Q4 2019 Earnings Call
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Good afternoon, and welcome to the Eastside distilling reports fourth quarter and fiscal year 2019 Financial results conference call with all participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press * then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Blum with Lewis & Partners, please go ahead. Thanks so much Erica a good afternoon. And thank you everyone for joining us on today's call to discuss Eastside distilling Financial results for the quarter and fiscal year ended December 31st, 2019 apologize for getting started. Just a moment later. Just waiting in the SEC.
C to for the filing to cross which it just at as the operator indicated. My name is Robert. Glen was lifting partners and I will be your moderator for today's call earlier East Side issue there for a quarter and fiscal year 2019 results in a press release and the 10K has been filed joining us on today's call to discuss. These results are Mister Lawrence Firestone. The company's chief executive officer Mister Robert manfredonia, eastside's president and Mister Steve Schreiner, the company's interim Chief Financial Officer following their remarks will open the call to your questions dead.
before we begin with prepared
Remarks we submit for the record the following statement certain matters discussed on this conference call by the management of Eastside distilling may be forward-looking statements within the meaning of section 27A of the Securities Act of 1933. The amended section 21e of the Securities Exchange Act of 1934 is ammended in such forward-looking statements are made pursuant to the same provisions of the private Securities litigation Reform Act of 1995 forward-looking statements describe future expectations plans results are strategies and are generally Prestige by words such as May future plan or planned will or should expected anticipates draft eventually or projected listeners are cautioned that subject or something to a multitude of risks and uncertainties that could cause future circumstances events or results to differ materially from those projected in the forward-looking statement.
That's matters involve risks and uncertainties that may cause actual results to differ materially include, but are not limited to the company's acceptance and the company's products in the market success in obtaining new customers wage success and product development ability to execute as a business model and strategic plan success and integrating acquired entities and assets ability to obtain Capital ability to continue as a going concern and all the risk and related information described from time to time in the company's filings with the Securities Exchange Commission, including the financial statements and related information pertaining to the company's annual report on form 10-K for the year ended December 31st, 2019 filed with the Securities Exchange Commission today now, I'd like to turn the call over to Lawrence Firestone lairg, please proceed. Thank you Robert. Thank you everyone for joining us this afternoon.
First of all, we hope everyone on the call and your families are safe and healthy and steering clear of the coronavirus. We are certainly operating an unprecedented times and the world has changed drastically since we spoke at the end of January.
As you'll see from the press release results for the fourth quarter and year ended 2019 were in line with our preliminary report. We provided back on January 30th, which Mark Mendes growth and record revenues as well as case volumes for the year in 2019 for East Side.
The 2019 gross sales were $17 million compared with 7.2 million in 2018 and increase of 136% The increase was attributable to organic growth in the company's redneck Riviera product which grew to approximately twenty-seven thousand two hundred cases in 2019 compared to roughly fifty thousand cases in 2018, as we expanded our points of distribution at a record pace for your results from Kraft canning and bottling which we acquired in January of 2019 as well as late third and fourth quarter contributions from these Union tequila brand which we acquired in September of 2019.
Quarter gross sales were four point three million compared to two point four million in the fourth quarter of 2018 an increase of 79% as we described in January because we were recasting our 2020 forecast depend the curve and put some leverage in our p&l our off-premise programs represented late and plan shipments of the Reagan Era set for December 2019 were pushed to January which negatively impacted the fourth quarter results, however, the fourth quarter and not even at the time of our conference call that we had in January seems like a lifetime ago as the covid-19 situation moved in and was impacted our business every day since then dead.
Let me spend some time walking you through the impact to our business from the coronavirus and the initiatives were putting in place to mitigate the impact to the extent possible and provide some view into the first month and Beyond as you may recall from our conference call in January the delayed placement of a redneck Riviera line up from 2 for that we're expected to roll over into January across as expected as we started key one ahead of our original plan, which was for approximately 6300 cases of redneck Riviera, whiskey we shipped over 3,000 cases of redneck Riviera in January, which is typically the lowest month of the first quarter with momentum building towards the end of the quarter.
We had authorizations for continued growth in place from our off-premise customers such as Costco and others and based on what shift in January. We anticipated potentially ten thousand cases of redneck Riviera to be sold in the quarter. This would have been a record quarter for this brand has the coronavirus took root mid February. We experienced a downward shift in the trend that we saw in January turning through azunia. We anticipated approximately 5400 cases to be sold during the first quarter and anticipated increase of more than 50% over the prior Year's first quarter and this as we looked at at the rest of our Spirits business what we call our Legacy Brands such as Burnside Berman way way coffee run and Portland potato vodka and others. We were anticipating another approximate 6200 cases to be sold during the quarter dead.
We were well on our way to having a record first quarter with what would have been an estimated twenty two thousand cases sold in a single quarter most importantly the long-term initiatives we had in place to transform me beside the stealing from a company with one primary Gateway product. Redneck Riviera, whiskey to a house of brands that leverages our National Distribution capabilities was firmly on Iraq. However, once February hit and the mandates and impacts from covid-19 began to occur purchasing from our customers as meaningfully slow down at spend a minute talking about what changes and perhaps more importantly the steps that we're taking the mitigate the impact first while business will Spirits businesses are on the essentials list of our employees classified as essential Workforce many of the on-premise locations, in other words bars and restaurants have largely been closed and those that are open include carry out.
further
There's been a significant shift within the off-premise locations as consumers are focussing on the major brands and pulling the larger 1.75 liter bottles off the shelf instead of smaller 750s where we play on the national platform. Pardon me. We only sell 1.57 of our Portland potato vodka, which is experiencing an uplift in the current environment. The surgeon Spirits sales that has been reported by the media that you might expect to have a halo effect for eastside. Am shopping is in a different segment of the market with major established brands that produce 1.75 liters.
Further the market data suggests that the Bellwether brands are the ones most favorably impacted as opposed to the earlier stage brands that are growing in the market. I relate this shift and bring in practice like a flight for safety almost as the customers really want to buy in bulk and limit their visits to the store a negative driver for us is also the fact that our plan in store tastings at the major chains coupled with the new insertions that we've had planned on. I've been shut down as retailers with canceled these opportunities to taste Our Brands.
Additionally, we had targeted the commencement of the Burnside bourbon and weiwei coffee run National launch which have been delayed as retailers that postponed or cancelled new store rollouts in the near-term extending these impacts is the fact that the consumer shopping for Spirits has also been shifting to online purchases where we do not currently have a strong prayer life. However, our marketing team is kicking that effort into high gear and we will have all of our products including the Oregon branch available online and Q2.
We will look to expand our online channels as we list Our Brands on e-tailers. Sites and connect them with our distributors throughout the year.
One Bright Spot Tanning is experiencing strong demand from the craft beer and wine industry as the Brewers and wineries have batches that they have produced and need to get them into bottles and cans between Workforce issues that our customers sites and the closure of the on-premise businesses. In other words. The Taps are closed and this has created Pac-Man for a mobile canning business.
A business model for mobile canning is to send our team of two people in a box truck including a canning line and inventory to set up at the customer site. Then we can practice their product at their site and this eliminates the need for transport or shipping.
So as we currently estimate the q1 impact from covid-19 We believe We will see a shortfall of between $65 and seven thousand cases over a sweet wage branded products.
Overall Pardon Me overall, we believe the first quarter gross sales will be between 3.7 million and 4.2 million, which is a negative impact of money than a million dollars in gross sales from our original key one expectations. The important question now is what are we doing to mitigate the changing landscape and immediate impact damage to our business crisis breeds creativity and often times when there's a tectonic shift and circumstances. We get a chance to look at our business from a different angle and develop solutions that were not evident before
First we have enacted a series of initiatives to improve cell through including offering promotional discounts on Redneck Riviera, whiskey and as in you could keyla many of you have seen emails or online promotions for this and while the data is is very early. The analytics are very encouraging as we pull the consumer eyes towards our brands.
Second as I mentioned we are adding online sales capabilities redneck Riviera whiskey is currently available for online purchases. And we anticipate as India and our Legacy Brands will be available online very soon third with the on-premise restaurant and bar closes throughout much of the country and in all of the major markets where we play long. We've been reallocating or resources to support the efforts of our off-premise independent stores and wholesalers by creating several programs aimed to energize the local Marketplace. Robert will be found on this further forth and although unrelated to covid-19. We were already working on lowering our cost structure as we implemented our previously took an initiative to shut down or unprofitable retail operations by the end of March which is now complete along with this initiative which included 18 Retail employees we recycle
reproduction opper operation and reduced nine employees in production
In total since joining the company, we have reduced our Workforce from 138 people down to 89th V. We are targeting other areas where we can deliver efficiencies and lower cost of operations while these programs are in their infancy. There'll be driving them hard to accelerate the impact the east side.
Among many areas where we were focused and the following our top priorities. We want to capture what I call money in the bottle, which is to say we need to drive our cost of goods sold Em Down to the lowest level possible. We currently operate at a blended gross margin in the mid-30s and you need to be closer to other Spirit industry brands which are closer to 50% or even grid which is one area that creates an opportunity to produce the marketing dollars to support the growth of Our Brands long-term part of that includes reducing our fears such as the closer of a Hillsborough production facility.
the next area
Is looking both inside and outside for cost of goods sold deductions as we look at our production facility and where we want to take Our Brands which is volumes far north of where they are today. We've hired a director of program management to drive an Outsourcing program for redneck Riviera whiskey is this is Adam volume level that we believe would be attracted to Major Spirits co-packers thought would deliver our case product on a turnkey basis and eliminate what we believe would be significant cost from each bottle.
And increase our gross margins on that product one small example would be the cost that we pay to ship Rob drove whiskey from mgpi in Indiana to Portland and then back east coast if we can save $1 per bottle on a 30000 case brand like redneck Riviera whiskey that's a hundred and $180,000 annually Edition sauce as we look for a turnkey relationship. We will likely sell the co-packer buy raw material inventory at the time of closing the contract which will significantly streamline our business.
Outsourcing will also position the redneck Riviera brand well for when the brand sells in the future as we will already have garnered the economic benefits for each side, which we believe will allow premium sale price at the time of the pre-owned sale. We're in the midst of a restructuring our overhead and our and our are looking for all opportunities to reduce our sg&a. The challenge is part of our Workforce. For example, the on-premise sales team is in a holding pattern waiting for the market to come back and we'll be a burden on the p&l. It's just flow without the revenue loss that so while the on-premise businesses shut down re-evaluating. Our premise programmed and will be changing or eliminating some of those programs that have negative gross margin.
We're still focusing on driving the business to Eva. Break even and potentially given the market conditions and some of our initiatives. We will lower our Breakeven Point anything get there at a lower level. We believe we're driving the right strategy in the impact from covid-19.
Now with the new insertions on hold we are laser focused on rate of sale and trade.
Which we need for long-term growth of Our Brands. It will be a bumpy road in the short term but we feel our strategy is a solid foundation to build east side back from when the world wage versus the shut down and starts to reopen for business and we certainly hope this happens soon. The obvious question is our liquidity and working capital availability and our ability to understand the near-term storm. We're in the fortunate position unlike other companies to have a number of options in this regard and many of which I cannot address in detail, but will do so when we have those finalized
as many of you are
Where we close to critical working capital facilities over the last few months in December 2019. We close in accounts receivable factoring agreement with Angus commercial Capital with a total capacity of up to two million dollars. The agreement allows us to borrow up to 85% of the eligible accounts receivable off subject to various terms and conditions outlined in the agreement then in January of 2020. We close the new credit facility of up to eight million dollars with Live Oak Bank back by the Japanese lost Spirits inventory this funded the payoff and replace two existing inventory facilities with kfk in the short-term tqla facility, totaling $5 million and capacity off and and and is it in addition to the increased availability of approximately 2.6 million the new credit facility offered some advantages to East Side including a reduction log.
Interest rate these working capital facilities were major achievements for us as as we will continue to leverage our asset-based to help fund the growth in our operations as opposed to turning to the capital markets for the first stop for funding in addition to the aims and Live Oak lines. Logistics partner Park Street also provides an AR factoring facility for the spirit sales that back to the house. So as we move product into the market we have access to cash earlier than the 30-day terms that we invoice that
In addition to the lines of credit that we mentioned we have significant inventory in house, which is also a source of cash and especially for the redneck Riviera product. So when we push that through the air products since we already own the inventory, this is cash flow lastly, when we complete the contract for outsourcing production. We will look to the sale of our garage sales to that to that supplier for cash.
Based on our success of our collections at the end of March we estimate that we will end q1 with between $800,000 and a million dollars in cash which we will manage carefully as we move forward.
In addition to our cash on hand. We are looking at all other aspects in the business that are sources of cash. Nothing is off the table right now. We all understand that the government is authorized to trillion dollars in relief funds and three hundred billion of that is designated for small businesses, which east side is one of many Live Oak bank has already contacted us is the potential solution to be our lending Source given that they hold the collateral in our inventory to potentially connect us to those funds as this was all approved late last month. The situation is unfolding rapidly, but not in place yet will work closely with Live Oak bank has their security in our inventory gives them an advantage if we can work with them.
once we determine
Borrowing capacity where we'll also look at other lenders as well.
We'll look at our Brands as a source of capital as well. The good news is we have knobs to turn on the p&l and ensure and assets that we can monetize as we go through this Global situation. Finally. Let me state that while we're changing our internal Works to optimize our model. We remain committed to our strategy as we run the business through this. As long as we have stated objective is to become the leading mid-tier Spirits company that acquires develops markets and sells these premium branded spirits on the national level. And once they become proven and sustaining Brands sell them to the larger tier-one Spirit houses in the industry, even though we have not sold the brand yet. We believe that there's tremendous value inequality in the brands that we have in house in are developing. And as we stated last fall, we have begun the process of validating that validating that and looking at all options in class.
Those that would unlock value from our portfolio of Brands and allow us to step up investment in key areas to accelerate growth while it's difficult to see from the outside particularly given our stock performance of recent as the world has moved away from micro-caps. We see a company in the midst of a large-scale transformation that will leave a more profitable faster growing company a future and one we believe that the market will appropriately value now. Let me turn the call over to Robert to add some additional color Robert. Okay. Thanks Larry and good afternoon everyone while I normally go through a series of Market data points. I will just because of the realities of the market and the significant changes over the last month plus instead. I will focus on details from Larry's overview and I will elaborate on the market and how we are adapting to the significant wage.
Changes as Larry indicated we started off with a very strong January. In fact, we were significantly over the original forecast for the month as an example the redneck Riviera and new distribution for Publix. Florida was set on the shelf and provided an initial list. We expect it the usual off Cadence of gradual monthly growth to continue through the quarter, unfortunately our expectations and many other early-stage brands were interrupted Market circumstances. Redneck Riviera also was further challenged by a large program cancellation with Costco, Louisiana. This further exasperated the volume challenge fortunately in regards to Costco. We have a Southeast Regional program committed to for the fourth quarter.
moving to
Junior shipments were impacted by the market disruption as well. This is inclusive of in month March Fitness and case deliveries for April business off. This is inclusive of existing cell through business replenishment and new incremental business schedule for a March release. This Market condition also had a slight effect of early delivery opportunities for Cinco de Mayo programs Nationwide. Generally, the first quarter Cadence are very linear in the on-premise off as soon as current volume is driven by the on-premise delivering 78% of the total volume regarding new zulia business. The team has spent a considerable amount of time in the first quarter adjusting our wholesaler Network in the East and Central Region. The transitions were focused on fifteen wholesalers time.
Just include the transition to rndc Florida the favorable news the initial order equaled the entire 2019 first quarter shipment off, Michigan, Wisconsin and Alabama will carry the key lock for the first time ever all existing States. Would Grant availability that song transitions provided aggressive initial orders inclusive of New Jersey. The initial opening order was 7 times higher than the entire shipment off last year. Illinois's opening order was double the entire 2019 shipments for last year and Tennessee and George's opening POS were three times higher than the entire 2019 shipments. Lastly New York City area is scheduled to be released in May and the agreed to wage.
20/20 case commitment from the new wholesaler is in excess of 1809 cases to put that in perspective last year as soon as sold for cases in New York City were extremely excited about the immense opportunity in New York City to further develop the brand within the high-profile metropolitan area where am also extremely encouraged by the overall wholesale or response and the position reflected in the initial orders.
Burnside way way National Rollout as I mentioned in January both Burnside and Whey were set to enter select National markets including California, Washington, Texas, Florida, Arizona, Tennessee in Illinois by the end of the first quarter. This did not occur from Most states outside of California as retailers adjusted to the impact of the virus worth noting the process before Market release a wholesaler, kickoff meetings, inclusive a brand educate brand education all wholesaler new brand launches are on hold until the market normalizes the favorable news. All wholesalers are excited and will represent the Brand's worth noting wholesalers are very selective with accepting Brands and most declined with the initial presentation wage.
And many brands have to move to tear to wholesalers for distribution.
representation
Larry spent a lot of time talking through some of the marketing and sales initiatives. We are driving to combat the impact of the virus. I will add some additional points within marketing of several new March programs already launched inclusive of the following a Zuni a text to win a trip to the Distillery. Also a $4 instant rebate where legal messaging is focused on our database and social media platforms inclusive of Instagram Facebook and Twitter as Sunni a black has a separate marketing program align to social media platform platforms with a higher value instant rebate coupon. Oregon brands are supported with Iraq by local campaign driven by geo-targeted digital coupons and redneck Riviera is driving geo-targeted video ads to high density distribution areas specifically in
Pardon northern and southern California and northern and southern Illinois. This is a John Rich video driving back to the point of purchase supported by a download a coupon off by one saved three four, five two and save eight. We've increased our direct digital marketing and couponing Outreach through delivery services, like instacart and drizzly. It's Risley model is focus more on the off-trade General Market in simple terms. They work for retailers and our delivery service where the consumer products where legal within a few hours if the product is available in the local area for instacart. Their model is focused on corporate retail that provides a delivery service jobs or nominal charge to the customer. We do not incur any of the cost to retailers supports this
We track all these initiatives through Facebook or Google analytics along with wholesaler depletion reports and Nielsen transaction data focused on 30-day versus previous 30-day reduce. All the electronic couponing will be followed in April with paper in store coupons to ensure we're capturing all potential purchase opportunities. Once I get off premise environment normalizes. We will start in account Nationwide product samplings where legal
Well, we are remaining adapters and instituting a number of programs aligned to the current market conditions. It's important to note that we are continuing to focus on executing the long-term initiatives that we are ultimately going to support the high-value broke across their National platform for the long-term. We are now off and have been presenting new authorization presentations with the grocery plus trade focused on a Zuni Reposado and select presentations four-way Trade coffee from
redneck Ruby
Eric continued growth in part is driven by the new class of trade entry in the next couple of months. Redneck Riviera 750ml will enter Rite Aid in California Michigan by the end of June unless market conditions. Uh, cause you're further delay and Walgreens Florida will be added in the month of August. This is the first entrance into the the drug class trade for a mandated shelf position with full distribution in all stores in all three states wage in closing while the current environment is certainly challenging to our business. We will continue to execute our plan. We're available Force correct based upon market conditions as needed and most importantly be prepared for the normalization of business when the market does adjust. I am confident. We are in a favorable position to khong
And on the other side once the market does normalize with that. I will turn it back to Larry.
Okay, I was on I apologize.
Thank you Robert as mentioned on the call at the beginning Steve Schreiner our new interim Chief Financial Officer.
Is is joined us on the call today? And I've worked with two previously and he joined at a critical time to help east side with leadership in the finance Area Office first point of attack.
Has been in the cash flow of the company, which is so critical for growing the company, but now and especially in these times.
Because he recently joined he's been getting his hands dirty inside the financing control side and I'm going to give him a pass on discussing the normal quarterly analysis that I've already summarized today, but I'm confident that Steve's hands on approach the process and continuous Improvement will add tremendous value to Eastside going forward and he is certainly well-versed in solving problems for companies that are transitioning from the stage of investment cuz I have a cash flow possible as a company. We've become more Nimble in our complete life.
focused on creating value
So just a shout out to our Eastside team.
Robert and his team are working hard every day on the customer facing side of the company stew and his team are working the cash flow and financial models and Kevin Quinn and Mel Heim. They're working Outsource, redneck Riviera, whiskey production and to improve our gross margins on that brand in mining all of our brands for cost reduction Todd Garrett and his team are driving hard capitalizing on the opportunities for crafts canning and not just during the crisis. We jelled as a team over the last four months and come up literally every day long as all of us are working to lower overhead and break even point to get east side to the point where we can run the business organically on our own Cashflow. We would also like to thank John box as well for all of his efforts to promote the redneck Riviera brand. I had the pleasure to watch John in action at a private concert and the redneck Riviera bar on stage was awesome job.
But more importantly his commitment to our Armed Forces is moving. Thank you, John.
Clearly the covid-19 is raised the bar on our team and near-term impact on our business, but we believe this will quickly pass and we will drive to regain the strong footing bio. We started the year off with there's plenty of work to do but I believe we have a great team to get us there Robert and stew and I are all remote. So as you ask your questions, we will call on each other to answer which is certainly a change from all being in the same room. So with that said we'll go ahead and open up the call for questions.
Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star then to our first question comes from David Bain of Roth Capital, please go ahead with your question.
Great. Thank you. And thanks for some of the additional transparency in the press release with Keith volumes and revenue by driver. I guess first Larry. You mentioned you lower the Breakeven point. I'm just looking at 23 Transit expected next without on-premise and off-premise now, you know you're canning and then the other margin efforts you spoke to could you apply it to be kind of weird apply needs to be for a break even on a quarterly basis.
Yeah, it's it's still a moving Target David. So I'm going to I'm going to pass on that for right now, cuz we have you know, we're still pieces in the middle of the business as we mentioned off-premise team is is is really kind of on the sidelines right now. So as we work through that will will come back to you with that number but it's you know, certainly with moving the head count down and closing the retail operations and those kind of things it's it is really moving in the right direction, but I'm not yet to the point where I'm I'm ready to guide a a break-even point off. Okay. I'm still that's fair. I'm just giving assuming this historical on-premise Max and I understand that plan is always been to tackle the the kind of built National off-premise track same but you know, obviously the urgency here are probably even a little bit higher and Robbie decent night's acceptance data points. I presume I guess just a couple of questions if we headed to Thursday.
That's me broadly, um has timing of reset the change. I understand, you know, the form factor is more popular as you mentioned for the 1.7 5 or 7:50, but we adjusted to match, you know, the current environment Warcraft. We're not logged but you know what has been the response from distribution points to kind of the sales for this month and you know, what you're doing, um outside the kind of incentives you mentioned, you know, how those are being, um, you know accepted at this point. Yeah. Thanks David. The first thing I want to reiterate is
Is the wholesaler confidence that we have the the numbers that I quoted with new distribution points are not the norm. It's usually a oh I see they take very little product inventory and and based upon the market reaction than the incremental start to take in more inventory, but that hasn't been the case. So so there is a a position from New York City to Florida to Illinois and many other states where a lot of our wholesaler partner very bullish on the brand itself. It starts with that and their confidence cuz we need their support with retailer presentations. We are presenting for the month. They call the fall pull and plug which is a September timed period of time usually the the most of the distribution changes are done in the spring we ma'am.
The large portion of that with uh with acquiring acquiring the brand in in mid-september. So we're going to go through the mid-year and we are presenting Reposado for the most part two most of the chains across the country and the reception has been fantastic. A lot of the chains are starting to trade up from Blanco to Reposado. We have a product that's organic. Um, and they're very excited about it. We will see it's a smaller consideration. So there is less, you know, there's less changes made overall. We thought we will continue to fill in what we call the General market the independence where there isn't that hard line consideration. But the early response has been a fantastic and even to the point of Brands like way way they're selected retailers that are intrigued by the brand like Publix in Florida in South, Florida, Georgia.
That we have an opportunity to be very selective on where the brands go. So we have the right Brands to go into high-growth categories or position in the right price certifications, which is above premium and luxury and that's where we want to stay. So that's really the model and now we're moving things through the model itself.
Okay. All right, great. And I guess they're looking it for investment potential opportunities or cashing in on some of the growth you've created for certain brands. I know there's the opportunity to compete on it with environment and choir needs. But when you look at the portfolio are there certain broad strategies you consider like a matrix you look at when you look through the central brand incubation that. Being finalized with any ties you you broke up a little bit at the beginning their wage. I think I think the question is not like that. Yeah.
Go ahead. Go ahead again.
Okay, so diverse an opportunity and you know what you're looking at on your end as two considerations to pull the trigger. Should you be approached on certain brands or Market certain brands outside of financial considerations? Is there something of a matrix you look at within the portfolios. I'm just trying to understand that's a that's a great question. Yeah, that's a great question. You know the the brands that hit the national platform. We thought well, you know straight up Robert and I are working on that. So what is the you know, what's the exact model that that we want to get too? And and you know, that's a work-in-progress. I mentioned is a gross margin targets being a piece of that and I think you know that the way I look at it is you know is a is a trailer hitch to one of the the tier ones. What would they like to buy they would probably dead?
Much rather buy a brand that's performing in the margin level that that they're used to and that has you know that has in the National platform, you know wide distribution. That's that's sticky that can uh, you know that they can easily import into their into their line up and take it to the next level. So metrically I don't have that yet David, but for the for the local brands are the brands that are more predominant in Oregon in the Northwest, you know, Robert and I have talked about some of those Brands and and whether they have em, you know, what kind of growth opportunities they have have they peaked and what kind of margin opportunities they have as well. So, you know, we're we're just getting started on digging into cost of goods sold, those kind of things cuz I feel like there's there's quite a bit there with a 30% you know, mid-30s kind of gross margin. So it's it's really going to come down to taking it apart and you know kind of birth.
In the brand engine apart and and seeing what we need to do when we put it back together.
Great. Well, it sounds like it's extremely strong before and look forward to getting back there as much.
likewise
our next question comes from Jim McKelvey of Bradley Woods, please go ahead.
Yeah, thanks and good evening. Just a couple of questions. How much was on premise sales in the quarter? And then of the the inventory balance at year-end how much of that was whiskey?
Oh boy on premise sales all that Robert answer that from the probably maybe just a percentage of the the business but the the whiskey the raw barrels of whiskey.
I want to say it's probably in the seven million six to seven million range. And and the the strange thing there June is is when we borrow from Live Oak, they lend against market value. So, you know, there's a there is a spread there between our cost and our Market.
Got it, and the on-premise sales you're saying just a small percentage.
Well, it just depends upon the brand itself. So redneck Riviera is a 11% on premise brain from a volume standpoint. Okay. The azunia brands is 78% of the volume right is provided by the on-premise the Oregon Market alone. No.
The on-premises 12% of the market.
Okay, so that's that's the part. You know, what what we're all dealing with right? Not not only us but but it's part of it and and it's also I think it's worth adding wholesalers have taken sort of a position with within this this crisis of really focusing on the the very well-developed Brands. That's what they're bringing in additional inventory with the smaller Brands the mid-size Brands, even they are they are playing inventory levels very very tight at this point in time. That's part of this challenge that we're facing in in the near-term that will loosen up very quickly. We're already having planning sessions with them for the month of May and June. So we have our plans in place for the reopening of the market.
All right, very good. Thank you. Good luck with everything. Thank you. Thank you. Thanks.
Our next question comes from Harold Weber of Aegis Capital, please go ahead with your question.
Yes. Hi. Good afternoon. How you doing?
My Heroes, can you hear me? Good afternoon? Yeah. Yeah. Yeah, we can hear you a couple of questions first basic level. It's been all kinds of talk about distillers converting some of their production. They're making alcohol to distribute for sanitizing purposes long. You guys been involved in that at all. You have any you have not we have not, you know, we we run a small production shop in in Frank Robert and I and the rest of the team that I mentioned have been, you know working so hard to to construct or reconstruct or transform transform the business and in so many different ways for us to to stop drop and roll and cut in a new sanitizer product. Um, you know, we would be up against the guys like dead.
You know the president announced that Pernod Ricard, you know came out with sanitizer and those guys will make those guys will make a million gallons by the time we would get you know, our product rolling. So we we we made the decision to not go down that path.
Okay. Okay. So so just if you have idle capacity, I'm doing production if you don't have that's okay to place a a.m. Would you say the good public relations thing being a good corporate citizen stuff like that. But if you're saying that it doesn't make sense then okay. I'd like to get an idea if you've been working all we were talking about doing something in regard to enhancing our corporate branding image, but you have you been doing something in regard to that. Yeah. So we have our marketing team is probably not along the lines that you want to hear Harold but our team and I've been trained on this page. Uh, if you look at the tier one. Peers in the industry, you know, most of the if not all of the brands, uh, each of the brand stands authors.
Grown and they roll up to a corporate parent. So other than uh, maybe like a Seagram's you wouldn't really know who owns for example, Jose Cuervo or Bushmills whiskey or you know, just go on down the brand. So so the the what you've been asking for is a is East Side name on the bottle of every thing and that is a massive not exactly. I'm just I'm trying to get it to to raise the corporate identity of east side with some type of better branding logo showing the brains that we own and I'm not saying we have to put aside and every bottom line are really yeah. I'm trying to get the image of east side as a month premium brand company raised. Yeah and that and that I would say we're we're we're starting our you know our wage.
Release campaign you've seen that's hit the hit the news wire now on a pretty consistent basis that that attaches east side to the specific Brands and our marketing team is actually working on the issue and sites. And as I mentioned earlier in the call, they're working on the brand sites so that there's a buy now and every brand site we have some by now is that don't quite work. Well, so we've got to get that fixed so that people who are on our brand sites can buy Our Brands and and that's that's kind of my primary focus right now. I I hate to have a customer that that wants to drink liquids and can't get them.
Absolutely, you want it certainly anybody wants it should be able to get fulfilled. Yep any progress or any further developments in regards to the outlandish productivity outlandish. We have we pulled back from that when when the it was in Oregon only product for us. And when the Liquor Board in Oregon pulled back from the ability to mix CBD with with spirits that made that made that business for us extremely small. So we're we're putting our horses behind the the mainstream Spirits business that we're running.
That's fine.
It's fine and if a window that changes we can we can go back to wrapping that up as if the demand is dead, right if it's yep.
Okay, and we're going to like I was saying something in regards some kind of.
Branding identity a logo some when you send that email you send that it it's it just puts you to sleep something these companies they have vibrant. If I'm sure they have a theme to have something. I don't really care what you look at the bottles. We have all kinds of bottles with nice stuff on them. Maybe book Wonder that on the label or on the on the corporate logo or something something. We've got a great brand new house in Sandstone partners and they really work on the Brand level, but you know, I so I think that's really where our money is going and we thought we'd be talking about deploying or resources. It's really it's really at the you know at the Brand level.
How did he do you see the other products getting rolled out Coast at some point have you gotten any feedback from the Distributors about some of the other things off? Yeah, I'll take the same mentioned. We have all of the markets that we identified. Em are have accepted all other brands some we've shipped in they've landed in the warehouse has some we have you know, POS that are waiting that they're waiting for the market conditions to change but we've already have confirmed POS if not product in the systems. We have kickoff dates that have been pushed back a little bit but there is a process that kicking off a brand. It just makes suck you have to before you launch it into a market. You have to sit down with the teams that are representing the brands explain what the brain is about and make sure that they're
Fully equipped to go out and appropriately represent the brands. So all the states that we put forward to seeing the lawn states are engaged. They have accepted all of the brands way. We have either POS in hand or we have product in their warehouses. We're just waiting for the market conditions to adjust and we're ready to go. We're ready to go and they often and and I did mention that we like many other.
Companies present Our Brands to them for representation and most get declined. So above and beyond acceptance and the size of the initial orders in the financial commitment were extremely excited about the position that they're taking With Our Brands. So I expect big things to be happening again once things normalize.
Okay. So basically we're ready to ship and as soon as they say they're ready to to take is our basically right? Yeah, that is that is correct. They are they are ready to go off and once we can go through the process of kicking off the product will be in prior to that. We will do our meetings and we will start going out aggressively into the mark a targeted plan. That is correct.
and how long would
Do you anticipate it thinking to roll out too many of these distributors?
I would sit. Well, I think everybody wants everybody is somewhat back to normal. Let's say right right. So let's so let's just say Thursday if things normalize and and everything in the market, you know on-premise is open we can get in a room with people in the month of May then the problem will be launched in May.
If that's June, then that would be June. There'll be no delay or lack time once everything normalizes with the market back to the wholesaler.
Okay, waiting to hear about it to see it waiting to see them in the store. Well, we're we're excited. Where are you from New York City? We couldn't be more excited about the opportunity that not just for azunia, but for way way and Burnside and and redneck in the city, but also the Suburbia markets with the new boroughs the reaction of the wholesaler was s our expectations. So that that is something that we can really build our brains off of so, there's a lot to come with that. We're excited about it.
Okay, great. So, hopefully we'll be able to ramp up sooner rather than later.
Good luck, and we agree. I agree totally agree.
Our next question comes from David Bain Capital, please. Go ahead.
Give me one quick follow-up. It was on the online expansion of distribution. Obviously, that's a huge Market that sometimes we hear how competitive it can be. Can you kind of lay out what the strategy could look like on the platforms that you'll be utilizing to the train penetrate skills from that method.
You want to take that one Robert? Yeah. Yeah, absolutely. Well, I meant I mentioned David that we are utilizing delivery services of instacart injuriously, right? They're models are and what we're what we're going after is we're focused on when
when consumers approach drizzle your instacart our brains pop up that's part of the geo-target we're doing with and that's that's that's part of the plan change. The secondary piece of it is that we are utilizing our databases and our social media platforms of engagement right with direct messaging uh-uh through a genre a video as an example or through something, uh with with the brand laga liya or even products with in Oregon. So me and we have different tactics that were doing were sending messaging and then we're trying to focus on high-density opportunities with with distribution and then we provide them sort of the the support of a a coupon, right, you know, you can download a coupon for $3 on a one bottle by or you buy two and you save eight. So we're trying to use a variety of different dead.
tactix
And through the digital space to get people to be aware of our products joji Asante. Our senior vice president is doing a good job a really good job and expanding what's going on with this approach and we have a lot more to come. So this was always part of where we wanted to go. Obviously it's being further acceleration it because of the conditions and and we are receiving a lot of data back through just just Google analytics off Facebook analytics and we're starting to see sales coming through through the online space. So it's going to be something that we're going to continue to advance and develop these brands. Well online and we have the ability to do it. So so that's what we're going to be driving as we move forward.
Okay, that's helpful better understand. Thank you so much. Sure. Thank you, David.
This concludes our question-and-answer session. I would now like to turn the conference back over to mr. Firestone for any closing remarks. Thank you operator and thanks again to everyone for joining us on the call today. I look forward to speaking with you all on our earnings call in May. If not before as we strive to keep you updated on our progress. Please stay safe and healthy. Have a good evening. Thank you.
Thank you for attending today's presentation. The conference is now concluded you may now disconnect.
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