Hello investors! Hope this update finds you and yours well during these challenging times. I'm sure you are all wondering, "What's going on with Milk & Honey?".
2019 Results
Sales were up 23% year-on-year, a total of 2129 cases sold. Despite our best efforts, WI sales were slightly down due to lower purchases by national chains Kroger and Total Wine (a distributor-wide phenomena). Fortunately, we anticipated possible declines in these chains and focused attention on local chains (Sendik's) and independents (Ray's, Discount, Otto's) where we saw increases in sales. Sales were strong in our new market, MA/NH, especially given a holiday season launch when new brand introductions are challenging. We now have a solid foothold in MA/NH, with a good distribution footprint to build upon.
Sales (4.5l cases)
We spent much less capital than projected (59% less). We are in a good financial position to weather the Covid-19 crisis, and have enough cash to aggressively push the brand without an additional capital raise. As described further below, if the Covid-19 crisis resolves by the holiday season, we have the means to grow the brand substantially in 2020.
Financial Results - Projections v. Actual
2020 - Off To Great Start Before Covid-19
In Q1 2019, we sold only four cases. I was determined change this in Q1 2020. After consulting with advisers, we created and implemented a "combo" deal in MA where accounts receive $1.00 bottles of Milk & Honey for purchasing bottles of Maker's Mark (a Beam product). We figured we could get lots of distribution value without having to hire a clunky "local rep" to work the street. Also, we wanted accounts to have enough product to "play around" with and get to know Milk & Honey. The program was a success, and between Jan and Feb 2020, we sold 400 cases and secured over 300 new points of distribution in MA. Horizon reps report that accounts really like the product and many plan to buy more product in the future. This was a major set up for a follow-on sales campaign that was set to launch in March in April.
In February, I met with the President of Badger Liquor, John Boulhanis, for the first time. We reviewed 2019 results and he agreed they were unacceptable. To cure the issue for 2020, Badger offered to put Milk & Honey "on goal" with a target of 2700 cases (80% growth) for WI in 2020. Of course, nothing is free, and Badger conditioned placing Milk & Honey on goal with an agreement that we pay Badger substantially extra margin for every case they sell beyond 2700 cases. True, such pay-extra-for-performance arrangements are bitter pills to swallow, but ironically this means Milk & Honey is moving to the "next level" in the industry, where "on goal/quota" commitments between proven suppliers and distributors are common, and provide greater predictability and accountability.
On the "pull" side, our regional manager Gail and I organized an amazing Spring sampling campaign. As of March 1, we had an incredible series of events and demos set to sample over 10,000 people in the Spring. Similar programming was also being set up in MA/NH. And then... Covid 19 struck.
2020 - Covid 19 Hits
Covid-19 shut down all demos and events in all markets. It also shut down all follow up activities to our MA on-premise combo program.
For now, we are in a holding pattern. As shown in the table below, we are in a solid financial position:
We plan to strictly control spending through Q3. We will focus on social media and use our $5k Project Pitch It! award to run Facebook and Instagram ad campaigns through Mother's Day. Social media reports show our brand is growing an engaged following, and we are selling product - NH just ordered 50 cases.
We will not purchase any additional inventory. In February, our supplier suddenly and unexpectedly announced new MQs of 4000 cs. I was planning to do a 2000 cs run but 4000 cs is too much for us right now. We don't want to tie up our capital in inventory, and bonded storage is expensive. (Also, interestingly, in the midst of all this our glass supplier, Saxco, announced they were pulling all production out of China due to tariffs and duties - and moving it back to the US. This presented additional supply chain issues for us).
My goal now is to sell out our entire remaining inventory of 2500 cases by year end; this is very doable in light of last year's results. All markets are primed for Milk & Honey; we have fans and solid brand awareness. When and if the Covid-19 situation resolves by the Oct-Nov-Dec (OND) holiday season, all we need to do is turn on the ad/demos/event marketing spigot and product will move.
If we sell out the 2500, we'll hit 2950 cases 2020. This will be 40% year-on-year growth, and leave M&H in an excellent cash position heading into 2021.
In conclusion, while things are going slower than hoped, and we've been dealt a blow by Covid-19, we are very optimistic that we can continue to build the brand and accomplish our strategic goal: positioning M&H for an additional capital raise and/or brand acquisition in 2021.