Craft kombucha maker Batchwell has launched a $1 million capital raise on the Snowball Effect platform. Sounds simple. But the kombucha market is way more complicated than you might imagine. Nikki Mandow reports.
What links: a Chinese emperor of the Qin dynasty (221-206 BCE); pre-revolutionary Russian peasants; a number of multi-million-dollar class actions, including one against drinks giant PepsiCo; and four New Zealanders – an actor, a sound designer, and two venture capitalists – who found themselves in Los Angeles in the mid 2010s.
The answer, of course, is kombucha.
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The fermented drink, labelled the “tea of immortality” by Emperor Qin Shi Huang, is traditionally brewed over several weeks by adding sugar and a distinctly gross-looking gelatinous “scoby” (“symbiotic culture of bacteria and yeast”) to a large jar of black or green tea.
Over the last decade or so, kombucha has gone from this weirdo health kick drink to part of the growing – and more mainstream – ‘better for you’ beverage category.
It’s also gone from distinctly unappetising (a Slate article in 2009 described kombucha as tasting like “carbonated urine”) to a perfectly palatable, even delicious, and healthier alternative to high-sugar soft drinks.
New Zealanders bought around 3.3 million litres of kombucha worth $27.4 million from supermarkets and other grocery outlets over the 12 months to mid-June 2021, according to figures from retail data analytics company IRI.
It sounds quite a lot, but actually that’s still pretty niche. Kombucha sales made up only 2.8 percent of purchases of “core beverages” – anything from juice to energy drinks to water or flavoured milks – over the year, says IRI’s New Zealand managing director Craig Irwin. And the market grew at just 2.1 percent, compared to 5.7 percent for total core beverages.
That’s less excitement in the market than in the past, he says.
“Kombucha seemed to start very well and grabbed everyone’s attention, but sales seemed to soften off reasonably quickly.”
That’s an opportunity, not a problem, reckons Richard Old, co-founder of Auckland-based kombucha maker Batchwell, which last week launched a $1 million capital raise on the equity crowdfunding marketplace Snowball Effect platform.
From classical music to classy kombucha
Old studied ethnomusicology at Otago University, has a masters in sound design, and founded (then sold out of) free range rotisserie chicken chain Bird on a Wire. When his wife, actor Catriona Toop, got work in the US, Old found himself living in Los Angeles but legally not allowed to work.
He started brewing kombucha in the kitchen.
“We were all drinking a lot of kombucha. I saw it like a crafted, non-alcoholic, low sugar, probiotic alternative to soda, and that ticked a lot of boxes for me.”
When in the summer of 2015/2016 the couple went back to New Zealand for a holiday, Old realised there was an opportunity.
“The market in Los Angeles was two or three years ahead of New Zealand and going crazy.”
He started taking his kitchen brewing a bit more seriously, and a couple of friends in the venture capital business – Tom and Zac Darby – came on board as investors.
“After a few months, friends started saying ‘that’s actually good’,” Old says of his homemade brew.
Batchwell launched in New Zealand in 2016.
In September 2019, Metro magazine awarded Batchwell’s Earl Grey brew five stars and best in show in its inaugural (and as far as we know only) kombucha tasting.
The company’s pineapple and ginger kombucha got third place and its beetroot brew was in the top 10.
“Its greatest strength is in its restraint,” the reviewers wrote about the Earl Grey. “One panellist described it as ‘like an Aesop store, in a good way’.”
If Batchwell was making any normal drink, this should be the start of a normal small business development story. Not easy – few startup trajectories are smooth. Nonetheless, the path would hopefully be relatively smooth.
But kombucha – it’s kinda complicated.
For a start kombucha is a live culture – it’s inherently unpredictable. One batch will likely be slightly different from the next – in the way that one year’s wine vintage is different from the next. Brew it too long and it might be bitter, or too bubbly, or too alcoholic.
Not your bog-standard drink
And even when it leaves the stainless steel vat, it keeps reacting. A bottle of bog standard sugary lemon soft drink is going to be the same no matter how you transport it and where it sits in a cafe or supermarket. Not so kombucha.
Batchwell, which sells just under 60 percent of its drinks through the hospo trade, lost quite a bit of product during of the Covid-19 lockdown – it just didn’t last while the cafes and restaurants were closed.
Even without Covid, most kombucha makers have a rueful story about a dramatic fridge explosion.
Then there’s the problem of the alcohol content. Kombucha is sold as a non-alcoholic drink – in New Zealand that means it must contain less than 1.15 percent alcohol by volume (ABV); in the UK and the US it’s less than 0.5 percent.
But alcohol is an inevitable by-product of a natural fermentation process – apparently a very ripe banana can contain up to 0.4 percent alcohol by volume. And in kombucha manufacture, as the yeast in the scoby eats the sugar in the tea mixture and ferments, you get alcohol.
Because it’s a live culture, the process doesn’t necessarily stop just because you put kombucha in a bottle.
When in 2019 Consumer NZ checked the alcohol content of five brands of kombucha on supermarket shelves, two of the brands had significantly more alcohol than the label claimed; one had as much alcohol as a light beer.
In March this year, a US nationwide class action was launched against Florida drinks company BC Kombucha, “kombucha company’s drinks secretly contain alcohol, class action lawsuit alleges” was a headline about the story.
BC Kombucha was “passing off” its kombucha as non-alcoholic to customers including children, pregnant women and people struggling with dependency, “when the drinks contain enough alcohol for the effects to be felt”.
It’s not the first case.
In 2010, big US retailers panicked and pulled all kombucha from their shelves when tests found some contained alcohol levels as high as 2.5 percent. There were at least three big consumer kombucha class actions that year.
And in 2017, the so-called father of commercial kombucha, US-based GT Dave was embroiled in an $8.25 million class action settlement involving organic grocer Whole Foods Market and GT “classic” and “enlightened” kombucha products being “misrepresented” as being non-alcoholic.
Is kombucha good for you?
If that wasn’t enough, the actual health effects of kombucha are still up for debate. There’s no doubt drinking low sugar kombucha is healthier than drinking a sweetened fizzy drink.
And plenty of studies have shown that fermented probiotic foods – anything from kimchi and sauerkraut to unpasteurised yogurt and kombucha – aid digestion and help maintain intestinal health.
GT Dave, the missionary of traditional kombucha, whose company started in 1995 and still has around 40 percent of the US market, got into brewing the stuff after his mum claimed drinking kombucha helped her beat breast cancer. That story used to be on the label of the bottles. No longer.
Moreover, kombucha’s actual health effects are still a matter of debate. It’s hard to find recent research, but a review of the science back in 2019 found there wasn’t, well, a lot of science.
The bacteria in kombucha have not been confirmed to be probiotic, Franck Carbonero, a microbiome scientist at Washington State University-Spokane told the New York Times.
“We don’t know if it does anything.”
“Many companies take shortcuts to mass-produce kombucha products”
Batchwell, in its Snowball Effect marketing pitch, treads a fine line between appealing to the conscious consumer but not making health claims it can’t back up.
“With limited healthy alternatives available, consumers have been subjected to high sugar, artificially flavoured products which have little or no nutritional benefit. This is fuelling the shift towards functional fermented products, such as kombucha, that are naturally better for you and contain strains of bacteria and acetic acids that are good for your gut.”
The trouble is, every kombucha company is making similar claims – “live”, “probiotic”, low sugar, organic. But not all kombuchas are made the same, or cost the same. Think about the difference between buying a Lion Red and a craft beer. Different production methods, markets, and price points.
But small producers like Batchwell say big kombucha makers – internationally, big players like Coca-Cola, PepsiCo, Frucor and Lion Breweries have jumped on the kombucha bandwagon – aren’t being transparent with customers.
“A thriving kombucha industry and increased consumer demand have led many organisations to take shortcuts in order to mass-produce products,” Batchwell says in its offer statement.
For example, some companies pasteurise their kombucha, so the bacteria can’t carry on working after bottling. (That’s caused some class action court cases overseas too – about whether a pasteurised kombucha maker can market the benefits of live fermentation.)
Other companies brew their kombucha down to a sort of vinegary concentrate and then add in carbonated water, non-fermentable sweeteners like stevia or erythritol, and/or probiotics.
These shelf-stable kombuchas don’t need to be stored in a cold supply chain, and that helps make them cheaper to produce and distribute, Hannah Crum, president of US-based industry body KBI (Kombucha Brewers International) tells Newsroom.
Whereas a small bottle of Batchwell kombucha might cost $5 or more, its bigger competitors can sell on special under $3. Batchwell recently got squeezed out of Countdown stores because it just couldn’t sell enough, Old says.
And another local kombucha brewer, Banjo Brews, was forced to shut up shop earlier this year after seven years. Co-founder Heather McAlpine says growth was spectacular for a while, but once bigger Australian-based companies came into the market her company couldn’t compete.
“We tried to keep it authentic. We tried to get the message to the buyers [at the supermarkets] that with the Australian brands they weren’t stocking the sort of kombucha consumers thought they were buying.
“But we got crushed.”
It’s a common story, Crum says.
“Other producers, especially small family businesses, are continuing that traditional way of brewing kombucha, which is you brew it until it tastes delicious, as opposed to brewing it until it tastes like vinegar,” Crum says. “They are crafting a beverage that has a unique flavour profile. It has complexity, but it also has a shorter shelf life because fermented foods are more like a piece of fruit in the sense that it’s going to continue to change the longer it sits on the shelf.”
The problem, Crum says, is all most consumers see when they shop for kombucha is a cheap product versus an expensive one – there are no standards around different production methods to help people choose what they buy. Lion Red or craft beer.
What’s happening in kombucha now is what happened in the mid 2000s around fruit juice, she says. In New Zealand, prompted in part by complaints by orange juice maker Charlie’s, the Juice and Beverage Association developed product categories for juice, like “from concentrate”, “reconstituted”, “pure” “natural” and “organic”.
Crum is leading a movement in the US for more nuanced definitions of kombucha products and more transparent labelling.
KBI recently introduced a kombucha food safety and quality code of practice for the US market and is working on a quality seal. She says New Zealand and Australian producers should do the same, potentially working alongside Australasian food standards body FSANZ.
“The consumer is the one who’s getting the short shrift here, because they’re not being introduced to products with different flavour profiles.
“The products that have a tonne of marketing dollars behind them can buy the shelf space in the grocery store and that just puts the rest of the industry at a disadvantage.”
In New Zealand, two brands – Remedy and Lo Bros – hold the lion’s share of the kombucha market, particularly in supermarkets.
Both companies are Australia-based and both are adamant their products give drinkers the genuine kombucha experience. Both gave detailed responses to Newsroom’s questions about production.
Remedy is the bigger of the two, with 40 percent of the New Zealand market, according to IRI figures, and 23 percent sales growth in the last quarter. It exports its kombucha to the UK, US, Canada, and Singapore as well as New Zealand. But the company doesn’t use concentrate, or add probiotics, just a bit of natural sweetener and flavourings, says co-founder, Emmet Condon.
“We started out brewing kombucha on our kitchen bench at home the old school way and we still essentially do it the same way, just on a slightly bigger scale.
“We make every batch of Remedy from start to finish in our very own fermentary in Melbourne. This starts with brewing the equivalent of a very big, very strong pot of tea. We then add our live culture, which is still a descendant of the very same culture we started brewing with at home, and ferment it in small batches.”
Lo Bros is different, shipping concentrate over from the brewery in Australia and adding flavours, sweeteners and probiotics. Global marketing manager Rai Bostock says the company would welcome standardisation around kombucha.
“There are many different interpretations as to what constitutes authentic kombucha so an industry-wide standard would allow consumers to make informed choices.”
Growth in the market
Meanwhile, Richard Old says a week into its equity raise, the company is already a third of the way to its goal of raising $700,000- $1 million.
It is looking for investment funds to speed up its production process, and to boost marketing for its traditional kombucha and its new alcoholic range Blume.
“A new bottle machine, a better labeller and date coder; these things would help us produce three, four times quicker than our present manual processes,” Old says.
The company is predicting sales could go from just over $600,000 this year to $3.7 million in the 2023 financial year.
Old hopes Batchwell will turn a $500,000 profit that year.
“It’s about investing in the brand; telling the story about how we make kombucha, and what kombucha is, versus maybe what people perceive kombucha is.”
Sixty-eight percent of the people who try kombucha don’t like it at first, Coca-Cola’s John Hackett told Forbes two years ago, citing an industry survey.
That’s just another of the challenges facing anyone making kombucha – particularly a small player.
Tauranga-based kombucha brewer Good Buzz is also expanding. The company will move to a new site in November with double the space and the potential to brew three times as much kombucha as it does now, says CEO Ryan Christensen, who recently moved to Good Buzz from Lion Breweries in Sydney.
“We think we can grow kombucha as a product. Particularly we think there is room to reintroduce people to the product who might have had it a few years ago and didn’t like it.”
Count me in that number. Before visiting Batchwell’s Penrose brewery for a look around and a tasting while researching this story, I was a strong kombucha sceptic. That was based on an offering from a health-conscious friend about a decade ago. I surreptitiously tipped my glass into a handy pot plant when she wasn’t looking.
Not any more. Like the Metro judges, I find I actually like the stuff.
Sometimes a shift from traditional ways isn’t such a bad thing.