Tiny bubbles are warming up wine sales and cooler sets as sparkling waters and drinks with natural flavoring ride a healthier-for-you wave that’s putting the fizz back in beverages.
These alternatives range from hibiscus-flavored sparkling waters to traditional colas in mini-cans and come from both regional bottlers and major manufacturers.
Retailer Kris Kingsbury, marketing and merchandise manager for Robinson Oil, Santa Clara, Calif., and its 34 Rotten Robbie stores, this summer saw a 50% increase in unit sales of Pepsi products flavored with natural sugar. She believes the better-for-you trend is real and, as a result, the category is “definitely growing.”
One major driver is a population that, despite being more obese on average than other countries, has become more concerned with health. “Consumers are increasingly educated about food and beverages and their ingredients,” with related sensitivity extending to packaging, messaging and sourcing, says Adrienne Nadeau, senior consultant with Chicago-based Technomic Inc. “They’re interested in the impact food and beverages have on their bodies and the planet.”
This emerging subcategory ties into several interconnected trends:
- Stagnant sales of carbonated soft drinks (CSDs). So-called “traditional” colas have experienced negative to flat sales trends over the past four years, according to Chicago-based IRI, with major bottlers, including Coke, Pepsi and Dr Pepper Snapple Group (DPSG), talking comeback strategies ranging from smaller container sizes to new sweeteners.
- Media backlash. Certain artificial flavors have received negative media attention in recent years, causing manufacturers to adopt alternatives.
- Growth of new options. After the meteoric rise of the Sparkling ICE brand starting in 2010, knockoffs and fizzy, flavored derivatives have risen exponentially, with several lines experiencing double-digit growth.
Yet despite the activity, the better-for-you subcategory accounts for a small percentage of cooler space. The NACS State of the Industry Report of 2014 Data showed “enhanced water” making up only 5.5% of packaged-beverage sales, up from 5.1% in 2014. Bottled water was 9.6% of sales, up from 9.4% in 2013. In contrast, while it fell 1.2 percentage points from the year prior, CSDs still made up 33.2% of sales. Distribution also keeps these smaller segments from eclipsing traditional brands more quickly.
Those healthier-beverage numbers may skyrocket, however, if the category dovetails with parallel trends in food and snacks.
“While healthier beverages haven’t quite gotten mainstream yet, it’s likely only a matter of time,” Nadeau says. “Green smoothies, with ingredients like spinach or kale, were once mocked and seen as a ‘hippie’ drink and now they’re on convenience-store shelves.”
Defining Healthy
Parameters defining healthy beverages are at best pliable. Some may not be healthy at all, or at least not in the strictest sense. In these cases, calories and sugar still drive flavor. The qualifier becomes what customers pick over higher-calorie drinks with higher sugar content.
Demographics also may play a role. Millennials and Generation Z, for example, are “less interested in counting calories and more interested in products that are free of additives, [are] filled with natural ingredients and benefit their body,” Nadeau of Technomic says.
Even more confusion comes with so-called functional beverages, because many of them have healthy benefits, she says.
“The breakneck pace of our lifestyle has shifted focus to functional beverages: drinks that offer full servings of fruit or vegetables, antioxidants, increased energy or immune boosts,” Nadeau says. “Consumers are looking to new products but also looking to make the most of natural products that have been used in the past for their restorative properties, such as ginger and turmeric.”
The trend has permeated the foodservice industry as well, where a variety of limited- and full-service operators are developing menu lineups with a functional purpose, often to provide consumers with power or energy for their day, among other health benefits, Nadeau says. Descriptions such as “contains antioxidants” boost consumer perception and encourage purchases, she says.
Perception may actually be the battle itself. In Technomic’s 2014 Healthy Eating Consumer Trend report, an overwhelming majority of consumers agreed that traditional health claims make food seem healthier. At least four in five consumers report that food or beverages with “low sodium or salt” and “low sugar” callouts are healthy, and at least seven in 10 report that food items with “low fat,” “low cholesterol” and “low calorie” callouts are healthy.
Targeting Refreshment
While many think the average American will believe anything they read or hear, no one can argue the power of bad press, with sweeteners such as aspartame and even plastic water bottles coming under fire.
Some municipalities and universities have banned plastic water bottles—see sidebar below—while aspartame has received enough negative media to force manufacturers to use and promote alternatives. Earlier this year Purchase, N.Y.-based PepsiCo announced that in the United States, Diet Pepsi, Caffeine Free Diet Pepsi and Wild Cherry Diet Pepsi will use a blend of the artificial sweeteners sucralose and acesulfame potassium, with products scheduled to debut this past summer. Pepsi True, its reduced-calorie product, came out last fall touting a blend of cane sugar and stevia-leaf extract.
Atlanta-based The Coca-Cola Co.’s biggest move on this front was its January U.S. introduction of Coca-Cola Life, a reduced-calorie cola sweetened, like Pepsi True, with a blend of cane sugar and stevia.
Amid all the debate, officials behind some of the more successful better-for-you beverages simply back off health claims, pointing to a different reason people buy their drinks: refreshment.
Probably the most well-known brand to have re-created the carbonated drink is Preston, Wash.-based Talking Rain Beverage Co., the creators of Sparkling Ice, a calorie-free beverage that uses sucralose as its sweetening agent. Kevin Klock, recognized by many as a leader in the reinvention of the category, makes no health claims with the company’s breakout line of flavored waters.
From Klock’s perspective, the beverage industry “lost its way,” allowing functional beverages to fill in for what he believes to be an obvious need state—that of refreshment. He names Gatorade and its isotonic, athletic bent as an example, as with Monster and Red Bull for those wanting caffeinated alternatives.
“Refreshment has been a need state in beverage for a long time,” says Klock, president and CEO of Talking Rain. “And it’s not that people are tired of cola or lemon lime, but our design is around providing something less sweet, less carbonated, but full flavor.”
Refreshment as a need state can cover multiple day-parts as well, Klock says. That’s why the company’s line includes Orange Mango for morning, while Strawberry Lemonade grows in popularity in the afternoon or evening. Likewise, demographics play a role in flavor preferences. A flavor such as Cherry Lime skews to a younger, sweeter palate, and Orange Mango targets mature, sophisticated taste buds.
For Klock, the draw is variety. “An easy correlation is with beer and microbrews producing complex flavors of beer,” he says. “It’s the same way with nonalcoholic beverages. People are leaving the traditional for complex varieties and flavors.”
Others manufacturers agree. Kyle Watson, director of public relations and marketing for Onli Beverages, Palm Beach, Fla., says the company is “realistic about our product and what we mean to people.” Its goal is to stand out from the competition to give consumers “the taste they’re looking for vs. just water.”
Onli offers flavor combinations such as peach and grapefruit, apple and pear, and lemongrass and mango. Watson says the company uses high-quality ingredients sweetened with the actual fruit flavor. In addition to the pairings already mentioned, its line of sparkling waters includes Hibiscus Pomegranate Aronia, Hibiscus Pomegranate Strawberry, Espresso Swiss Hazelnut and Black Tea Tangerine Ginger.
For Onli drinks, Watson says a compelling element is avoiding flavorings that are “potentially harmful.” People want to mix up their beverage choices, but they also want to feel comfortable they’re not drinking anything that can hurt them later.
Along with flavor and refreshment, the overall look and feel of the product is crucial. “Part of our success was to define what our product was,” says Klock, whose Sparkling ICE brand went from $10 million in 2010 to $500 million in sales today—only now breaking into the c-store channel. “We looked at everything from the label to colors to its smell, even what it sounded like when opened.”
The drinking experience is also important to Onli. The company uses glass bottles for its sparkling flavored water—another competitive differentiator, Watson says.
Klock’s bigger mission is to develop a brand, saying he’s committing marketing dollars comparable to other emerging brands in the consumable-goods space. It’s a reflection of younger generations’ desire to connect to the brand they’re spending money with. “We’re doing it to bring value to the retailer,” he says.
CONTINUED: What’s Bubbling Up
Hip to be Slim
Another indicator of the push to seemingly healthier alternatives is struggles in unit sales of traditional CSDs. IRI reports CSD unit sales in c-stores were generally flat (down 0.1%) in 2014 following a 1.4% decline in 2013 and a 5.8% drop the previous year. On the positive side, dollar sales improved ever so slightly (up 0.3%) in c-stores in 2014.
As Kingsbury of Rotten Robbie points out, the larger CSD manufacturers have taken steps to offer alternatives with less sugar and natural vs. artificial flavorings, as well as experiment with can size and container materials.
In addition to its aspartame-free efforts, PepsiCo has gotten into the multiple-size game, trying out slimmer cans for some of its beverage lines. Officials say sales have “improved dramatically.”
Coca-Cola found success with its 7.5-ounce can, scoring double-digit growth over several quarters, officials report.
DPSG, Plano, Texas, admittedly has been slower to consider new package sizes, but it has been researching possibilities, according to the company.
What’s Bubbling Up
Retailers looking to capitalize on the healthier-beverage trend are seeing new products emerge from all directions. For Klock of Sparkling ICE, of which c-stores make up only 7% of its $500 million in sales, the challenge is to build a nationwide direct store delivery (DSD) network, which is almost in place. He has 35 states on line now and expects to be at 50 by year’s end.
Many up-and-coming beverages face the issue of distribution, but for retailers hoping to develop a cooler program based on better-for-you options, that variety exists today.
Varni Brothers Corp., Modesto, Calif., uses water from an adobe spring source, which contains higher amounts of magnesium, a desirable mineral and healthy benefit, says president Tony J. Varni. “It tastes like real water; it’s not bitter,” he says.
With his Noah’s California Spring Water line, Varni offers six kinds of waters, ranging from plain to naturally flavored, with fizz and without, in glass bottles and slim cans. Flavors include lime, blueberry pomegranate and peach mango. Sales have been doubling for several years—a boon for a family business that started in 1936 as a 7UP bottler.
Retired brands resurrected for a new generation are also adding to the cold-vault competition. Clearly Canadian is returning to store shelves with its spring water, pure cane sugar and natural-flavoring formula.
Likewise, fellow 1980s favorite Original New York Seltzer is back on the market online, with plans to reach retailers in 20 states by the end of the summer.
The difficulty for retailers watching the category’s evolution is having to weigh the pros and cons of taking on new opportunities.
“As our bigger competitors bundle what they offer together, it’s hard to see the value that an individual product brings,” says Klock of Sparkling ICE. “But as we get bigger, we’ll bring that leverage.”
How much that leverage plays a role is unclear, but Kingsbury of Rotten Robbie has definitely been optimistic about the big manufacturers’ real-sugar products, even as some drinks saw small declines in recent months.
“We think that’s because we had to remove some freestanding coolers due to the Americans with Disabilities Act,” she says. “But we certainly see the appeal [of these drinks] as part of the better-for-you trend.”
Ban Leads to Unintended Choices
By banning the sale of plastic bottled water in the name of eco-friendliness, communities may trigger the wrong reaction, according to a recent study.
Published in the American Journal of Public Health, the research showed efforts to ban or restrict the sale of bottled water can lead to greater consumption of less-healthy beverages and more plastic waste.
“The Unintended Consequences of Changes in Beverage Options and the Removal of Bottled Water on a University Campus” reported that a bottled-water sales ban at the University of Vermont in Burlington led to a 25% increase in the consumption of sugary drinks and an 8.5% increase in plastic-bottle waste.
“As bottled-water sales dropped to zero, sales of sugar-free beverages and sugar-sweetened beverages increased,” said Chris Hogan, vice president of communications for the International Bottled Water Association, Alexandria, Va., in a press release.
“The purpose of the bottled-water sales ban was to encourage students to carry reusable water bottles that could be fılled with tap water. That did not happen. The study found that the increase in sugar-sweetened-beverage consumption occurred even with the university’s efforts to encourage water fountain use—retrofıtting 68 water fountains so that reusable water bottles could be used, [plus] educational campaigns ... and handing out free reusable water bottles.”
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