The Non-Alcoholic Beer Brand Worth $800M & Texas Power Grid vs Hurricane Beryl

0:00The spirit of innovation is deeply ingrained in America. and Google is helping Americans innovate in ways both big and small. From improving emergency response times to protecting against cyber attacks, local, state, and federal governments are innovating with Google AI. This is a new era of American innovation. Find out more at g.co slash American Innovation. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, Etsy is overhauling its site to get rid of all the AI-generated junk, but can it regain its status as the anti-Amazon? Then America's buzziest up-and-coming beer brand won't even get you buzzed.

0:41It's Wednesday, July 10th. Let's ride.

0:48Yesterday was huge for movie announcements, with two of the most rewatchable films from the 2000s getting a second chapter. A long-awaited sequel to The Devil Wears Prada is reportedly in the works, with Meryl Streep and Emily Blunt reprising their roles in the cutthroat world of fashion. Plus, the official trailer for Gladiator 2, starring Paul Mescal and a massive rhino, dropped yesterday ahead of its November release in theaters. Toby, the battle sequences are going to be epic, and Gladiator looks good too. All right. You forgot the most important sequel announcement yesterday, though. DreamWorks said Shrek 5 is in the works as well, with Eddie Murphy, Mike Myers, Cameron Diaz all coming back.

1:29of those three movies I think I'm out on Shrek that's too many Shreks I'm most excited for Gladiator because in the trailer other than the giant rhino that you mentioned you can see that they're going to stage a mock naval battle which was historically accurate they used to do that in the Coliseum who can't get pumped for that? I can absolutely get pumped for that I know Emily our producer is the most hype about The Devil Wears Prada she was just quoting it for the last hour and a half while we were trying to prep but I'm excited for all these movies except for Shrek but I do know what I'm going to have for breakfast this morning.

2:01Obviously, waffles. You're having waffles. Now, a word from our sponsor, Meta AI. So back in the pandemic, when there wasn't a whole lot to do outside, I took up calligraphy for a brief moment. That is interesting to hear because I've seen your signature. It's not great. All right, I said brief, okay? But I bought the pens and I still have them. So I figured I'd give it a go again. So I pulled out Meta AI to get me back up to speed. And here's the cool part. You can ask it to explain how to get better at calligraphy, and it will write you some instructions on how to hold the pen or how much pressure to use.

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3:13This is a huge opportunity. This is the battle for the next big idea. This is not Play Play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On brand with Jimmy Fallon. Series premiere Tuesday on NBC. Houston is a flooded, damaged, air conditioning-less, searingly hot mess. Two days after Hurricane Barrow barreled into the U.S.'s fourth largest city, nearly two million people and businesses remain without power, and temperatures are expected to climb to 106 on the heat index as intense humidity starts to set in. On Monday, Hurricane Barrow made landfall in Texas close to the city as a Category 1 hurricane, sparking flooding and causing widespread damage to buildings and power infrastructure.

4:00At least seven people were killed in the storm, which brought more than a foot of rain to parts of Houston and even damaged part of the Houston Texans football stadium. The most immediate concern now is getting the power back on. As of this morning, 1.7 million customers from Galveston through Houston remain without electricity, meaning no air conditioning and dangerously hot temperatures. The utility that bore the brunt of the damage, Centerpoint, said it expected to restore power to 1 million customers by tonight. But that's not everyone. And residents who've seen their power grid fail time and time again in severe weather are growing frustrated with the response.

4:36People in Texas must be thinking, we really are on the front lines of extreme weather events fueled by climate change. Yeah, no other state has suffered more climate-related damage over the past several decades than Texas. It's not Florida, it's not California, not Louisiana. It is Texas. This is a perfect encapsulation of America, though. People in Houston were trying to get more info on wind power, how power restoration was going. So they turned to the Whataburger app. The chain has tons of locations around Houston, and you could use the app to see which ones were closed, which ones were open, and people were using it as this good approximation of where the power had returned.

5:12If that's not the most Houston thing I've ever heard, very resourceful, too, I might add. Yeah, it reminds me of the Waffle House Index, which is used to track power outages across the Southeast. Waffle House is known as a very hardy business that stays open 24-7 in all extreme weather events. So I guess we've got to add the Whataburger Index to the list. Yeah, it was an interesting day in general for Houston. This is the third iteration, too, of Beryl. That's what makes it such an interesting storm to track because it kept getting refueled by different waters across. It hit several Caribbean islands, Jamaica.

5:51It hit Mexico. But then the brief time it crossed through the Gulf of Mexico, just supercharged it once again, got it back up to a Category 1 hurricane. So this has been not only just a powerful hurricane, but it's also the earliest Atlantic hurricane to ever reach a Category 5. This is why Beryl has been you've been seeing in the news so much. And it's just the start of the hurricane season, which lasts through November, which is expected to be one of the worst on records. But just going back to Texas, I mean, their power grid has failed so many times over the past few years. And you can't help but just think they are ground zero of these extreme events fueled by climate change.

6:25Meanwhile, more people are moving to Texas than any other state. Nearly half a million people became Texans in 2023 alone. In that same year, they suffered 11 separate billion dollar disasters. And that is affecting everything from property taxes to home insurance. Home insurance premiums grew 23 percent there in 2023, which was the biggest gain in the country and third biggest in percentage terms. So it's just remarkable what's happening in Texas. They are on the front lines. Yeah, part of it is just where Texas is situated because the warm waters gives those tropical storms, gives those hurricanes some fuel.

7:01There's the hot, dry air, which also makes wildfires a lot more likely. We spoke about the wildfires affecting Texas earlier this year. And then also just warmer air in general holds more moisture because a lot of these disasters aren't necessarily named storms. There are just very powerful thunderstorms or hailstorms that are causing all these destructive and all you're seeing these these gaudy numbers around their billion dollar disasters. Some of them are not even from hurricanes or just from normal thunder and hailstorms. But, yeah, Texas front lines. It's getting hit a lot. Yeah. And meanwhile, barrel is is much weaker.

7:34It's moving into the Mississippi Valley in Ohio, which they say could lead to more flash flooding and potentially hurricanes or potentially tornadoes going into the week. Meanwhile, 160 million people are under heat advisories right now. Death Valley could hit 130. So it's just bad weather everywhere across the country right now. We hope everyone in Houston stays safe and hopefully they'll restore power as fast as possible. Speaking of heat, the hottest beer company out there right now hardly has any alcohol in it. Athletic Brewing, the non-alcoholic beer brand that has taken the beverage world by storm, just announced a raise of$50 million, roughly doubling its valuation to$800 million.

8:12Founded just seven years ago, Athletic Brewing has ridden savvy positioning to past incumbents like Budweiser and Heineken to become the biggest non-alcoholic beer brand in the U.S. Even if you zoom out to the entire beer market, the 258 ,000 barrels Athletic Brewing sold last year would make it a top 20 brewery in the U.S. Non-alcoholic options have been popping off recently as younger Americans lay off the booze. It's now the fastest growing segment of the entire beer market. Athletic has been the poster child for this movement and plans to use the funds to expand at retailers and increase production.

8:45This category hardly existed 10 years ago. Now we almost have a billion-dollar company directly serving it. Non-alcoholic is hot right now, Neil. This company is an absolute rocket ship. I mean, they're riding all of the trends, and they are so well-positioned. The CEO started this company seven years ago and just just was such a visionary that he basically created this category that was dominated by just horrible tasting non-alcoholic beers like O'Doul's. It wasn't even a thing. You would just not drink it. But all the trends are pointing in athletic brewing's direction. Sixty two percent of adults under 35 drink, which is down from 72 percent two decades ago.

9:24More than 40 percent of Americans say they're actively trying to drink less alcohol. And when you look at younger cohorts like millennials and Gen Z, that reaches 60 percent of people who want to drink less. So athletic is just in this prime position where they're capitalizing on a lot of trends of people just not wanting to drink less. It's not just dry January, which is the biggest one ever. January was their biggest month of sales in history. It's just people generally there's a secular shift to drinking less alcohol. And but they still want to be in social events. And athletic provides them the ability to do that.

9:53It does feel like it has staying power because if you look at the beer and beverage market, it is very cyclical. I mean, if you look back over the past decade, remember craft beer had this huge boom and then the hard seltzer. Ain't no laws when you're drinking claws summer. And then now there's alcoholic, there's alcohol free beer. There's canned cocktails as well. But you're right. It does feel like there has been, especially in younger generations, just much more focus on their wellness. I mean, the company is named Athletic Brewing because that was originally the cohort that they want to serve.

10:22But now it's just people in general who do want to continue to have that drink in their hand at a social function, but just don't want the negative effects of alcohol. Two stats I think are really interesting. So at Whole Foods, Athletic is the biggest beer brand. It sells more than any other beer, alcoholic or non-alcoholic. That is remarkable. And at the same time, Athletic is not necessarily meant to be a substitute for your beer consumption. It's a compliment. It was striking to me that 80 % of all people who drink athletic brewing also drink alcohol. So there's a time of the day they maybe want to have a beer every single day.

10:57And maybe two days of the week they have an alcoholic beer. And then the other five days they have athletic brewing. I think that probably bodes well for its business. But the question is, how big can this company get? Like, what is the ceiling in the beer market for non-alcoholic options? And I think that will determine how big it eventually gets. I'm glad you asked because I think there is still plenty of room to run. Non-alcoholic beer accounted for just 0.3 % of the entire beer category when Athletic launched in 2018. Now that's up to 1.5%. So it's still very, very small. The Athletic CEO does think that eventually non-alcoholic beer can account for 20 % of the beer market.

11:37And remember, the beer market is gigantic. It's a$100 billion category. So if you get 20 % of that, that's$20 billion. So he does think that there's a ton more room to run in this category. Yesterday, Fed Chair Jerome Powell took the seat. Mark Zuckerberg had warmed up for him many times before and testified before the Senate on the state of the economy. And he said something we haven't heard in a long, long time. Inflation, according to Powell, has dropped down a notch on the list of things that keep him up at night. Tied right there with inflation is a labor market that could begin to crack if interest rates stay at the historically high level they are right now, and that could send the economy into a recession.

12:18So if you read between the lines of what Powell's saying there, is that he sees a rate cut in the near future to protect jobs. Employment growth has slowed down significantly these past few months under high interest rates. While the economy added more than 200 ,000 jobs in June, the unemployment rate continued its upward march to 4.1 percent, and other job statistics all point to the same thing, that hiring is getting weaker and people are spending longer looking for work. So my main takeaway from this hearing, Powell is very close to declaring victory on inflation and is now eyeing a rate cut to keep the economy humming and avoid a potential recession.

12:54The man is teeing up a rate cut. We've watched him rummage around his pockets, find a tee, find his ball, and now he's bending down to put it in the ground. Now he could still step back. Maybe the winds change. Maybe that inflation number starts creeping back up again. He doesn't actually have to hit the ball until he's good and ready. There's a lesson there, too, about golf and life there. Just do it when everything feels right. But yeah, I do think now that the T is in the ground for sure and that inflation is no longer. It's probably still 1A, but now there's 1B as well and making sure that unemployment rate doesn't creep up too high.

13:28With all this talk about inflation over the past few years, we might have lost sight that the Fed actually has a dual mandate. One is to maintain a 2 % rate of inflation. The other is to maximize employment. And right now, Powell is looking at all of the jobs numbers and seeing that employment is slowing down, that unemployment rate has ticked up from 3.7 % in December to 4.1%. Now, the number of people looking for work who have spent more than 15 weeks on the job hunt is at its highest level since 2022. So all signs are indicating that this job growth is slowing down and he doesn't want to be behind the ball.

14:08That's the thing, because this thing could crumple really quickly. And he's not sounding the alarm. He's saying labor market is very strong right now. It's back to normal levels. We're back to where we were in 2019 before the pandemic created this huge labor crunch that drove up wages, that drove up inflation. But he just doesn't want to be too late. And at the same time, he doesn't want to cut too early to bring to spike inflation back up. So it's really a balancing act that he's trying to draw. I don't I don't envy him. But it does look like investors think that in September there might be the first rate cut.

14:37They're giving it like a 70 percent chance. There was definitely a little political jockeying around him. Anytime you go up to Capitol Hill, there is political jockeying. But some Democratic committee members were urging him to lower rates soon because they were concerned. I mean, what they are, their constituents are top of mind for them. They don't want to see unemployment spike. But then some Republican members were like, you can't cut rates right before an election. That feels like too politically charged there as well. So anytime that you step foot in front of a committee, a senatorial committee, there is going to be some political jockeying.

15:12And I think we saw that at this hearing. Up next, Etsy is returning to its roots finally. I'm Christian McCaffrey, pro running back, and Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the Internet last year. And I think this season's lineup is even cooler. And so does my wife, who keeps stealing all my hoodies. Stay fit for the season and Abercrombie's newest arrivals. Shop NFL by Abercrombie in the app, online, and in store.

15:49This episode is brought to you by State Farm. Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs. Like a good neighbor, State Farm is there.

16:16Think back to the Etsy of old. At its core, it was a place for artists and craft makers to finally get an audience for their niche products. But the Etsy of today, way different. It's been overrun by resellers who figured out how to game the site through clever SEO and mass-produce items. In short, it kind of resembles Amazon, Taimu, and Shein, aka the same companies that forced them down that path in the first place. But a new dawn is breaking. Etsy CEO Josh Silverman says he wants the company to return to his roots and follow its stated mission to keep commerce human. That means new labels to show how each seller actually created a particular good.

16:55So Etsy's products will now be required to fall into one of four categories. Made by, like handmade necklace. Designed by, like a digital illustration. Handpicked by, think vintage clothes. Or sourced by, like craft supplies. Neil, it feels like Etsy has been caught in an e-com meat grinder since its heyday during 2020. But this feels like they are back heading in the right direction. Yeah, I think they're looking at these other e-commerce firms like Temu, Shein, and Amazon and saying, Look, we probably can't compete with your game. We need to go back to what we do best, which is these handmade vintage goods.

17:30And we realize that AI might be a factor. So that's why they included, I think, that category called design by. And they say that you can generate artwork with AI. That's not a problem. But you can't just offer a bunch of chat GPT prompts and have people download them. So they are carving out space for AI. But I think this is just in response to the competition saying, look, we should not play the game you're playing. We're going to play our own game. That seems like a smart strategy, but it does need to do something and take drastic action because the stock price has fallen more than 80 % since its peak in 2021 when everyone was buying masks on the site.

18:05It's down 32 % this year alone, while the NASDAQ has gained 23%. So its finances are not looking good. And so this is the drastic action it's taking. Yeah. Think about the landscape of e-commerce right now. Oh, you're selling this product. Well, we're selling it for two cents cheaper. Oh, you're selling it for cheaper. well we'll get it to you two hours faster etsy just cannot play that same game it's an arms race and they just don't have the arms to compete so everyone is playing that race so then maybe you take a step back and say let's just go back to what people like because etsy used to be this delightful place where you could see it felt like you're in a market and you were seeing people's wares their homemade goods but now it just has a completely different feel to the site now so i think this is smart they're pairing a marketing campaign to go along with it they're positioning themselves.

18:49It might be slower growth over time, but it is definitely more sustainable. And they're carving out the niche that they originally occupied. Let's talk about that marketing campaign for a second, because it's very interesting. It's going to be a massive marketing campaign. So if you turn on the TV, if you're in Times Square or in London, they're putting out billboards. But this TV ad is showing craftspeople molding clay, they're chopping wood, they're sewing fabric, like all these homemade sort of classic things. And then at the end, they're showing a robotic hand that's smashed. And in a way, I don't know if they were producing this before the Apple ad that came out, the iPad ad.

19:22But it's sort of the inverse of that iPad ad, which drew a lot of criticism, which showed a hydraulic press crushing all of those things that made human artistic expression amazing. And instead replaced it with an iPad. And this Etsy ad seems to be the complete 180 inverse of that. Right. Handmade doesn't scale. And that's the entire point of it. So I'm glad that they're leaning into this thing. Human beings like that stuff because human beings make it. So I'm back on the Etsy bandwagon. The problem is you need a robust marketplace for people to shop. And HAME doesn't scale. So if you want to have a large marketplace where people are shopping and find things that they want, then it's kind of a double-edged sword because you do need a library to compete with the Amazons of the world.

20:03Lean into it, though. People love that stuff. So maybe it's going to be smaller in the short term, but in the long term, I think it's a wise play. Offices in the U.S. are emptier than they've ever been before. According to a new Moody's report, vacancies in the office sector set a new record high of 20.1 % in the second quarter, the first time that number has ever leapt above 20%. For all the talk of the return to office crackdown, it simply isn't happening. Tons of people are still working from home at least some days of the week. In fact, more than 8 in 10 North American organizations say they've implemented hybrid work.

20:37What makes this 20 % vacancy rate so notable and ominous for the commercial real estate industry is that it hasn't coincided with an economic downturn. Vacancies have been very high before in 1986 and in 1991, but those were a result of recessionary environments and eventually they snap back to normal. But this time around is different. The economy is growing, but it seems that COVID has led to a long-term behavioral shift in how people use the office. Specifically, they just use it a lot less. And that represents an existential crisis for office developers who could see a quarter of a trillion dollars wiped off property values in the next several years.

21:15Toby, did this surprise you that vacancy rates are still climbing four years into the pandemic? I thought the worst was over. I think commercial real estate owners have a pit in their stomach right now because, yes, commercial real estate is very sensitive to interest rates. We're coming off a decade of cheap money, free money, essentially. So higher rates were definitely going to be painful. But then when you look down the existential threat of declining demand and changing worker habits, it's very hard to ignore these numbers. You cannot just pin them on interest rates anymore. So permanent shifts in working behavior definitely lasted a lot longer than most people expected coming out of the pandemic.

21:51And I do think that this very slow bleed, this death by a thousand cuts, is hurting the commercial office space. It has been a very slow train wreck. And I think it's just due to these long term leases. There's not a lot of transactions that happen very frequently in the commercial office space. You sign a five-year lease, sign a 10-year lease. So it really is just taking a long time to unfold. And in this Moody's report, they say it's going to get worse before it gets better. They expect that vacancy rate to get up to nearly one-quarters at 20 % now. So they're expecting it to get up to nearly 25 % by 2026 as working from home persists.

22:29And then you're going to see the market respond. There's going to be right-sizing. They'll demolish offices and convert them. So the market will respond to just people needing less office space. They're expecting that the average worker will need 14 % less office space in general. So that will happen in the real estate market because they're not going to keep building if there's nobody to occupy. It's just going to take a lot of years and a lot, a lot of pain for that to happen. Speaking of pain, San Francisco is getting especially hammered. The vacancy rate for San Francisco office space is now at 34.5%, according to a real estate firm Cushman and Wakefield.

23:03That's up from 33 % in the first quarter, 28 % a year ago, and then 5 % before the pandemic. I don't think we understand how insane those numbers are because San Francisco used to be entirely full. 5 % vacancy rate is essentially full. Now it's pushing 35%, just crazy. And lack of demand too does translate to falling rents as well. If there's nobody there to rent the offices, you can't charge as much. So San Francisco average asking rent dropped to$68 per square foot. That's down from a peak of$84. So San Francisco, we've talked about it as nauseam. The doom loop, is it coming, is it not? Those vacancy rates still paint a pretty dire picture.