Black Rifle Coffee has taken a certain amount of flak, particularly from a harsh July 2021 article describing its resonance and popularity with the American extreme right-wing.
The company, which says it was founded in 2014 to support veterans, active-duty military, first responders, and average coffee consumers, is a relatively small but ambitious and growing player in a sharply competitive sector.
Coffee is dominated by Starbucks (SBUX) - Get Starbucks Corporation Report but features massively popular companies like Dunkin’ Brands, Tim Hortons (QSR) - Get Restaurant Brands International Inc Report, Peet’s, and Blue Bottle. And coffee is sold everywhere, from McDonald’s (MCD) - Get McDonald's Corporation Report to, well, everywhere.
But notwithstanding the New York Times magazine feature, the upstart coffee retailer and coffee-bar chain also has an enormous advantage, described by Co-Chief Executive Tom Davin on the fourth-quarter-earnings conference call as a “large and growing community who love interacting with our brand on a daily basis.”
And on March 16, the company reported that it swung to a fourth-quarter loss from a year-earlier profit as inflation lifted costs of production and shipping, among other factors. The stock in the past few weeks has wavered, from a bit below its $10 SPAC price to near $23.
But fourth-quarter revenue jumped 20% to $71.8 million from $59.9 million. And for all of 2022, Black Rifle boosted its revenue outlook to $315 million from a previous estimate of $311 million and said it would add 15 to 20 new stores to the 16 it had at year-end 2021. That revenue estimate indicates a 35% increase from 2021.
Black Rifle executives said the IPO cured the company’s capital constraints, placing $150 million on the balance sheet to execute its strategy.
And among a number of subjects that Davin, Chief Executive Evan Hafer and Chief Operating Officer Toby Johnson addressed on the conference call, Black Rifle has an interesting problem -- one that just about every company wishes it had.
Black Rifle Has a $28 Billion Addressable Market
On the conference call, Davin made clear that the company is undaunted by the competition.
“The U.S. coffee market is over $45 billion, and we estimate our serviceable addressable market to be $28 billion,” the co-CEO said. “This includes 100 million U.S. customers who are aligned with our brand values. Note that our $233 million revenue last year points to less than 1% of our serviceable addressable market. So we are positioned for many years of sustained growth.”
Black Rifle sells not just coffee -- under brand names like Murdered Out dark roast and Complete Mission Fuel Kit with dark, medium, and light roast bags -- but also apparel, coffee cups, and other merchandise featuring its logo.
Davin noted the omnichannel marketing strategy at Black Rifle: direct-to-consumer packaged coffee and merchandise, its retail coffee bars, and wholesale efforts, largely the company’s ready-to-drink offerings.
The company currently has 287,000 subscribers to its coffee club, and Davin said the monthly churn – people switching to rival offerings – was low at 3% to 4%.
Its ready-to-drink products are some of its most important, and most popular, offerings. The company this year hopes to nearly double the stores where those products are available.
And therein lies the rub, such as it is: As it ramped up production capacity, Johnson said, Black Rifle was able to meet its commitments in its plan for the ready-to-drink coffee. But it saw huge -- and unmet -- additional demand for ready-to-drink.
“[What] we’ve seen is such support for the products that we have from consumers and from retailers that the unmet demand is really additional opportunities for us to go after,” Johnson said, adding, “it’s really taking advantage of the momentum on the brand and continuing to accelerate.”
How to meet that unmet demand expeditiously? Davin answered and Johnson reiterated.
“We are now in advanced discussions with several co-manufacturers that will enable us to more fully address product demand that is currently unmet,” he said.
And taking the point of view that if you can’t immediately be as big as ‘em, hire their staffers: Black Rifle has added a 10-year Starbucks veteran, Heath Neilsen, as chief retail officer. He’s responsible for developing the stores -- which the company calls outposts -- and related operations.
On the pricing front, Davin said the company was “keenly aware” of inflation’s effect on its cost of goods sold, particularly green coffee and shipping, and it expects further cost inflation. It has put price increases in place and is evaluating additional ones. “We will seek to always find the right balance between serving our customers, while offsetting cost increases,” Davin said.
While Black Rifle wants to grow rapidly, it also is hoping to break even for the year based on adjusted earnings before interest, taxes, depreciation and amortization.
“We’re eight years from my garage,” Hafer said, referring to the company's initial operations. “And we’ve been focused on becoming a high-growth company, but we also really have to focus on the bottom line and becoming profitable and have a pathway to profitability.
"So when we look at not only the growth story of the company, we have to look at how do we become profitable and how do we manage all aspects of the business in great detail.”
A Different Tack to Reach and Build the Base
Most companies spend small fortunes, and large ones, on outside advertising and marketing agencies to get themselves noticed and noticed more.
On the conference call, Black Rifle's first as a public company, CEO Hafer said the company was doing this differently.
First, by doing good when it's doing well: In 2021, Hafer said, the company gave coffee valued at $3 million "to the front lines" -- a spokesman clarifies that that's military, police, firefighters, EMTs and others -- "and over $1.2 million to the veteran and first-responder charities."
But in addition, the company's approach to the media is different.
“While demand for our products has never been stronger, our aided brand awareness is still below 20% nationally and only 17% among the core veteran- and military-affiliated audience, he said.
“To drive awareness and build our community, we will continue to shift our marketing efforts from paid media to owned media, to our investments and influencers, brand ambassadors and podcasts, sports and the Spartan Race series.”
An example of the brand ambassador partnerships is Black Rifle's affiliation with Travis Pastrana, whom Hafer called “one of the best-known action sports athletes in the world. He is a six-times X Games gold medalist and the founder of Nitro Circus.
“We are in the process of creating what we refer to as tentpole content with Travis that will appeal to our core communities as well as a much broader global audience. For example, Travis’s 2021 Gymkhana video exceeded 47 million views on YouTube. BRCC will be front and center in the next Gymkhana, to be released later this year.”
Another example: the company publishes “Coffee or Die” magazine. “[We] have full-time writers covering veteran-related topics in the U.S. and abroad,” Hafer said. “In fact we have 3 writers on the ground in the Ukraine right now, providing real-time news for ‘Coffee or Die.’ ...
“We expect these marketing initiatives to improve our brand awareness and help Black Rifle Coffee meet its 2022 financial goals.”