Rundown: Athletic Brewing raises $50M, Nike brings back veteran exec & Costco raises membership fee

0:04Hello, everyone. Welcome back to the Modern Retail Rundown. This is where we recap the headlines that caught our eye this week. I am senior reporter Gabby Barco, and I'm here with editor-in-chief Kael Guthrie-Weissman. Hey, Kael. Welcome back. It's been a couple weeks since we've spoken. I know I'm feeling rusty, but it's good to see you again. It's good to catch up on all the news. How have the last two weeks been for you? Good. Yeah. I mean, very hot, but really good. But we are ready to dive right in. This week's show. We are going to be talking about athletic brewing, raising their latest funding round.

0:43It's a pretty big one. Excited to chat about that one. And then we're going to talk about Nike bringing back one of its executives to sort of help turn around its business. And then finally, we are going to talk about Costco's membership going up. Womp womp. Not by that much, but, you know, something. Sign of the times. Yeah, exactly. Yeah, they have held off. So I guess it was bound to happen. First off, let's talk about the non-alcoholic beer company, Athletic Brewing. It raised$50 million more in equity funding this week, as the Wall Street Journal reported. And so I guess its valuation is now up to$800 million.

1:32Wow. Yeah, it's a pretty big one. And I guess that's something at a time when Capital is pretty hard to come by. Yeah, and it's, you know, some beverages are doing good, some are not. Non-alcoholic N.A. was supposedly the next big category. And we've seen a lot of startups and even retailers in the space, which you've covered, sort of fumble in this area. So Athletic Brewing has been kind of a shining star in one brand that seems to be doing it pretty well and has tapped into something that is clearly resonating with investors and with people who are interested in the product and that type of stuff.

2:10So definitely, you know, we've written a lot about companies, brands, startups aren't able to raise money. Athletic Brewing is. So good for them, I guess. Yeah. So this one was led by PE firm General Atlantic. and some participation from previous investors. And the last time they raised money was actually at the end of 2022. That was also$50 million, so not too long ago. But I think it's just kind of evident of the scaling, I guess, speed that they're having. So yeah, they're planning to use this money to increase production capacity to meet demand. And then I guess expand globally, just international retailers.

2:54So, yeah, outside of the massive sum, the injection also, like I said, it is a lot of money, but I think it speaks to, we're going to get into why athletic brewing, I guess, is an outlier a little bit in this category because this is the reason it's a big deal. the growth of the beer, I think for, I'm sure it seems obvious at this point, but it is a craft beer, non-alcoholic brand. It has managed to get into thousands of retailers and I'm sure many have seen it on a lot of bars and restaurant menus. And it was only, it only launched in 2018. So that trajectory has been just pretty high compared to a lot of the brands that have launched in the last few years.

3:42So what are your thoughts? I mean, I guess, you know, there are winners and losers, of course, but I think being a product that a lot of people seem to love maybe helps first off. Yeah, there are a few things. First, there were some numbers that Athletics founder told CNBC that I think are kind of interesting. So he said, we sold well over 3 million cases and over 100 million cans and did over$90 million in revenue last year as a company, and we are growing well above that this year. So the demand is there. I think it's really good to stop and think about where the demand is coming from. There has been an increase in interest in non-alcoholic options.

4:24You've written a lot about better-for-you products, sort of healthy, slanted sort of products that aren't all about, I don't know, aren't all about vices, but are about something else. And I think athletic fit really good into this. What I think has made athletic work where others haven't been as successful is that athletic is a beer and it's at a price point that is relatively accessible. And it's easy for a bar, for example, to put it on its menu. We've seen a lot of other companies that have tried to do this in other areas, non-alcoholic cocktails, bottled cocktails ready to drink, those are not seeing this type of growth.

5:06And they're also, frankly, more expensive. So it's difficult for those types of companies to sell at scale. And, you know, just if you're a bar, you're probably going to have more demand for an$8 can of athletic brewing as opposed to a$14 bottle of a non-alcoholic Negroni, for example. And so I think that is where a lot of it fits into. And I just also think it was a big question a couple of years ago, how widespread non-alcoholic options would be. Before now, it was pretty much led by O'Doul's, and it was mostly relegated to people who were, you know, alcoholics in recovery, that type of thing.

5:49And I feel like there's been a huge perception shift where it's now totally okay culturally, at least in the United States, where if you don't want to have a beer and it's not, it doesn't have some signal. It's totally fine. I've had an athletic. I know many people have had an athletic. And I'm also just going to add one anecdotal thing that I thought was very interesting, which is I was abroad the last two weeks. I was in Germany and I was at many bars and I saw multiple people ordering non-alcoholic beers in Germany. And so when Athletic said that it was focusing on global expansion, that it seems like this movement of offering these types of options, but being at the right price point, being the right offering for a type of bar is working internationally as well.

6:32So I think there are a bunch of things that are going on and it just happened to be the right thing at the right time. Some questions that I have are just the major alcohol players also know this is happening. And so we've seen a bunch of the big players like Heineken offering their own zero proof types of drinks. And so that's where the real competition is right now. It's not in convincing people to drink it. I don't think it's in the fact that the conglomerates are also trying to own the space. So those are my overall thoughts on what's going on. So yeah, for Athletic, I mean, it is now pretty, I think it's the third biggest non-alcoholic beer in the US at least.

7:09And it's behind Heineken Zero and Bud Zero. So for context, and I guess that$90 million revenue last year is interesting because when I checked in with them about a little over a year ago, they said that they reached$37 million in sales in 2021. So obviously, in a couple of years, that's expanded. Yeah, it's just grown exponentially. Per Nielsen-Acue data, Athletic holds over 19 % of the market share in NA beer. So that's also pretty substantial and drives 32 % of total non-alcoholic beer growth. So within the overall category. But yeah, I mean, I guess in this sense, obviously, you know, needing that capital, this is very capital intensive business beverage in general, but this is also real brewed beer that, you know, where the alcohol is extracted.

8:10So it's not cheap, but I think it'll be interesting to see when they're able to, I mean, we don't know if they're profitable now at this point, but it does seem like, you know, capital will probably continue to flow in as long as they need it to keep expanding. The one thing that I really want to know is just, A, what has the revenue share been historically? Because Athletic has focused very much on getting into bars and restaurants, which I think is really smart. For lack of a better term, it's a very Oatly-type marketing plan where you like Oatly got a lot of cafes to use its oat milk. And that's how it was able to become, oat milk was able to become so popular.

8:56Athletics seems to be doing something similar. But, you know, there's a real question of, does it want to own the bars and restaurants? Does it want to own people drinking at home? Probably both, obviously. But I would be interested to just know where most of it is going and where the volume of its sales are. And so that's something I will hopefully be keeping tabs on. Yeah, I think last I checked, it's 50 ,000 retailers. And I think I mentioned this offline. But being a beer, especially non-alcoholic, it is definitely an advantage over cocktails or even non-alcoholic wines because you can just sit next to a beer at a grocery store.

9:33And yeah, I think the on-premise venues is$25 ,000. So, you know, pretty substantial. But my guess would be, you know, retail is probably still pretty big or a big chunk of the revenue. Well, from beer, let's go to shoes, sneakers. Shoes. Yeah. So we're going to be talking about Nike bringing in veteran executive Tom Petty to turn the business around. So yeah, Cale, tell us what happened here. What's going on? Yeah, well, I'm sure if you ask Nike, they're not saying that Petty's going to turn the business around. But it's definitely an interesting update. So Tom Petty is what can easily be considered a Nike veteran.

10:15He worked at the company for 30 years. I believe his last job was he was the VP and general manager of North America. And then in 2020, he went into retirement. And usually when you go into retirement, that means you get a house in Boca and you do whatever. But they're now bringing him back. And so earlier this week, Nike announced that Petty is coming back on to be VP of Marketplace Partnerships. And to many onlookers, this is seen as a way for Nike to showcase that it's rethinking its overall strategy and it really needs to grow its marketplace business and its wholesale business. And so we got this quote from Craig Williams, Nike's president of Geographies and Marketplace.

11:02Williams said, as we continue to focus and improve capabilities in our wholesale business, I'm confident that Tom will bring both vision and bold leadership to accelerate the Marketplace strategy. There are a lot of other things happening in the background that we'll get to in a few minutes. Nike has not been doing as well as Nike historically does. And this is clearly a way for the company to say, we're rethinking what our strategy has been for the last few years. And now we're going to maybe go back to basics, bring in someone who really knows the business, and maybe bring in someone who understands wholesale, which is something that we have not been working on for the last few years.

11:35So that's the general lay of the land right now. Mm-hmm. Yeah. And wholesale has been sort of an area of refocus or getting back to wholesale. As we saw a couple of years ago, there was this move towards prioritizing D2C. And over time, I think they realized that that was not going to work because Nike is just such a ubiquitous brand that most people expect to find it everywhere. So those severed relationships with the retailers are now back, you know, on the table. They've rekindled them, if you will. Yeah, they are rekindling those relationships that, I mean, also, if you're a retailer and Nike comes back knocking, you're not going to say no.

12:17Yeah, no, they've all taken our back. So, yeah, I mean, we can, I think we've mentioned this on the show before, but to talk about why didn't D2C pan out, which is very lucrative, you know, we see a lot of legacy brands trying to focus on D2C because of a lot of things that I'm sure the listeners know about, better margins, direct relationships, first-party data, et cetera. But for a brand like Nike, it did not really seem to work. Yeah, what happened there? I mean, this is something that, you know, it's been kind of a couple of years since we've seen it, but it continues to show that wholesale does need to be a big part of the puzzle.

12:59Yeah, or I think when you're a company that's as big as Nike, the idea that you need to be focused on direct-to-consumer makes a lot of sense because you want to own your channels, you want to have better margins. But it also means that you need to have complete mastery and control over your product, over your customer, and over what the competitive landscape is. I think when Nike started focusing on DTC, that was when e-commerce growth was going through the roof and people were shopping like they'd never shopped before. And then people started cutting back on certain spending. And also, there were a lot of other competitors that started to rise and really enter the zeitgeist and started making products that were in direct competition to Nike.

13:45So you could talk about Hoka, you could talk about On. The list goes on. And, you know, it's a really easy thing to say. DTC didn't work out for Nike, but I think there were other things at play. One of them, our colleague Anna Hensel wrote this earlier this week, or I think she wrote it this last week, actually. But she was looking at why it's not so simple to say that it was just a DTC failure. One thing that Nike has also been doing the last couple of years has been trying to focus on profitability and cut back on spending where it doesn't need to. And that means that it got rid of a lot of employees.

14:24And one thing that a lot of analysts are saying is that some of these employees really understood the key franchises like Jordan or Air Force One, those franchises that drive a lot of sales for Nike. And if you don't have people who understand those franchises and are able to grow them, and then you're trying to also have people just go directly and buy them, that leads to a mismatch, especially while there are other competitors there who are directly competing with these franchises. And so I think that that was a major thing. And I just also think if you're trying to focus on one type of sales channel and you are cutting back your staff on people who understand what the supply and demand is, understand the product and are able to take into account the competitive landscape, that will probably lead to not amazing performance.

15:15So I think it's really easy and it is somewhat correct to say that DTC strategy didn't work out, but I think that there were other external factors and other operational decisions that led to this that now Nike is kind of backpedaling on. Yeah. So yeah, what appears to be the plan under PettyNow, it seems that they're kind of planning to go back to basics with him back. It feels like, you know, like we were saying, the wholesale business is probably going to be reinvigorated. I wonder, you know, what partners or retailers it will probably impact the most, but I'm sure we'll start to see it roll out soon.

15:56Yeah. And another major thing is that this wasn't said in the petty announcement, but But you're seeing Nike nod to the fact that it really needs to up its product assortment and really talk more critically about why its products are better than competitors. There's a lot of talk about technology, running technology, which is something that On, especially, and Hoka, which are largely considered, quote-unquote, ugly shoes, but they are focused for runners. And the people they work with are professional runners. And I think Nike needs to do that and show that its products are tailored and made and manufactured for success.

16:36At its most recent earnings, CEO John Donahue said that Nike has been, quote, hustling to accelerate our running innovations and amplify our ground game. He added that the company was focused on, quote, making it easier for consumers to discover these styles by simplifying our running construct at retail as we highlight our best-in-class cushioning technologies, Which is essentially the company saying, we need to make better products that are competing with these other players, but we also need to sell them better and have them more widely available. And so I think that if you read between the lines, that's really what the strategy is, is make better, more competitive products and have it available for people to buy.

17:14I wonder, yeah, I think probably the styles and the R &D, I'm sure will start to shift as a lot of these brands keep announcing new fabrics and textiles and shoe tech. So watch out for that. All right. Well, now we are going to be moving on to Costco. So Costco's membership fee is going up for the first time since 2017. So it's going up by$5 as of September 1st. That's for the basic membership. So it's going to be going from$60 to$65 annually. And then there's the higher tier exec membership that is going to go from$120 to$130. So that's a$10 increase. And this is coming at a time when Costco is trying to, you know, stay competitive, understandably, as at a time when bulk shopping seems to still be going strong, unlike maybe some other retail categories.

18:18Some interesting numbers. Costco said the fees would affect 52 million memberships, and about half of these are executive memberships. So half of 52 million,$25,$26 million,$10. It's a good amount of money. That'll definitely help things as long as we don't see major attrition, which Costco members are very loyal. So I would be interested to, I imagine they ran a lot of numbers about what would be the limit they could increase prices before people started to drop out. And I doubt that they would hit that limit. So it's interesting. Yeah. So on average, I think the increase happens about every five years or so.

19:00So it's actually a little bit behind schedule. The execs have hinted at it before, actually most recently on their earnings in May. But this is the official announcement. But yeah, like I mentioned earlier, they have held off for about seven years now. And this was coming out two years after Sam's Club hiked their own membership fee. And then, as a lot of us know, Amazon Prime membership just keeps getting more and more expensive. So those also went up two years ago, which kind of places Costco at this interesting intersection of still really focusing on value, both on the membership side and what you get out of it.

19:43And keeping their prices competitive or low. Right now, with inflation, which they cited as a reason they didn't want to increase the price to begin with, yeah, a lot of people are looking for that value per unit, I guess, purchase-wise. The real question I have, which I'm sure is on everyone else's mind as well, which is, you know, if the membership price is going up, is that so that the hot dog price does not go up? Because Costco has been very insistent that it will not be raising its hot dog price. So I hope that that remains true. Yes, I do have a note here. Some outlets did point out that the hot dogs are still$1.50, everyone.

20:26Please remain calm. Yeah, but like, I mean, you did, you mentioned how much the fee generates and obviously covers probably a lot of the costs for operation is that last year, the membership fees generated$4.6 billion in revenue. And that's an 8 % increase from 2022. So that's obviously volume or more signups. And then$1.12 billion just in the most recent quarter. So yeah, this is a big business and part of what drives a lot of the revenue for Costco. So it's understandable that they want to keep that on the upwards. Yeah, yeah, it makes sense. I will be interested to see the consumer response.

21:15And whenever a major retailer or company raises its prices, you always wonder if that is an indication that more prices will go up. Costco is one of those companies that is very insistent that it is not trying to raise prices. So I would imagine and hope that this isn't a hint of what's to come, but you never know. It's something to keep in the back of your mind. Yes. And then the other thing actually is, speaking of the memberships, they have begun to crack down more on shared memberships, which a lot of people liken to or compare to Netflix, you know, kicking people off of accounts. So they don't want people using each other's membership.

21:54So that started about a year ago. And so it does seem like they are taking this part of the business more seriously, I guess, or want to grow it further. Yeah, we'll keep an eye. That is our show for this week. Please rate and review us on Apple Podcasts, Spotify, or wherever you're listening. Don't forget to subscribe to the Modern Retail Podcast to hear interviews with industry leaders on Thursdays with Kale. I don't know if you have a preview for next week's guest, Kale, that you can give us. I sure can. Next week, I'm really excited. We're talking with the CEO of Celsius, one of my favorite drinks.

22:34And we talk about all things, energy drinks, better for you, all that jazz. It was a really fun conversation. Definitely tune in. All right. Very excited for that one. And then, yeah, don't forget to follow us on social. We are at Modern Retail for more news and come back on Saturdays for more Rundown. Thank you so much.