BRCC - Black Rifle Coffee Company: A Shot At The Huge Coffee Market

Summary

• The coffee market is huge and growing, providing multiple growth opportunities for BRCC.
• BRCC's brand strategy geared towards targeting niche part of the market.
• BRCC's digital native offering enabled it to grow faster.

Description

I believe Black Rifle Coffee Company (BRCC) stock is worth $9.16, representing ~30% upside from the date of writing. There are a number of reasons why a potential investor should invest in BRCC. The quality of the products or services that a business offers is very important, and BRCC serves excellent coffee that is of high quality. In a bid to give back to ex-military personnel, the company focuses on hiring them and making them independent. In fact, the majority of their customers are directly or indirectly involved with the military. Most importantly, BRCC has a number of strategies that will allow them to continue to be recognized in the coffee industry.

Company overview

BRCC is a digitally native brand and veteran-controlled company that offers premium coffee, content, and merchandise. Their omnichannel distribution layout has three major elements. These elements are: direct to consumer [DTC], wholesale, and outposts.

The business combination was completed on February 9, 2022. Because of this agreement and the consummation of a series of mergers, Authentic Brands became a subsidiary of BRC, with BRC acting as the main managing member.

Coffee market is huge and growing

BRCC is in a good position to compete in the $45 billion US coffee market (source: BRCC prospectus), particularly in the at-home, ready-to-drink [RTD] and out-of-home coffee segments, as well as against other consumer businesses. Factors like product quality, roasting methods, brand recognition, and technology are what determine the competition in the market. BRCC's strengths come from its high-quality products; strong media platform; mission-driven lifestyle brand with a loyal customer base; and scalable omnichannel strategy with a large number of subscribers.

Most of their coffee is roasted as the company believes that roasting improves the quality of their products. Their customer base is quite a unique and more attractive one compared to the customer base in the larger coffee market. This is easily seen as these customers regularly buy the brand's merchandise. In addition to coffee, these customers proudly wear Black Riffle Coffee apparel, flaunt BRCC's banners and decals, purchase a lot of their products, and most importantly, they spread the good news of BRCC to their family and friends by employing the use of social media or even by word of mouth. Interestingly, these customers spend more than the normal coffee buyer on a per-purchase basis because of merchandise and bagged coffee. It is not hard to tell that BRCC has a great connection with their customers, and this alone will ensure that they continue to expand as the years go by.

Brand strategy geared towards targeting niche part of the market

Their strategy at BRCC is quite interesting. The deal is just to carve out a specific part of the market to create a stronghold in order to create a cash flow that will allow them to expand into other customer segments. At BRCC, their mission is to give premium coffee and content to active military, veterans, first responders, and "those who love America".

With the help of charitable donations and direct hiring of veterans and active-duty service members, this company hopes to give back to the communities they serve. In light of this, they intend to become the go-to employer for recently discharged service members by hiring 10,000 of them. They are not only demonstrating to other businesses the benefits of hiring veterans, but they are also encouraging veterans to pursue business ownership. There are currently over 800 people working for them, including part-timers and seasonal workers, and about half of them are veterans. According to the United States Bureau of Labor and Statistics, approximately 7% of the adult population in the United States consists of veterans from the armed forces. In spite of the fact that the BLS reports that veteran unemployment rates are in line with the market, a new study by ZipRecruiter shows that veteran underemployment is roughly 15.6% higher than the national average.

Digital native offering enabled it to grow faster

As it has been already established, BRCC is a digitally native brand. Their omnichannel distribution strategy has three key elements, which are: DTC, Wholesale, and Outposts. The DTC channel includes their e-commerce business, through which customers can order products and they will be delivered to them. BRCC's DTC platform has been the core of their business from day one, starting with www.blackrifflecoffee.com. Because of this, BRCC has been able to learn a lot about its target demographic and their beverage consumption habits, which has helped it grow into a major, well-known brand in the US.

Own roasting facilities provide capacity for expansion

BRCC owns two roasting facilities. One is focused on large-batch roasting and the other on small-batch roasting. They are roasted in-house in the United States to ensure high quality and consistency. These facilities give them a great chance to grow and make it possible for them to always offer their customers fresh product.

Valuation

I believe BRCC is worth USD9.16 in FY23 representing 30% upside from the date of writing.

This value is derived from my model based on the following assumptions:

1. Revenue growth will follow consensus estimates until FY23. My internal estimates are comparable to consensus because they follow the same guidelines as management (as stated in the SPAC presentation ).
2. I valued BRCC using a forward revenue multiple, since it is still not generating meaningful profits. The comp that everyone can relate to, I believe, is Starbucks ( SBUX ). SBUX is currently trading at a 3.2x forward revenue multiple, and I argue that BRCC could trade at similar levels given its growth and the niche segment that it has carved out.

Key Risks

It is all about the brand

The biggest advantage that BRCC has is the brand itself and its unique positioning in the market. The moment the brand is not being maintained and the quality of the media content and active participation in the veteran community decreases, business might be affected financially. There will be a reduction in the number of customers and the brand perception will not be as good as it used to be.

Exposed to coffee beans prices

The prices of coffee beans and other commodities are not stable, as they can change at any time. Increases in the cost of high-quality Arabian Coffee Beans or other commodities, as well as decreases in their availability, will have a negative impact on the business and finances.

Competition

The coffee market is very competitive. If BRCC cannot continue to look for new ways to improve and also continue doing what they are doing effectively, they could lose their customers to other competitors in the market and the business's finances will be adversely affected.

Summary

BRCC is currently undervalued at its current share price as of this writing. BRCC has a loyal customer base that has been continually supportive over the years, and they do not let these customers' expectations down as they continually provide them with quality products. Also, their cause is noble as they are practically giving back to these veterans. An investor has a lot of things he/she stands to gain.

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