Zevia PBC (ZVIA) Earnings Call Transcript & Summary

Good afternoon. I'm Sean King, [ Americas ] Beverage Analyst at UBS. I'm pleased to welcome leadership team from Zevia, a Los Angeles-based producer of soft drinks, organic teas, energy drinks and mixers, sweetened [ for ] Zevia. With us today, we have Zevia's CEO, Paddy Spence; and company President, Amy Taylor. Before I start, I'm required to read a legal disclaimer. As a research analyst I'm required to provide certain disclosures related to the nature of my own relationship and out of UBS with any company on which I express a view at this meeting today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me, and I can provide it to you after. So with that, let's get started. Thank you, Paddy, and Amy, for joining us today.

Thanks for having us.

Yes. So yes, let's start at a high level. Give us a brief overview of -- before we [ go ] with the company for those who might not be as familiar with the story.

Absolutely. I think our brand really starts with the global desire by consumers to reduce their sugar intake. And so we compete in a $770 billion market across soda, energy drinks, ready-to-drink tea, kids drinks and mixers. And it is almost the perfect market for disruption. In the United States, over 99% of American households purchase our categories. The average American still drinks almost 40 gallons of soda a year. And yes, there are so many folks who love the bubble sweetness and enjoyment that these categories provide that they're seeking better-for-you plant-based ingredients with 0 sugar. So that is an exciting opportunity. And to address it, we've created a platform brand with a solution for every family member time of day and usage occasion, all with common, simple plant-based ingredients. So in addition, from a financial perspective, we've got an asset-light model a 31% net sales CAGR over an 11-year period and very strong gross margins in the beverage category, which we think sets the stage for future profitability.

Great. I guess you mentioned sort of the addressable market. Is there any way you can kind of narrow that into -- would it be diet drinks or 0 sugar. I guess how do you really frame your addressable market?

Absolutely. Yes. I mean we look at the specific categories in which we compete. And from a source of volume standpoint, Sean, it's interesting Zevia certainly competes in the zero sugar zero-calorie carbonated space, but we source volume from sugary beverages as well, both carbonated soft drinks, energy drinks, juice, sports drinks, et cetera. And so we define the addressable market as our categories in which we compete. But to your point, it could be actually a lot bigger when you think about sources of volume like sparkling water or even tap water. So it's a big market about 4x the size outside the U.S. is within the U.S. So as we think about channel expansion and ultimately, global expansion, there's a lot of white space.

Great. So with that addressable market in mind, starting with top line perspective, how do you think about sort of long-term strategic opportunity with the brand doing the business? And I'll start there.

Yes, absolutely. I think it really starts with, as I said, this global need to reduce sugar. And we're finding it among consumers, but also the retail trade. And so there are actually 50 jurisdictions around the world with sugar, sugar beverage or soda taxes. And so what we're finding is that in those jurisdictions, consumers are really eager for simple plant-based ingredients, better-for-you products with zero sugar, but so are retailers in the trade, looking for products that align with these regulatory structures. So huge opportunity in terms of that global market. And I think we are looking to disrupt the carbonated space but also important to note, we have some other characteristics that I think are unique. We've never sold a plastic bottle in our history. And so when we think about the challenges of pollution from single-use beverage plastic packaging, they're substantial. And so that's a real point of difference for us. In addition, affordability, and I think when we look at this brand, at about $0.85 a can on average at retail for our sodas, it's a fantastic value proposition for a brand with zero sugar, simple plant-based ingredients.

Great. I guess when you look at like your own business specifically, like what are some of the operational metrics or KPIs you use to kind of assess or monitor the growth prospects for the company?

Yes. I mean, so we have a long-term growth algorithm of 30% on the net sales line. And so the way we break that down is really 10% coming from velocity. That's more cans sold per point of distribution versus a year ago. Another 5% from incremental distribution in our core channels, which today are food, drug, mass and natural and then 15% coming from growth in new channels. And so when we think about those new channels, it's the at-home consumption channel of warehouse club, it's immediate consumption channels like food service and convenience and then ultimately, the international market.

Great. 1 want to learn a bit more about your customer and your consumer. Where do you see the biggest growth opportunities or the biggest levels of loyalty?

Yes. I mean I think our loyalty is really strong. And I don't know -- we've touched on this before privately, but I spent 20 years at Red Bull, right? Learn a lot about the consumer there. And 1 of the things that attracted me to come over to -- you may have heard of that, brand, 1 of the things that attracted me to come over to Zevia was indeed the loyalty of the consumer. So here we are with this massive global [ TAM ]. This very clear need for the consumer as well as the retail as well as jurisdictions all around the world to reduce sugar. And the small number of consumers that have discovered that, indeed, Zevia is the solution for them are tremendously loyal to our brand. So that creates a tremendous opportunity for us, hovering at about 5% household penetration today to communicate our brand proposition to the households that Paddy mentioned earlier, like every usage occasion, every household family member with the opportunity to discover Zevia. So we have a huge opportunity to communicate and drive trial among a population that hasn't discovered our brand yet. And as we convert and bring more consumers into the franchise through trial, we have very strong conversion rates and very strong loyalty rates. In fact, stronger than those of category leaders. So we have a big upside as we look at the consumer set. And when we think about that through a channel lens, we have proof points in the natural channel, where we started, which Paddy already mentioned. We have continued strength as we grow into the conventional channels. And now we're looking to and have started to penetrate warehouse club, which has been a great trial driver for us with our variety pack. In fact, some of the learnings that we've gained from panel data lately in the club channel, 68% of the purchases in the club channel are entirely incremental, meaning that those are unique to that channel and not at all cannibalistic to others. So we're driving tremendous trial and gaining new households through that channel. So a lot of white space for us to gain new business and continue to bring new households into the franchise.

And I think when you look at consumer needs, just to illustrate how big this proposition is, ask consumers what are they looking for in packaged goods or dietarily, reduce their sugar is very high on the list. Everyone is aware of the challenge of single-use plastic packaging for beverages and how that's leading to bottles, littering our waterways, roadways and communities, and then affordability, especially in these inflationary times is so important. And so when you tell folks, here's a product that sells for $0.80 a can, $0.90 a can, simple plant-based ingredients, zero sugar never sold a plastic bottle, that's a really compelling proposition. And so to Amy's point, we're just starting to scratch the surface in terms of penetration. What we've developed is intense loyalty among the folks who have discovered this brand.

Sort of going off cuff here, like with the club channel opportunity and that people are buying larger pack formats for future consumption, is that you do see that as an encouraging sign for future loyalty.

Absolutely. So it's obvious that the warehouse club channel is a potential volume driver and it can be an efficient channel as you deliver truckloads and sell multiple cases. But for us, what we've learned is it's a trial driver. And thus, as you sell multiple flavors as a flavor and variety brand -- that is, we believe, an opportunity then convert that household. They find their favorite flavor, maybe for mom, it's grape and for dad ginger ale and for the kids it's [indiscernible] and then it's an orange and all of a sudden, those become multipack purchases, either in e-commerce or in grocery. And so that's a tremendously additive and expansive channel for us.

Yes. And what's interesting is, to Amy's point, this is a continuation of exactly what we've seen from a consumer behavior standpoint in e-commerce. So what have we seen in the last 2 years in e-commerce. First of all, the hugest influx of consumer dollars heading into that channel, we've seen that channel accelerate dramatically during the pandemic. We have the #1 brand on Amazon.com and soft drinks with the #1 item, the Zevia rainbow pack. What's fascinating about that offering is it's 12 flavors, 2 cans a piece. So it is really the ultimate trial pack. And what we found is literally 50% of our Amazon purchasers also purchase our brand in brick-and-mortar. On average, they spend 3x what an average brick-and-mortar buyer spend. So this variety pack seeding, as Amy noted, and then leading to single-flavor purchases is a huge driver of trial and repurchase. We saw that in e-commerce. We're now seeing the exact same thing in warehouse club with variety packs.

I see your expertise in marketing, it just -- my father only drink ginger ale, so you see [indiscernible] ginger ale [indiscernible]

Consumer [indiscernible]

How do you know that?

So back to the -- you mentioned international. And maybe thinking more regional? Like did you see -- where do you see like the biggest opportunities like either it's reaching new regions within the United States, where areas are underpenetrated and then markets where there's potential outside the U.S.

Sure.

Yes. I think from a U.S. perspective, 1 of the things, Sean, that's fascinating is better-for-you products historically, you think of that as a California phenomenon, maybe New England, this is a brand that absolutely resonates in those markets, but we also resonate in middle-income communities. And so 1 of the fascinating things is because our brand promises literally because half of that sugar comes from beverage you can switch to Zevia and cut your family sugar in half overnight. That's a really compelling proposition at $0.85, $0.90 a can. And so what we find is middle income shoppers absolutely over-indexed with this brand. So we have this really interesting bimodal distribution. High income shoppers love Zevia, simple plant-based ingredients, middle income shoppers. This is the first step to health for so many American families. That, to us, really bodes well for future expansion because this is a product that's accessible. So many of these better-for-you beverage and food categories are so premium priced that it's challenging for middle-income families to afford them. So when you think about the opportunity for Zevia, whether that's Middle America, Argentina or Eastern Europe, this is a product that we think resonates not just from a health and taste perspective but also from an affordability standpoint.

Great. I want to move to sort of the profit sort of pathway here and some of the current challenges in the environment. But -- so I guess like in a rising interest rate environment, investors are concerned about companies sort of pre-profit companies and their ability to shift top line stories into margin expansion stories. So I guess outside of the current headwinds that we're all quite aware of in the last few weeks. What do you see as the major levers to translate this top line story into a profit story?

Absolutely. One, I would first note that we're a 0 debt company. We have no long-term debt. So the interest rate environment has certainly impacted companies with debt. When we look at our opportunity to -- for that path of profitability, as mentioned, it really starts with a strong gross margin. So beverages do have a strong margin. We've got an asset-light business. So we've got a very efficient business from a financial perspective. When we look at how you take those proof points and translate that into profitability down the road, there's really 4 components. Scale is the biggest, right? This is a company that's grown at 31% on the net sales line for 11 years, okay? So when you're selling 30% more each year, you're getting scale efficiencies. Secondly, price realization, certainly in this turbulent inflationary environment. We have the ability to take price. We are currently at the 36th percentile among all non-alcoholic beverages on price per ounce. So that means 65% of products, 64% are more expensive than Zevia. So price realization another lever we have. Cost optimization, right? And there are so many different areas in which we could talk about that, but let's just talk for a second about those variety packs. That's a labor-intensive process to assemble variety packs. And so as you in-source that product or that repacking from a third-party location to an owned facility and then you automate that process. Huge opportunities to remove cost from the system. So scale, price realization, cost optimization and then finally, a shift to higher-margin innovation items. And so when you think about a category like energy, the margins are accretive relative to soda and that's exciting because as we scale the subscale business, we're going to see that impact from a margin perspective company-wide. So it's still early days in this business, but I think we're very excited about the opportunity for profitability down the road. I think we've got the proof points in the path forward. And so now it's continued scaling and execution to get down that journey.

Great. So sort of bring me forward to some of the current challenges that I'm hearing about from a lot of the beverage companies. Obviously, they shouldn't [ probably ] aren't going to be surprised, but what are the biggest challenges that you're facing today, whether that's the aluminum side or freight? And what are some of the measures that you're taking to mitigate the current challenges?

Yes. And I think in terms of the inputs, 1 of the things as a premium brand using better-for-you ingredients, we are insulated from some of those COGS pressures because we're contracting for premium ingredients. But absolutely, we are seeing the same headwinds that many of our peers are certainly on aluminum and on freight driven by oil and diesel prices. So when -- again, what's the toolkit to mitigate that, it's scale, price realization, cost optimization and a shift to higher-margin innovation items. So that's the toolkit we're executing. We noted on our Q4 call that we took price in Q4. We'll see the realization starting in Q2 and we anticipate that we have the flexibility for further pricing actions should conditions merit.

Yes. I think when we spoke earlier [indiscernible] last week, you mentioned sort of the concept of that not all beverage companies are the same when it comes to some of the current challenges being faced. And like why just based on -- you have this trajectory of growth and scale that really you shouldn't be set apples-to-apples like next to the big 3 software companies. And maybe if you could sort of just elaborate on that concept?

Yes. Well, absolutely. And to start with, we have a tremendous amount of respect for the category leaders and the incredible businesses they've built over a century. Having said that, I think we are at a very early stage of development from a scale perspective and the scale benefits are just tremendous. And so I think we often are compared to the category leaders from a profitability, visibility and a margin perspective. And yet, I think it is apples and oranges when you look at the trajectory of this business and the opportunities to continue improving financial results. And so I'll give you 1 kind of anecdotal example. We launched an innovation product line, say Zevia kids. When you first launched that product, you're only making it maybe in a couple of places in the country. As you scale distribution, you can increase your manufacturing locations, get closer to the customer and remove miles and thus cost from your system in terms of freight. So those are scaling opportunities that can really step change our financial performance. Now I think it's quite different than centuries old companies or 100-year-old companies that are quite mature and are really working on the margins in much smaller ways. So I think we do have some unique opportunities in terms of scale. And look, we are a 5% household penetration brand in a category purchased by 99% of American households. We are just getting started.

Yes, we have the same headwinds as everyone else that everyone is talking about, especially this week and last week, whatever. But what we don't have yet is we are not fully built out in several channels, including even conventional grocery,[indiscernible] we come down to every single store count. The mass channel still yet individual stores to fully realize, our full portfolio within that channel. The mass channel, there's still a number of stores that we can realize there, moving to full trucks in several customers -- some of our customers, the club channel is a new customer where we're doing business with variety packs and soda and have other categories within, which we can play. And we haven't even started in convenience as we think about immediate consumption, that's just an opportunity for us to drive trial with new consumers to sell high-margin products to learn from product mix, the right price and to optimize [indiscernible] the market. So all of these indicate opportunities for scale benefits from a cost perspective. And so those are sort of the upside, if you will, from cost management that are unique to a company at our stage of growth that indicate all the areas in which we can continue to chip away at our cost and improve unit economics that indicate just a part of our path to growth and profitability in the story that we've been telling hand-in-hand with our growth algorithm.

Great. I want to shift to like marketing and brand building. And maybe I should start it on your approach to innovation as a company. And you think that is different in any way than how other companies approach innovation?

Why don't you start talking about platform brand, and I think.

Yes. Well, as noted, we've got a platform brand. And what's so cool about the Zevia brand is our shopper doesn't have to read the ingredients. She picks up a can, and she knows that it's got the same simple plant-based ingredients, zero sugar, zero calories. We could go on and on. It's gluten-free, it's sodium-free, it's Kosher, et cetera. But what's exciting about that is we can innovate to expand share of stomach within the household, leveraging that trust we've created with the consumer. So today, we've got an offering for every family member every time of day, ever usage occasion, but our aspirations are much higher. We want to maximize share of stomach. And candidly, we want 100% share of stomach outside of alcohol, dairy and nondairy protein. And so as we look at that goal, we've got a long way to go, but there are other ancillary beverage categories from which we're taking volume today that could be future attractive opportunities, whether that's ready-to-drink coffee or isotonics . So I think from an innovation opportunity standpoint, it's building out usage occasions, dayparts and family members. So we've got an offering for everyone in the household. Amy, maybe you can talk a little bit about how we actualize that.

Yes, sure. I mean I think we're really purposeful in our innovation. So it's not just new products for the sake of SKU proliferation and to hog space on shelf. A retailer doesn't appreciate that. We're very consumer-centric in our approach. So we're really thoughtful about what problem are we solving, what new exciting flavor are we introducing and why are we doing so? How is it incremental? And I think we've demonstrated that with bringing something last year, for example, like a creamy root beer, which brought excitement to the category and to our brand and was very highly incremental for our portfolio, but also for the category and the whole. And when we're able to build excitement with an innovation like this, we're able to tell the story to the retail and, of course, to build a story around incremental space as well and drive growth. But I think what's more exciting is to look at each category and look at the opportunity that has to bring households to the [ total ] brand. And so what's the highest order for our brand? It's brand love and brand trust. And while our brand is still relatively small, we have very, very high levels of trust and we have very high levels of love among the community that we've built. And so we take that trust that we've built the trust and the transparency around our 5 simple plant-based ingredients that run across all 5 categories. And we then offer entry into a category like energy drinks that maybe typically those that seek better-for-you products wouldn't have otherwise entered. And so to take literally the year of 2020, we're introducing 2 new flavors and energy drinks. We have 2 exciting limited time offer flavors in the soda portfolio. And then we continue to look at what can we look at tea and innovate within from a flavor and ingredients perspective. In the future, we're bringing some new flavors into new retailers in the kids line, which interrupts maybe the juice aisle, which brings new excitement into a back-to-school program with major retailers. And so for each of our categories, we're really thoughtful about what's the consumer insight that we're leading with. What's the reason for the new product and then what's the marketing program around it. And ultimately, we want a really well curated set of portfolio in each individual category within which we play, which covers off on every daypart for every family member underneath our trusted brand portfolio. And ultimately, there's so much upside. Again, having only had household penetration between 5 and 6 points. We gained 1 million households in 2021 alone, which for a brand of our size is tremendous, and that's a net gain of 1 million households. So while we win some, our leakage is very limited because our retention is very strong. So the most important thing that we can do in 2022 and going forward is to put new cold cans of Zevia in folks' hands and drive trial that's when we gain a consumer. The brand is very strong to do its own job to retain them. Our conversion rates are very strong. So innovation is just a part of that formula, that whether it's the [ close ] strategy we're talking about earlier, or new flavors or limited time offer all summer. All of these strategies are just paying into driving trial to leverage our strong retention to continue to win new households to build the brand in the long haul.

Great. Yes, maybe don't want to put you too much on the spot, but can you discuss like any of the learnings that you have from Red Bull that you've been able to bring to Zevia.

Yes, sure. I was at Red Bull for 20 years, and I think anything that I've done in my life I have learned as much from what did work -- what didn't work as much as what did -- so I've learned a lot in my career around the strength of brand, and I mentioned earlier about brand love and brand trust. I think it's also really exciting to come over to a platform brand that can operate with full transparency, the tremendous pride in the ingredients and the product that we're putting out into the marketplace.

Ask me kind of sort that would be kind of nice to know every single product that you have has the same attributes and, yes.

Yes there's not much that we need to explain to the consumer. So 81% of consumers are seeking to reduce their sugar. This isn't it's not a diet product. It's not a health food or health store product, right? This is a consumer -- this is a product for the vast majority of consumers because 81% of them are seeking to reduce sugar. And then over 60% of consumers are seeking to reduce artificial ingredients, right? So this is a very mainstream notion. It's kind of funny that most of us have gone through our lives thinking that we have to choose between sugar and harmful ingredients or at least unknown ingredients, right? So to be able to come over to an organization that has value space that really walks the talk can be very transparent about everything we put on the shelf and not to have to sort of meter or govern how much they consume of the product because there's nothing to really hold you back and enjoy Zevia and any daypart with nothing to worry about really stocking the fridge or the shelf and share it with any family member without any concern if it was any more pure, it would be water. And so all the things that I've learned about building brand love and brand trust and then to come over to a product portfolio around which we can be tremendously proud and transparent and know that every day that we get out of bed and do our jobs, we're actually taking metric tons of sugar out of the diets of the communities that we serve, and that we're doing that without putting a single plastic bottle into the environment and hopefully, out of time actually -- or over time, actually making it just socially unacceptable to create plastic bottles or to purchase them to just create a new normal in consumer packaged goods is really inspiring. And I think the most important thing for us is when we think about putting better-for-you products out into the world and reducing sugar through great flavored fun beverages that taste great, is really where we exist is at the intersection of affordability and better-for-you products. because there's plenty of better-for-you products out there. The question just is really can the majority folks that we serve actually afford them. And so that's what -- that's really how we're going to realize our mission is if we put better-for-you products on the shelf, they are fully transparent and appropriate for every family member that actually can be afforded by the majority of Americans.

Well, and also Amy mentioned brand love. And 1 of the things that is so cool about the beverage category is it's based on emotion, right? And consumers have an emotional attachment to their beverage of choice and it starts with winning on taste. So 1 of the really neat things is we have this great simple plant-based Ingredient platform. Consumers feel good about consuming these products. But at the end of the day, it starts with taste. And so we have the #1 zero calorie grape soda in the country. And as I like to say, grape soda, is a pretty indulgent flavor and you don't win on simple plant-based ingredients. You win on taste. We've got the #2 cream soda. We've got the #2 ginger ale. And so it starts with that emotional connection consumer taste is, I can't even believe it doesn't have sugar and I feel great about the ingredients and it's in an aluminum can and it's affordable for my middle income family. That is a really powerful brand proposition, one that generates tremendous emotional connections.

Yes. I think maybe that would bring me back to if you're asking about sort of what have I learned and what I think is important and applicable here is that we can list all day long, our reasons to believe all these rational reasons why you should [indiscernible] Zevia, right? And it's natural plant-based ingredients. There's no sugar. We don't use any plastic. There's no calories. These are all the rational reasons, but why do you really want to drink something because it just tastes good. You want to break a new day, you want a treat to look forward to, you want an indulgence in grape, you want the freshness of [indiscernible] . So what our opportunity as a brand is to really now go forward and invest in marketing and drive trial and build excitement around the brand with a greater presence through distribution, some of it is just fiddle blocking and tackling. And some through just communication word of mouth and unlocking the power of our community to create buzz about Zevia because it is the emotional reason and the brand love that will bring people to the franchise. Luckily, our taste will over deliver so people keep coming back. And then all of our reasons to believe we'll keep that purchase churn coming because people make decisions with the heart and then reinforce the decision with the mind. So our reasons to believe continue driving our loyalty, but it's really that initial purchase that comes from an emotional place that we're really excited about building with a broader consumer base.

Great. [ Getting ] way you get too much into the ESG side of stuff. So trying to save those for the end.

[indiscernible] come on that.

So what I gather [indiscernible] talking about taste is most important. So no.

That's right. We buy with the heart not always with the mind.

Yes. I wanted to come back to that marketing concept. When I think about the beverage stocks that I cover, one of them just as point-of-sale marketing and promotion, one of them really just focuses on TV, one of them really just extreme sports sponsorships. You can probably.

[indiscernible]

I'm familiar with those various mixes.

So what is your approach? And has there been any other -- any changes in that approach in recent years?

Yes, sure. So historically, Zevia has had a very lean marketing mix on a very lean marketing spend. And it's been very efficient and effective, I would argue to date. I mean, with 10 years of growth at 31% running, that's all been done really on the back of word-of-mouth. And I think if you really look at our marketing investments, very close to the point of purchase [ of ] retail activation. And what's really impressive is the loyalty rates around this brand given that marketing mix. And if you were to really start to look into why is that, it has to do with community, which leads us to a really important insight about what the future marketing mix looks like, which has to do with unlocking the power of community, community marketing. And so what exactly does that mean? We look at what communities have gravitated to this brand and to the products and look to unlock the power of that community, grassroots marketing, social media, editorial. Influencers, yes, that's a modern turn, but it's basically just a modern way of saying word-of-mouth and grassroots marketing.

I should have mentioned that as 1 of the companies because they all very specific.

Very specific about how they go about that. Well, the danger is that you spread yourself too thin. So to really understand what community marketing means and to really understand the power of the communities that we operate in today, and then the untapped opportunities in communities that have a propensity to love Zevia that haven't met Zevia yet really starts to indicate what our future looks like. But we're not -- we don't ever position ourselves to be big spenders I think we're really, really focused on unlocking the power of the communities that love the brand today. And I think we have some exciting plans going forward. That would start with a brand refresh and put those visual assets and creative assets in the hands of our communities to ensure that they really travel with authenticity.

Is there anything you can -- is that refresh sort of in process? Is there anything you can share on.

Yes. I mean I think pound for pound or dollar for dollar, there's no more effective marketing investment than for a brand with a strong retail presence than a brand refresh. And that's where every can and every multipack gets in the look and feel. And along with that come visual assets that can be [indiscernible] out in the marketplace to build those strong memory structures for consumers the associations with your brand. And so if we think about the time lines of when retail resets beverage, probably our retail partners will be the first to get a look at what that looks like later this year going into then the next opportunities for resets when the cans actually hit the shelves. So it's underway from a creative perspective, but we're a little way south from unveiling the new look and field Zevia.

Great. I actually I want to jump ahead for [indiscernible] on. So what's sort of -- I guess the way to frame this is, what sort of a moat do you have that prevents the big 3 from coming in and making Zevia-based products as competition?

Yes. Well, I think the answer is, first of all, they have -- and what's fascinating is it's really about focus, right? And it's very difficult -- when you have a huge portfolio in other segments, whether it's sugary beverage segments or artificially sweetened segments to also then generate loyalty and credibility and trust and better-for-you. So we've seen each of the category leaders experiment with carbonated soft drinks, sweetened with stevia, and none of those products today are on the market. And again, it comes down to focus. One of the things that's very different from us -- for us versus the category leaders is our approach. And so we are a very iterative brand. Stevia is a quite a new sweetening ingredient, granted sweetener status by FDA in 2008. So that was MS DOS. We might be in Windows 95 stage, but this is an iterative process. So we are iterating both our sweetening system and our formulas in general, on a continual basis because we are not at the endpoint in terms of great taste. So that focus and that iterative approach, combined with this philosophy of simple plant-based ingredients is what's allowed us to continue to succeed even in the face of some intense competition, both from category leaders and emerging brands.

Got it. I want to shift to the ESG side because I know that's very close to the heart for both of you guys. I'd be curious as sort of a newly public company. What your investor conversations are like? Is there a way that I could sort of unpack like how many investors look at your company as a way to invest in ESG? Yes, do people look at you as an ESG alternative ESG steward.

It's interesting. It's kind of similar, I would say, to the analogy of taste and ingredients, right? If something tastes great, that's great. If it only has good ingredients and you don't like the taste, you're probably not going to buy it. So similarly, growth is the start, right? And this is a brand that has achieved tremendous growth over an 11-year period and has tremendous possibilities going forward. So I think investors, as they say, are here for the growth, and we've heard that for [ Batam ]. But they come for the growth, the ESG characteristics of this business make them feel good about how they're changing the world by deploying capital into a growth business that also is trying to change the world. So I think it really is a pretty neat kind of combination. But I'd be clear that the growth opportunity and the financial opportunity are really what drive the investment, ESG is really nice to have and I would say, ESG ultimately is what 1 of the things that supports the loyalty and the love that consumers have for this brand. So it's not the first thing. The first thing is amazing taste. But the ESG characteristics of this brand, zero sugar, zero plastic. Affordability, those are things that make consumers feel good about continuing by.

In the investor community, the other thing that's interesting for us is that when we have ESG forward investors where that's the priority and that triggers a conversation with us, it's an opportunity for us also to learn from them because we are seeking to understand who is best-in-class with the E, who is best-in-class with the S, who is best-in-class at the G and continue to -- we are a culture of continuous improvement, both within our core business and by those metrics. And so as we interface with ESG-centric investors, we have really a wealth of opportunity to learn and continue to get better by their benchmarks as well.

Great. Well, it's a sector of finance, I think we're all trying to figure out [indiscernible] . But yes, maybe I shouldn't say that. But yes, I guess, I think you've spoken about this before, Paddy,maybe if you could elaborate on from an ESG perspective, why you guys are good stewards from all from E, S and G?

Yes, absolutely. Well, certainly, I think the E part is pretty straightforward. I think fair to say that the ESG world has historically been focused more on E than S and G. And I think -- so we've got a strong profile in those areas, and I would say we're only getting started. And so when we think about the social component of what we do, affordability really is at the key -- is at the heart of it. And so being 1 of the few better-for-you products that's affordable for middle income households is a huge part of what we do. But when you look at our internal policies from a governance perspective, whether it's DE&I compensation for our team or ownership. I think we've done some really exciting things, and we're just getting started. So every employee full-time employee Zevia has an equity interest in the company. So we're all owners. That's an amazing start. We've got a fair wage policy. We're in Los Angeles, every full-time associate makes a minimum of $50,000 annual comp. Shortly after the IPO, I went to $0 of cash compensation. I am 100% equity focused and really aligned with our shareholders. When you look at DE&I, we really view it -- first of all, the goal is we want our company to look like the communities in which we operate and the consumers we serve. It's very simple. And we look at that on a headquarter basis. We look at that in terms of our leadership team and in terms of our Board of Directors. So just to give you a sense, today, we've got a Board of Directors with 10 individuals 4 are women and 4 are either racially diverse or members of the LGBTQ community. So we're not where we want to be in terms of gender parity and continuing to raise the bar, but we've made some really important strides. So we're excited about that. I think one of the things that I can tell you, Sean, is that our employees absolutely recognize that. We've operated amidst the great resignation, and we don't lose people. And why is that? Because we've got employee policies that continue to support the employee experience and continue to support the team. And last year, we were recognized for 9 employee engagement awards from the career website comparably, all based on employee feedback. So -- we've really done well, but we're continually looking to try and raise the bar, continually looking to implement policies that create a level playing field for all individuals. And so I'll give you 1 example. We have an internal DE&I committee task force, and we've taken a deep look at how we do the talent acquisition process. And so things like educational requirements and job descriptions really don't add value. They simply exclude people. So we've eliminated that. We create interview questions that are designed to avoid rapport building and shared backgrounds. And so we're trying to create that level playing field for everybody, and it's I think 1 of the things that makes this company really special is not just the progress we've made, but our continued higher aspirations. And I think our employee engagement and retention reflects that.

Great. I think you touched on this earlier, but when I think about the industry cost pressures, and I think about some of the pricing actions that needed to be taken, but then sort of pair that with the strategic pillar of healthy affordable options for people. I guess how do you sort of balance that? It's got to be tricky.

Yes, it is tricky, but it's all about continuing to watch the data and understand -- as we say, if you don't measure it, you can't improve it, right? And so it starts with understanding where we are in affordability against all liquid refreshment beverages, and remember, that includes bulk still water, right? And so within that set, we've gone from the 37th percentile to the 36th from the third to the fourth quarter. So we've seen affordability actually improve for the consumer. We've taken pricing actions, but I'm confident we're going to remain in that very affordable zone where literally 2/3 of non-alcoholic beverages are more expensive than Zevia. That is a great place to be.

I had a different question here sort of circling back to distribution is -- when I think about -- when you say you under-indexed to the cold box at this point is more you're selling ambient products.

Heck.

Yes. Okay. Okay.

The vast majority of our sales is through multipack. So as we move into singles more and it's moved with -- especially with soda now shortly available in the single serve, then that will start to penetrate cold box [indiscernible] .

Okay. So is it a matter of -- when you think about that, is it a matter of hitting a certain level of household penetration or brand recognition before you make that move? Or is it just -- it's all working [indiscernible] ?

It's a little bit of right pack for the right environment, right? Because generally speaking, 1 of the top drivers of awareness and thus trial is distribution and critically to drive trial, single serve for immediate consumption. And so while are you not in the cold box because you're not driving trial or you're not driving trial, because you're not on the cold box. Our next move from a channel expansion perspective will be convenience. But in the meantime, and importantly, in the coming weeks, you'll start to find 12-ounce sleek can Zevia Soda for the first time in the grab-and-go section of grocery as a test case for us to play with merchandising, price right product, right package in that environment that can then inform regional convenience launches that then ultimately informs the full convenience launch. So that does indeed aid household penetration [indiscernible].

And from a consumer standpoint, to put a fine point on that, historically, it cost $5 to try a 6 pack a Zevia, try 1 flavor. Here, on deal, you can try 3 flavors for $5. So we've created that price look with an accessible flavor variety in single serve, and then you can trade up to 6, 8, 10 or 12 packs or even full cases for those heavier users.

Great. We're getting close to the end of time here. But any closing remarks from you guys?

I would just say it's certainly a challenging time for consumer products companies across a wide range of categories. But as noted, I think we've got a number of levers to manage those headwinds in the short term. And I think we continue to execute on our long-term strategy with a tremendous amount of upside. So we're excited about the future. We're candid and sober about the challenges of this week, this month and this quarter but I think we continue to execute on that long-term plan. So thank you so much for having us.

Thank you.

Thank you all for coming. It's been great. Thanks.

Thanks.