Zevia gains household penetration while riding out temporary inventory management issues

14-Nov-2022 - Last updated on 14-Nov-2022 at 18:19 GMT

Photo Credit: Zevia

Zevia continues to gain new shoppers, increasing the brand's household penetration (+1.3 million households in Q3 2022 vs. Q3 2021) while the company sorts through temporary inventory management issues that have dented its full 2022 year outlook.

Zevia reported a net sales increase of +13.6% to $44.2m in the third quarter ended Sept. 30, 2022 and +2.3% in volume growth compared to the same period last year. The company recorded net losses of $9.2m (a 37.8% reduction from last quarter) including $6.8m of non-cash equity-based compensation expenses.

From a broader category perspective, Zevia grew +19.8% in measured scan dollar sales for the quarter vs. the same quarter last year, continuing to outpace Total Non-Alcoholic Beverages growing at 12% and Total CSDs at 14%.

"The Zevia shopper is a highly desirable shopper, less price sensitive at all income levels, who demonstrates resilience in a fluctuating economy," said Zevia CEO Amy Taylor on the company's Q3 2022 earnings call.

"We remain a home stocking brand, which continues to fare well from a consumer and brand health perspective, winning new consumers and sustaining household spending levels."

More Zevia households

The increase in sales and volume has translated into more Zevia-buying households who are increasingly trading up their purchases in the form of larger pack sizes.

Zevia's household penetration grew from 6.1% in Q2 2022 to 6.3% in Q3 2022, a total of 1.3 million more households purchasing the Zevia brand vs. the same quarter last year driven by the company's push into the club channel. Taylor shared that 70% of buyers purchasing Zevia in club stores over the last 12 months were new to the brand.

"They discover their favorite flavor through a variety pack in club and then buy that straight flavor 12-pack in grocery. So, it’s been a highly incremental and sticky channel for us and well worth the investment," said Taylor.

Brand spend per household also increased in the last 12 months by 10% versus last year, driven by increases in dollars per trip and consistent purchase frequency rates. Zevia shoppers spent 31% more and made 24% more frequent trips than the average US soda category shopper in the quarter.

Given the increased average spend of Zevia consumers, Taylor commented how shoppers are trading up their purchase moving out of 6-packs and into larger multi-pack sizes (10-packs and 12-packs).

Commenting on Zevia Kids, Taylor said, "Zevia Kids buyers spent 52% more and made 17% more trips versus the average brand buyer in the last 12 months. The role for kids is clear and driving distribution will be the key."

A smaller portion of revenue, single-can sales were strong for the quarter gaining 2,400 new stores in the quarter.

"Our single canned soda sales has started to drive incremental presence, contributed growth and drive trial. This will be a key strategic initiative to drive trials going forward. Single-can sodas in a sleek can has strong potential for the business, still in single digits in terms of percentages of units sold for Zevia at this stage," noted Taylor.

Inventory management

Taylor added that the company encountered inventory management issues during the quarter which have tempered its full-year outlook.

For the full 2022 year, the company expects net sales are expected to be in the range of $158m to $160m, an increase of 14.2% to 15.7% versus 2021. For the fourth quarter of 2022, net sales are expected to be in the range of $30m to $32m, a decrease from Q3 2022 caused by unexpected inventory management challenges at select customers.

"A few customers managed inventory down in the quarter, yielding a transitory impact on our net sales, we expect this to continue through the balance of the year," said Taylor.

"For one customer with a target inventory of 8 weeks, they’ve been currently whittling inventory down to 2 to 4 weeks at any given time, while scanned data shows accelerated growth and while they actually increased their Zevia assortment and space allotment going forward. And so this is not something we had planned for in our fast growth environment in Q3 or even in the Q4 outlook," she explained.

2023 changes

Looking ahead to 2023, Zevia is focused on resetting its operating model to drive sustainable profitable growth, all of which will take time for the company which appointed Taylor as CEO in June 2022.

"I will remind all of us here today that this leadership team has been a leadership team for one quarter. I have been in my role for one quarter. And we have had tremendous change, and we have learned a lot. And we are focused on healthy unit economics, on cutting costs," said Taylor.