Until the COVID-19 pandemic, European-based private label and contract manufacturer Refresco had been on an acquisition tear since purchasing Cott’s North American soft drink operations in January of 2018. Deals last year stretched from Arizona to Europe (BD 11/26/20) as Refresco expanded its US presence and snapped up global assets unloaded by the Coke and Pepsi systems. The company also bought Cott’s concentrate manufacturing business in Columbus, Georgia, which hadn’t been part of the 2018 deal. This year, the pandemic put a damper on the kind of due diligence travel necessary to kick the tires on new acquisitions, said Refresco North America COO Brad Goist in an interview. While he wouldn’t disclose what’s next on Refresco’s acquisition agenda, Goist hinted at more to come, however. “We’re very acquisitive,” he said. In the Q&A below, Goist discusses in greater detail Refresco’s acquisition outlook. BD also asks about can shortages and the hard seltzer category. But first, some background and context.
“WE WORK WITH EVERYONE.” Refresco, a Dutch company built from more than 30 acquisitions since its founding in 2000, says it’s the world’s largest independent beverage bottler of beverages. The company produces private label products for retailers and contract manufactures drinks for many of the largest beverage players in North America. Operating in Europe and North America, Refresco produces everything from 100% juice to carbonated soft drinks and mineral waters. The company packs in PET, cartons and cans, as well as glass in Europe. Capabilities include hot-fill, cold-fill and aseptic processing. Refresco’s global operation comprises 65% private label and 35% co-packing for brands, Goist said. In the US, the split is closer to 60/40. “It wasn’t too many years ago that it was 80/20, and I’d like to get it to 50/50,” Goist said. “The two models work in harmony so well.” Refresco operates 27 full-scale production plants in North America, which includes four plants in Canada and one in Mexico. Goist, who spent 13 years at Coca-Cola (including with the Minute Maid unit), said Refresco’s North America offering is built on four pillars: 1) a footprint that produces a customer’s product within 400 miles of where it will be distributed, 2) low-cost manufacturing, 3) scaled procurement to achieve economies of scale for customers, 4) and a full suite of research and development expertise. “I would liken us to a public utility,” Goist said. “We work with everyone and we don’t compete with anyone.”
COLUMBUS PLANT. BD took a virtual tour of Refresco’s concentrate plant in Columbus, Georgia, which produces 90% of the beverage concentrates used for the company’s North American customers, according to Site Director David Ragland. That includes concentrates for everything from carbonated soft drinks to hard seltzers. Columbus also provides a significant portion of cola concentrate used in Europe. The facility began life in 1911 as RC Cola’s first bottling plant after the brand was founded in 1905. Private label soda maker Cott eventually ended up with the asset, which produced beverage concentrates, housed R&D, and produced all concentrate used overseas by Royal Crown Cola International. When Refresco acquired Cott’s bottling business, Refresco didn’t want to own the RC Cola brand overseas, and Cott wasn’t willing to split the Columbus operation. “We don’t want to own brands,” said Goist, who came to Refresco from Cott after the acquisition. “We pack a lot of colas for some of the biggest players in the world overseas. That would go against our strategy.” A year later, the two companies worked out a Refresco purchase of the Columbus operation that included a simultaneous sale of RC Cola International by Refresco to a third party based in Asia. “We had to have Columbus because it’s part of the North American business model,” Goist said. “We consider ourselves one-stop shopping for all our retail customers.” Beyond concentrate production, the Columbus facility includes cold-fill bottling, incubation bottling lines, a sensory lab, flavor production, and a product testing facility, said Sam Khoury, VP of regulatory, quality assurance, and technical affairs. The plant produces 12 million liters of concentrates annually.
Q&A. The following Q&A with Goist has been edited for clarity and brevity.
BD: How do you evaluate acquisitions?
BG: When an opportunity arises, I look at three areas. First, does it improve my footprint? Is it close to something else I have with similar capabilities? That would be an overlap. If it adds new capabilities or is a white spot, then it would be more desirable. Second, does it add to my capability? Capability would be things that I don’t do or don’t do a lot of currently. Today in the US we primarily do cold-fill, cans, PET. We do a tiny bit of glass. If it was in the right part of the country, glass could be an opportunity. Our company is probably the largest manufacturer of products in aseptic PET in the world. We don’t really have those same capabilities in North America, and I would call that an emerging technology. If something became available and it offered us aseptic PET, that would be something I’d be interested in. We are packing hard seltzers in facilities today, but we’re certainly not a primary packer of those type of products. So that would be a capability. Then the third one is capacity. If something came available but it was already full, then I’d have to ask myself what are the synergies of me owning it? What’s my value-add? Could be the plant has plenty of infrastructure and size to put more lines in, so there are expansion opportunities. Most likely the plant’s not full, and that’s where we come in, because we combine volumes and we fill the facility up. So, anything that really improves my footprint, my capability, or my capacity are things that have interest.
BD: Has that always been Refresco’s model or has there been an acceleration of that mindset?
BG: It’s accelerated. Refresco is a fairly young company. It’s only 20 years old, and it started out with two dairies in the Netherlands that combined because they weren’t making money. The expansion of Refresco over 20 years has been all about looking at opportunities in different countries, combining volumes, and growing through acquisition. So, it’s probably accelerated here in the US because Refresco didn’t have a footprint here until 2016 when they purchased Whitlock, and then early 2018 with the purchase of Cott’s assets, which really gave them the scale. Now it’s my job and my team’s job to really continue to accelerate the growth here in North America. We’re all about growth, which is very different than what Cott was. Cott had diversified their portfolio away from manufacturing core business. They then used the core business as the cache to continue to diversify. At Refresco, we’re all about manufacturing, combining volumes and figuring out ways to partner with everyone in the market. Basically, to create a better cost model for everybody.
BD: What gave Refresco resolve to pursue this strategy?
BG: Because there was a great opportunity to do exactly what we’re doing. Whether you call it asset light or asset right, big brands make their money by growing their brands, not by manufacturing. During the last 20 years, whether you go back to the days of Vitaminwater or Monster and Rockstar, these are brands that have never owned manufacturing. It was always about the brand. As new people like this came into the market, they developed a model which was strictly around coming up with a consumer insight that drove them to create products and brands. They found somebody else to do the manufacturing because it’s so expensive to start up your own manufacturing. Our business is very capital intensive and people reliant. What you’re seeing today from a lot of the legacy brands that have been around for 100 years is the realization that maybe they don’t need to own their own assets. If you look at Coke, they bought their cold-fill manufacturing assets and then spun them back out to the bottling system. The model at Coke is to sell concentrate to bottlers and market the brands. You’ll see an evolution over time of even big legacy branded players looking at it and saying, “If this isn’t our core competency, why is it that we’re in that business?”
BD: Before the pandemic, were acquisition opportunities increasing?
BG: For people with scale, which we have, there’s always opportunities to add. There’s small people isolated in markets where they’ve been successful but who don’t have the scale to compete on a national platform. They look to sell. There are people doing estate planning that have had these plants in their family for years and maybe the next generation doesn’t want to take over. Then there’s the big brands that say, “Manufacturing’s not where we add value.”
“Looking Under Every Rock” for Cans.
BD: How are you managing aluminum can shortages?
BG: I’m sourcing cans outside of North America. I’ve added all kinds of warehousing across my system to put cans in, to keep surety of supply going. The supply is so tight in North America, that if you’re going to go out and source globally you’ve got to have somewhere to put these things. It takes a while to get them, so you literally are bringing cans in globally, and then have to put them somewhere. They take up a lot of space. We’re using our global scale to keep our customers happy. It’s almost like you can’t rely on just-in-time at that point. Your lead times are different. You just need to get them here, put them somewhere and have them.
BD: What’s your assessment of the cause of the can shortage?
BG: You can come up with 100 reasons why, but I would submit there’s a couple. You get a little consumer backlash on PET. Sparkling water and seltzers are growing like crazy, and all those are mainly canned products. You’ve got these can manufacturers here in US that have been very slow to add capacity. There are new lines coming but it hasn’t been at the rate that you would think, as tight as the market is. Then you have this explosion of hard seltzers that are all cans. So now you’ve got hard seltzers exploding, energy drinks exploding, and then you get a pandemic that nobody would have expected. So you’ve got all these things converging at the same time.
BD: How difficult is it to source cans globally for the US, and does standard can size cause a problem?
BG: A standard can in Europe is a 330-ml and North America is a 355-ml, a 12 ounce. What can be sourced in Europe is the sleek cans, which is heavily tilted towards things like hard seltzer. But we’re actually not sourcing standard cans from Europe. We’re sourcing them from other places globally, because Europe doesn’t have the standard can.
BD: Where are some of the main places to source those?
BG: Mexico, China. We’re looking under every rock. When you have to ship cans in from those types of places, and then you have to store them, it just drives up the price. That economic model is very difficult for us. That’s why long-term there will be more can manufacturing come to the US. There are even people that are vertically integrating. We have customers that are putting in can lines, that aren’t in the can making business.
BD: They are putting in lines to make can bodies?
BG: The only people who have done that over time here in the US to my knowledge is AB InBev. They own their own can manufacturing. But there are other people looking at that right now, because it’s getting so tight.
BD: Are the Coke and Pepsi systems thinking about that?
BG: Those systems are set up very differently. But in parts of the world, those systems do their own cans or have a strategic alliance that’s so tight it’s like part of the family. Think about what was different 20 years ago in PET. Twenty years ago, we were all shipping empty bottles everywhere. Today, we all blow our bottles in the plants online. You get to a place where the economics of shipping empty PET bottles just aren’t very good when you can put a couple of blow molders in and blow them yourself.
BD: Do you think something like that will happen with cans in the near future?
BG: The capital outlay for the equipment on cans would make it prohibitive to do unless you had broad scale. The difference in PET is, the capital outlay is not that much, and the savings is incredible. The guys that have done it better than anybody are probably Niagara. They’re buying their own resin and making their own preforms. But, by and large, bottlers out there like us are buying preforms and blowing bottles in our facilities. Can lines are incredibly capital intensive and they aren’t on a small enough scale that you could just do it plant-by- plant, so it’s a completely different set of decisions that you would need to go through.
BD: Is that something you’re looking seriously at?
BG: Over time we would look at any type of opportunity, but when I think about all the things that we have opportunities to go do, it wouldn’t be at the top of my list.
Hard Seltzers “Great Opportunity.”
BD: How big an opportunity is the hard seltzer category for co-packers? Will brands seek to vertically integrate?
BG: What you’re going to see over the next several years is some combination. Mark Anthony Brands is already building a couple of their own facilities, and I think they’ll continue to use co-pack, which strategically is the right way to think about it. If you like being in it yourself, you wouldn’t want to get too far in because some day the market will level off and at that point you want to make sure your own facilities are optimized. So, you wouldn’t want to go crazy and build to a point where you didn’t need a co-pack network. Or you partner with a co-packer where they do the vertical integration for you. They put the brewing in, they do everything that you would do yourself, and you create an economic model that works. Think about energy drinks. The big energy drinks are all 100% co-pack model because they’ve got a great economic model and they’ve made the decision that they don’t add value in manufacturing. I think you’ll see a bit of both. It’s a great opportunity.
BD: BD has reported that Coca-Cola is seeking a buyer for its hot-fill beverage plants in the US. Refresco would be an obvious potential buyer. Are you considering it?
BG: Like I said, we’re screening things through the lenses I talked about, and if those things were to become available, certainly we’re looking at all opportunities in the market. I don’t know of anything formal that they’ve decided.
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