Paddy Spence avatar
Paddy Spence
@paddyspence
I’m Paddy Spence, CEO of Zevia ($ZVIA), a certified B Corp beverage company creating zero calorie, zero sugar, naturally sweetened beverages made with plant-based ingredients. I’ve worked in the natural and organic products industry for 30 years, and know many of you are passionate about where the space is going. Ask me anything about Zevia’s aim as a “better-for-you” brand, our business strategy, and how we plan to tackle the global public health crisis of excess sugar consumption in the long-term. Looking forward to answering your questions this Wednesday, May 25th from 12-1 PM ET.
ZVIA Town Hall
19 questions answered
ZVIA
Willa avatar
How would you articulate Zevia’s core mission? Can you share some context about why you think excess sugar consumption is such a pressing issue globally?
Paddy Spence avatar
Zevia’s core mission is to impact global public health by helping consumers reduce their sugar. More than 80% of US adults are seeking to reduce their sugar intake, and that’s because of the range of health impacts from sugar. These include the long-established links to obesity, diabetes and heart disease, as well as emerging studies linking sugar consumption to other diseases including Alzheimer’s and cancer.
Koulson avatar
What is the ultimate long term goal for Zevia and do y’all plan on making different kinds of products other than beverages in the future ?
Paddy Spence avatar
We are focused on beverages, both because beverages account for almost half of added sugar consumption, and also because it's a huge global market of about $800 billion. Today, 99% of US households purchase the categories in which we compete, and the average American drinks close to 40 gallons of soda per year, so there is plenty of opportunity in our existing categories.
Victoria avatar
You shared your Q1 earnings earlier this month. What are 2-3 of the top takeaways you’d like investors to walk away with from that report?
Paddy Spence avatar
Having been a public company for less than a year, we continue to transform the Zevia business. In Q1, we continued to increase net sales growth, added talented new leaders with consumer packaged goods and beverage experience to the company, expanded distribution, and continued our innovation pipeline. Going forward, we will continue to focus on growth, while improving unit economics through a combination of price realization, optimized promotional spend and continued cost optimization initiatives.
chrisdandrea avatar
How is Zevia growing? New products? New partnerships?
Paddy Spence avatar
Zevia's net sales growth has come from a combination of velocity — higher dollar sales for each point of distribution — and new distribution. In Q1 of 2022, 51% of our growth was driven by velocity, as we expanded the number of consumers buying Zevia in each store through a combination of improved shelf placement, marketing in the store as well as advertising outside the store, and improved promotional effectiveness. During Q1, 49% of our growth came from new distribution, as we expanded in both existing retail channels such as Food and Mass Merchandisers, and entered a new channel, Warehouse Club.
What do you expect your DTI to be, and how much growth do you think the company will make each quarter? I am looking for stable growth not high debt that the company will be drowning in. I am not into companies thaylt neglect the pay of their employees to meet profit margins for their investors because they took on too much debt.
Paddy Spence avatar
Zevia currently has no debt, and significant cash on its balance sheet. As such, we are not concerned about debt levels. In terms of growth prospects, our long-term "growth algorithm" (our expectation for annual growth) for net sales is 30% per year.
Regina Hall avatar
Why do you think that 5 out of 7 analysts say to buy ZVIA and 2 say to hold?? (From a CEOs point of view) What's your plan as a ceo to hit your average target price of 8.75$? Lastly, employee engagement question. What what incentives do you offer your employees?
Paddy Spence avatar
Beverage analysts recognize Zevia's disruptive proposition and rapid historical sales growth, and that's why 5 out of 7 recommend the stock, with an $8.75 average target price. Our employees hold a similar level of conviction about Zevia's future, as every full-time employee holds an equity interest in the company. In addition, we have a Fair Wage policy, which means that in a market like Los Angeles, all full-time team members make a minimum of $50,000 annually, excluding bonus and stock compensation.
Emma avatar
What is Zevia’s distribution strategy? What are the top sources from which people buy your products currently (grocery, restaurant, digital?), and how do you think this may evolve in the future?
Paddy Spence avatar
Zevia's distribution strategy started with retail channels focused on "at home" consumption, specifically Natural products stores, conventional Supermarkets, Drug Stores and Mass Merchandisers (like Walmart and Target), and ecommerce sites like Amazon.com. We've achieved success in those channels, with significant distribution upside still remaining, and in 2022 began expanding into Warehouse Club chains like Sam's Club and Costco. In the future, we anticipate expanding into "immediate consumption" channels such as convenience stores and foodservice (restaurants, hospitals, educational institutions, etc.), and ultimately the global market outside of the U.S. and Canada.
Emma avatar
We talk a lot about supply chain pressures here in the community. How have supply chain challenges impacted Zevia in particular, and do you see this pressure lessening anytime soon?
Paddy Spence avatar
Supply chain pressures have impacted many consumer businesses, including ours. At Zevia, we've been fortunate in that we have maintained continuity of supply and strong in-stock and fulfillment levels for our customers. We have experienced cost headwinds, particularly on aluminum cans and freight, which impact margins. While the aluminum and freight markets have receded somewhat from the price spikes we saw in Q1, we are being conservative and not expecting further declines. Instead, we are mitigating them through pricing actions, optimizing promotional spending, and various cost optimization initiatives, and we anticipate gross margins returning to historical levels in the second half of 2022.
Victor avatar
Brand-building seems to be particularly crucial in CPG. How do you think about differentiation in a crowded space? And how do you think about driving loyalty vs. acquiring new customers?
Paddy Spence avatar
Consumer packaged goods is a very competitive space, and Zevia competes against the largest beverage companies in the world. We have some unique sources of competitive advantage, however, starting with our focus and authenticity. Being completely focused on zero sugar beverages with simple, plant-based ingredients and never having sold a plastic bottle in our history, we "stand for something" and have created strong consumer trust and loyalty. With only 5.8% of US households purchasing Zevia, in categories that 99% of US households purchase, we are very focused on expanding our consumer base while retaining current Zevia shoppers.
Although the products are certainly appealing, at least some of them, you don’t seem to have put any effort into marketing. Why is that?
Paddy Spence avatar
Zevia competes against the largest beverage companies in the world, and continues to dominate the zero sugar, plant-based beverage segment. While we don't have their advertising budgets, our 11-year history of 31% compound annual net sales growth has been driven in part by very efficient marketing campaigns. We have been in a continuous "test and learn" process to optimize our marketing campaigns, and intend to increase marketing funding on an absolute dollar basis in the future.
How will you make this affordable for not only the upper class but for mid and lower class people. I know a lot of people want healthy things in their life and sugar is def unhealthy. What’s your plan on reaching all demographics with this product?
Paddy Spence avatar
Affordability is a key focus for Zevia, as we believe better for you options should be accessible to people of all income levels. We track our affordability on a price per ounce basis versus all non-alcoholic beverages, and today Zevia is at the 35th percentile. That means that across still and sparkling water, soda, energy drinks, mixers and kids drinks, 65 percent of products are more expensive than Zevia. We are focused not only on affordable pricing, but also distributing our drinks in communities where we can impact health in a positive way by providing broader options.
C.Cuber avatar
Is there a twist, like usage of HFCS, or is it really a 100% natural drink?
Paddy Spence avatar
We use only the stevia plant to sweeten our beverages, and have only a handful of simple, plant-based ingredients in our products. There are no "hidden" ingredients or chemicals in Zevia beverages.
Ana avatar
The sugar industry is one that has created an unfathomable fortune for industry leaders. Sugar is found in all sorts of foods in the US that it is not found in in other countries all over the world (i.e. deli meats, bratwursts, hot dogs, dried fruit, etc.). With the money the sugar industry pours into advertising, lobbying, and board room deals with other food industry giants, what has been the tactics that work best for Zevia to advertise and inform the public about cleaner, sugar-free foods and drinks being more available, more affordable than in the past, and healthier? What methods are in the short-term and long-term plans to leverage power in getting the company’s name and products known compared to their looming strategies that they’ve been successfully using?
Paddy Spence avatar
Sugar is definitely an ingredient that is pervasive in foods and beverages, and consumers are more aware than ever of the health impacts of excess sugar consumption. Increasingly, they are discovering products that support their sugar reduction goals online, and that's one reason Zevia is the #1 soda brand on Amazon.com. Spreading the word about our brand through online channels, whether through advertising or leveraging opinion leaders in various communities, has proven to be an effective and efficient strategy. In addition, because Zevia tastes great and offers a broad variety of flavors, product sampling is a great way for new consumers to experience the brand.
Emma avatar
What is your approach to product innovation at Zevia? How often are you expanding the available options, and how do you land on new ideas that will resonate with new and potential customers?
Paddy Spence avatar
Zevia is a continuous improvement company, and we are working to improve every product we offer, in terms of taste, ingredients, and packaging, in addition to pioneering brand new items and product lines. So far in 2022, we have introduced our new and improved Citrus Trio (Lemon/Lime, Orange and Mountain Zevia), two new Energy flavors (Strawberry Kiwi and Pineapple Paradise), our first Limited Time Only flavors (Fruit Punch and Orange Cream), and new 8-pack Soda packaging.
Victor avatar
What’s one thing you’ve learned through customer feedback, market research or other insights that has genuinely surprised you? What does this mean for your business now and into the future?
Paddy Spence avatar
Consumers are very focused on zero sugar, but we've learned that there are many other ingredients in conventional soda that they seek to avoid. These include artificial flavors, GMOs, sodium, phosphoric acid (in cola products), artificial colors, and artificial preservatives.
What is your plan during this time when everything is down? You haven’t been gaining any profits also, so what is your plan regarding this too?
Paddy Spence avatar
While our stock price is down amidst a volatile public market, our business continues to grow rapidly. In Q1 of 2022, we achieved 24% net sales growth, at the high end of our guidance range. We are focused on continuing our rapid growth trajectory, while improving unit economics, or the profit we generate with each can we sell. With increasing scale, as well as a range of initiatives to reduce costs, we are focused on driving profitable growth.
Willa avatar
As CEO, what’s a current challenge that keeps you up at night, and how are you working to address it?
Paddy Spence avatar
We have created a special culture at Zevia, and continuing to maintain that as we grow our team is something I'm very focused on. Since the pandemic, we have hired almost 50 people, and despite the remote work environment, we have leveraged technology and regular all-team meetings, and have become closer than ever.
Victor avatar
Why pursue the certified B corp distinction? In your opinion, how does this benefit Zevia’s business and create value for shareholders?
Paddy Spence avatar
The B Corp certification, along with our status as a Public Benefit Corporation, underscores our focus on making the world a better place with each can we sell, along with building a growing, profitable business. In today's environment, we believe that both consumers and investors are seeking brands with that commitment to both people and profits.
Victoria avatar
Can you talk about how the natural & organic products industry has grown over the past few years, where it’s expected to go, and where Zevia fits into the category overall?
Paddy Spence avatar
More than ever, consumers today are seeking ways to take control of their own health through what they put into their bodies. That, along with the increased availability of health and product information on the Internet, has resulted in more and more people finding solutions to the health issues they're seeking to address, which has led to continued rapid growth for natural and organic products. Reducing sugar is a key goal for many consumers, and Zevia is a great-tasting, affordable way to cut your sugar consumption in half overnight. *** This concludes today's Town Hall. Thank you for joining.
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