ParrotDog founders (from left) Matt Kristofski, Matt Stevens and Matt Warner.
OPINION:
If you’ve got a spare $1000 lying around should you invest in Parrotdog Brewery?
Disclosure: I’m a beer expert, not a financial advisor, so make your own decisions, okay?
I’ve watched with interest in recent years as both Parrotdog and Behemoth have gone to the public well on multiple occasions to fund brewery growth.
Just as Behemoth had their third capital raise last year, this will be Parrotdog’s third. In many ways, those two breweries feel like they are in a tussle to break out of the craft brewery pack and get to the scale where Moa once dreamed of being - somewhere between corporate breweries and large craft.
This time around, Parrotdog is targeting $2-4 million at $2 a share (minimum $1000) with the offer on investment platform Snowball Effect closing on March 19.
At the time of writing, just over $1.2m had already been raised so it looks like the Wellington-based brewery will get to its minimum target.
That first $2m will go towards new gear, including carbon dioxide recapture, as well as tanks and packaging, allowing the company to pump up the volume. If they get $4m they will invest in their sales team and, most likely, a venue in Auckland.
The aim for Parrotdog - in its 12th year since three friends called Matt (Kristofski, Warner and Stevens) scaled up a homebrew recipe to create the iconic Bitter Bitch IPA - is to continue to grow volume, which they’ve done admirably up until now but without making a profit. The next step is to grow while making a profit.
If they can do it, they could become a juggernaut.
There are a few interesting points in the documents they’ve presented. The first is a relatively conservative valuation. They’ve used a relatively low revenue multiplier to come up with a valuation of $25m.
The valuation equates to a multiple of 1.47x revenue of $17.3m in the last financial year and 1.27x forecast revenue of $20.1m for this financial year. A better traditional indication of value is a multiplier of pre-tax profit - but they can’t really use that, as the company is not yet profitable.
It’s almost half the revenue multiplier that Behemoth used (3.37x) when they landed on a $35.9m valuation. That means Behemoth is valued at more than what Panhead or Tuatara were sold for, to Lion and DB respectively, and at higher than Parrotdog, despite being lower in revenue and volume.
The upshot is that Parrotdog is valued about the same as Panhead when Lion bought them in 2016.
It’s probably a fair valuation, as by the looks of the data in the information memorandum, Parrotdog is currently the largest independent craft brand in terms of market share, and that’s all on the back of having the best-selling six-pack in grocery - Birdseye Hazy IPA, which in this context is the new Panhead Supercharger.
One aspect of buying in at this valuation is that there’s room for them to be valued higher, which could be realised through a sale or by potentially listing on the New Zealand and/or Australian stock exchange.
It’s worth noting that Parrotdog’s first round of crowd-funding was at $1 per share, which went up to $1.40 in the second round and is now $2.
Parrotdog used a bank overdraft facility of more than $1m to fund its recent growth in the past two years but since paid that down and, at $1.9m, the current debt isn’t scary in either its size or what it’s currently costing them to service it.
Birdseye is practically everywhere with great penetration (in 91 per cent of potential grocery channels) and it can’t conceivably get any cheaper than $20 (or can it?). It might be hard to lift the price as that could cost market share, and it looks like one of their growth methods will be to sell other Parrotdog products on the back of Birdseye, notably the low-carb and non-alcoholic beers they are introducing in March, Greyhound and Watchdog.
The “better for you” lifestyle market continues to grow and is possibly the only part of the beer market that is growing, so being able to hook their claws into that channel will see increased revenue and potential profitability. Plus, they will move other core range beers to a 12-pack, which is an increasingly popular offering in supermarkets - which also shows how far craft has come in the past two or three years.
One thing in Parrotdog’s favour is their sales staff - they have a big team and they seem to do a good job at getting Parrotdog beer ranged everywhere. The more people get to know Parrotdog off the back of Birdseye, the more of their other beer they can sell.
Against them are fears the craft beer market has peaked (but we’ve heard that before!) as well as inflationary pressures driving consumers towards lower-priced options from the likes of Mac’s and Boundary Road, who appear to be the main competitors in the six-pack Hazy IPA arena.
“There is a risk that demand for premium craft beer falls, despite the consistent strong domestic and global demand,” the brewery said in their prospectus.
“We see the risk of a downturn in the preference for craft beer being a low risk based on our understanding of both global and local market trends, and the continued emergence of craft beer. However, this risk is likely to be greater over the next year as household discretionary spending is impacted by inflationary pressures and a likely recession.”
On the upside, they have huge untapped potential in Auckland, and they believe that by increasing production capacity and scale they can be “price competitive” in the premium craft market. Here premium means all the craft that’s not Mac’s, Boundary Road and Monteith’s - so they will be fighting for share against Panhead, Emerson’s, Tuatara, Garage Project, Behemoth, Stoke, Good George and Moa, among others, although Moa seem to hover between premium craft and mainstream craft (premium craft and mainstream craft are terms supermarkets use).
The big question is how much love there is for Parrotdog, from a broadening market captured by hazies, and in Auckland, where they hope to open a taproom.
Can the brand continue to win over people to the extent they become brand loyal and move from Birdseye into other parts of the range?
In their favour is a likeable brand. It is, as they say themselves, “nice”. There’s a virtue to being nice - you don’t rub people the wrong way as, for example, Moa did. Being likeable and approachable is a good way to reach past the part of the market that’s not historically craft-embedded.
But are they as captivating as Panhead was in 2016? Probably not. On the other hand, Behemoth, as another example, have a very strong brand presence that seems to engender tremendous loyalty, but the brand also can be a bit off-putting as it relies on some old, same-same tropes and a strand of humour that may not be everyone’s cup of tea. Garage Project are an entity unto themselves brand-wise.
It’s more likely Parrotdog will be pitted again similarly-approachable brands including Emerson’s, Tuatara, Stoke, Good George and Moa.
Overall, I think it’s a solid offering with the question mark over maintaining the freight train growth they’ve created in the past three years on the back of Birdseye. But the brand is loveable and built on quality and has opportunities in front of it in terms of lifestyle beer, 12-packs and the Auckland market.
* Michael Donaldson is the editor of Pursuit of Hoppiness magazine.
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