van Hafer -- founder and CEO of Black Rifle Coffee Company -- wants you to vote with your wallet. He wants you to vote with your wallet (i.e. buy his coffee) because he has vowed to hire 10,000 veterans, an apparently politically-charged response to another politically-charged pledge from Starbucks to hire 10,000 refugees (which was in response to President Trump’s Immigration ban). Despite Evan’s rather impressive knack for garnering press and publicity, the financial gymnastics required for him to expand his workforce by a factor of 166X in less than a decade are insane. And he is and will be competing evermore with Starbucks -- a $21B-in-annual-sales behemoth running 13% net margins in a space that they themselves invented.
After tweeting a photo of ISIS fighters with Starbucks cups photoshopped in front of them last week, Evan was able to generate some buzz for himself and his brand. He did a spot on Fox Business News’ Varney & Co. and was interviewed by Task & Purpose, adamantly defending his aggressive strategy. His vow, which he vociferously defends as not a publicity stunt, seems to be working out already. As of this writing, his website was running the following banner:
Before joining the ranks of the USMC in 2010, I worked in institutional equity sales -- which is just a fancy way of saying that I pitched investment and trading ideas to hedge funds. Let’s see if I can’t shake off the rust a bit.
Knowing exactly what kind of business BRCC is doing is impossible, but getting in the ballpark should be doable. The company’s YouTube page -- their primary marketing channel -- has ~17k subscribers, and their most popular video generated 181k views. The approximate mid-point is 100,000 people. Converting that many of your ad-viewers into paying customers is unheard of, but let’s assume that BRCC has a loyal customer base of 100k people who spend $45 (the cost of their “Complete Mission Fuel Kit”) on their Black Rifle Coffee six times a year. That gorilla-math gives you annual revenue of $27 million. It is highly doubtable that BRCC’s 60 employees are generating $450k in revenue per person. Starbucks does roughly $10k in sales per employee. And their average transaction ticket is ~$9.73. All of this goes to show that $27 million in sales for Black Rifle is the Mount Everest of generous assumptions.
But let’s run with it. Can topline of $27 million support a workforce of 10,000 people? Of course not. If Evan paid his 10,000 veteran employees $12 an hour, with an average work-week of 15 hours, his annual payroll expense would round out to $86.4 million before taxes. So, if BRCC had 100% net margins, they would still owe $59.4 million in back-pay to employees working less than 50% of the average American work week. Even if you double the frequency with which BRCC customers purchase their coffee (increasing revenue to $54 million), that still leaves a gaping $32.4m payroll shortfall.
And the headcount and payroll math is only part of the story. Evan stated on Fox Business News last week that he has partnered with 17 companies to roll out 100 stores over 3 years, and 600 in total over a period of 6 years. That he mentioned the number of companies helping out and not the dollar amount of capital he has actually secured for the outlay necessary for this kind of growth is telling.
Let’s keep giving him the benefit of the doubt, though.
How much would it cost to open a brick-and-mortar coffee shop? Let’s say that the all-in expense for a brand-new store is $150k. That brings the total price tag of those 600 stores to almost $100 million. Let’s put that into some sort of perspective: that is 100 Range 15’s, or 2.2 million “Complete Mission Fuel Kits.” Mr. Hafer mentioned that in order to complete this rollout, he is working with 5.11 Tactical, a company that was just purchased for $400 million in 2016 by Compass Diversified Holdings. Are we all supposed to believe that the equity holders of 5.11 are going to dump a quarter of their proceeds from this sale into the retail coffee business on a whim? Or that a publicly traded company -- Compass Diversified -- is going to invest an additional $100 million in Evan Hafer’s Conservative Coffee Emporium for the privilege of competing with Starbucks? It’s hard not to get the sense that he’s just making this shit up as he goes.
Even in the most generous of fantasies, hiring 10,000 veterans is not something that seems to make any financial sense for BRCC, as best as I can gather. I left out the additional operating expenses that come along with transitioning from e-commerce to actual retail, but the $200 million hole BRCC seems to start off in looks insurmountable enough. Either Hafer is hiding a bazooka in the form of a massive investor (who is probably nervous), or he is just engaging in a “pump-and-dump” scheme to hype his brand and move more coffee temporarily.
If you want to “vote” every time you purchase or brew a cup of coffee, then by all means, go right ahead and #BoycottStarbucks. Or buy more Starbucks (fair and balanced). In a world where veterans can wear their status, politics, and home defense strategies on their backs, why not drink your identity as well? Just don’t expect to land a job in the process.
Dan Willis was an infantryman in the Marine Corps from 2010-2015 after a tumultuous and short career on Wall Street, serving with Fox Company 2/9. He is currently working on his undergraduate degree in economics at Columbus State Community College, and expects to finish at The Ohio State University. Dan humbly serves as RTB Media's Creative Director and Co-founder. Follow Dan on Twitter.
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