Black Rifle Coffee Company (BRCC) is a veteran-founded coffee company. The company was founded in 2014 by Evan Hafer, a Green Beret. BRCC is a mission-focused company committed to supporting veterans, active-duty military, and first responders. BRCC has targeted the $28B coffee category as its serviceable addressable market. Our military is the most respected institution in the country, according to Gallup polls. Veterans are 7% of the population, while the active-duty military is less than 0.5%. Half of the company’s employees are veterans. BRCC gives preference to veteran-owned businesses as vendors and suppliers. The company also sends a bag of coffee to active-duty personnel for every coffee club subscription. Black Rifle Coffee Company’s mission to support veterans gives employees and customers a shared purpose. The large base of veterans has helped recruit store employees in a tight labor market. New employees are often attracted by working with other veterans and the upward mobility from the store growth plans.
Black Rifle Coffee Company has a multi-channel growth strategy. The drivers in each channel provide visibility for 30% top-line growth for the foreseeable future.
DTC - The company has over 270,000 active coffee club subscribers. BRCC encourages customers to save from buying their coffee from cafes by purchasing fresh coffee shipped directly to their homes. J.M. Smucker said in Q3, at-home coffee consumption represented 72% of all coffee drinking occasions compared to 2/3 pre-pandemic. The monthly churn rate is between 3-4% which compares favorably to Netflix at 2% and the industry average of 10%. The lifetime value of a subscription is more than 4x larger than the customer acquisition cost.
Outposts - The company’s store growth plans have only just begun, but it has several built-in advantages. The company is seeking stores locations when landlords are looking to replace numerous retailers that have shuttered due to online competition. BRCC has a lifetime customer database of 1.9 million customers that shows where the highest concentrations of consumers are located. The company’s largest markets do not differ significantly from the population size of the markets giving the company nationwide breadth. By the end of the year, the company expects to have 16 outposts opened.
The outposts have attractive unit economics. The average unit sales for an outpost is $2.5M which compares favorably to $1.5M for Starbucks and Dutch Bros and $1M for Dunkin’. The average check in the outposts is between $12 and $13 due to a high mix of bagged coffee and merchandise. With 400 to 600 square feet of hard and soft goods, the average transaction is 48% merchandise and 52% beverage/food. The average cost to build an outpost is $1.4M. The high ticket and merchandise sales boost the 4-wall return to 25% and generate a cash-on-cash return of 40%.
Wholesale - Black Rifle is currently sold through 2,200 doors with a target of 5,000 by the end of 2023. Key retailers include Bass Pro and Cabela’s as well as Quik Trip and Speedway. The company also has an RTD offering distributed through 120 DSD partners to 33,000 doors just 18 months after the launch. The four RTD SKUs are in the top 30 RTDs by dollar sales per ACV%.
BRCC is projecting a CAGR growth rate of 37% to 2023 driven by growth in all three channels, as seen in the following chart:
Financials – We see asymmetric risk/reward with the shares trading near $10. We assign a high probability to the de-SPAC of SBEA due to the financial commitments of investors. Between the PIPE/backstop and $100M committed by Engaged Capital, BRCC will have $225M on its balance sheet when the transaction is closed. The founders of Black Rifle Coffee Company, existing shareholders, SPAC sponsors, and new investors’ interests are aligned with earnouts and shares subject to cancellation based upon share price performance. At $10 per share, the market capitalization is $1.9B. SBEA shareholders will own up to 18% of the company as seen in the following chart. The projected 2023 EV/Sales of 4.0x is high relative to most mature consumer brands but below most high growth consumer brands that have gone public recently, including BROS, OTLY, SG, CELH, YETI, WRBY, PTLO, BYND, ZVIA, NAPA, TOST, and DASH.
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