Zevia Grows by Sticking With No-Sugar Strategy

Zevia PBC achieved the six goals it set out to accomplish in the third quarter. 

The Encino manufacturer of soda, energy drinks, teas, mixers and kids drinks was able to, among other things, complete its initial pubic offering and began to trade on the New York Stock Exchange in July; introduce a 12-pack format for its soda; reach record sales and continued growth across all its product lines; and sign deals with the two largest warehouse clubs – Sam’s Club, the subsidiary of Walmart Inc. and Costco Wholesale Corp.  

Paddy Spence, chief executive of the company since acquiring it in 2010 not long after its founding, said in a conference call with analysts to discuss third-quarter earnings, that the warehouse club sales channel was “an opportunity not only to generate profitable transactions, but also to create significant consumer trial and repeat sales.

“Similar to the e-commerce channel …(the) warehouse club provides consumers the opportunity to try a variety of Zevia flavors,” Spence said. 

Zevia manufactures sugar-free and zero-calorie beverages using stevia, a plant-derived leaf extract, as a natural sweetener. Its products can be found at retailers including Whole Foods Market, Safeway, Ralphs, Walmart and CVS Pharmacy Inc. as well as online at Amazon.com Inc., where last year it was the number one selling brand in the carbonated soft drink category.

Based on its e-commerce data, 50 percent of Zevia’s purchasers on Amazon also buy the brand in brick-and-mortar retail stores and on average spend three times what the average household spends on Zevia, Spence said during the conference call. 

For the six months ending on Sept. 30, 58 percent of customers buying Zevia in a warehouse club were new to the brand, indicating that the channel is highly incremental to the company’s current distribution footprint, Spence continued. 

“We believe that our presence in this channel is complementary to Zevia’s current retailers and will continue to drive growth in consumer awareness, trial and repeat purchasing,” Spence said. 

Declining share price

For the third quarter ending Sept. 30, Zevia reported a net loss of $49.8 million (-75 cents a share) compared to net income of $2.5 million in the same period a year earlier. Revenue increased 22 percent to $39 million. 

Since going public on July 22 when it stock price was introduced at $14 a share, it has lost about 38 percent of its value through Feb. 3 when it closed at $8.74. Zevia shares closed at $9.58 on Feb. 9. 

Still, Andrew Strelzik, an analyst with BMO Capital Markets Corp. who follows Zevia, gave the company an “outperform” or “buy” rating in a research report from early December. 

Having hosted company management at its BMO Growth & ESG Conference that same month, a takeaway from the conversation with the leaders of Zevia was that they were confident and clear in their outlook about top line and margins, including a return to 30 percent or more sales growth in the fourth quarter, Strelzik said in the report.

“We continue to believe Zevia is well-positioned to drive substantial long-term growth, realize significant multiple expansion, and benefit from its compelling ESG (environmental, social and governance criteria) story,” Strelzik added. 

In the analyst conference call, Spence outlined the gains made across a number of key ESG or social impact metrics. 

During the third quarter, the company estimated it had eliminated 3,000 metric tons of sugar from its customers’ diets by selling its zero sugar, naturally sweetened products to replace legacy sugary sodas, Spence said. 

“In our history, we estimated we’ve eliminated over 50,000 metric tons of sugar from the diet of North American consumer,” he added. “Replacing single-use plastic beverage packaging with more sustainable alternatives is another key area of focus. And in the third quarter of (last year), we estimate that we eliminated over 50 million plastic bottles from littering our roadways or waterways in our communities.”

Zevia’s core customer base is in the Millennial and Gen-Z age groups. 

“Zevia appeals to Gen Zers and Millennials versus conventional diet soda which skews the overall household,” said company President Amy Taylor during the conference call. “This distinction helps explain how we are complementary and highly incremental to CSD (carbonated soft drinks) category leaders, and this resonates with retailers.”

More than 80 percent of U.S. adults are seeking to reduce their sugar intake. ”