Premier Protein helped turn protein shakes from a niche fitness product into a mainstream staple, but its success has attracted a wave of competitors, forcing manufacturer BellRing Brands to look beyond its flagship products and traditional consumption occassions for the next wave of growth while simultaneously defending its turf.
During BellRing Brands’ fiscal third-quarter earnings call Aug. 4, executives picked apart the company’s playbook – acknowledging execution gaps and identifying missed opportunities before revealing a straightforward strategy that any legacy business threatened by emerging brands could leverage to expand its appeal without sacrificing the core strengths that made it a category leader.
Central to BellRing’s next phase of growth are new formats, new occasions and new channels – while improving the operational discipline needed to compete in an increasingly crowded market.
Building on a strong base
BellRing Brands plays in a fast-growing category with a fast-growing business, but the company is not sitting on its laurels under the leadership of new CEO Mike Axelrod, who took the helm just eight days ago.
“Throughout my career, I’ve had the opportunity to grow businesses profitably by strengthening execution, improving operations and speed to market and investing behind strong brands. What attracted me to BellRing was the combination of an attractive category with a long runway for growth, the market-leading Premier Protein brand and a meaningful opportunity to improve execution,” he told analysts by way of an introduction during the company’s third quarter earnings call Aug. 4.
The company noted that the wellness category in which it plays grew 8% in the 13 weeks ending June 28, according to US Circana data. Within that ready-to-drink grew 11% and ready-to-mix had “healthy” growth.
BellRing is growing alongside the category, with consumption of Premier Protein RTD up 6% and Dymatize up 3% in the quarter over the same period last year. The growth reflects strong distribution gains for Premier Protein RTD with total distribution points up 27% in the quarter, and a 21.9% increase in household penetration in the quarter versus the prior year. In addition, its household penetration and repeat rate are No. 1 in the RTD category, according to the company.
The performance helped the company earn an “outperform” rating from William Blair analysts who said BellRing’s category position, the strong Premier Protein brand and manufacturing platform should allow it to outgrow the broader food industry.
And yet, executives are dissatisfied with the company’s performance.
“While we have done many things well, we have not executed consistently at the level we expect of ourselves. We are not satisfied with our financial performance,” said Axelrod. But, he added, “actions are already underway to put the business on a healthier footing,” and “there is considerably more opportunity ahead.”
To seize that opportunity and drive the long-term growth of the business, BellRing is “taking decisive actions across pricing, channel mix, productivity and supply chain capabilities to bolster our operating model and address cost pressures,” said CFO Paul Rode.
Hidden in this roadmap are four lessons that can help any company facing a new generation of competitors not only hold their own, but also grow.
Lesson 1: Create new occasions, not just new SKUs
BellRing earned its leadership position by making protein shakes more accessible, but executives argue the next step is making protein relevant in more moments.
BellRing is doing this by diversifying its business across categories and into adjacent product segments with the launch of a Premier Protein Sparkling Protein Soda, announced yesterday, and Premier Protein Ultimate shakes with 42 grams of protein per bottle.
The soda, which comes in four fruity flavors with 15 grams of clear protein and only 3 grams of sugar and 90 calories “expands us into the refreshment category and creates incremental distribution opportunities,” said Rode.
The Ultimate shakes, which have 40% more protein than Premier Protein’s classic 30 gram shake was created for the one-third of US consumers who care more about their protein intake than they did six months ago and the 24% who worry they are not getting enough protein in their diet, according to the company.
Available in chocolate, vanilla, strawberry and café latte, the new shakes and classic versions “are well suited to the convenience channel and can drive incremental growth,” said Rode.
The new products reflect a broader strategic lesson: Once a category goes mainstream, brands must create new reasons to consume it in order to drive growth.
Lesson 2: New growth requires channel expansion
More facings on existing shelves may drive velocities by helping a product pop visually, but more meaningful growth requires distribution gains across diverse channels, suggests BellRing’s strategy.
Historically, protein shakes have been concentrated in grocery and club stores or sold online, but Rode sees potential to appeal to on-the-go shoppers through expanded distribution in convenience stores.
“Convenience represents meaningful white space. It is a big opportunity for our business. We have very little sales in convenience today. Overall, the convenience channel for RTD is about 10% of the category. So that is a part of the category that we start playing in today with the launch of our 42-gram Ultimate,” said Rode.
He explained BellRing will begin its convenience channel journey with regional players where it can “learn quickly and apply learnings to the future expansion” nationally.
Ultimately, the strategy is less about finding more shelf space for shakes and more about putting protein where consumers make immediate, impulse decisions.
Lesson 3: Growth creates complexity, and complexity demands operational excellence
Product innovation is only half the battle. As BellRing learned this quarter, successfully managing innovation requires an operating model that can keep pace.
During the quarter, BellRing adjusted its EBITDA margins below its guidance to reflect 180 basis point “inventory-related headwinds” due to “excess bottled shake inventory” that occurred after the company introduced Tetra Pak cartons online at a lower price than existing shake bottles.
Cost conscious consumers purchased the Tetra Pak products faster than anticipated. Both the demand team and supply team did not react quickly enough, leading to a $10 million reserve and heavier promotions, Rode explained.
Rather than blaming slowing demand, executives framed the write-down as an execution failure. Axelrod stressed that winning requires greater operational discipline, faster decision-making and new capabilities – all of which he said he plans to build out under his leadership.
Lesson 4: It takes money (and sometimes higher prices) to make money
Operational excellence may help BellRing avoid costly missteps, but it won’t solve the sustained inflation squeezing margins. For that, the company is turning to another lever: pricing.
The company is planning double-digit price hikes on its Premier Shakes to offset inflationary pressures, including higher freight and protein costs. Those will go into effect in the first quarter. It also is planning a third round of pricing on its Dymatize powder business in the same period, Rode said.
This is the first price increase on the shakes in two years and it follows increases by other major players in the RTD space, he explained.
“We expect this increase will allow us to get back to healthier margins as well as continue to invest in the business,” he added.
Takeaways
Ultimately, BellRing’s strategy reflects a challenge facing many successful mature consumer brands: The capabilities required to create a category leader are rarely the same ones required to sustain leadership once competitors arrive. The next phase of growth depends not only on innovation, but on the operational discipline to execute it and the pricing power to fund it.
To stay ahead, Axelrod argues, brands must stretch into new occasions and channels while preserving the consumer trust that made them successful.
He explained: “Across my career, I found that businesses with strong consumer fundamentals typically have many opportunities to drive profitable growth, and I see the same thing here at Premier and BellRing.”
