Drink up

The outlook for beverages is bubbly thanks to intriguing product introductions and smart pricing strategies.

By Richard Turcsik

The beverage category is getting healthier in terms of product offerings and retailers and beverage manufacturers hope that translates into more robust sales.

A host of new better-for-you drinks, along with economical instant mixes, hot buys on 12-packs of name-brand soft drinks and the continued development of unique formulations, are helping to put some fizz back into a category that has been flattened by the recession.

“The last two years have been soft for refreshment beverages primarily due to the economy,” says Gary A. Hemphill, managing director of information services at New York-based Beverage Marketing Corp. “We expect the market will continue to be soft, but as the economy improves we’ll likely see some improved performance in each category.”

Carbonated soft drinks have been particularly hard hit, Hemphill says. “Carbonated soft drinks are still under pressure, in part because of the economy, but also because people are looking to move to healthier products.”

And while Coke and Pepsi are often used as volume-building loss leaders, merchandised at super hot prices, industry experts say craft and novelty sodas can play a role in making the beverage aisle a destination.

Going upscale

“Stocking an upscale soda sets your store apart,” says Mike Spears, brand manager of Seattle-based Jones Soda. Although the brand made a name for itself with outlandish, oddball flavors like Tofurkey & Gravy Soda, it is its more mainstream varieties such as Green Apple, Cream and Root Beer that keep shoppers coming back, Spears says. However, it’s the unique flavors that guarantee Jones a spot on many a supermarket shelf.

“We are different from the major players because of our flavor profile and because we have a pure cane sweetener,” says fellow brand manager Josh Groff. “You can go into any store with countless number of sodas and you are probably not going to find another Blue Bubblegum or Green Apple, Berry Lemonade or Strawberry Lime soda.”

Jones Soda is sold in four-pack glass bottles and in cans that are being switched from 12-packs to 8-packs. “That’s being done because of pricing studies,” Spears says. “We have a premium product that costs more to make. Some of the bigger companies and private label brands can crank out soda at extremely cheap prices. We want to be able to compete on a price parity standpoint.”

Water world

Water is even more price competitive than soft drinks, Hemphill says. “With water we’re seeing extremely aggressive pricing,” he says. “There’s been a stronger growth in private label in virtually all of the beverage categories because of the economy, but in particular we’re seeing strong private label growth in water because the brands aren’t quite as developed as they are in some of the other categories. There is less brand loyalty in water.”

Harrison, Maine-based Summit Spring is looking to change that by introducing Summit Spring Raw Water—water bottled directly at the natural spring source that is not filtered or processed in any way. It is so pure that it even contains microscopic algae and there’s a warning on the label that bottles may contain grains of sand or gravel, according to company officials.

“This water is running straight from the source into the bottle,” says Bryan Pullen, president. The company had to receive special permission from the state of Maine to do so. “It is unprecedented—we think nationwide—to get regulatory approval to bottle water for the general public straight out of the ground without filtration or treatment of any type, not even a paper towel.

“People don’t realize that all water on earth contains algae. Algae is the most nutrient-rich food source on earth by weight. In addition to algae, natural spring water has essential nutrients like calcium, magnesium, potassium and sodium. That is why living water is extremely good for you. Treatments kill the algae and usually oxidize the minerals and they precipitate out during the filtration. That is dead water. What everybody is used to drinking is dead water!” Pullen says.

Summit Spring Raw Water is geared to the “raw food longevity community,” Pullen says. “These are people who really pay attention to what they eat and drink. With all the proliferation of the marketing babble, people have come to distrust everything. All of those fancy mountains and streams are on the bottle of water from industrial plants. It is really getting harder to separate the wheat from the chaff,” he says. “Retailers can educate people about the differences in waters by doing demos,” Pullen says.

Competing in the upscale segment, Hot Spring, Ark.-based Mountain Valley Water Co. is also targeting the natural and organic consumer. “We have a great heritage as America’s oldest bottled water company,” says Breck Speed, chairman and CEO.

With a suggested retail of $2.19 to $2.49 per one-liter bottle, Mountain Valley retails for what some stores get for a 24-pack case of private label. “With Mountain Valley they will earn more money,” Speed says. “We offer a very good margin for our retail partners and they will make many dollars per case in mark-up.”

Largely distributed across the country by beer distributors, Mountain Valley is informing consumers about the difference its water offers through neck tags and shelf talkers. “We also micromarket, or gorilla market, events quite a bit, but they are the proper events. We don’t do NASCAR; we’ll do the Taste of Charleston or the Fine Wine Festival in Little Rock,” Speed says.

Instant growth

While high-end waters are holding their own, instant drink mixes have really taken off.

“Because of economical and environmental issues, people seem to be going more towards powdered soft drink and iced tea mixes because they are a lot less expensive than ready-to-drink,” says Tony Landolfi, vice president, sales, at 4C Foods Corp., based in Brooklyn, N.Y.

This year 4C is introducing Green Tea Pomegranate iced tea mix, available in sugar-based canisters and sugar-free tubs and sticks, along with 16-quart sugar-based instant Lemonade, Fruit Punch, Pink Lemonade and Wild Berry Pomegranate drink mixes.

Astute retailers can capitalize on instant mixes as summer approaches, according to industry observers. “Because many consumers don’t shop in the traditional drink mix aisle and up to 50% of those who purchase items in this category are new users, we strongly encourage retailers to make the most of the summer season by installing racks and displays for drink mixes,” says Greg Carbone, director of sales for refreshment beverages in the Tarrytown, N.Y. office of Kraft Foods, manufacturer of the Kool-Aid and Crystal Light brands.

“There are two great ways to encourage sales of drink mixes throughout the year,” Carbone adds. “First, retailers should be sure there’s a full product assortment available on the shelf. Second, since on-the-go packets are a natural complement to bottled water, we recommend retailers place incremental on-the-go packet items in the bottled water area of the store.”

In January, Crystal Light launched Crystal Light Pure Fitness, billed as the first low-calorie fitness drink mix. Available in Grape, Strawberry Kiwi and Lemon Lime flavors, Pure Fitness is sweetened with evaporated cane juice and Truvia and also contains electrolytes, sodium and potassium to aid hydration.

“In December we launched the Crystal Light “Water Your Body” advertising campaign, which will run throughout 2010,” says Mary Garris, senior associate brand manger. “The campaign covers the entire Crystal Light line and will feature national TV, print, digital and in-store elements.”

In March, Kool-Aid is introducing Fun Fizz drink drops. “This is an entirely new form of Kool-Aid,” says Gabi Arrillaga, associate brand manager. “Each Kool-Aid Fun Fizz is only five calories per tablet, which—when dropped into eight ounces of cold water—fizzes into a colorful, non-carbonated beverage in a fun, new way.” Fun Fizz is available in Partyin’ Punch, Gigglin’ Grape and Laughlin’ Lemonade flavors.

Kool-Aid Fun Fizz is launching in mid-March with sponsorship of the Nickelodeon Kids’ Choice Awards in Los Angeles.

Focused on functionality

Although ready-to-drink teas and drinks have also been impacted by the economy, they haven’t been hit as hard as some other beverages, Hemphill says. “Tea is a category that benefits from consumer movement to healthier options. So even though the market has been softer because of the economy, we’ve seen some growth because of its positioning,” he says.

“In 2010 you’re going to see the continued growth of functionality,” says Charley Snell, co-founder of Tenaya, LLC, a Chicago-based start-up that manufactures the new MADE line of organic green tea-based fruit drinks.

“Functional drinks are now taking on things like relaxation and reducing cholesterol,” Snell says. “We’re moving towards pharma, but the overall bigger trend that consumers are seeing is simplified ingredients and good taste. MADE is positioned very well to ride that wave.”

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