Both investments are aimed at meeting shifting consumer interest in coffee away from freshly brewed hot beverages to cold, ready-to-drink formats and from dairy-based to plant-based whiteners, CEO Scott Ford told investors gathered at ICR’s 25th Anniversary Conference earlier this month.
He explained: “The younger generation is drinking more coffee per capita than my generation. My generation drinks it 90-something-percent hot. The younger generation – Gen Z below Millennials – about half of them only drink it cold,” and as a result, ready-to-drink coffee is the fastest growing item in grocery stores in America for the last three years.
In addition, he noted, over the next five years about half of the RTD coffee beverages currently made with dairy milk will transition to non-dairy milk – a level of demand most current facilities with equivalent or larger capacity compared to Westrock cannot meet.
To meet changing consumer preferences, over the next three to five years Westrock plans to shift the balance of its business away from lower margin roasting and grounds and medium margin single-serve hot formats, like K-cups, to its higher margin flavors, extractions and ingredients business, said Westrock Coffee CFO Chris Pledger.
‘We are about to build the world’s largest roast to ready-to-drink facility’
Foundational to this plan is a new state-of-the-art roasting to ready-to-drink facility that the company broke ground on in Conway, Ark., this fall, which Ford explained will include space for development, production and distribution of the company’s coffees and teas and ready-to-drink cans, glass bottles, multi-serve plastic bottle and bag-in-box packaging lines.
“We are about to build the world’s largest roast to ready-to-drink facility where we will roast it, grind it, extract it, and then add milk, sugar, flavors, almond milk, whatever it might be, and the put it in a can or bottle. And we will serve the largest retail brands in the country with those kinds of products,” he said.
The facility is a $300m effort, which is sizable compared to the company’s 2022 EBITDA of $60m to $63m and required a massive fundraising effort through a SPAC. But, Pledger explained that when phase one of the facility is complete the company should bring in an additional $50 to $60m followed by the same amount again when the phase two is completed.
“So, two-thirds of our business is going to be coming out of flavors, extractions and ingredients,” which is Westrock’s highest margin business, Pledger said.
Ford emphasized his number one priority is bringing this facility online on time and within budget.
“The general contracts are in the shop now,” Ford said. “We intend to put the equipment for a glass line and a canning line that will come on in the back part of ’23 for commercial launch and the first part of ’24.
“Then we have a major rework of the extraction equipment that makes the extract that goes into these cans and bottles that will turn on in late ’24.”
Westrock plans to triple its EBITDA in next three years
While building the facility is expensive and requires the company’s near full attention, Ford said once it is up and running its return on investment will be more than worth it.
He explained the current customer demand for ready-to-drink coffee and the scarcity of their ability to get anyone who can make these products from start to finish at scale with an understanding of how to formulate ready-to-drink coffee is such that Westrock will be able to triple its EBITDA over the next three years.
He added this growth, combined with Westrock’s “world class team” and consumer-friendly mission to help people in the developing world get a fair price for their coffee will help make the company “the number one player in this space in 10 to 15 years.”