A New Crop in the Beverage Garden
Fresh products abound, but which trend is driving innovation?
A Subcategory in Search of a Boost
Stagnation: That’s the 2012 story for the carbonated-soft-drink (CSD) category. “Premium niche categories outperformed traditional categories,” says Hemphill of Beverage Marketing Group. “Broad-based beverages, such as CSDs, milk and fruit beverages, which are consumed by more middle-class and blue-collar consumers with higher levels of unemployment, continue to stagnate.”
Beverage Marketing Group data for all channels shows CSDs “are on pace to decline for the eighth consecutive year” as aggressive competition comes from other categories, especially bottled water, and consumers seek healthier alternatives.
In c-stores, however, CSDs saw small dollar-sales growth—1.7%—in 2012, while volume was flat, according to SymphonyIRI Group scan data. But in general, it’s another lackluster year for one of c-stores’ largest categories.
While bottled water threatens to overtake CSDs in terms of overall volume sales, Landis of Coca-Cola says it’s much too soon to play “Taps” for the soda category.
“I think people forget how big of a category it is,” he says. “When you have a category this big, this mature, it’s not going to grow at double digits. You’ve got smaller categories like energy and others that are half or a third of the size of [CSDs]; they can do that. This is a big category. If it ekes out 1%, 2% or 3% growth, you’re talking about a massive amount of growth.
“We’re still really bullish on the category, but it’s going to drive into that low-single-digit growth rate [going forward].”
Coca-Cola has tackled the problem through new package sizes, downsizing the classic single-serve 20-ounce bottle to 16 ounces and then 12.5 ounces, creating more options for consumers. And there may be more repackaging to come.
“If you look around the globe in the Coke system, the way they’ve been able to keep the category growing and relevant is through packages,” says Landis, citing that in Mexico there are more than a dozen package sizes of Coke based on demographics, occasion, etc. “You’re seeing a little of that here now as we do 12.5-ounce at the entry level under $1” on up to “1 liter playing the big-size value role.”
“We think there’s still room to grow within that construct,” he continues. “I think you’ll continue to see us diversify packaging.”
Meet Me Halfway
Meanwhile, mid-calorie colas have become the newest battleground for the three major CSD manufacturers.
Dr Pepper’s Dr Pepper 10 was the first to hit shelves, in fall 2011. Success with the 10-calorie drink, created with a combination of sweeteners, has since led to several 10-calorie line extensions, including 7-Up, Sunkist, Canada Dry, RC Cola and A&W Root Beer, rolled out in January.
PepsiCo followed suit and introduced Pepsi Next, a 60-calorie version of its namesake cola made with a mixture of sweeteners, in early 2012. PepsiCo CEO Indra Nooyi has since said she expects to experiment further with the multiple sweeteners now on the market, beginning with Diet Pepsi, which quietly changed its sweetener mix ahead of a major rebranding of the soft drink set for the first quarter of 2013, according to various reports. This comes after Pepsi said it would devote more funding to advertising its key brands Pepsi and Diet Pepsi.
Finally, Coca-Cola is testing Fanta Select and Sprite Select in a few markets. The sugar- and stevia-sweetened sodas promise 70 calories per serving.
“We’re going to look at those as ways we may want to go,” said Landis. “That’s consistent with our health and wellness message. We’ve got full-calorie, we’ve got no-calorie, and we’ve got mid-calorie options. And we want to have all those things.”
Energy Faces Its First Big Challenge
There’s been no stopping energy-drink volume growth since the category was established in the mid-1990s. But energy drinks’ first real challenge, by congressmen and potentially the Food and Drug Administration, could put the category to the test in the next year or two.
The FDA confirmed in November that it is reviewing the safety of energy drinks containing caffeine and other ingredients that act as stimulants, and it may require regulatory action if evidence of a health risk is found.
The agency said that because energy drinks are new products that have raised safety concerns, they warrant investigation: “New products and patterns of use require us to remain vigilant, and we are working to strengthen our understanding of the nature of energy drinks and any causal risks to health.”
Possible regulation could vary from an age limit to caps on caffeine allowed in a drink—as enacted in Canada in January—to an all-out ban of the products.
Consider it a warning, but until some action is taken, the category continues to deliver on the promise it has established over the past almost 20 years, growing more than 17% during the past two years. This comes after comparatively lackluster performance during the recession—including flat volume sales in 2008—but a healthy distance from the 27% growth seen in 2006.
Continued double-digit growth is anticipated in the next two years as well. “According to Mintel, we can anticipate 14% growth in total energy-drink sales in 2012 and 13% growth in 2013 and 2014,” says Guy Wootton, director of category insights for Red Bull North America, Santa Monica, Calif.
The main drivers of this growth, according to Wootton:
- Energy drinks heavily overindex in two core emerging demographic sections, Hispanic consumers and millennials, resulting in increased category penetration.
- Busier lifestyles are fueling consumers’ need for an energy boost; 96% of the U.S. population claims to purchase a “pick-me-up product.”
- Innovation from the top three brands—Red Bull, Monster and Rockstar—continue to generate buzz and excitement among consumers and provide new reasons to enter the category.
Wootton says an increased focus on category management will mean additional growth for the category in c-stores. “Investment in these programs will inevitably drive growth as the category becomes more efficient and expands its in-store presence,” he says.
Red Bull is doing its part in adding new products this year with the March rollout of its first three flavored line extensions.
Mixing It Up
Coca-Cola Refreshments is also making moves in the energy category with a hybrid new product that brings thirst relief to its NOS energy brand. “NOS Active Energy is a hybrid between a sports drink and an energy drink,” says Landis of Coca-Cola. “We think this fits well into that space for consumers in an active, healthy lifestyle, the hydration space.”
Rockstar has a hybrid extension of its own. Rockstar Energy Water is a noncarbonated, caffeinated vitamin- and herb-enhanced water beverage. Las Vegas-based Rockstar is urging retailers to merchandise the drink, which comes in tropical fruit, orange tangerine and blueberry pomegranate acai, in the enhanced-water section of the cold vault rather than with energy drinks. It’s part of a frequent refrain from manufacturers in the category to give it more space wherever possible.
“C-stores can continue to drive these trends by planning the right amount of shelf space for the anticipated future growth for the category,” says Wootton. “By 2014, the category will be 30% bigger, and c-stores need to plan their shelf space to accommodate that. Additionally, secondary placement of cold product is critical for driving impulse purchase of energy drinks.”
Good Things Come in Threes
Those little bags of tea that need to steep in water and then refrigerated in pitchers? Their days may be numbered. Instead, “ready-to-drink tea has accounted for virtually all of the growth in the U.S. tea market” since 2006, according to Beverage Marketing Group data. And RTD tea “now accounts for over 30% of the total volume,” up from 24% in 2006.
The boom, including an 8.6% jump in RTD tea unit sales in c-stores in 2012, according to SymphonyIRI Group, is due to two reasons: a reflection of consumer demand for convenience, and an increasing focus on health and wellness.
Major suppliers have noticed and reacted by creating full complements of brands. Call them the “three tiers of tea.” As two major suppliers—Coca-Cola Co. and Nestle Waters North America—solidified their iced-tea lineups in 2012, their three-tiered products will receive strong pushes from sales representatives and heavy marketing and advertising campaigns designed to draw relevant consumers.
For Coca-Cola, its triumvirate includes Honest Tea at the high end, Gold Peak in the premium-to-popular range, and an expanded Fuze product line in the popular-to-value play.
“Tea is a huge platform,” says Landis of Coca-Cola. “Over the last five to seven years, we’ve been in the [tea] category but probably not in the way we would have like to have participated, given the growth. So you’re going to see a hard push this year— as we’ve ended our Nestea relationship—around Fuze, Gold Peak and Honest Tea.
“We want to dive into tea, which is an untapped category for us.”
Nestea, meanwhile, is now in the hands of Nestle Waters, which, after years as a water-only company, has three iced-tea brands of its own.
“We’re trying to do the same thing that we did in water. We’ve created [three tiers],” says Donker of Nestle Waters. “We’ve got the mainstream tier, where Nestea’s going to play. Stepping up, we’re creating a premium category, where Tradewinds will play. And in the specialty category, we’ve got Sweet Leaf.”
Retailers can expect promotions around all three of those brands “as we attack the category and build our brands and our business for the long term,” Donker says.
Between the refocused brands and the growth in the category, retailers may want to review their tea sets. To that end, Donker recommends retailers consider dedicating a full door to tea.
“With the predicted growth of over $1 billion in the next four years, it’s important to make sure they are capturing this trend,” he says. “By doing so, they will be able to offer their customers the variety they are looking for, particularly in the premium [fresh-brewed teas] and specialty teas that are providing some of the greatest growth.”