[00:00:10] Ray Latif: Hey folks, I'm Ray Latif and you're listening to the number one podcast for The Good and beverage industry, Taste Radio. This episode features an interview with Carlton Fowler, a Managing Partner with Goat Rodeo Capital, a venture capital firm focused on investments in beverage alcohol, non-alcoholic beverage, and better-for-you snack brands. Just a reminder to our listeners, if you like what you hear on Taste Radio, please share the podcast with friends and colleagues. And of course, we would love it if you could review us on the Apple Podcasts app or your listening platform of choice. Carlton Fowler is back for another round. The co-founder and Managing Partner of Goat Rodeo Capital, Carlton returned to Taste Radio 15 months after his first interview on the podcast, which explored Goat Rodeo's investment philosophy and funding strategy. Our second conversation follows the launch of Goat Rodeo's second fund, from which the firm has made investments in hop-centric beverage company Hoplark and premium canister snack brand The Good Crisp. Those companies join a portfolio that includes ready-to-drink cocktail brand Drinksmith, canned wine company Archer Roose and Lemon Perfect, a brand of cold-pressed lemon water drinks. As part of our discussion, Carlton reflected upon the data and business criteria that influenced Goat Rodeo's initial investments and how that information is being utilized to make new funding decisions. He also explained how the firm is applying lessons learned from the success of direct-to-consumer brands during the pandemic, weighed in on a continuing blurring of the lines within the non-alcoholic beverage and beverage alcohol industries, and why Goat Rodeo's second fund will not include investments in cannabis beverages, despite Carlton being bullish about the future of the space. Hey folks, it's Ray with Taste Radio. Right now I am on a call with Carlton Fowler, who is the co-founder and Managing Partner of Goat Rodeo Capital. Carlton, so great to see you again.
[00:02:10] Carlton Fowler: Ray, it's great to be on, and it was so great to see you in person in BevNET right before the holiday. It was just fantastic to be amongst people again.
[00:02:20] Ray Latif: Absolutely. In-person events are awesome. Hopefully we can get back to them very soon. But yeah, you were a judge as part of our Cocktail Showdown competition, which I know was a blast for me. I assume it was just as fun for you.
[00:02:35] Carlton Fowler: Oh, yeah. Yeah. The only thing for the funny thing for me is, and this is my fault for not necessarily reading the instructions. I had no idea we were going to be up on a on a stage with not only a live audience, but also a televised audience. Otherwise, I probably wouldn't have showed up in like board shorts and flip flops. But I had a number of people text me and say that felt like what I would do anyway. So maybe it was on brand.
[00:02:59] Ray Latif: No, it was it was great. You know, at first I was like, well, I didn't realize Carlton was this laid back. But you know what? It just goes to it just goes to show it like, you know, what you're wearing doesn't necessarily reflect like who you or how you can judge because you were fantastic on stage, offering a lot of great advice, feedback to the contestants. And I think you guys picked a winner that really reflects what we're seeing in this space of ready to drink cocktails. Golden Rule, an impressive brand for sure.
[00:03:28] Carlton Fowler: I agree, and a lot of the other ones. It was a hard choice. I saw an article recently that Social Hour is the fastest growing RTD on Drizzly, which is a terrific data point for them and something that I know I'm going to be digging into because there were so many great competitors there and it was hard to pick a winner. I think there could be a lot of eventual successes out of that group.
[00:03:52] Ray Latif: Yeah, and not to talk about the deliberation process, but it's no surprise that Social Hour is doing as well as they are.
[00:03:58] Carlton Fowler: It was very hard to decide.
[00:04:00] Ray Latif: Yeah, yeah. I haven't been on Twitter too, too often over the last few years. It's just been something where I'm like, okay, there's just so much content out there. There's so much content that can get kind of icky, for lack of a better word. But Twitter is really, I don't know, it's made a comeback over the last year. I feel like so many more people are on it. There's so much more engagement. There's so much more useful engagement than there had been in the past. You're a Twitter guy. I think admittedly you said you're more of a grazer than someone who's constantly tweeting, but I caught one of your tweets recently that really was striking, shall we say, and it was about Arby's and Arby's new vodka. This is a tweet from November 9th. Darren Revelle, who everyone knows, who is a well-known person in the sports business community and also quite active on Twitter, He also is a managing director or a partner with Tastemaker Capital, which has investments in a couple of food and beverage brands. But he tweeted that Arby's has commissioned curly fry and crinkle fry inspired vodka. First drop will be on November 18th for $60, $60 a pop. You replied, I have failed professionally. I've prepared my entire life for this moment. Arby's, I'm prepared to call in every favor I have in the industry in the service of your noble pursuits. Slide into my DMs. I love Arby's, but that was a bold tweet you put out there, Carlton.
[00:05:31] Carlton Fowler: Well, unfortunately, Arby's, if you're listening, you didn't slide into my DMs. You know, I consistently hear people ask, like, who on earth is eating at Arby's? How are they all staying in business? It's me. I really did Arby's. I grew up in a small town. Arby's was a thing and it's remained a thing. It's kind of hard to find in California. Like in San Francisco, as you'd expect, not a lot of Arby's. I got to head back, you know, up into the hills, into the hinterlands to get my Arby's fix. But all jokes aside, I love what they're doing. You mentioned Lay's Vodka that came out. A lot of what we invest in, besides my love of Arby's, maybe I could get my partner to let me buy a franchise as an investment. But it is this idea of, OK, cool, there's all these interesting brand equities that exist in their silos that could easily break into something like vodka on a limited time basis, and probably doesn't belong on the shelves all year long, but it's sold out instantly. And one of our portfolio companies in Fund One actually powers a lot of that. They've powered the Lays vodka. They powered Tesla tequila. They powered Kiss's new rum, the Band Kiss. amongst a lot of other traditional brands, and it's called Speakeasy. And I do think that, you know, when I say I prepared professionally my entire life for it, that's not only just with sandwiches, it's also with this idea of where e-comm is taking specifically beverage alcohol and where we'll be in 10 years. And so, Arby's, if you do it again and you're listening, I will be involved for free.
[00:07:07] Ray Latif: So you didn't get any of the vodka. Were you able to get your hands on some of it or no?
[00:07:11] Carlton Fowler: Once they didn't want to have me a part of it, you know, I was deeply hurt and decided to boycott for at least a week.
[00:07:19] Ray Latif: Well, you mentioned Lays Vodka. I do have a bottle of the Lays Vodka. This is Lays branded, as in Lays potato chips branded vodka. For folks who are watching the video, I have this in my hand. This actually looks, so the Lays, I'm sorry, the Arby's one, I don't know. It doesn't look too premium, frankly. I mean, you can go to Carlton's Twitter page and you'll see a picture of it. But the Lays one is legit. I mean, this comes in this cardboard box. It looks super premium, really, actually.
[00:07:46] Carlton Fowler: Yeah. Yeah, they did a good job. It almost feels like it's a Stranger and Stranger package. I called Kevin up, who's the head of that, and I don't think it ended up being a Stranger and Stranger package. But it is very premium. The vodka is good. Eastside's a good distiller. And again, it doesn't necessarily belong on the shelf every day, but they sold a lot of that.
[00:08:06] Ray Latif: Yeah. Well, you know, fans are going to buy it. So there's that. Quick tangent, actually, you know, your comments and your love for Arby's actually reminded me of an episode of one of Conan O'Brien's late night shows from back in the day. And he had mentioned Arby's on his show at one point. And someone from Arby's was listening and they sent him uh free Arby's for life card so whenever he walks into an Arby's so these exist apparently whenever he walks into an Arby's he gets free Arby's and so like he showed it on tv and then he's like by the way I also love Guinness so Guinness is realistic.
[00:08:42] Carlton Fowler: Well, Arby's, again, if you're out there. I don't even need the card. Just show me a little bit of love, and I'm ready to go to work. There you go.
[00:08:50] Ray Latif: The last time we sat down for Taste Radio was back in October-ish, September of 2020, I want to say. We published the interview in October of 2020. Really, really well-received. It's certainly one of the reasons I wanted to sit down with you once again. Back then, you had made a number of investments from your initial fund, Fund One. You've since created a new fund, Fund Two, appropriately named. Talk about the differences between the two. You know, you've made a lot of really wise investments your first go around. I assume you're making just as wise ones this time. I hope so. And my LPs hope so.
[00:09:25] Carlton Fowler: The major difference is Fund Two is much larger. I think we had a really good proof of concept in fund one, and we're able to write bigger checks out of fund two. We still really like to focus on seed and series A. I like to joke around that I've made a tremendous amount of mistakes in my operator life at Gallo and doing a lot of consulting, and you can really bring all those mistakes to bear earlier in a company's life cycle. So we do like to go earlier. We're now capable of writing checks all the way up to 2 million. And that's before Co-Invest kicks in. And we do have an awful lot of Co-Invest that comes out of fund too as well. So we're still focused on a lot of the same things, right? You know, beverage alcohol is always gonna be really near and dear to my heart. I think it's a wonderful market. I think it's a very expressive market in that consumers are trying to signal something to others about themselves in a way that doesn't exist in like toothpaste. But we're also doing a lot of what I call traditional beverage and a lot of non-alcoholic, which I think we're going to touch on later. And we're starting to branch out into some tech platforms. We did that in Fund One and a little bit of food. I think you wanted me to talk about some of the Fund Two investments in particular. One that we're really pleased with is Hoplark. And first of all, I'm so glad that the brewery and Dean and his extended Hoplark family survived the fires in Boulder. That's terrible. But separate from that, you know, Hoplark is doing a lot of really interesting things. I think they won best new brand or what did they win at BevNET, right?
[00:11:04] Ray Latif: They were named a rising star of the beverage industry. Yes. So we named three companies as rising stars. Hoplark was one of them. Amazing company. I mean, growing so quickly in just three, four years. Yeah.
[00:11:20] Carlton Fowler: Just really wild year over year growth rates. And I do think that's a testament to what Dean and his team has done there. I think we're all aware of how fast non-alcoholic is growing. And I think Hoplark as a beverage and a flavor system definitely satisfies that occasion. But I mean, the reason that we were so thrilled to continue to invest there was that I think it's much broader. I think that Dean has really keyed in on something where, just throw out an easy statistic, almost 30% of people in their beverage, and not just their alcohol beverage, just their beverage in general are bitter seeking. There are not a lot of options out there other than coffee and tea for that. Those have been the big options for bitter seeking for a long time and they have the caffeinated aspects. For him to put out both the hop tea product and the hop water and now the 0.0, which I think is more squarely going after the non-alcoholic beer occasion. In all those instances, you're providing a flavor system that is bitter earthy. And so many folks that might otherwise be drinking water or sparkling water that have that flavor palette orientation now have something to go after. So when I see something like that, I say, OK, not only can it do really well in that non-alcoholic beer occasion, and 0.0 is a fascinating product. I mean, it is it is a flavor experience, but it is truly zeros across the board. Zero alcohol, zero carbs, zero gluten, zero sugar, everything is zero. And that really hasn't existed in the non-alcoholic beer set before. I think that his other products are equally as interesting for a different occasion. And I don't throw the word visionary around very much because it's not like in food and beverage, we're saving lives or creating bionic hearts or anything like that. But insofar as I use it, Dean is a product innovation visionary. And I think he'll continue to bring out really, really interesting stuff. For us, especially when you're doing seed and series A investing, of course I care about velocities and margins, and there are some margin aspects to hoplock that are phenomenal. But when you're going early, I think you have to have a top line framework that really helps you decide, and we've talked about this before, are you seeing category creation? Or are you seeing someone go after an existing addressable market? And both are good. You can look at our portfolio. You can tell which ones we think are category creation and which we think have a chance to win in an existing addressable market. But they have very different business models. And I get very attracted to either side of the barbell. It's only when you're in the middle and you don't really know what you are that I think it's hard. Because if you're like Hoplark, it's category creation. And certain things come along with it. Like you tend to have higher margins. You tend to have really high repurchase rates because you're creating something that wasn't there before that a certain subset of consumers are like, oh my God, I was waiting for this thing. I love it. And therefore you tend to be a little bit more capital efficient because they're going to seek you out. And the question you have to answer is, well, can it keep getting bigger? And I think in terms of Hopluck, the answer has been pretty consistently yes, because, you know, first online killed it and then Whole Foods killed it. And now, you know, more general grocery is starting to do really well and everyone's bringing it in. So it seems to be on a path that's just phenomenal. Mm hmm.
[00:14:52] Ray Latif: Hoplark ended up winning one of our New Beverage Showdown competitions. I believe it was New Beverage Showdown 16, about three or four years ago. A brand that didn't, that is growing incredibly fast. And as of the day of this recording, recently announced that it had picked up another $75 million in funding. That's insane. It's a brand called Liquid Death. I want to get your take on Liquid Death because where does that sit in terms of addressable market versus category creation?
[00:15:24] Carlton Fowler: Sometimes there's an exception that proves every rule, right? Like Tito's, for example, if you want to have any conversation in the world about the beverage alcohol space, you can always invalidate it with what Tito's accomplished. I'm starting to wonder if Liquid Death isn't like Tito's level big. I think it's very important that people should own their mistakes as much as they own their wins. We had the opportunity to invest in Liquid Death back in early 2020, and we didn't, and we should have. Wow, in early 2020, because they were still growing pretty fast at that point. I mean, they're growing remarkably fast now, but. Yeah, my understanding is they went from like 3 million in revenue in 2019 to something very high in 2020, and they did like 45 million in 2021. The growth there is phenomenal. It is, to my story, some of the best marketing I've ever seen. I will always regret not investing in Liquid Death. I can see why our investment committee had some trouble with it, because you genuinely had to understand that this was maybe the most revolutionary marketing we've seen in some time, and that it could shake up a category as large as it was, and that a lot of other things would go right, including funding just coming out of the woodwork for them. Like I said, you've got to own your mistakes. I wish I would have invested.
[00:16:47] Ray Latif: I'm going to give listeners a little bit of the behind the scenes in terms of our best of, because every single year that we do our best marketing campaign of X year, Liquid Death is just like always top of the list. And we're like, Liquid Death, Liquid Death, they're like one, two, and three in terms of like best marketing campaign. It's unreal.
[00:17:06] Carlton Fowler: I've never seen anything like it. I mean, just a completely rethinking of what's allowed and the capital to execute it and the consumer resonance to then propagate it. Like it's just, it's a machine.
[00:17:18] Ray Latif: Would you describe them as sort of sitting in a similar kind of opportunity or consumer opportunity as a hoplark in that they do cross over very easily into that alcoholic beverage occasion?
[00:17:32] Carlton Fowler: Yeah, I mean, sure. I think that Liquid Death, because it's water and everything else, I mean, it is now a lifestyle brand. I think I saw a tweet from Excessario that they sold $300,000 of Hawaiian shirts in a single day. Like, you're a cane water brand and you're doing better than most startup clothing brands are doing. So I do think it's almost Tito's liken that, like comparing Liquid Death to just about anything is going to be, to some degree, a spurious comparison, simply because Liquid Death invalidates any rule of thumb you try to apply to it.
[00:18:09] Ray Latif: One brand that you're invested in that is easily comparable to a very famous brand is The Good Crisp. You recently made an investment in, I believe, is there a Series A?
[00:18:21] Carlton Fowler: It was, yeah. Matt Perry and his team.
[00:18:24] Ray Latif: Yeah, so if anyone, we talked about The Good Crisp a number of times on this podcast, very similar to Pringles. It's a better for you Pringles. Matt will admit that's where we sit. And he has made no bones about the fact that The Good Crisp is happy to be number two in this canister snack space. What moved you to get into that business?
[00:18:45] Carlton Fowler: Well, for one, Matt is just, you know, he's infectious and he's a tremendous founder. And I love, like, really tired categories that for some reason still have a single dominant player. Like, I think in retrospect, a lot of people are going to wish they did what good Chris do, and they're going to pretend like it was obvious. Clearly, it wasn't. Otherwise, a lot of people would have done what Matt and his team have done. But to say, OK, hey, there's a billion dollar plus competitor that owns, I don't know, you have to fact check me on this, but probably like 80% of the market share. I don't think the average person would even know what Lay's stacks are. And that's like the only competitor out there. So I think he's found, how can you call a billion-dollar market niche? It's not niche. He's doing great. And this notion of better for you, I think, is one of the most fascinating things out there. I think if I went through a hiring process right now for like a principal at Goat Rodeo and I asked 20 people, like, what should I invest in? I think they're all going to come up with some derivation of better for you. And I think you really have to have a framework of like what you care about there. And, you know, kind of similar to what we're talking about in category creation versus addressable market, like It's only when you get half pregnant that I start to get worried about about like a product's potential for success, you know, and I look at better for you as like, hey, there's functional with a lot of intention, like food is medicine. You know, I want to biohack adaptogens, all these things. And that's fine, that's its own lane. And then there's like what I call guilt reduction. And this is like, okay, how do you approach a consumer that knows they want to eat a little bit better, but doesn't want to completely like hack their life isn't that intentional, they just want to get 1% better every day. And that's where something like Lemon Perfect or good crisps is just right there like, okay, I can eat a whole can of Pringles. This is a man who can eat a whole can of Pringles, right? And if I eat, if I'm going to do it, I might as well do good crisps because it's going to be just a little bit better for me. And same thing with like, you know, lemonade and lemon water. If I'm going to go out and drink a sugary drink, it might as well be a much better for me Lemon Perfect that gets me antioxidants, everything I need. So I think this notion of, of keying in on that consumer psychographic of, Hey, I'm not trying to, you know, matrix-style hack myself. I'm trying to be just a little bit better. That's what unlocks the really big tabs. And I think GoodCrisps is doing that. Now, on the functional side, that doesn't mean that you can't get really big doing that. And in fact, similar to that category creation versus larger digital market, sometimes you can get a false signal saying like, well, I'm growing so fast because I'm finding the exact consumers with all these new digital tools. And then you plateau. And so the question always becomes on some of that functional stuff. Well, how big can it get? Because we know how big Pringles can get. And you have to ask yourself, like, OK, how big can adaptogenic tonic XYZ get? And I think sometimes the answer is smaller than you think.
[00:22:01] Ray Latif: In our industry, it's always bigger than you think, but I think to the outside observer, it'd be like, yeah, it's pretty small. We talked about a couple of your investments from Fund One. We've talked about a couple investments from Fund Two. And I'd love to hear from you about lessons as you've sort of scaled into this new stage of development for Goat Rodeo. You had a very, well, I don't wanna call it specific, but you had some very specific investing criteria, or you had some very specific investment criteria for Fund One. Did that criteria pan out in the way that you anticipated it would? It seems like certain things, for sure, but, you know, talk about your mindset as you're continuing to grow from there.
[00:22:47] Carlton Fowler: I mean, fund one, because I came from Bev-Elk, we had a lot of rights to shape what we thought the world was going to be there. I felt very strongly that like, okay, you know, and keep in mind, this was 2019. So it was pre pandemic, like, I was like, okay, there's, you know, a 1% econ penetration rate in a category that is shelf stable. And all of these behemoths are spending billions of dollars fighting on how to figure out how to get a head of lettuce to your door at $4 at a 3% margin without it wilting. That's a really hard problem to solve. Giving an $80 bottle of Whistlepit to your door that is high margin, shelf stable, not a hard problem to solve. Really, there's some regulations and some compliance issues. So we said, hey, there's no reason why beverage alcohol as a whole shouldn't have the same e-comm penetration rates. that all fast-moving goods do. And in fact, there are reasons why it should be higher. And in wine, in many ways, it is. So we made a lot of bets both in brands and in platforms that would help close that gap. Now, I thought that gap would take five or six years to close. Couldn't have possibly foreseen the pandemic. The pandemic really, really changed shopper behavior across a variety of patterns, but it definitely affected how people buy beverage alcohol digitally. Now, is some of the in-store stuff coming back? Absolutely. But we went from 1% to, depending on how you calculate it, as much as 4% to 6% penetration for e-comm. And I think now we've kickstarted the engine where you know, just like I thought five to eight years from 2019, you'll be right at that 15%, 20% econ penetration rate. And that's a massive catch up. If you go from one to 15, your share that you can grab is huge. So in that sense, fund one is working out very well. Now, you know, you can't pay rent with paper gains, but as you can expect, the companies that were serving that market have gone up significantly. The question that I asked myself both theoretically and via investing in fun too, is like what's next? And this idea of how do you take that super rich consumer data that you have sitting in your CRM because you're a new CRM brand and turn that into shell facings? Because I think it's really easy to get seduced by kind of the siren song of digital. And you forget that there is like a multi-billion, if not maybe trillion dollar infrastructure for distribution and physical retail that exists. And if you can get into that flywheel, you can still be very, very successful. So we're trying to figure out how do you take D2C success and turn it into omni-channel success.
[00:25:43] Ray Latif: Are you talking about that specifically for your brands or for all DTC brands? For all DTC.
[00:25:48] Carlton Fowler: So we'd love to figure it out for my brands because that can only be helpful. But our investing thesis is now very much affected by, OK, you know, we're going to evaluate you as a DTC company. We're going to evaluate you as a bricks and mortar company. We're going to evaluate how the how your omni channel turns into a flywheel. And increasingly, we're going to evaluate what kind of technological platforms and tools help people make their D2C brands more omnichannel efficient.
[00:26:15] Ray Latif: There's a lot of folks listening right now that operate D2C brands and that are trying to break into brick and mortar that say they have a lot of potential in omnichannel. How are you evaluating those pitches that come across your desk from brands that are right now primarily D2C and doing pretty good business in that arena?
[00:26:33] Carlton Fowler: It really depends on where they are in the life cycle. If they're 90% D2C and have a really big business in D2C, I'm gonna ask a different set of questions than if they're early in D2C showing a lot of growth and success, but they can kind of still make a decision on how to deploy their resources. I think across both though, often I find that, a really efficient set of DNC founders maybe didn't necessarily build the, whether it's wholesalers or brokers or distributors, they don't automatically build that muscle. And I think that's one of the places where we can be really helpful as we invest, because I come from a world that is so reliant on a distribution tier. I could pour a lot of those understandings over to even when it's not law regulated. that we help them build that muscle if they don't already have it. But again, to me, it's about some of the tools they use. So there's a company out there called WeStock, for example, and they do a great job. Their entry-level tool helps you coordinate and standardize stocking requests. So you have a CRM list of 10,000 people that are responsive to you because you're a great data C brand. You ask those 10,000 people to create a stocking request for their favorite store. And let's say you have a 50% hit rate, 5,000 stocking requests is a tremendously powerful thing to show to buyers. And if you're strategic about it, you only ask them to tell you which Walmart you want it stocked. What I'm finding as we go through this process is not unlike writing your senator. 30 stocking requests can open up a Walmart region in lieu of physical sales elsewhere. I think that's the best place to start when you're trying to move from D to C to physical retail is prove that your consumer set is going to migrate over and buy in the store. the opposite to that, and I cannot believe that I'm seeing this, but in many ways I can. I'm seeing some beer wholesalers who, you know, and you got to remember, wholesalers, especially in the BevElk world, have had a cartel for almost 90 years now. You know, like a cartel in the truest sense of the word, and they're actually telling new customers that they won't distribute them if they also have a DTC arm. They're just actively sticking their heads into the sand and saying, I'm going to ignore the fact that DTC is an excellent way to try on new products, you know, drive a, you know, efficient, like core consumer. And I won't distribute you if you have a DTC, because I think those are my dollars. And I shouldn't be surprised that the alcohol distributors would do that, but they are. And that's why we, that's why we do this investing thing, because I can't wait for their day of reckoning to come.
[00:29:27] Ray Latif: Yeah, I think a great example of companies that are slow to adjust to consumer trends is in the business of selling goods. I mean, all we have to look at is Amazon, right? I mean, Amazon put how many, you know, companies out of business just because of, you know, the way that people wanted to start shopping, shopping online, convenience, convenience in terms of returns, pricing, etc. And Amazon opened up a lot of doors for small brands. I mean, you know, small brands can easily set up shop via Amazon, start selling their products on day one. And it's not a hard thing to do. That being said. There's a question of how much success on Amazon is actual true value to a company. How do you assess the success of a brand that's doing well, so to speak, on Amazon? It's a great question.
[00:30:21] Carlton Fowler: Amazon is always going to be the 800-pound girl in the room. But I think that makes them really useful. For one, I use them often as a proxy benchmark. If I'm going through an investment decision on a tool or a platform for investment that might help e-commerce or GDC companies, the first thing I'll ask myself is, At the end of the day, would I rather my LPs just invest their money in Amazon, or do I think this thing's going to outperform Amazon over the next... I'm so glad they're there because I can ask myself questions like that. I think that you have to benchmark your industry to it. So in beverage, for the most part, because you're shipping water, and especially if you're in glass, that means you're shipping water and melted rocks. Probably you're not going to have a tremendously Margin efficient outcome from your DTC, Amazon or otherwise. So you kind of have to ask yourself, you know, is this a marketing channel that can pay for itself or be cost neutral? Now, occasionally you find companies and they're almost exclusively in that category creation. bucket that inclusive of fulfillment cost, whether it's Amazon or their own owned 3PL system, can still be margin, you know, margin positive after accounting for shipping. Hoplark is one, which continues to absolutely amaze me because they are shipping water. And when you see that, like, I think you have to back up the truck and say, this is amazing. The world is going digital, you know, regardless of whether you want it to or not. So if you can, handle it, great. And in that case, Amazon's a wonderful tool. If you start moving into some of The Good products that are a little bit lighter and not in beverage, I think that your shipping cost as a function of your basket size starts to come down and you have a different decision to make on whether or not you want to own that channel or outsource it to Amazon. But in the end, most people end up doing both. And I think that's probably the right answer. Because you have to hedge yourself. 10 years ago, the average product search didn't start on Amazon. Now it does. Who knows what's going to happen 10 years from today. So you have to be active on Amazon, I think, as a hedge. And then depending on your level of repurchase and your margins in the product love, I then think it can start to make sense to explore having your own owned DTC channels as well.
[00:32:53] Ray Latif: It also depends on how much Amazon is willing to embrace you and your brand. I'm on one of their pages, their Launchpad page, which talks about how consumers can discover big ideas from small brands. You can shop by category. In the grocery category, the brand that comes up is none other than Hoplark.
[00:33:12] Carlton Fowler: Oh, yeah, great. I think the other thing to remember too with Amazon is like, I mean, I'm sure BevNET and Nosh covers this, like this rise of the 15-minute grocery phenomenon, you know, with the GoPuff and Gorilla and the hundreds of millions, if not billions of dollars flowing into it from an investment standpoint.
[00:33:34] Ray Latif: Which blows my mind, by the way, because if we're talking about margins, come on. I mean, like.
[00:33:38] Carlton Fowler: Well, and here's the thing. I take a step back and like, a useful exercise is frequently, is the largest, most capitalized, most data rich company in my category also doing this? And the answer is no. Amazon is instead saying, hey, I wanna try and get 5 million products to you within three or four hours. And so I have to suspect that the most data driven company I've ever come across has some insight into what people really want in 15 minutes versus three hours. So I'm fascinated to see how that all turns out, because they are definitely zagging while a lot of other companies are zigging.
[00:34:23] Ray Latif: Well, once upon a time, way back in the day, I used to work for a company called Cosmo.com, which still exists in some form. And they were famous for being the online convenience store that would deliver your groceries, your videotapes, this is how long ago it was, in under an hour. And Amazon famously, or maybe infamously, invested $90 million in the company and Cosmo.com burned through every dollar, another 300 beyond that, I think. Yeah. So, and I, and I think it's funny cause now, you know, some 20 years later, there's a question of do people really need products in an hour or 15 minutes versus three or four hours or later that night. And I think Instacart is a good example. I mean, like people are willing to wait a few hours to get their groceries. Right. So yeah, it is interesting. It's a good, it's a good question. I, I'm very interested to see how this all pans out, especially beyond say a place like New York city.
[00:35:19] Carlton Fowler: Yeah. And again, I just look at that space and saying there's a large, well-funded competitor in a space is obviously not a reason to not invest. Otherwise, venture capital wouldn't exist, right? Like if I didn't think that Pringles was vulnerable, I wouldn't invest in GoodKris. So I'm gonna ignore my own advice here, but I do just have to believe that if Amazon's gonna have 5 million products available within four hours, within that subset of 5 million products, they're going to know best what is the 1,000 products that you definitely want in 15 minutes. And they'll have the infrastructure. So it's just, to me, it's a very difficult battle to fight when you have to know from a data science perspective, what is the most important thing to have within 15 minutes and what can I charge for it? It's really hard to go beat the company that has orders of magnitude more data than anyone else.
[00:36:17] Ray Latif: Maybe it's also very specific from block to block. So maybe the gamer community that exists in Brooklyn, they're like, we need our Mountain Dew, we need it now. We can't wait any more than 15 minutes. Well, I mean, I'm mentioning Mountain Dew, and that was a very intentional segue because the blurred lines that we're seeing right now in beverages are at a fever pitch. I mean, hard Mountain Dew was something I think we expected to see, but I don't know if we expected to see, say, the Boston Beer Company get involved with PepsiCo to make this product. You know, Joan's Soda is coming out with weed drinks. Functional beer is out there now. It feels like a lot of this is just sort of throwing stuff at a wall and seeing if it sticks, but I'm sure there's a lot of data behind these decisions to, you know, get into these businesses and, you know, for well-known brands to get into the alcoholic beverage industry, for well-known alcoholic brands to get into the non-alcoholic business. Are you bullish on this idea of, you know, crossing over and big brands crossing over into spaces where they never would have never thought they would have maybe 10 years ago?
[00:37:29] Carlton Fowler: I think it's kind of a V question, right? Let's put a pin in the cannabis beverages, because I think we're going to address that in a minute, and I kind of separate it out. I think you have to divide that question into two parts. And one part you answer from the framework of the consumer, and one part you answer from the framework of the distribution and retail systems that have been set up to serve it. From a consumer standpoint, I think it's an awesome idea. I mean, we were under the tyranny of American light beer for a long time. And I literally mean tyranny. Until everybody kind of looked at each other collectively and was like, hey, I don't like this. Do you like this? No, I don't like this. Like, I want a White Claw. Give me a White Claw. The cartel. The cartel. Yeah. And the rise of White Claw. And even to a lesser degree, people don't realize how big like Twisted Tea and Hard Lemonade are. These are big businesses. kind of opened up all these really effective consumer marketing companies like Coke, like Pepsi, like, you know, on the non-alcoholic side, and Diageo, and of course, of course, on the other side, to say, wait a second, what people really like is sessionable, carbonated, and flavored. And how do we go meet that need? And so I love from a consumer standpoint and from really talented marketing companies standpoint, them starting to blur those lines, because it just means that they're listening to what consumers want as opposed to what our big breweries can make and then what we can kind of force market. from the distribution side, that's where I think you'll actually see the winners emerge. So, you know, there was all kinds of talk about whether or not Monster was going to potentially, you know, combine with Constellation. And like my immediate reaction to reading the headline was bullshit. Like, no, I don't know if we can swear on this. I'm sorry. I was like, first of all, no way is Coke going to let Monster out of its bottling and distribution agreements. And no way can Monster's distribution channels help the beer that Constellation has. They're separate channels. So how The Good about figuring that out and how people thoughtfully go into that process Whether or not it's as big as Coke doing Topo Chico seltzer and making sure that Molson Coors is their distributor, very smart. To the smaller side saying, hey, I'm going to make a category blurring seltzer. And you're going to have to make decisions very early on who's going to distribute you, whether it's going to be the wine and spirits arms, whether it's going to be the beer arms. Because you can't go to some of the other DSDs. Beer wholesalers can sell non-alcohol, but you can't go the other way. And so thinking through this and making sure that they understand how strategic those decisions are from a supply chain distribution and retail standpoint are what's going to dictate the winners. But I think overall, it's going to be very beneficial for consumers because they're going to get more choice.
[00:40:26] Ray Latif: Consumers will get more choice, but do they really want all the choices that are coming out?
[00:40:31] Carlton Fowler: I mean, think of how many seltzers are out there now. It's wild. And, you know, there's always that explosion because we have such a effective co-packing. ecosystem. You know, this is actually why cannabis beverage is having so much trouble. If Ray Latif wants to create a hard seltzer or a soda or anything, you can have, you know, Flavorman put it together, you know, Glambia co-pack it. And if you can find a distributor, you can be ready to go pretty quick.
[00:40:58] Ray Latif: Yeah, end of the week.
[00:40:59] Carlton Fowler: Yeah, well, maybe. And that's just not the case in cannabis beverage. So that's why I wanted to separate that out. It's going to have to have a whole different ecosystem generate before it can actually get there.
[00:41:13] Ray Latif: Yeah. Blurring the lines also includes zero-proof drinks. And we at BevNET have been looking a little bit more closely at this space. And it is January of 2022. Dry January, that is. Any thoughts on how this space is sort of emerging and its potential for real scale?
[00:41:31] Carlton Fowler: It's great. I love it. Two things I think happened. One, at some point, again, depending on how the production comes. So a non-alcoholic beer, from a production standpoint, you're either arresting the fermentation or you're spinning the alcohol out. In both cases, it's probably more expensive to make the normal beer, almost counterintuitively. Same thing with wine. You're either arresting the fermentation or you're spinning the alcohol out. The spirits can be a little bit different. You know, Seedlib has just built up from scratch, and I do see some of the competitors who are actually taking a spirit and then pulling the alcohol out. And as an aside, I can't imagine a more expensive way to do something than buying some of the most expensive liquid on earth, which is aged whiskey, and then stripping the alcohol out of it. Over time, if that industry wants to be non-niche, it cannot sustain its prices as always a premium to the alcoholic analog, since the alcoholic analog actually has a physiological effect. As industries mature and you move beyond the percentage of a population for which you are a perfect fit, and they've been searching for you, in order to get bigger, you're gonna have to achieve price parity with whatever you're replacing. This is why I get so excited about something like Hoplark, because they can achieve price parity, because they're not just arresting fermentation. They're doing something completely different in beverage that happens to satisfy the alcoholic occasion. But in general, when you look at the demographic trends, Zero proof is not going away. People really, really enjoy what it has to offer, and they're coming into it more and more every year. So I do think it's just going to be a question of how big can it get and how big can the assumption occasion get beyond the, I want to replace the couple of drinks a week I have.
[00:43:23] Ray Latif: Over the couple of months a year, the dry January or sober October. Yeah, I mean, I think that is still, you know, the giant question out there is, Is it just for a few folks or are we going to actually see a real shift in consumer habits? Yeah, it's a question that we'll be wrestling with for a bit, I'm sure.
[00:43:43] Carlton Fowler: If you want some kind of fun predictions, I think in 2022 you will see a massive acquisition in the non-alcoholic space that will end up kind of justifying the space for everyone else. A lot of times people need to see headlines before they'll believe something's real. I wouldn't be surprised if 2020 was the year that someone on the alcohol side, whether it's ABN Bev or even like a Diageo, makes a big move and buys one of these fast-growing non-alcoholic alternatives.
[00:44:17] Ray Latif: You're talking about non-alcoholic beer or just like a non-alcoholic brand that happens to fit those alcoholic beverage occasions?
[00:44:24] Carlton Fowler: Whether it's a non-alcoholic spirit or non-alcoholic beer or non-alcoholic wine or something that fills that occasion, I think you're going to see a very big acquisition in 2022. I don't have any inside information. I'm not speaking from like, I've been in the boardroom and I know what's going to happen. I've seen the track record of acquisitions. long enough, I've seen the marketing budgets that like BUDD 0.0 are pushing out, Heineken 0.0 pushing out. At some point, the math just checks out. If you're spending hundreds of millions of dollars to push BUDD 0.0 all over the place, then you also start to look at what is the next alternative for that hundreds of millions of dollars as far as an acquisition that might be growing faster than how you're pushing your marketing dollars. And that tends to be how this industry works. marketing dollars kind of come first and then people start to explore what else they could have done from an acquisition standpoint with those marketing dollars and then you saw you see the acquisition first.
[00:45:22] Ray Latif: All right, you've hinted at this, or you've mentioned it a couple of times, cannabis drinks. Along with Hoplark, BevNET awarded as a rising star of 2021, Cann, C-A-N-N, probably the highest profile cannabis beverage brand out there. However, in an interview last year, you had said that, maybe this was just before the end of 2020, you had said that Goat Rodeo Fund II will not include cannabis. Is that still your position?
[00:45:52] Carlton Fowler: It is for compliance reasons only. So if you're listening, we do not touch cannabis. That doesn't mean that we don't write a lot of STDs in the space. And it just goes to a different GP. I mean, We had a very firm belief in Fund One that was able to touch candidates. At that time in 2019 and 2020, it was very, very hard to necessarily pick the winner and valuations were, we'll just, I'll be polite and say they were high.
[00:46:22] Ray Latif: Pun intended?
[00:46:24] Carlton Fowler: Oh, okay. We went upstream and invested in Virtosa, which I thought had the best science for the active ingredient, the emulsification. And fast forward to today and Virtosa, the most you can ask for an investment in that space is, are you constantly making your IP or intellectual property more robust and better? And are you winning more than your fair share of the category as far as brands that are using your emulsification? And the answer is a resounding yes for them. Cannabis beverage I don't think is necessarily growing quite as fast as everybody thought that it might, but it still has just, you know, melt your face growth rates. The problem is it was off off of a low base number and. I have to keep in mind the effect that California and Colorado as like serious legacy markets, culture of smoking flour that exists there. If you separate those markets out and you look at some of the East Coast markets and the Midwest markets, the growths in edibles and beverages, a subset of edibles is by far and away the fastest growth. And that kind of makes sense. The thesis was always, hey, the incremental user, who wasn't a user in the illegal market might not necessarily want combustibles. They might not want to smoke things. They'll want to, you know, consume them either beverage or edible. And that's absolutely playing out. And I think Cannes is a lighthouse for the industry. I think they've raised a lot of capital and they're doing a lot of the heavy lifting for the industry in deploying that capital to educate consumers. And that rises all boats. And as a result, I think they'll win more than their fair share, and they deserve it because they're doing yeoman's work for the industry. But I think that absolutely, cannabis beverage and edibles, again, I love the whole category together, are going to be the thing. And I think they'll meet all of our long-term expectations. And yes, Goat Rodeo will be actively investing, just not through Funtip.
[00:48:32] Ray Latif: Well, it certainly sounds like you have a lot of optimism for cannabis. It's interesting you mentioned you called cannabis beverage a subset of edibles, because I think there are some people who would say that beverage can actually lead the way for edibles and consumables. Well, this guy's probably biased, but the president of a cannabis seltzer brand called Levia was quoted as saying, the cannabis beverage segment serves as a universal stigma breaker for the cannabis industry as a whole. That's a bold statement for sure, in that it sounds like he thinks that cannabis beverage can not only lead the way for edibles and consumables, but for people to just generally accept cannabis across the country. How much do you buy into that statement?
[00:49:18] Carlton Fowler: I totally agree. For me, when I say subset of edibles, it's more being driven by the data than anything. The size of just the gummies market, much less the all edibles, is like multiple orders of magnitude bigger than what beverage is right now. Now, Do I think that every person in the U.S. market, and frankly a lot of the world market, is trained on a social conviviality beverage kind of operating system? Absolutely. We like to gather, we like to have beverages when we gather, we like those beverages to be physiologically and psychoactively active. that just happens to be mostly alcohol, it can easily be cannabis. So I do think that eventually cannabis beverage will be a major guiding light in the industry. But for me, when I look at it now, I just say, OK, as of right now, it's OK to make investments and think through the science. and the go-to-market for really all edibles, because I think they're all in a category where a consumer's going to say, hey, I don't want to roll a joint or smoke a pipe. I want to consume this thing. It might be a beverage, it might be edible. I think there's room for plenty of winners.
[00:50:33] Ray Latif: What was it? Three years ago, when the CBD craze hit Expo West and hit The Good and beverage industry like a meteor, it feels like it's tamer now? It almost feels like the interest in THC beverages is slightly more interesting at this point for folks in the industry. Do you see it that way as well? I mean, I guess, has the sheen for CBD worn off for you?
[00:51:00] Carlton Fowler: I never really had a sheen. I've gone on record a lot of times saying, I think that CBD is an ingredient, not something to build a brand on. And unfortunately that makes, you know, there are definitely some successful CBD products out there. People make that up, like I'm attacking their very right to exist. I'm just like, no, I think it's wonderful that there are some success stories. But for the most part, I think that people do tend to gravitate towards actual physiologically active compounds. Alcohol is an active compound. THC is an active compound. Cybicillin is an active compound. But we're not going to talk about mushrooms today. And I just think that when you're talking about recreational use and social conviviality use cases, having a physiological effect is a very, very difficult moat to beat for something like CBD.
[00:51:58] Ray Latif: Well, Carlton, you know, you and I, as we mentioned at the top of our conversation, had an opportunity to speak at BevNET Live. And I'm so glad that we had an opportunity to follow up on that because, you know, you are just so great when it comes to sharing your thoughts, experience and feedback with our community. And I really, really appreciate it. It's not often that investors are as open as you are. And I know everyone who's listening really appreciates it. So thank you very much.
[00:52:28] Carlton Fowler: Thanks. I get really self-conscious when I come on these because I'm not sure if most people like care about like the real theoretical. I'll be the very first to admit that I get a little bit theoretical and like pedagogical to go through this, but the response that I got to the first time that we did a podcast was like, it was, it was, I was like, I was like, wow, okay. I think this community, like, I think this community cares and I might be right or I might be wrong about the way I'm thinking about things, but at least people reached out to me and said, Hey, like you helped me think of my own heuristic of, of, of how to take this apart. So I really appreciate the platform and being, and you having me on.
[00:53:08] Ray Latif: Yeah, well, let's do this again soon, whether in person or otherwise, hopefully in person. But in the meantime, thank you once again, Carlton, and hope to see you really soon. Thanks, Ray. That brings us to the end of this episode of Taste Radio. Thank you so much for listening, and thanks to our guest, Carlton Fowler. As always, for questions, comments, ideas for future podcasts, please send us an email to askattasteradio.com. On behalf of the entire Taste Radio team, thank you for listening, and we'll talk to you next time.
