Lawsuit Shines Light on Drizly’s Plans to Enter Cannabis Space
Alcohol delivery service Drizly plans to expand and enter the cannabis market later this year.
As previously reported by Wine & Spirits Daily, the company didn’t exactly officially announce these upcoming plans, rather, the news came to light after Drizly filed suit against former CEO and co-founder Nick Rellas for violating a non-compete agreement by starting his own cannabis delivery business.
HOW WE GOT HERE. Nick Rellas co-founded Drizly in 2012 with Justin Robinson, now the company’s SVP of new business. In August, Drizly “dismissed” Nick from his role as CEO but kept him on as a board member. Cory Rellas, Nick’s cousin, took over as CEO. Cory said the transition was amicable and that Nick would “be as much a part of the business but in a different role,” per Boston Business Journal. But according to the complaint, Nick left the board just two short months later.
Then it came to Drizly’s attention that Nick is setting up his own cannabis delivery operation. Apparently, Nick even asked Drizly to invest in his startup, an offer Drizly refused. Instead they promptly filed suit against their former CEO last Friday in Boston’s Suffolk Superior Court.
Drizly wanted to keep the suit sealed because it reveals its plans for the cannabis space. A judge rejected their request, but Drizly was allowed to redact portions of the complaint. As a result, details on the new venture are scant.
Here’s what we do know: “Beginning in late 2017 and continuing through [Nick’s] tenure as CEO, Drizly decided to enter an adjacent market for another highly controlled product: legalized medical and recreational cannabis,” per complaint obtained by Law360. “Drizly has approached potential commercial retail partners, explored the best path to market, consulted with state regulatory officials, and crafted a market entry plan.”
Drizly claims that Nick “would not have been able to create a competing company without the knowledge and experience he gained at Drizly,” adding that’s why they had Nick sign the nondisclosure and non-compete agreements. Nick’s “flagrant and repeated breaches of his contracts are the basis of Drizly’s instant lawsuit,” per the complaint.
The two sides are already in settlement talks, but are also due to appear in court on Monday, according to the case docket.
Drizly declined to comment further on the case and its pending marijuana plans.
More as it rolls in.
LATEST NIELSEN: FLOOR FALLS OUT FROM UNDER BEER IN FEBRUARY
What’s eating beer in February Nielsen data?
We saw a decent state shipments report for January (+1%), and indeed the scandata for that month had looked good, if there were some comp issues.
But the four weeks to 2/23, the floor falls out from under beer. Volumes are down 2.1%, vs. a YTD trend of 0.1%. Even Nielsen describes that decline as “dramatic.”
The main culprit, of course, are premiums, which have seen their trends worsening throughout the month. Premium light volumes are down 6.7% and lost 1.5 share, while premium regulars are down a steeper 7.2%, but down 0.4 in share. (If those Super Bowl commercials didn’t hurt, they certainly aren’t helping. See below.)
To wit: Bud Light volumes are down 8.5%; Coors Light is down 6.6% and Miller Lite is down 1.7%. (For reference, the 4 weeks to Feb 2 — prior to Super Bowl — saw Bud Light down 6.3%, Coors Light down 4.3% and Miller Lite down 0.6%.)
ABOVE PREMIUM SURPASSED PREMIUM IN TOTAL ACV FOR FIRST TIME IN FEB. Indeed, when we asked the Nielsen team to weigh in on why the latest numbers were so bad, they cited a couple of factors, including bitter cold in early February. But most interestingly, they shared that “within February data we did notice that Above Premium surpassed Premium in Total ACV for the first time, so now there is more availability for Above Premium.”
Of course premium wasn’t the only segment responsible for the paltry set, there’s plenty more blame to go around.
Craft is having a rough start to the year, down 2.1% in the latest four weeks, knocking its YTD trend down further into the red at -0.3%.
Cider, which had a resurgence last year thanks to rose variants, is struggling to keep pace. Cider volumes are down 1% in the latest four weeks, but hanging on to growth YTD, up 2%.
Then ay chihuahua what’s going on with imports? The segment was up a mere 0.9% in the latest four weeks. Besides Modelo Especial, up 8.9%, the majority of the big import brands are in the red. Corona Extra, down 5%; Heineken, down 4.4%; Stella Artois, down 3.9%; and Dos Equis, down 3%. We’d note that Dos Equis is the only brand out of that bunch in the red with a positive YTD trend, albeit barely, up 0.4%.
THE NEW TABLE STAKES? CBA NOW LAUNCHING BRANDS OUT OF ITS NEWLY STANDALONE INCUBATOR, PH EXPERIMENT
Yesterday we detailed how ZX Ventures is growing new, nimble brands like Saturday Session Wine that are far outside its parent company’s Big Beer bailiwick.
Now CBA (in whom A-B has a stake and options to purchase, for what it’s worth) is doing something similar. The company has announced it’s making the PH Experiment a standalone business unit, to pilot 3-5 brands in market yearly, based on its consumer learnings. The first, Pre Aperitivo Spritz, will hit some TBD test markets this spring via A-B wholesale network. More on that in a sec.
This newly codified PH unit represents a break from the strict “learning” phase it had last year. As we reported in September, it was a relatively small focus group of 50 first [see CBD 09-05-2018].
As part of their research, they also tapped execs at other giant beverage companies, from Starbucks to Coca Cola. General manager Karmen Olson said she realized that where “beverage leaders are going after consumer problems, beer leaders are trying to tackle industry problems. The need for consumer insights was glaring after some initial due diligence.”
Now, The pH Experiment “will expand on the Innovation team’s test-and-learn platform, tapping into CBA’s resources, distribution capability, and deep consumer research insights to quickly develop, test, and evaluate a range of new products in select markets across the U.S.”
Why create a separate unit? Probably for the same reasons other companies have found: It allows them to “take the handcuffs off” from existing CBA procedures, and maneuver around existing CBA brands.
“We can introduce new products without destroying the ethos of existing brands,” Karmen said. And they can move like a smaller company.
These new brands could be anything. And indeed, the brands are very far removed from CBA. They are standalone, or what Karmen describes as “organic.”
For an example, see Pre’s packaging in our brewpic. It’s sleek, dark — it barely looks like beer at all. And in fact, the 6.6% drink is dubbed an “Italian-inspired botanical bubbly,” like Dr. Seuss was in on the gig. CBA describes it as a nod to aperitivos, but one that plays to the no-sugar mores of today, with one gram of sugar. They’ll test market it come spring, markets to be determined. Certain markets will get both a can and bottle version, to test formats.
Other pilot brands could appeal to consumers of “cannabis, wine, kombucha, sake, you name it,” says Karmen.
And there may be some M&A involved. “As opportunities arise, the unit will also explore options to partner or access resources beyond current capabilities,” per announcement. “The pH Experiment is targeting $25 million in revenue by 2025.”
We wondered how they got to that number.
With some 3-5 product tests per year, Karmen told BBD, “we expect most of those to fail. We built our plan accordingly.” Of course, “we do expect some to be successful.” Add to that “strategic M&A where it makes sense,” and they arrived at the figure.
Will all products go through the A-B system?
Karmen says they’re definitely “talking to A-B wholesalers,” but their broader goal is “trying really hard to look at wholesaler partners who truly want to collaborate with us … we want to make sure we’re working with someone who is giving us feedback” about everything from pricing, merch, to packaging configuration.
“For now that’s been within the A-B wholesaler network. I think that if we find a category or drinker need outside of that, we’re willing to look there if necessary.”
So far new brands are being brewed at CBA, but they see opportunities to contract with other brewers — not necessarily A-B — but other folks who have different capabilities than CBA does, she said.
ABI CHAIRMAN STEPPING DOWN NEXT MONTH
Olivier Goudet will step down as chairman of Anheuser-Busch InBev at the company’s annual shareholder meeting next month, reports the Wall Street Journal.
Olivier — who also serves as CEO of JAB Holding Co., a privately held company that owns such companies as Krispy Kreme, Caribou Coffee and Keurig Dr. Pepper — said he’s resigning to focus on “growing responsibilities” at JAB, where one of three senior partners recently resigned.
Though, WSJ notes that ABI “had come under pressure from some investors to address a potential conflict of interest posed by” Olivier as chairman, given his ties to JAB. With ABI wading into non alc, the board feels ABI and JAB could lock eyes on the same potential target.
Plus, “ABI’s board was increasingly concerned about Olivier’s ability to dedicate the time needed to the brewing giant,” a source close to the matter told WSJ.
Olivier has served on the ABI board for the past eight years, and spent the last four as chairman of the company. The ABI board has reportedly decided on Olivier’s successor and plans to announce the decision next month, per WSJ’s sources.
BEERNET EXTRA: If you want a concise, factual, and humorous timeline of the #corngate #corntroversy fight between A-B and MillerCoors, look no further than this Chicago Tribune piece by talented beer writer Josh Noel (also, I’m quoted throughout): https://www.chicagotribune.com/dining/ct-food-corn-syrup-beer-anheuser-busch-miller-battle-20190225-story.html
Harry, Jenn, and Jordan
“Storms make oaks take deeper root.”
– George Herbert
———- Sell Day Calendar ———-
Today’s Sell Day: 4
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1