Island’s StartEngine raise is an equity offering priced at $65.7 million with preferred shares. This is an enormous valuation. Island Brands only generated $1.2 million in revenue last year, so (pending 2020 figures), this valuation represents a roughly 55x multiple — many times above standard price for a CPG company. It’s no surprise that Island Brands’ price rating is extremely low as a result.

The beer market in the U.S. is massive — around $102 billion with a 4.7% CAGR projected through 2024. That being said, the beer market is gripped firmly by major beverage brands Anheuser Busch and Molson Coors, which collectively hold more than 60% of the market. Downstream from the big conglomerates, the beer market is fragmented among hundreds of craft breweries, international brands, and other small players. Therefore, while the beer market is very large, Island Brands’ addressable market is much smaller when factoring in competition within the space. Consequently, Island Brands’ market rating is middle-of-the-road.

Island Brands was founded by friends and entrepreneurs Scott Hansen and Brandon Perry, who serve as co-CEOs. Hansen — who is Island Brands’ Chief Revenue Officer in addition to co-CEO — graduated from The Citadel with a degree in Business Administration. He went on to serve in various management roles for companies like ADP and YES Healthcare. He also spent three years as a Vice President at Merrill Lynch before founding his own talent firm. Perry served as the founder and CEO of two companies before Island Brands, a contractor vetting firm and a consumer financing business. He holds a B.S. in Business from Towson University. 

Both Island co-founders have roughly 20 years of experience in business and management. However, neither has a background in CPG, consumer branding, the alcohol industry, or high-growth startups in general. Therefore, the Island Brands team score is relatively low.

Island Brands states that its key differentiator is clean, simple ingredients, leaving behind the artificial junk contained in mainstream beers like Budweiser and Coors. However, there is some question as to whether mainstream beer brands actually use artificial ingredients. Budweiser disclosed that it uses only natural ingredients (water, malt, rice, yeast, and hops) after a food blogger alleged that the beer was full of preservatives. Whether major brands use artificial ingredients or not, it’s not clear that most consumers particularly care about the distinction. Many likely prioritize price or taste in beer selection. In that regard, it’s difficult to say for sure that Island lagers win out. 

Admittedly, Island Brands has crafted a distinctive brand that seems to hold unique appeal for the company’s target consumers in the Southeast. Multichannel marketing strategies, the use of brand ambassadors, custom-wrapped delivery vehicles, and the upcoming launch of branded bars do distinguish Island from other conglomerate beer brands. However, these steps will likely do little to unseat the firm grip of Anheuser Busch and its peers on the beer industry, particularly in the average consumer’s eyes. Therefore, Island’s differentiation rating is very low.

Island Brands lists few concrete financial figures on its raise page. The company touts various accolades like fastest-growing beer brand in the Southeast and variations on that theme, but those facts do little to inform the overall context around the company’s recent performance. Relying on 2018 and 2019 data, though, Island grew meaningfully year-over-year — from $715,000 in revenue for 2018 to $1.2 million in 2019. Despite the fact that Island’s cost of goods sold exceeded net revenue in 2019, the company appears to be growing steadily and making investments in long-term revenue channels, such as branded bars. Therefore, Island Brands’ performance rating is its highest. 

Island Brands is undoubtedly a successful regional beer company in the Southeast. The company seems to have developed a distinctive lifestyle brand that caters specifically toward sailors, beach-going college students, and others living the romanticized year-round ocean lifestyle in states like South Carolina and Florida. However, it’s not yet clear that Island Brands has the potential to make a major play in the nationwide beer market. It is exceedingly difficult to compete against entrenched actors like Anheuser Busch in the American heartland, and high-income millennial consumers in urban centers seem to be drifting away from beer as a category. In a bearish scenario, Island Brands continues to carve out a Southeast niche, but cannot grow meaningfully to address a more significant chunk of the U.S. beer market. 

Island Brands has successfully forged partnerships with the likes of Trader Joe’s, Total Wine and More, Publix, and other influential retailers in its target market. Moreover, Island lagers are sold fleetwide on Carnival cruise lines, an impressive partnership for a brand of Island’s size. The company has a firm foundation within these distribution channels, with significant potential to launch new channels and expand revenue within existing channels upon the launch of its line of fruity beers. 

In addition, Island is impressively well-branded. While the Island lifestyle caters specifically to consumers in the Southeast, the brand’s values (carefree adventure, sun-soaked gatherings with friends, etc.) are aspirational for consumers around the country. These values are certainly an effective differentiator between more indie, artisanal craft breweries in other parts of the U.S. Given Island’s solid track record of distribution success in six states, the company has the potential to continue expansion to the point of being noticed by a major beverage conglomerate for an eventual acquisition.

Island Brands makes fresh, simple beer. The company’s bespoke, beach-focused brand holds a certain aspirational appeal. Expansion to additional product lines (including upcoming lemonade and peach-flavored brews) may welcome in additional segments of consumers who are recently exploring other flavored alcohol options. Island successfully posted year-over-year revenue growth in 2019 and seems as though it achieved the same success in 2020. 

On the other hand, the beer market is extremely crowded and competitive. Island is competing against Anheuser Busch and Molson Coors plus a tidal wave of new alcohol brands like White Claw and Truly, craft breweries, and even the growing sobriety movement. Investors can’t be sure that they’ll enjoy a significant return from an investment in Island, particularly given the company’s extremely high valuation. Therefore, Island Brands has been rated a Neutral Deal. 

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