Alcohol-Beverage Refining Appliance: Revolution for Consumers/Recurring Revenue for Innovators

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More and more, consumers are drawn to smaller brands rather than multinational conglomerates. It’s this trend change that billionaire hedge fund manager Nelson Peltz is trying to impress upon household giant Procter & Gamble (PG) in his quest to earn a board seat and make the iconic brand more profitable. Perhaps there couldn’t be a better time to build a brand in the home beverage space.

Cavitation Technologies, Inc. (CVAT) is doing just that by building on the success of using its patented technology that already produces a line of award-winning spirits. In its first effort, Cameo Vodka was awarded the highest rating of any American vodka. But more remarkable is the process itself that not only creates a premium product, but removes many of the impurities that are present in all alcohol brands. This appears to be the perfect marriage between technology and market opportunity to disrupt the alcohol-beverage industry.

Now the company is taking the technology one step further by bringing it right into your home, as they are standing on the cusp of commercializing their first consumer product, a spirit and wine enhancing tabletop device for the retail market. Cavitation Technologies Inc.’s tabletop device, which contains a miniaturized version of its commercial processing unit, is capable of purifying alcohol at home for smoother flavors and a reduction of the impurities that typically contribute to hangovers.

Recurring Revenue Model

Cavitation Technologies, Inc. (CVAT) believes that the product is ideally suited for the razor-and-blade business model, which provides consumers a durable home product and then continuously provides them with the consumable products to be utilized with the device.

Many companies are utilizing a razor/blade model to provide reliable consumer goods that are affordable for consumers and profitable for the companies, based on the recurring revenue model. Keurig and SodaStream (SODA) exploded into the home markets with their tabletop machines requiring consumable products to make flavored water. The popularity of these products led to Keurig being acquired in December 2015 for $13.9 billion, and SODA, with its $1.4 billion market cap, currently trading at a more than four-year high.

In the case of Cavitation Technologies Inc., the razor element is also a tabletop unit and the blade is a low-cost line of alcohol brands that are used in conjunction with the tabletop unit to produce a premium product right in consumers’ homes. Neil Voloshin, Cavitation Technologies Inc.’s CFO/COO, sees the company building on its award-winning vodka as just the start, with a full line of spirits and other product categories in the future. The competitive advantage of the tabletop unit in conjunction with a low-cost line of alcohol is that consumers can enjoy top-quality spirits at a much lower price point, all at home, simply with the touch of a button.


The Los Angeles-based company currently generates revenue through its industrial business offerings, such as the Nano Reactor® system for use in edible oil and biodiesel refining. In the fiscal year ended on June 30, 2017, Cavitation Technologies, Inc. reported record revenue of $1.9 million dollars.

The home alcohol beverage market is a much bigger – and immediate – opportunity for Cavitation Technologies Inc. (CVAT), as there is minimal competition, which is a key to a successful razor/blade model. The company’s proprietary technology is a refinement and taste improvement process that enhances spirits and wines. In simple terms, it creates a final product that is much smoother to drink, and can even make even an inexpensive wine or spirit taste like it came straight from the top-shelf. Voloshin said that he has yet to have anyone try a product from the prototype unit that isn’t impressed with the noticeable difference in taste before and after the process.

The company certainly has not overlooked the fact that Costco (COST) is the world’s largest wine retailer. One of the reasons for Costco’s success is because alongside its high-end vino, it sells inexpensive, $5-per-bottle wines, giving it a strong market presence in the U.S., where about 97% of all wine sold cost for less than $10 per bottle. In 2015, Costco sold a whopping $1.69 billion in wine. This speaks volumes to consumer preferences about being frugal with their spending, while maintaining an unquenchable thirst for wine and spirits.

Innovative Technology to Reduce Hangovers

If taste alone wasn’t enough to win over customers, the process significantly reduces the amount of certain harmful impurities that are spirits today. It’s these impurities that contribute to the negative impact on people’s health and may be one of the main contributors for the unwanted morning after hangover.

The company’s patent-pending technology and process transform harsh-tasting acids into pleasant tasting esters. In spirits, this process combines taste improvement with significant reduction of certain harmful impurities that can be attributed to hangover-related symptoms. This marks the first time a technologically innovative product with bold alcohol-beverage enhancement capability is open to commercialization. Recently, the company announced the successful development of a working prototype, and the desire to pursue joint venture opportunities in marketing, sales, and distribution of the product.

*Editor's note: This article was updated on March 20, 2018.


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Companies

Symbol Name Price Change % Volume
PG Procter & Gamble Company (The) 83.69 1.39 1.69 12,368,012 Trade
SODA SodaStream International Ltd. 128.77 1.38 1.08 385,240 Trade
KO Coca-Cola Company (The) 46.22 0.14 0.30 10,600,874 Trade
CVAT Cavitation Techs Inc 0.03 -0.00 -5.76 14,000

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