Turning $1.3B Black Rifle Coffee into $6B NRAbucks

TL;DR

- Where I’ve parked my liquidated 401k cash 

- Scaling NRAbucks

🧠 The Takeaways

We’re buying Black Rifle Coffee to turn it into NRA Starbucks and streamline this biz to $6B.

1. Restructure for the Retail heavy biz it’s become.

2. Cut back on growth for profitability. Grow at a slower YoY %, but profitably.

3. Spin out the Media bizs.

+ How I’m earning 5% on my liquidated 401k money.

LBAB Community - 401k Liquidation Update

Disclaimer: This is NOT financial, investing, tax, legal, or any other form of advice. (And I was never here. 😉)

The hot question after I told everyone that I liquidated my 401ks: What am I doing with the money? 

Since we’re not doing a deal today, I need to figure out how to generate some sort of return on the money, so I didn’t pay all those taxes for nothing.

1 of the coolest learnings on this journey (I’ve been researching this for 2 years) is all the creative strategies wealthier people use to manage their money.

The most common answer for what to do with my money in the meantime was to buy short term T-Bills targeting a 5% returns. Either purchase them directly or buy ETFs that aggregate them. 

There’s some variability based on the exact strategy, but the idea is to target a 5% return/yr + lock the money up for a half a year.

That ticked most of my boxes, but my main issue with that strategy is the lock up period and waiting for bond maturity. 

But 1 benefit of high US Fed interest rates is banks (especially new players) are finally motivated to offer high interest accounts.

There are 3 criteria I need in parking my money:

1. Extremely liquid

2. No Volatility

3. Earn more than the comical 0.1% I make from my “normal” savings account

Enter M1. I’ve been using their investing platform for years, and they’ve recently rolled out a 5% Checking account. Which is unheard of. Usually, the high APY accounts are for Savings accounts.

The beauty of my current checking account:

• No complex money market accounts

• No Buying/Holding T-Bills

• Completely liquid

I can move money in and out of the account whenever I want. Whatever I park earns 5% annually, while I wait for an opportunity to strike.

This obviously isn’t as valuable as parking the money in the S&P 500, or leaving all of the money in my 401k. But it’s the best solution I’ve found until we find the right biz to buy.

Since this is so valuable, and my current bank gives me 0% return on my checking account, I’m exploring sweeping more money from across our accounts. It’s all pretty simple with some automated rules.

I’ll keep you updated as I go along and what else I find.

If anybody has anything that’s truly liquid and beats 5% please hit reply and let me know. I’m always looking for more strategies and interesting techniques on how to leverage my sitting cash.

Let’s Save You Money - Sponsored Section

Yotpo asked me to analyze ~$1B in SMS sales to figure out how to get brands to spend LESS on SMS (really). We had 1 goal: ID where brands are wasting money with SMS budgets. 

They sent me all the performance of the most active brands using Yotpo SMS to ID the trends where brands can save more money on their SMS. These are brands doing everywhere from $38k - $192m/yr

3 banner insights I found:

1. Brands are sending too many Campaigns.

2. Seasonality Matters more in SMS than Email.

3. The Big 4 Email Flows Crush in SMS as well.

1) Campaigns account for 93% of the Sends, 88% of SMS budget, but only 49% of Rev.

SMS is such an intimate channel with such high open rates subscribers aren’t interested in getting as many messages from brands as email.

🧠 My recommendation: Cut campaigns & list size for everything other than your Top 3 activations of the year. Be extra picky with what campaigns you send.

2) SMS Has Big Q4 Energy

24% of SMS rev comes in Nov & Dec. The rest of the year (excluding May + Aug) SMS does fine, but it’s really a major-moment channel. 

🧠 My Recommendation: Pull back in slow months + unleash SMS for major events (BFCM, biggest product launches).

3) 4 Flows are the key to winning the channel.

Welcome, Abandon Cart/Checkout, Browse Abandon, Post-Purchase Upsells make up 40% of total SMS rev for brands.

🧠 My Recommendation: Crushing the setup, optimization and seasonal updates will have a bigger impact than launching another campaign.

But this is just a taste. Hilary from Princess Polly, Gabe (GM of Yotpo SMS) and I are going to dive deeper into the insights + share tactical strategies/hacks tactics on how you can save more money with SMS this year. 

It’s this Tuesday, so RSVP. I’d love to chat with you there. And if you can’t make it, RSVP to get the recording so you can listen at 2x while reading the report (you’ll get the full report, too).

+ Hilary is gonna share some of the biggest wins they’ve rolled out at Princess Polly to make more money while spending less.

Let’s Examine This Biz

Black Rifle Coffee, the official coffee of the NRA (joking but not joking?) is slowly charting to profitability, but without a swift shot in the arm (not that kind of shot), it will hit bankruptcy.

Trading at $5.95/share with a $1.26B market cap, it’s -39% since it went public via a SPAC in Feb 2022.

There isn’t really much to say about this stock other than it was grossly overvalued when it went public. They did list at the perfect time to secure the bag at the end of the bull market and have now pretty consistently normalized at roughly the same stock price for the last 1.5 years.

The slight irony is that the stock traded at a higher price when it was just an acquisition vehicle.

Financial Summary

TLDR Analysis: Getting Fit, but still too bloated

• OPEX cannot be $175m when Gross Profits are $125m.

• COGS are heading in the wrong direction + growing faster than Rev.

• Net Income isn’t trending up fast enough.

The 1 shining light here: Rev +31% YoY while Marketing -19%. That being said, Sales/Wages are up 11% YoY, so they basically just pushed growth onto the Retail channel instead of Marketing. 

Let’s Fix This Biz!

Here are the 3 strategies to flip Black Rifle Coffee from an unprofitable coffee biz into a ‘Murica caffeine powerhouse.

1) Restructure the Biz for Retail

Black Rifle still calls themselves a digitally native brand. While they started as a DTC biz, they aren’t really a DTC biz anymore.

In 2021, right before they went public, 71% of their rev came from DTC. By 2023, that shrank to 36% of Rev. Wholesale has become 57% of Rev. When you add in their Outposts (Aka owned Coffee shops) that total is 64%.

This comes from 2 factors:

1. Wholesale has exploded the past 3 years. (+304% since 2021)

2. DTC has been slowly declining. (-13% since 2021)

We’re going to pull back the DTC channel to focus only on the money makers: Coffee Subscriptions, Bulk orders and Apparel. Just because it doesn’t literally cost money to “stock the DTC shelves” doesn’t mean products that don’t sell should be listed.

Also let’s be honest. CAC + Fulfillment costs make selling a solo bag of coffee completely unprofitable.

DTC needs to accomplish 3 goals:

1. Sell the most profitable items to put in a box.

2. Build evangelical love for the brand.

3. Collect consumer data.

For Retail, there’s a brilliant play here where Black Rifle Coffee can actually go after Starbucks ($84B). By growing their Wholesale + Outpost biz in more conservative areas, they can convince people to buy their products where Starbucks or Dunkin’($8B) would traditionally capture those sales.

The value props are simple:

• We’re faster + easier.

• You love America.

• We have guns on our cups.

It feels crazy to say, but Starbucks is in the position to be disrupted, + Black Rifle has the ability to do so with a Veteran/America-loving brand. And it’d be with the brand because, let’s be honest, the quality of product in the cup probably isn’t that much different.

Takeaway: Triple down on what’s biggest and growing the fastest.

2)   Stop Pursuing Growth at All Costs

Black Rifle has consistently been growing topline 30% YoY. But all those Revenue increases haven’t come with an increase in profits. They’re losing more money now than they did in 2021.

I get the need for aggressive growth and Coffee Diem, but Black Rifle is making the same mistake that every overfunded DTC brand also made. 

Trading Growth for solid unit economics. And they’re at the scale where growth isn’t an excuse anymore.

In 2021, when Black Rifle was at $233m in Topline:

• COGS: 61% of Rev

• SG&A: 32% of Rev

• Opex: 43% of Rev

In 2023, those same #’s at $395m in Topline:

• COGS: 68% of Rev

• SG&A: 36% of Rev

• Opex: 44% of Rev

OPEX only rose by 1% because they reduced Marketing from 16% -> 8% of Rev. This is mostly the transition from DTC -> wholesale-led biz. But also from a major shift in their product mix.

Their Ready to Drink (RTD) canned coffee biz has exploded, and where they’re placing their next big bet. RTD grew 4x YoY and 64% of their inventory capital is sitting in RTD products.

But Canned Coffee is an inherently Retail product. Shipping a 4/8/12 pack of canned liquid through the eCom supply chain is irresponsible. Vs. the Retail supply chain, which was built for it.

If this is their fastest growing category in their largest growing channels, they need to refactor their biz around this product line. Not every Retail partner is going to make sense. Not every growth strategy that fit for a bean based coffee biz will work now.

At a high level, there are 10-20% of Retail partners the brand will need to stop working with. There are continued cuts that need to be made on the DTC side as well, as that biz really becomes about servicing the 225k active coffee subscription customers who are Black Rifle Fanatics. 

Takeaway: Invest in growth until it breaks your unit economics.

3) Spin out the Media Biz

Black Rifle owns a whole host of Media properties:

• Coffee or Die Magazine

• Free Range American

• Black Rifle Coffee Podcast

The biggest challenge with Black Rifle directly owning the media properties + only promoting their coffee biz is it violates the primary principle of an advertising biz.

Black Rifle needs to take a page out of Red Bull’s playbook and separate their Product biz from their Media biz.

I’d bundle all of the media entities into a new org and spin it out into its own team and org. The beauty of these types of content bizs is you’ve already built the editorial infrastructure to run them, so you won’t need a ton of new management.

You can spin the new biz out, give shares to the team members you want to run it, and even bring in new capital partners to fund the new venture. (This is what Hearst Media did with Reddit. Brought in capital partners + gave equity to the team before spinning it out then IPOing it for a massive return).

The Double win here. 

1. You create a new entity you own and benefit from the profits/upside.

2. You remove all the Content Creator expenses from the core biz P&L.

The greatest opportunity Black Rifle has with its media properties is opening up advertising opportunities to relevant brands. If they want to go full Red Bull:

Create Black Rifle Creative:

1. Create a done-for-you content biz for other Veteran-focused bizs

2. Create an advertising agency where the content creators monetize their expertise with other like-minded brands.

3. Create a Spartan race competitor and other events/moments.

Black Rifle Coffee will be the anchor sponsor to launch it, but I’d have a hard time believing that a gun biz wouldn’t eventually become the largest sponsor of a media entity called Black Rifle.

Takeaway: Content Builds Community. That community will outgrow the brand.

Final Thought

Black Rifle Coffee is a perfect example of the CPG swing we’ve seen over the last decade. The DTC arbitrage made it possible for a new CPG brand to break out and establish itself only to become a Retail brand.

We don’t have data before 2021, but Black Rifle has always been a DTC darling. Just like Warby, Allbirds and all the other massive DTC bizs, they tapped out their digital growth, and the next major lever for growth is going back and becoming a retail brand.

The challenge that all of these bizs will face is their biz model isn’t built for retail. Black Rifle Coffee will be in overall good shape if they make tweaks like what we talked about, but today they’re  essentially the premium version of Folgers that donates to Veterans. 

Now that cheap Meta CPMs are over, Retail margins aren’t looking that bad. All the brands that were built on cheaper prices/cutting out the middleman are dead. Products still need to be priced for Retail-like margin structures. Now, they also need to be priced for DTC-onomics as well.

It may feel like the bar has been raised, but this was always the game. We just didn’t have to play it for the past 4 years.

At the end of the day, the fundamental cost structure of how you build products determines everything. Creating as many Gross Margin dollars as you can at the greatest % as you can is the only major needle mover that truly counts in this game.

Everything else falls into place around it.