Cola maker chases $2m worth of good Karma
Company planning new drinks, co-founder tells Damien Venuto
Covid-19 wasn’t the first time Simon Coley had to navigate his business through an infectiousdisease outbreak. “We’ve been through a pandemic before,” the Karma Drinks founder tells the Weekend Herald, as he describes the impact of Ebola on the cola nut-growing communities the company works with in Sierra Leone.
Within six months of starting his business, the families he had been working with told him the local chiefs had imposed a quarantine and members of the community couldn’t get out to stores to buy some of the items they needed.
Rather than just waiting for the health crisis to end, the community members asked the Karma Cola team for a loan to buy motorcycles and then negotiated with the chiefs to go to a nearby market to bring back supplies, which were then sold on tabletops in front of houses.
“That resilience was a lesson to us,” says Coley. “What we learned from that was that you’ve got to think of something to do when the s*** hits the fan. And the amazing thing about the shared external pressure of something like Covid, or Ebola, is that you really want to work hard to get over it.”
This is part of the reason that during a pandemic, when businesses are opting for caution rather than risk, Coley is looking to raise $2 million through Snowball
Effect to launch a new range of products.
The company wants to use that money to push into health and wellbeing by introducing a number of low-sugar alternatives to its current lineup, which includes cola, lemonade and ginger beer.
Karma Drinks has already moved into juices, kombucha and probiotic switchels — a drink made with vinegar — but this is about taking that a step further, says Coley.
“We already have all the formulations for the new products,” he says.
“One of the advantages of having to respond to some of the changes in UK law is that we’ve reformulated and reduced the sugar in our original range and we now also have a zero-sugar cola.
“We have a new product coming out now called the Razza, which is a lowsugar raspberry lemonade, and then in the pipeline we have a number of other health and wellness drinks that we have already established formulations for that we will launch with some of this investment.”
In exchange for their money, investors are being offered a convertible note, offering 10 per cent interest paid quarterly.
A convertible note is akin to a bond, which involves the company borrowing from investors and paying them interest for a certain time. Being convertible means it will convert from debt to shares in the company when certain conditions are met.
In this case, the investment will convert into shares in the event of an additional capital raise within the next 24 months, or otherwise when the bond expires on November 30, 2022.
Eventual shareholders in Karma Drinks will be given the right to any dividends authorised by the board and will be given voting rights at shareholder meetings.
The company’s business memorandum shows that it generated about $12m in overall sales last year and aims to achieve $19.7m in sales by 2023 through its expanded portfolio of drinks.
The memorandum of information does, however, show the business has had varying fortunes in its three markets of operation.
The financials for New Zealand show earnings before interest, tax, depreciation and amortisation (ebitda) for the 2020 financial year were $16,000, down from $169,000 a year earlier. This was on the back of revenue which rose from $5.99m in 2019 to $6.41m in 2020.
Australia registered ebitda of A$115,000 for 2020, an increase from A$90,000 in 2019. However, revenue dropped from A$770,000 in 2019 to A$724,000 in 2020.
The financials show that the UK has been the toughest market for the company, with a 2020 ebitda loss of £963,000 (worse than £638,000 a year earlier).
Coley says that while the aim was originally to replicate the New Zealand model in the UK, the strategy has been shifted to a distributor partner model that is far more cost-effective. As part of this process, Karma Drinks has reduced its UK staff from 15 to about five.
This change was accelerated by the impact of Covid-19, which had a dire impact on the UK hospitality industry.
Coley says that the company’s new chief executive, Ben Dando, started just before the first UK lockdown.
By the end of the first week of lockdown, sales in the UK had dropped by 80 per cent — and Dando had quickly set about looking at how to improve margins.
Dando has been integral in shifting the strategy to the distributor model, improving the company’s online presence and prioritising relationships with supermarkets.
Karma is not yet at pre-Covid levels, but Coley says they’ve regained sales across the European market, found new channels and reduced costs.
“The UK is looking pretty good now, considering that everything just stopped,” he says.
“But it’s not all doom and gloom there either. People still want to have some fun and we want to make sure that’s available to them.”
As part of the renewed strategy, Dando will be moving from the UK to New Zealand to focus on building the business in this part of the world.
“We thought it’d be quite good for Ben to come here for a while with his family to understand the business from a New Zealand perspective, to bring some of that experience here and to also see if we can push harder into Australasia and Asia from here. Because, ultimately, the rest of the world is closed and we’re open.”
While Coley and the team at Karma Drinks will be evolving the business with new products and some strategic tweaks, one thing the company will not be diluting is its ethical commitment to sustainability and supporting communities in developing countries.
“There’s a lot greenwashing going on in the UK and Europe,” says Coley. “These days, every business seems to need a purpose, like every business needed a website 20 years ago.
“But for us, it’s been baked into who are since we founded the company. We can’t shirk our responsibilities.
“It’s pretty hard if you call yourself Karma and then to not practise good karma.”