State of the industry:
Beverages

Leading companies are striving to establish footholds in niche markets

by Keith Nunes

The North American beverage industry is in transition. Such traditional products as carbonated soft drinks continue to see sales wane while such products as bottled water and niche items like energy drinks and ready-to-drink (R.-T.-D.) coffee have grown strongly.

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The U.S. market for liquid refreshment beverages grew in 2014 after being basically flat in 2013, according to the Beverage Marketing Corp. (B.M.C.), New York, an industry market research company. Factors driving the growth included the strength of the bottled water market, which pushed total category volume to 30.9 billion gallons during the year, a 2% increase compared with the previous year when category volume was 30.2 billion gallons.

As has been the case in previous years, niche beverage categories continued to outperform most traditional mass-market segments. Such premium beverages as energy drinks and R.-T.-D. coffee advanced particularly forcefully during 2014. Larger, more established segments such as carbonated soft drinks and fruit beverages failed to grow.

“Health and wellness and variety continue to be key drivers in the marketplace for refreshment beverages.”
— Gary Hemphill, managing director of research for the Beverage Marketing Corp.

Ready-to-drink coffee moved forward faster than all other segments with a 11% volume increase in 2014, but the segment accounted for a tiny share of total liquid refreshment beverage volume.

Energy drinks advanced by nearly 7%, but also remained fairly modest in size. The sports beverage segment exceeded 1 billion gallons for the first time in 2011 and topped 1.4 billion gallons in 2014.

Carbonated soft drinks remained by far the largest liquid refreshment beverage category, but it continued to lose both volume and market share in 2014. Volume slipped by 1% from 12.9 billion gallons in 2013 to less than 12.8 billion gallons in 2014, which lowered market share from slightly less than 43% to just above 41%.

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In 2015, carbonated soft drink manufacturers focused on a variety of initiatives in order to improve consumption and sales. Smaller pack sizes and efforts to identify lower calorie sweeteners were just two key initiatives. Other efforts involved “cleaning up” products through reformulation.

Starting in August, PepsiCo’s North America Beverages unit began selling Diet Pepsi without aspartame. The reformulated products, which include Diet Pepsi, Caffeine Free Diet Pepsi and Wild Cherry Diet Pepsi are now sweetened with a blend of sucralose and acesulfame potassium.

Beverage Business News

Chilled tea is getting hotter

Chilled tea is getting hotter

Volume sales of ready-to-drink (R.-T.-D.) tea in the United States increased 25% during the five-year period from 2009 to 2014.

Building a Clean Beverage

Building a ‘clean’ beverage

Clean label formulating dominated the Institute of Food Technologists' annual meeting and food exposition this past July in Chicago.

Sugar reduced beverages

Sugar reduction in the spotlight

Research indicates consumers believe that for improved health and well-being they should reduce their sugar intake.

“Health and wellness and variety continue to be key drivers in the marketplace for refreshment beverages,” said Gary Hemphill, managing director of research for the B.M.C. “Additionally, there is demand for functional beverages.  Another factor that continues to impact the marketplace is convenience; today’s busy consumers will often pay more for a product or package that simplifies their lives.”

Mr. Hemphill added that with the exception of bottled water, the greatest growth in refreshment beverages today is coming from niche categories.  Many of these are newer emerging categories.

“In many cases, larger companies develop their own brands in these categories, but another alternative is to buy into these categories by purchasing a brand outright or by buying a stake in it,” Mr. Hemphill said.

There were several examples of larger companies taking stakes in niche companies in an effort to gain a foothold in a category. In August, The Coca-Cola Co. took a minority stake in Suja Life L.L.C., San Diego, a manufacturer of organic, cold-pressed juice products. The transaction is expected to increase distribution of Suja’s products and improve operational efficiencies.

Suja was not the only investment made by Coca-Cola. In the past year, the beverage giant acquired a stake in Monster Beverage Corp. for approximately $2.1 billion, increased its stake in Keurig Green Mountain and announced a distribution partnership with the fairlife brand of premium milk.

The Dr Pepper Snapple Group, Plano, Texas, also took an 11.7% stake in BA Sports Nutrition L.L.C., the maker of the BodyArmor branded sports drink. The investment is worth approximately $20 million, according to Dr Pepper Snapple.

“Cleaner labeling for a lot of consumers is what healthy means, so even if it doesn’t have fewer calories, just having a clean label is certainly impactful nutrition in their minds.”
— Jennifer Aranas, project director, Datassential

Mr. Hemphill said innovation in the beverage category is occurring across the board regardless of segment.

“We see the greatest growth in innovation from categories that are having significant growth,” he said. “And even greater innovation is occurring around health and wellness and functional beverages.”

Mr. Hemphill identified coconut water as one category that has had solid growth for an extended number of years.

“Plant water beverages are newer but we have seen a lot of innovation in the last couple years,” he said. “Today’s consumers embrace variety and like to try new products so we are likely to see more successful niche categories in the years ahead.”

DrinkMaple, Concord, Mass., is one such company trying to make a splash in the plant water category. The product features half the sugar of coconut water, according to the company, and features vitamins, minerals and antioxidants.

Other varieties of plant waters that have emerged in the past few years include waters featuring the essences of artichoke, bamboo and lotus flower.

Craft soda in the spotlight

Craft soda in the spotlight

While traditional C.S.D. brands may be falling out of favor with consumers, craft and natural options are poised for growth.

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Healthy beverage innovation

Healthy beverage innovation

What’s driving the trend toward healthier hydration? Changing consumer preferences, for one.

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The market research firm Datassential, Chicago, noted in a report released over the summer that clean label reformulation at food service was also a trend.

“Cleaner labeling for a lot of consumers is what healthy means, so even if it doesn’t have fewer calories, just having a clean label is certainly impactful nutrition in their minds,” said Jennifer Aranas, project director at Datassential.

Two companies that capitalized on the trend during the year include Starbucks Corp., Seattle, which announced in August it would remove caramel coloring and add pumpkin puree to its pumpkin spice latte in response to concerns raised by some consumers.

Corporate Profiles

Coca-Cola Co. bottles

Coca-Cola Co.

Coca-Cola had fiscal-year 2014 net operating revenues of $46 billion, which was up from $36.1 billion in 2010 but down from $46.9 billion in 2013.

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PepsiCo, Inc. bottles

PepsiCo, Inc.

PepsiCo in the current fiscal year was on track to deliver about $1 billion productivity savings and $8.5 billion to $9 billion in cash returns to shareholders.

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The Panera Bread Co., St. Louis, made a similar announcement when it said it was expanding its commitment to offering “clean” products to some of its popular beverage products. Beginning this fall, the bakery-cafe said it will add a new version of its seasonal pumpkin spice latte and a new line of “clean” bottled beverages that are free of artificial colors, flavors, sweeteners and preservatives. The beverages will join Panera’s brewed teas, lemonades, smoothies, bottled milks and juices that already are free of artificial ingredients.