For a craft soda manufacturer headquartered in a state better known for its beer, turning a Wisconsin regional cola maker into a national player requires the chutzpah of someone willing to take risks that few others ever would.
Sharad Chadha, a former GE Healthcare and Samsung executive, purchased the 38-year-old soda and beer maker Sprecher Brewing in 2020 from its founder despite having no prior experience running a beverage company
To finance it, Chadha, the primary source of his family’s income, took a mortgage out on his home and quit his job at Samsung in New York. It didn't take long for one serious challenge to emerge that proved to be a major test for the most seasoned CEOs.
Just three months after the deal closed, COVID-19 shuttered bars, restaurants and other venues, shutting off a major source of sales for Sprecher.
“I must be made to be an entrepreneur,” Chadha said in an interview. “I’m an optimist and a risk taker and I said, ‘We’re going to get through this.’ ”
In buying Sprecher, Chadha gained a regional premium soda maker near Milwaukee best known for its root beer that, for years, was stuck in the middle: doing well enough to survive but unwilling to take risks to turn itself into a national player and a competitive threat to Coca-Cola and PepsiCo.
Randy Sprecher, its founder and prior CEO, paid for everything in cash, had no debt and didn’t invest in marketing or sales. Vienna Style Lager, Black Bavarian and other beers were posting flat sales, while soda, led by root beer, was growing in the low-single digits.
“You're walking this very fine line between going out of business and growing to the next level,” Chadha said. “Growth is not easy. There is a reason why people are just very small, or they're this multi-billion dollar company. This middle tier, it's hard to break out.”
Sprecher recently raised several million dollars at a higher valuation than its last raise in 2019, and banks have shown a willingness to loan the company more money. Its recent growth across the U.S. also has provided fresh evidence that consumers are embracing the drink after trying it.
“If those are indicators, I think we’re going to survive and thrive,” Chadha said. “But I'm not going to sleep easy and say, ‘Oh, it's all hunky dory and life's good.’ It’s a razor's edge.”
Taking on risk
Chadha is trying to break out by utilizing a drastically different tact in running Sprecher than his predecessor.
After noticing early on that its root beer was resonating with consumers in the 23 states where it was being sold, Chadha started wondering if there was an opportunity to accelerate growth into other areas. Sprecher stands out in the beverage industry by fire-brewing its sodas and beers in a kettle, and using raw Wisconsin honey as its primary sweetener for its colas.
Sprecher, which posted a profit in 2020, has recently prioritized growth rather than profitability. It’s aiming to reach $100 million in annual sales, though Chadha confesses the company is “about halfway there.”
Today, Sprecher is the fastest-growing craft soda company in the U.S., according to the company.
Revenue has nearly tripled since 2020 and Sprecher can now be found in 21,000 locations, including at some Dollar Tree, Kroger, Costco, Walmart and CVS locations, compared to an estimated 5,500 in early 2020, the beverage company noted. Its soda is available on retail shelves in 49 states; the only holdout being Hawaii.
During the last three years, Sprecher has put more money into growing the company than management did over the prior two decades, Chadha said. It also has taken on meaningful debt to finance its ambitious agenda.
Sprecher has spent millions of dollars adding new production lines, installing new software to improve the efficiency of its brewing process, adding 130,000 square feet of warehouse space, designating employees to work with retail giants such as Walmart and Costco, boosting its inventory and hiring 85 new people.
Several of these employees previously worked at PepsiCo, Coca-Cola and Anheuser-Busch, bringing with them invaluable insight into the beverage industry and connections with some of the nation’s largest stores.
”They’re not going to come cheap but they’re the ones who got the relationships” with retailers, Chadha said.
Tapping deeper into soda
While Sprecher’s history is rooted in beer, its future is firmly centered on soda. When Chadha purchased the company, about 75% of its sales were in soda. Today it is well above 90%. As recently as 2020, Sprecher had four people selling beer and one person soda. Now they have 20 workers focused solely on soda and a little beer.
The reason for the shift away from beer is simple. When Sprecher started in the mid-1980s, the company was one of just a few craft breweries in the U.S. But the popularity of the segment has exploded since then and today there are nearly 10,000 of them nationwide in the highly-competitive category.
“You're walking this very fine line between going out of business and growing to the next level. ...There is a reason why people are just very small, or they're this multi-billion dollar company. This middle tier, it's hard to break out.”
CEO, Sprecher Brewing
In contrast, root beer, where Sprecher makes the lion’s share of its sales, is much less crowded despite the fact that the company is going up against a roster of enviable competitors.
Sprecher competes against heavyweights such as A&W and IBC from Keurig Dr Pepper; Mug, which is owned by PepsiCo; and Barq’s, controlled by Coca-Cola, along with another 200 or so smaller competitors. The craft soda space is small, with roughly 2% of the carbonated soft drink market defined as craft or micro, compared to about 25% in both beer and even coffee, Chadha said.
Sprecher also makes flavored colas, including grape, orange and cherry, while owning smaller, more regional soda brands such as Green River which is popular in the Chicago area.
”Craft soda is where craft beer was 15, 20 years ago,” Chadha noted.
Sprecher not only finds itself going up against scores of other beverage companies, but it is competing in a soda category which has seen sales slide in recent years as consumers shy away from sugar and calories. Despite the challenges, Chadha, who was born in India and came to Wisconsin for graduate school in the mid-1990’s, remains optimistic.
He said Sprecher benefits from consumer demand for an indulgent treat as well as a fondness for a better tasting, locally hand-crafted product rather than something that is mass-produced.
“We try to be really creative, and it’s very hard. It’s been like pushing a boulder uphill, but we can see we’re almost there,” Chadha said.