, I turn 36. That's pretty cool. To mark the occasion, I thought I'd show you part of a journal entry I wrote two years ago today.

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July 12th, 2022

Seattle, WA

Tomorrow, I turn 34. Kind of an inauspicious birthday, not too much numerical significance. 

• I sometimes see photos and my hair is thinning a little bit. I take medicine to hopefully preserve it awhile. We’ll see.
• My folks are still alive, so are my grandparents. I’m lucky. 
• I have so much to be thankful for. I’m in love. I have a cool dog. I have a great career. I have good hobbies. I’m in decent health, I can still do pretty much whatever I want. And I have a few friends, too. 
• My to-do list is a mile long and I never get it all done. That hurts. Every day, I wake up with an immediate gnawing behind my eyebrows - what needs to get done today. It consumes me. Zuckerberg has made me my own worst enemy sometimes. Funhouse mirrors. 
• I sometimes learn from my own mistakes when it comes to how I treat other people. But I never learn from my own mistakes when it comes to how I treat myself. It’s a bummer. 
• And I take too few vacation days. I feel guilty. Dumb.
• If it’s got a touchscreen, it’s usually the wrong answer. 
• I feel the blunt force productivity I used to be able to throw at dreams, goals, tasks, is not as strong as I used to be. My stamina for problem solving, for long hours, it’s lower. But I also feel my edge is sharper, I’m craftier, I can focus a little clearer and quicker. Maybe they balance out.
• I feel just as American as I always did.
• I feel my belief in myself has aged. I don’t believe more, or less, in myself than I did ten years ago. I feel more equilibrium. I had so little action, progress, actual work done ten years ago, but I had OCEANS of desire. Now, I probably desire a bit less, but I feel more able to get the things I do aspire to. 
• I sit here on the little blue IKEA couch and I watch my dog watch my girlfriend as she makes chile colorado for dinner. And I feel a mix of emotions, just like every birthday - but the biggest one is the feeling of time passing, like I’m on the beach in the surf and each wave just inexorably comes, knocks me over, no matter what I do. Sometimes, that can be frustrating - feeling that you can’t control what’s happening to you. I often get frustrated with that exact same thing. But in this particular moment, I don’t really feel anything, I feel everything. Just here, on the couch, getting beat up a little bit by the waves. Not minding it. 
• I read the things I wrote to myself this day last year, and as luck would have it - I pretty much have made progress on nearly all of them. What a strange, dark magic it is to set goals, think you’re constantly falling short of them, and then you look up one day and you’ve become that person a little bit more. 
• I should sleep more. I’m drained. Gonna go ahead and go to sleep now. This was a good year for me. I feel positive about it.

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Back to 2024: I smile when I reread this. Two things I walk away with:

1. The ghosts that haunted me then, still haunt me. Haven't outrun them, probably never fully will. I still don’t sleep enough, I still work too much, I still need to take more vacation. I still feel like I'm not good enough, each and every day.
2. That said, I become a little more “that guy” every year. I look at myself in the mirror and can’t help but think, you don’t have this all figured out yet, but somehow you seem a tiny bit closer to the person you want to be.

I suppose that is progress enough.

Go get 'em, y'all. We'll do this again next Friday.