A POPULAR Coca-Cola and PepsiCo competitor has officially fallen into Chapter 11 bankruptcy thanks to its heavy debt load.
The move to restructure Kombucha Town, an emerging player in the functional beverage space, comes as its top boss strives for a major comeback.
Kombucha Town officially filed for bankruptcy following a slew of struggles[/caption]
Kombucha Town is a competitor to Coca-Cola and PepsiCo in the beverage sector[/caption]
Kombucha Town was climbing the ranks in the beverage sector before CEO Chris McCoy, who was inspired to create the brand by his mother’s early-onset Alzheimer’s diagnosis, was ultimately forced to file for Chapter 11.
Founded in 2011, the Bellingham, Washington, based company was working to make kombucha a more mainstream drink, even receiving a buyout offer in 2018 that McCoy rejected.
In February 2020, Kombucha Town was experiencing “great momentum” and plotting to launch its beverage products in 800 West Coast grocery stores, the CEO told a local outlet.
However, when the pandemic hit in March, McCoy said “everything fell apart within 90 days.”
The top boss had invested heavily to scale up his facility for greater production as the company experienced a significant revenue decline, with forced layoffs and the unexpected death of Kombucha Town’s controller also hurting the company.
While the CEO received a Paycheck Protection Program loan and qualified for a $1.5 million Economic Injury Disaster Loan, McCoy received less than 50% of that money and turned to a crowdfunding effort in late 2022 to help keep his beverage company afloat.
How does bankruptcy work?
Bankruptcy is a specific legal process that helps companies eliminate debt they can’t repay.
The process allows businesses to start fresh and gain access to new credit.
Supervised by federal courts, bankruptcies allow a company to sell off its assets more easily to pay off creditors, according to Investopedia.
Chapter 11, a common process for companies, is used to restructure a business with the goal of remaining open – even if it means selling off most of the company’s properties.
Chapter 7, on the other hand, sells all of a company’s assets, putting it out of business.
Chapter 15, alternatively, allows for collaboration between American and foreign courts to conduct bankruptcy proceedings with “parties of interest involving more than one country,” per the United States Courts.
Two years later, the founder took out credit card loans and managed to support the struggling Kombucha Town thanks to a local angel investor.
“I knew about bankruptcy, but ethically I felt so responsible to everyone who helped build the business,” McCoy told the local outlet.
However, the $2.6 million in debt that was “strangling” the kombucha maker forced McCoy to file for Chapter 11 bankruptcy in late July, with the founder hopeful that the process would allow the company to successfully reorganize its finances and restructure its debt.
The founder admitted that while the bankruptcy process is “no walk in the park,” the filing could result in a “break from debt collection calls” and “an honest assessment” of what Kombucha Town can afford to do in the future.
“I deserve the opportunity for the forgiveness bankruptcy offers,” said McCoy. “I’m doing my best to make sure it’s a great comeback story.”
BOTTOMS UP
While the beverage market has been dominated by Coca-Cola and PepsiCo for decades, what once was just a soda market has since expanded.
Energy drinks, sports drinks, seltzers, coffees, and other functional beverages have exploded in popularity in recent years.
The “functional drinks” category includes non-alcoholic beverages that provide additional health benefits beyond hydration, made with ingredients aimed at supporting specific physiological functions or improving overall well-being.
What is kombucha?
Kombucha is a fermented tea drink made with tea, sugar, bacteria, and yeast.
Sugared tea is mixed with a symbiotic culture of bacteria and yeast, often called the SCOBY.
During fermentation, the SCOBY feeds on the sugar, producing acids, trace amounts of alcohol, gases that carbonate the drink, and other compounds.
Kombucha, a fermented tea beverage, falls into this category, with the prebiotics and antioxidants in the drink believed to promote gut health and immune function.
The kombucha industry was worth nearly $4.5 billion last year and is projected to double by 2030.
While the beverage has seen success thanks to a recent trend towards wellness and “better-for-you” beverages, many consumers have yet to jump on the bandwagon.
“Kombucha is fermented bacteria and vinegar. The stomach revolts when you force it down. Bankruptcy is ok by me,” wrote one Facebook user on a post regarding Kombucha Town’s Chapter 11 filing.
“Kombucha is nasty! No wonder it can’t compete with Coke and Pepsi,” cried another user, as a third called the fermented drink “trash in a bottle.”
As Kombucha Town files for bankruptcy, the beverage sector is seeing other big changes.
For example, Starbucks has dropped its winter menu lineup and two new favorites take center-stage.
Plus, read up on the truth behind why big chains like McDonald’s and Burger King are releasing rival drinks.
Popular beverage brands like Pepsi-Co and Coca-Cola have faced heightened competition in the drink sector in recent years[/caption]
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