‘Wellness’ beverages and energy enhancers vie for shelf space with established new age players.
As retail clutter and wholesaler consolidation has made it more difficult for companies to establish new beverages, the alternative beverage segment has been constrained to the point of almost being dull. Aside from a handful of established players — Triarc with its Snapple, Mistic and Stewart’s lines, Ferolito, Vultaggio & Sons with AriZona, and a handful of others — it has been hard to find new brands that have exhibited anything like the kind of explosive growth enjoyed by those predecessors in their early years. Sure, there are bottled waters and sports drinks, both segments still growing briskly, but prices in those arenas have been drifting down, not up. Yet the hallmark of new age beverages has always been their ability to coax an additional quarter or half dollar from consumers, thereby encouraging wholesalers and retailers to work brands with volumes that may be only a fraction of soft drink brands.
The clear exception, of course, has been South Beach Beverages, whose SoBe line of herbally reinforced teas and juices shipped roughly 6 million cases in 1998, on the strength of strong demand in the major metro areas on the East and West Coasts. As the spring of 1999 approached, SoBe was consolidating its gains while seeking to buttress its credibility among natural foods retailers with a newer line called Essentials. The new line uses cane sugar instead of fructose and specifies the precise amounts of herbal ingredients used. The company also debuted a low-calorie line of “metabolic enhancers” called Lean that uses the recently approved sweetener Ace-K. Throw in some smoothie-style products like Lizard Blizzard and, as a concession to some distributors, even canned versions of the core drinks and some basic lemon teas and lemonades, and SoBe is well on the way to becoming a full-line provider to its wholesaler and retailer customers.
Arizona is trying to maintain its cool image.
As SoBe’s experience attests, for all the talk of there being too many players out there, retailers continue on a quest for the holy grail: a new product they can glom first, that offers a high margin and still has the potential for some serious volume. Wellness lines and energy drinks, with an obvious value-added pitch, offer the most obvious prospect for higher register rings. With American consumers increasingly gravitating toward herbal supplements and homeopathic remedies, there is a chance that the category could explode into significant volume as SoBe seems well on the way to doing. To get there, established players continue to tweak their offerings to get the formula right, even as new players enter with what they believe to be a different slant.
Nantucket, now an affiliate of Ocean Spray Cranberries, reinforced its Super Nectars line with herbal ingredients, making it a mainstream wellness product that accounts for 6% of Nantucket Nectars’ sales. In its core New England markets, the Super Nectars line has grown while maintaining a premium to the basic Nectars’ lush price of $1.49-$1.79 at retail. “Super Nectars have done well,” said Andy Steele, category manager for beverages, general merchandise and e-commerce at New England retail chain Store 24, based in Waltham, MA. “They outsold the regular 17 ounces. I was happily surprised, because $1.79 isn’t cheap.”
To further broaden its appeal, Nantucket Nectars restaged Super Nectars for the summer by putting the drink in 15-ounce bottles, which use the same square cross-section found on bottles of Odwalla’s fresh juices and Fresh Samantha beverages. To offset the loss of the 2.5 ounces used to exploit the superpremium connotations of the new package, the company is reinforcing the beverages’ nutritional elements. Thus, Protein Smoothie will double the protein content to 13 grams and change its name to Protein Smooth (to eliminate potential for controversy with purists who insist smoothies consist of fresh-blended fruit and dairy content) and Strawberry Smoothie will double its calcium content (and adopt the moniker Mama Calcium).
Give Me Energy
The growing cadre of energy drinks inspired by Austria’s Red Bull have hoped to capture significant volume and lush margins for retailers. Energy drinks have been an anomaly in many ways: high price points ($2) for small, 8-ounce packages, an overt functional message and unique merchandising innovations, such as Hansen’s effort to create shelf space by using suction-cup racks that adhere to the inside of a cooler door.
Red Devil is one of the newer energy drinks elbowing its way onto shelves.
“I hate the suction cups: they obscure the sight lines to the brands that have paid to be in the cooler,” said Store 24’s Steele. “But I like the racking system and the expanded product range, and it’s a great ring at $1.99.”
With Red Bull rapidly adding U.S. territories from its base in Pacific Palisades, CA, and offering a level of marketing support that none of its homegrown competitors can match, it has sometimes had to fight off requests from wholesalers to offer the brand in territories where it is not yet ready to proceed until it has perfected its marketing and distribution approach, said managing director Hans Vriens. Red Bull’s more focused approach has left the door open for imitators to get established under names like Hansen, X-T-C, Go-Go, Battery and Red Devil, most of them packaged in the same 8-ounce slim cans employed by category originator Red Bull.
With plenty of options available now for an energy drink, the latest wave of entrants must take a more differentiated approach. Thus, newcomer Engage, from Space Age Brands, uses Star Trek imagery and catchphrases licensed from Viacom’s Paramount Pictures unit. “The market’s not too cluttered if you have a good hook, and we’re tapping directly into the country’s 4 million Trekkies and 18 million sci-fi potentials,” said company president Alan Silverstein. While most existing entries employ non-specific flavor names and formulae that may taste strange to American palates, Engage goes with classic flavor designations, each denoted on-pack by a Star Trek vessel: Black Cherry, with packaging showing the Enterprise, and Lemon Lime, showing the Borg cube, for instance.
What’s for Dessert?
“Dessert” drinks are also offering higher-margin opportunity: rich-tasting and -formulated coffees, chocolates, smoothies. With these drinks, the consumer benefit is not gulpable refreshment, but lingering indulgence that may justify them purchasing a small package at a higher price.
Arizona’s Blue Luna could revitalize the RTD coffee segment.
Triarc scored big in that category last summer with Snapple’s Whipper Snapple smoothie extensions, a rich indulgence that is being joined this year by the company’s Mistic Italian Ice. Besides generating incremental sales of thousands of cases, the Whipper Snapple motivated wholesalers and proved to retailers that Snapple could still connect with consumers.
“It had a dramatic effect on our core business,” said Ken Gilbert, senior vice president of marketing at Triarc. “I’m not sure the tea business would have been up if distributors hadn’t paid more attention to our brand. Whipper Snapple energized the system.”
As a result, “the pain and difficulty of bringing real innovation to the marketplace is worth it,” Gilbert said. Whipper Snapple employed a new dairy-based technology to get a drinkable, dairy-based smoothie, as well as a distinctive bottle in the shape of a swirl, which stands out on the shelf and aims to conjure images of custard and other “smooth” treats.
Also falling within the dessert category–but continuing to confound many industry execs–is ready-to-drink iced coffee. Since Starbucks and other superpremium players having re-energized the base bagged and hot-coffee business, many have expected RTD coffee finally to cross the threshold to mass popularity. That should mean opportunity for multiple brands. However, the Starbucks Frappuccino developed by Starbucks for the Pepsi-Cola distribution system remains the only significant success in the segment. To the surprise, and dismay, of many distributors, Nestle abruptly bailed out of its Nescafe push just as it was promising a reemphasized effort in 1999. Nestle executives cited the disappointing volume prospects for the segment, leaving many to wonder: if Nestle can’t make it there, who can?
The answer may be smaller, more focused and inventive firms. America’s Choice moved slightly upscale in its packaging, Havana Coffee generated momentum in a handful of markets, and Ferolito, Vultaggio & Sons was struggling to resolve package-production issues in time to roll out its new Blue Luna iced-coffee line, in elegant double-handled jugs initially released in New York and Florida.
East Coast Beverage created a buzz in early spring, as it rolled out nationally with a Coffee House USA brand using pastel-hued, full-wrap packaging with Bananas Foster and Hazelnut flavors.
Correcting A Mistake
If alternative beverages are designed to persuade the consumer to buy upscale refreshment, then it is striking that one of the original masters of the technique, Ferolito, Vultaggio & Sons, found itself making the reverse move several years ago when it put its Arizona brand in 16-ounce bottles to compete with Snapple’s 99-cent retail price. The result: it traded customers down from the healthy premiums they were paying for Arizona’s core 20-ounce wide-mouth bottle. A move last year to encase its Lemon Tea in a novelty packaging series employing Peter Max illustrations aggravated the situation.
“They made a huge mistake with the 16-ounce package: selling the customer down, and putting (core brand) Lemon Tea in Peter Max packs confused the consumer,” Store 24’s Steele said.
Mistic’s Sun Valley Squeeze is a more upscale version of Sunny Delight.
Thus, it is not surprising to see Arizona restore the focus this year to the 20-ounce bottles, reviving the 24-ounce cans that had initially gotten the brand off the ground and also considering 42-ounce bottles. As for the packaging production issues dogging the launch of Blue Luna coffee, that’s a familiar enough dilemma for a packaging pioneer that encountered similar obstacles in bringing to market such breakthrough packages as the ceramic-coated glass “jugs” for its Mississippi Mud black and tan beer and the multilayered-plastic sports can for its tea and sports-drink lines. Once in volume production, Blue Luna could help energize the coffee segment.
Meanwhile, the beverage giants who were so interested in alternative beverages of their own a few years ago, have refocused their energies on their core carbonated soft drink businesses. For Pepsi’s Phil Marineau, “innovation” means Pepsi One, a Pepsi extension using newly approved sweetener acesulfame-K, as opposed to wellness and energy drinks. Pepsi One is bottled like Pepsi and marketed using the familiar stable of Pepsi horses, including massive sampling efforts, a major media blitz starring the celebrity flavor of the week (in this case, actor Cuba Gooding Jr.). Does that mean the Cokes, Pepsis and Cadburys of the world have lost interest in alternative beverages?
Few of the independents are willing to gamble that this is more than a temporary situation, though they are enjoying the respite while it lasts. “They haven’t lost interest at all,” said Triarc’s Gilbert. “It’s just not as much of a priority. Now that it’s clear to them that it’s not an easy business to get into, they’ve got to figure out how to approach it. But we’ll never get complacent about Coke and Pepsi, ever.”
“I think it’s temporary, because once they see something happen in the segment they’ll get back into it,” said SoBe’s co-founder John Bello. “But they won’t be the innovators.”
Gerry Khermouch is executive editor of BrandWeek.
After melding product and packaging news with attention-getting promotions, Triarc arguably proved that it had turned around the beleaguered Snapple brand it purchased from Quaker Oats in 1997, with volume believed to have grown by 7% in 1998. But that impressive performance, which energized the distribution network and reinvented the brand among consumers, came at a cost: Triarc execs took their eye off their other major new-age brand, Mistic, and the brand suffered a devastating drop in sales. Among the fallout from that was a stock price that failed to enjoy the upward bounce that is usually the reward of a successful turnaround.
Not surprisingly, then, Triarc’s priority for 1999 is to re-establish Mistic as a major premium beverage brand, said Ken Gilbert, senior vice president of marketing for Snapple and Mistic.
Gilbert stressed that, although Mistic may seem expendable next to a giant brand like Snapple, both brands are viewed as vital parts of the Triarc portfolio and important complements. For its part, Snapple sports a better balance in sales of teas and fruit drinks, and generally enjoys a broader appeal. Mistic, by contrast, is dominated by fruit drinks and adopts a full-flavor approach that tends to be favored by younger consumers in general and urban customers in particular.
As with Snapple, a key part of the Mistic equation for 1999 is going to be new products, both to generate incremental volume in trendy niches, and a refresher for the brand’s image. Sun Valley Squeeze, in 20-ounce bottles, represents a more upscale version of Procter & Gamble’s Sunny Delight, which has enjoyed a spurt of additional growth as a result of its launch in cold-filled single-serve versions two years ago. (Not standing still, P&G itself was launching a trendier version of Sunny D called Eclipse and styled as being “from the cooler side of the sun,” apparently moving into the same consumer space that Mistic is targeting with Sun Valley Squeeze.)
Mistic Italian Ice Smoothies will also hit the market, to offer consumers a burst of refreshment with a sweet, tart flavor; new blends including Strawberry Lemonade and a Diet Peach Tea in Mistic’s core carafe-style bottles, and new 100% juice entries: Orange Carrot and Grape Cranberry.
All this has to happen as Snapple builds on its success in 1998 while itself offering several new intros: herbally reinforced Snapple Elements drinks, new Whipper Snapple smoothie entries, all-natural thirst quenchers in plastic bottles under the Hydro name as a more successor to last year’s Snapple Refreshers line, and core-line additions such as a Kris’s Mix-Up Lemonade Iced Tea (named for the Triarc flavorist Kris Mains, who devised the blend).
The critical factor for both Mistic and Snapple is innovation and rapid time to market in a segment characterized by fickle consumer tastes. While innovation is generally thought of as being the province of small, feisty startups, such as South Beach Beverage and Nantucket Nectars, Gilbert said established firms like Triarc enjoy some advantages. “We have suppliers who come to us (with innovative packaging and technology) because they know we have the resources to develop them and the money to back up our intentions.”