Black Rifle Coffee Company (NYSE:BRCC) has followed a path not unlike many special purpose acquisition companies over the past 18 months. BRC emerged with a ton of promise and investor fervor. BRCC stock initially shot up from an opening price of $10 to as high as $34. Now, however, the hype has worn off and the stock is back below the initial $10 price.
Contrary to most SPACs, however, Black Rifle didn’t overpromise and underdeliver in some hot tech category such as electric vehicles or batteries. Rather, Black Rifle is trying to build an all-encompassing coffee platform. This is a decidedly easier industry to tackle than, say, building solid-state batteries. So why hasn’t Black Rifle managed to keep its buzz going?
Turning an Online Brand Into a Retail Presence
One thing a lot of commentators seems to overlook is that Black Rifle doesn’t have much physical presence yet. Indeed, for full-year 2020, Black Rifle generated 84% of its revenues from direct-to-consumer, with just 2% coming from its physical locations. The balance was from wholesale channels.
At the time of its SPAC offering, Black Rifle suggested that in 2023, it would generate 46% of revenues from direct-to-consumer, 33% from wholesale, and 21% from its retail stores. These stores, it should be noted, are called outposts in Black Rifle’s organization.
The direct-to-consumer channel is a mixed blessing. On the one hand, profit margins tend to be much higher on this sort of activity. That’s because you don’t have to pay a piece of the sale to either retail stores or in expenses for running your own coffeehouses. On the other hand, direct-to-consumer can be fickle. There’s dozens on online coffee retailers. Black Rifle has relied on adept social media marketing through avenues such as its YouTube channel to get low-cost publicity. But this can be hit or miss.
A retail store chain, by contrast, creates much more enduring habits. Starbucks (NASDAQ:SBUX), and now increasingly Dutch Bros (NYSE:BROS) have gotten their customers used to coming through every day at a certain time for their preferred beverage. It’s a lifestyle pattern that is much more enduring. If Black Rifle can build that with its outposts, it will be a more stable business going forward.
Social Squabbles Could Distract the Company
A central issue Black Rifle faces is in maintaining its cultural positioning without offending people with other sensibilities. Starbucks, for example, has been known to take left-wing positions on some cultural issues but generally has tried to shy away from making politics its defining theme.
Black Rifle, by contrast, often finds itself in the news precisely for its cultural positions. This often displeases both sides. Black Rifle offended people further to the right, for example, by failing to defend the controversial Kyle Rittenhouse. Black Rifle’s magazine, Coffee or Die, has also generated controversy with its on-the-ground coverage of the Ukraine war and civil unrest in the United States, among other hot button issues.
There’s nothing inherently wrong with a company engaging in rhetoric on controversial and divisive issues. However, the company may need to tone things back a bit to maintain enough mainstream appeal as it picks up momentum in opening additional outposts around the country.
BRCC Stock Verdict
Analysts project that Black Rifle Coffee will generate $317 million in revenues this year. That’s a pretty solid number for a company that has really just come into its own over the past couple of years. And, as the outposts pick up steam, revenues are expected to rise to $443 million next year, and $591 million in 2024.
That’s definitely enough to support a real, and eventually profitable, business. The big lingering question at this point, however, is if the company can keep a steady and positive brand image with most consumers. There’s nothing wrong with some controversy in branding, but Black Rifle’s approach might turn off too many folks.
In any case, BRCC stock has dropped dramatically in recent months. Traders can buy Black Rifle stock at a much more reasonable price. That might make shares worth taking a small speculative position in for the time being.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.