The beverage industry has evolved to become a highly dynamic market with new product introductions becoming more and more regular. While the industry is facing its fair share of issues with respect to the rising inflation and supply chain issues, innovation has become a key driver for growth in this industry across the globe.
Consumption patterns are always evolving, and categories such as sports drinks, premium wines and flavored alcoholic beverages are expanding significantly. Splash Beverage Group (SBEV, Financial), a microcap that is present in all of these categories, has demonstrated a significant ability to pass on the inflationary impact to consumers given the fast-growing demand. Its unique product offerings and strong brands within each of these categories have helped the company scale up its distribution exceptionally well in the past year.
Company overview
Splash Beverage Group is a beverage manufacturer, distributor and marketer operating in the United States. The company is well-known for producing and distributing isotonic sports drinks for hydration and recovery under the TapouT Performance brand. Moreover, it also produces and sells flavored tequilas under the SALT Naturally Flavored Tequila label and premium wine under the Copa di Vino label. Copa di Vino was acquired by Splash Beverages after its immense success, and the brand is well-known after two appearances on the show Shark Tank. Splash Beverages also has a premium sangria offering known as Pulpoloco Sangria. Apart from physical distribution, it has an online retail model platform, qplash.com, through which it sells groceries and beverages.
It is worth highlighting that Splash Beverages is led by a management team that has established and managed some of the world's most successful beverage brands, guiding sales from product launches to multi-million-dollar brands. The company has its headquarters in Fort Lauderdale, Florida.
The TapouT sports drink offering
Splash offers a diverse range of beverages to consumers, but its biggest revenue-earning product is its TapouT brand. TapouT is a well-known sports drink brand created way back in 1997. Since its inception, TapouT has been an international regime brand at the forefront of Mixed Martial Arts (MMA). The brand offers a comprehensive selection of high-performance sports beverages such as TapouT Hybrid and TapouT Performance which provides hydration and cellular recovery.
Coca-Cola (KO, Financial) has recognized the growth of the sports drink category, as evidenced by its recent acquisition of the BodyArmor sports drinks company, and it is increasing the marketing of the Powerade offering to compete with market leader Gatorade, owned by PepsiCo (PEP, Financial).
Apart from the possibility of category growth in sports drinks, there is definite potential for the brand extension of TapouT into the energy drinks space, which is an area of expertise for CEO Robert Nistico, an ex-Red Bull veteran. Splash is pushing the TapouT brand hard with increased distribution and celebrity collaborations, which should help the company’s revenue momentum.
Portfolio of alcoholic brands
Splash is known for having a number of high-quality alcoholic beverage brands in addition to TapouT. Its Salt Tequila is a naturally flavored 100% Blanco agave tequila with a clean and sweet flavor. The product is produced in the Jalisco region of Mexico, where it is grown, distilled and bottled. Salt Tequila is known for its wide range of naturally flavored tequilas, including berry, citrus and salted chocolate.
On the other hand, Copa Di Vino, the company's premium wine brand, is another unique offering offered in a ready-to-drink wine glass that can be taken anywhere without requiring a bottle, corkscrew, or glass. The concept of not limiting premium wine to the bottle coupled with the unique ergonomic design in a low-cost, single-serve, splash-free cup has helped distinguish the brand.
Pulpoloco Sangria, a light, fruity and delectable sangria, is made and imported from Spain and is another premium brand of Splash Beverages. Each Pulpoloco product is filled and packaged aseptically in an eco-friendly CartoCan to preserve the authentic aromas of real Spanish sangria while also extending shelf life without the use of preservatives. One of the key factors driving up its gross margins is its unique packaging approach. Splash develops innovative packaging approaches to extend shelf life while maintaining the taste of all of its products.
Improving distribution network
Splash Beverage Group entered into a distribution agreement with AB ONE, an AB-Inbev (NYSE:BUD) subsidiary. Their TapouT performance beverages, Copa di Vino wine by the glass, and Pulpoloco Sangria will be available across the company's entire network because of AB ONE's network of corporately-owned delivery operations. AB-InBev’s distribution is across nearly 50,000 accounts in the United States, including retail stores, restaurants, pubs, and venues, and is particularly strong in regions like New York, Boston, and Los Angeles. It is worth mentioning that Splash Beverage developed access to a reasonably good network in the alcoholic beverage chain after the Copa di Vino acquisition in December 2020. The company has agreements in place with other distributors such as Golden Beverage Company, Johnson Brothers, Bernie Little, and Gulf Distributing Holdings, LLC, as well as its branches, in addition to the AB-InBev partnership. As per a recent press release, they also announced their expansion into Walmart, Inc.'s Sam's Club, where its SALT Citrus flavored tequila is now available in 42 locations. This wide distribution network has the potential to get millions of new customers on board from New York to Los Angeles for Splash Beverages in the coming months.
Final thoughts
The past year has been highly eventful for Splash Beverages. After the recent acquisitions and the increased distribution, the company has crossed the $10 million revenue threshold in the trailing 12-month period, more than triple the revenues of the financial year ending 2020. It has hardly any debt on the balance sheet and a gross margin of close to 25%, which is only expected to grow as it achieves more and more economies of scale.
The GF Value Indicator depicted in the above chart factors in all these points and denotes the company as fairly valued despite an enterprise-value-to-revenue multiple of over 12 times and an erratic price history. While there might be limited scope for multiples expansion, I certainly believe that revenue growth and margin expansion should be a strong driver for Splash Beverages’ stock price, and I believe that it could be a compelling value opportunity at current levels.
