HOW SWEET IS IT?

Back at the InterBev 94 international beverage show held in Atlanta in October, 1994, the buzz was chocolate. A flock of companies, from Cadbury Schweppes and Pepsi-Cola to smaller independents Ferolito, Vultaggio & Sons, marketers of AriZona brand beverages, and bottler Imbesi, of Conshohocken, PA, were readying or sampling new chocolate drinks. Word was that long-dominant player Austin, Nichols, and its Yoo-hoo brand, had better be ready to rumble. An obscure niche, which Yoo-hoo had been welcome to keep to itself all these years, was about to hit the big time, and everybody wanted a piece of the action.

Three years later, how has it all worked out? The chocolate category hasn’t progressed beyond the status of a niche, many of the new challengers have retreated, and Yoo-hoo has been able to go on being Yoo-hoo, claiming to have notched its fourth record year in a row in 1996. With only rare exceptions, the chocolate drink category continues to be perceived as a group of kids’ concoctions, although the legions of adult chocolate lovers insure that chocolate will continue to play an important role in providing a key flavor note for other categories of beverage.

“Adults are just not used to chocolate drinks,” said Tish Boyle, food editor and test kitchen director of the magazine Chocolatier, based in New York. “They think of Yoo-hoo as the archetypal chocolate drink, and that’s a kids’ drink.”

“Inherently, chocolate drinks are not that appealing to over-17 consumers,” added Triarc Beverage Group chief executive officer Mike Weinstein, who expressed no particular urge to launch a chocolate line for his Snapple or Mistic brands. As for Yoo-hoo, “it’s one of those equity brands with no competition and unique trademarks — like Dr Pepper and Squirt and Mountain Dew — that just keeps growing, for whatever reason.”

Although there is a mixed picture on how robust Yoo-hoo’s growth has been, the brand marketed by Austin, Nichols & Co., NY, a unit of French beverage conglomerate Pernod Ricard, has easily hung onto its No. 1 spot. According to all-channel scanner data from Information Resources Inc., through May ’97 Yoo-hoo was off slightly by 0.6%, to 1,782,000 cases, while the category as a whole was off 4.7% to 2,282,000 cases. Number two player Hershey’s, licensed by Cadbury Schweppes (now Dr Pepper/Seven Up Inc.), was off 1.3% to 325,000 cases, but The Chocolate Group, controlled by Austin, Nichols, was up 17% to 155,000 cases on the strength of brands such as Chocolate Soldier, Choc Ola and Brownie Brands. Other brands taken as a group were down a steep 14.5%, including such products as Cosmo, a nationally available brand from beverage powerhouse Nestlé.

For his part, Raja Kort, Austin, Nichols’ marketing vice president for the soft drinks division, said he’s puzzled as to why most of the challengers faded. At the time they launched, he said he had been optimistic that they might provide greater growth and visibility that would benefit all participants, including Yoo-hoo. “They’ve all disappeared, and I don’t know why,” Kort said. “The market is begging for something, and that is to grow. We were optimistic about them developing the category. If the pie gets bigger, even if we lose some share we’d benefit.”

Still, the whole segment amounts to a drop in the bucket in the beverage universe, so after that burst of enthusiasm in 1994 there isn’t likely to be a stampede of new entrants, particularly from larger companies.

For example, after two years of testing, Pepsi’s Smooth Moos Smoothies line of low-fat dairy shakes, including a Double Chocolate SKU, is still in only a single market. And its Starbucks Frappuccino launch trades on consumers’ yen for coffee, not chocolate, despite, the mocha variety being the bigger-selling of the two SKUs.

Pepsi is one of two major soft drink franchisers to make a serious attempt at the chocolate drink market. At Pepsi, spokesman Larry Jabbonsky said Smooth Moos, launched in May 1995, currently is in distribution only through a company-owned bottler in Wichita, KS, after earlier distribution in Texas and Oklahoma through food brokers. Although he ascribed some success to the brand, Jabbonsky emphasized that Pepsi had entered the segment with modest expectations as a play on the dairy segment, one area Pepsi had not previously explored as part of its “Total Beverage” strategy of playing in all segments.

“It was very clearly an experiment, and a limited experiment,” Jabbonsky said. “It’s a small test and there are no immediate plans to widen it, although it tells us that there certainly is a compelling opportunity within flavored milk.”

So far Double Chocolate, which was recently reformulated, has been by far the leading flavor and has gotten the most emphasis, he said. The other flavors are French Vanilla, Strawberry and Banana.

At least judging by its continuing geographic expansion, Pepsi’s joint venture with Starbucks to launch Frappuccino has showed better prospects. But while 65% of volume so far has been the Mocha flavor and only 35% the plain Coffee, Pepsi views the drink as a coffee, not a chocolate, beverage. The limited advertising behind the brand urges consumers to “Open your own Starbucks.”

Dr Pepper/Seven Up has gone considerably further with its national entry, using the licensed Hershey’s name to stake out the number two position behind Yoo-hoo, but it likewise has modest expectations for the segment and is not currently supporting the line with any advertising. Still, the brand indirectly benefits from Hershey’s own hefty spending on its chocolate bars.

“It’s an interesting category, but it’s New Age and all New Age has gone through a maturation,” said associate brand manager Valencia Scott. “We’ve got the best trademark name out there, and we’re gaining on Yoo-hoo.” The addition of 9.5-ounce glass multipack bottles to its existing 11-ounce cans and 15.5-ounce bottles has sparked additional bottler interest, she indicated. Still, for the first five months of 1997, case volume was up a scant 0.6% to 454,000 12-ounce-equivalent cases, with traditional and gasoline convenience stores recording the only gains while other channels, notably groceries, were down.

Even Ferolito, Vultaggio & Sons, whose success with its Arizona line of teas and juices demonstrates that it has a knack for anticipating where consumers’ tastes are going, has pulled back from non-carbonated chocolates, dropping the Arizona Cowboy Style Chocolate Flavored Drink that was one of the stars of InterBev 94.

“Our problem was that it was in a can and people thought it was a tea,” said FV&S co-founder Don Vultaggio. “Plus, it is a small category. At the time, I really believed there was an opportunity for a better taste than a Yoo-hoo knockoff: it looked pretty, tasted great, and didn’t sell too well. In a glass bottle, we would have done better.”

Cost issues were crucial. Yoo-hoo’s aggressive pricing in defending its market, coupled with the high cost of chocolate and the slow, expensive production process meant “there’s no profit in it,” Vultaggio said. Because of those higher costs, FV&S tried to charge $1 more per case than on its regular tea and juice brands, then ate that extra dollar only to find that still wasn’t enough to put a dent in Yoo-hoo three-unit tetrapacks at 99 cents. “Yoo-hoo does a good job defending their territory,” Vultaggio acknowledged.

If FV&S has abandoned, for now, the non-carbonated chocolate line, it continues to push a carbonated chocolate drink. Although a “soda shop” line that included Chocolate Cola and Chocolate Covered Cherry Cola flavors proved confusing to consumers, the company is faring well with a newer Chocolate Fudge Lite soda in its superpremium beverage line. It’s packaged in a full-wrap bottle that plays on baby boomer nostalgia, but is in a light form (60 calories per 8-ounce serving) calculated to alleviate the boomers’ suspicions about the high calorie counts of such beverages. Vultaggio said he’s also exploring a Frappuccino-style entry, perhaps in a diet as well as regular flavor.

Meanwhile Yoo-hoo keeps chugging along, adding chuggable wide-mouth cans, while tweaking last year’s new line of Mix-Ups to reduce confusion with the core line and encourage more distributors to pick it up.

According to marketing vice president Kort, the core brand continues to play on its “unique, cool and quirky” image with low-budget, tongue-in-cheek TV commercials and sampling vehicles that resemble big bottles on wheels. The vans now number eight, enough to work nearly three dozen markets.

Last year’s major initiative was the launch of the Mix-Ups line of beverages in flavors such as Chocolate-Banana and Chocolate-Coconut, which beverage industry execs and wholesalers rate as a qualified success, at best. Although Austin, Nichols worked hard to convince distributors that the new line wouldn’t cannibalize sales of the core brand, many still declined to pick it up. That’s OK, Kort said.

“Mix-Ups are a great thing, but we’re not really pushing them because we believe there is still a huge, untapped market for the chocolate.” While Chocolate-Banana proved the most popular among four SKUs, a yellow cap intended to denote the flavor caused too much confusion with the core brand’s cap and has now been changed to blue, with yellow lettering.

With Yoo-hoo’s continued dominance of the market creating what many marketers believe is an unbreakable association with kids’ drinks, even a premier chocolate brand name like Ghirardelli is not regarded as being able to support a chocolate-only line of beverages.

Thus, the company that has licensed that name, Stars Beverage of Apple Valley, MN, has pitched its ready-to-drink products as a “premium coffee beverage,” albeit only available so far in chocolate flavors. It started with Chocolate and Cafe Mocha flavors and is about to add a White Mocha. The line is scheduled to roll out nationally after breaking in California, then adding Texas and several southwestern states.

“They’re jumping on the coffee bandwagon because coffee can’t miss right now,” said Chocolatier‘s Tish Boyle.

“It’s a chilled coffee line that is a combination of chocolate and coffee,” said Stars Beverage recently installed chief executive officer and president Lou Sibik. Consumers of the brand “have a chocolate fetish, but they want to taste the coffee.”

Despite the equity of the Ghirardelli name, Sibik said there has been no temptation to do non-coffee chocolate drinks. Future efforts will focus on a greater variety of coffee blends rather than greater experimentation on the chocolate side.

“The market that is emerging is for chilled coffee, and that’s coming out of Starbucks and the coffee shops,” Sibik added, noting that those cafe chains have been doing major volume on chilled drinks, not just hot drinks.

Further, there’s an image consideration, too. “Chocolate drinks from Yoo-hoo and Hershey’s are focused on young adults,” Sibik said.

And as Triarc’s Weinstein put it, a drink like the Starbucks Frappuccino or, presumably, Ghirardelli Cafe Mocha, “is adult chocolate milk.”

There has been one change in the Ghirardelli line’s strategy. Although the brand launched in both glass bottles and metal cans, the bottles have since been dropped, despite the unwritten rule that glass does better in the upscale restaurants and cafes that are an important part of the Ghirardelli line’s channel mix. Still, the slim, 7.5-ounce cans seem to have been accepted even on-premise, and haven’t had difficulty holding a $2 price, Sibik said.

Also broadening its availability is Jeff’s Chocolate Soda, formerly Jeff’s Amazing New York Egg Cream, which relaunched under a new management team last December. Packaged in the bottles once used by Seagram for its 2 Calorie Quest, Jeff’s is currently available in the Northeast, Florida, Midwestern markets and some Southwestern markets, with a big push on in California now.

The labels still sport the words “egg cream” on them, but company president Adam Kurlander said the company is being careful to broaden its appeal beyond nostalgic Northeasterners who may remember egg creams from their youth. “There’s no question that the whole idea of the egg cream/nostalgia/ethnic recognition is part of the process but it extends well beyond that,” Kurlander said. The brand is positioned as the highest-quality, dairy-based carbonated drink on the market, in flavors that include Chocolate, Diet Chocolate, Orange Dream (reminiscent of orange creamsicles) and Berry Dream.

Undoubtedly, other chocolate-flavored beverages will come to market, but right now, it’s unsure how successful any new brands will be. On the other hand, plenty of Americans have a yen for chocolate and, as the old saying goes, “timing is everything.”

Gerry Khermouch is executive editor of Brandweek.


Chocolate With A Kick

While adults have been somewhat skeptical of chocolate drinks, they have been much more receptive to chocolate-flavored beverage alcohol products. And liqueurs such as Godet, Sheridan’s, Vandermint, Chococo and Godiva have all emphasized the versatility of their products.

“When they are mixed with other things, they add a great chocolate flavor,” said Tish Boyle, food editor and test-kitchen director of Chocolatier magazine. And that applies not only to mixed drinks but to desserts, where liqueurs can be used for soaking cakes and adding flavor fillings, she said.

For example, Seagram’s Godiva, which launched a White Chocolate version last fall, uses recipe books as a crucial element of its marketing mix. The recipes offer directions on how to make drinks like Godiva White Russians and Godiva cream sodas as well as desserts like white chocolate cheesecake, biscotti and tiramisu. But some more recent uses were not anticipated in the brand’s recipe booklets.

“There has been a lot of activity on the Martini front over the past year or two,” said Cheryl Seraile, category manager for Seagram Americas. “But who would have thought someone would want a Godiva Martini?” The drink, in fact, has been growing in popularity.

Heaven Hill’s Vandermint Chocolate Mint Liqueur is another cordial that positions itself as an ingredient in a variety of drinks. For the holidays the brand is featuring a drinks brochure on case cards entitled, “The Twelve Drinks of Christmas.”

Other categories of beverage alcohol products also have seen some success with chocolate. For example, the T.G.I. Friday’s line of prepared cocktails has reported positive sales for its Brownie A La Mode and Mint Chocolate Chip flavors.

Then there is Goldenbarr Gourmet Chocolate Vodka, imported from the Ukraine by Wingard, Inc. Tabbing itself as the world’s first premium chocolate vodka, the new brand hopes to tap into the popularity of the aforementioned chocolate Martini. Additionally, Goldenbarr also features a recipe brochure with 11 different mixed drinks (i.e., Fudgeslide, Chocolate Irishman, Chocolate Cherry Bomb).


Shaking Things Up At Yoo-hoo

While it currently controls 78% of the chocolate drink market, Yoo-hoo is not above new initiatives to maintain and even expand its position in the market. That’s exactly what the newly appointed senior vice president heading up Austin, Nichols soft drinks division, Brian O’Byrne, intends to do.

“When Gene Kreuscher, head of the soft drinks division, retired in July, the company looked to replace him with somebody who would bring a different vision to the soft drinks business,” said O’Byrne, who is also in charge of Orangina. Previously, O’Byrne had been responsible for Austin, Nichols’ international wine and spirits business, and he also handled Yoo-hoo exports, mainly to South America.

In fact, O’Byrne plans to expand Yoo-hoo internationally, and “develop the brand in markets where it can have a clear positioning.”

Although it is too soon for revealing any specific plans for next year, O’Byrne hopes to “tackle ’98 with renewed vigor. I want grow the Yoo-hoo business in a profitable way, exploit the brand imagery and solidify the brand’s leadership position in the chocolate drinks category.” — Richard Brandes

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