A New Crop in the Beverage Garden
Fresh products abound, but which trend is driving innovation?
New-product activity is at an all-time high in the beverage category, and the desire to drive interest in new products shows in terms of new flavors, new sweeteners, new packaging and more.
“After sluggish performance during the depths of the recession, the U.S. beverage industry is showing signs of life,” says Gary Hemphill, senior vice president of information services for Beverage Marketing Group in New York. “Overall growth has yet to return to what we saw pre-recession, but the industry is moving in a positive direction, with some categories performing better than others.”
Beverage Marketing Group data shows recent new-product activity hit an all-time high of 4,000 new SKUs per year, providing a marketing boost to the beverage category and keeping things fresh in the cold vault.
“There’s huge growth potential here,” says Mel Landis, chief customer officer for Coca-Cola Refreshments, Atlanta. “Particularly as the [convenience-store] industry moves into areas like food and snacking, it really plays into our wheelhouse.”
Coca-Cola has rededicated itself to new-product development. PepsiCo has recommitted itself to its flagship brand while making tweaks to Diet Pepsi. Nestle Waters has increased its portfolio in multiple ways. The major beer brewers are increasingly interested in specialty beers, and Kraft Foods has put beverages in new focus since launching liquid water enhancer MiO.
And the most important move? “People want healthier refreshment,” Hemphill says. “Beauty is in the eye of the beholder, and this is true to some extent to perceptions of what is healthier, too. That said, lower-calorie, better-for-you products are generally outpacing the performance of those that are less healthy.”
It all makes for intriguing groundwork. CSP takes a look at the trends driving the evolution of some of the fastest-growing categories and changes made by manufacturers to meet the new needs.
Beer Gets Special, Wine Gets Sweet
With the total volume of beer sold in convenience stores up just shy of 4%, the 2012 volume growth of three of the most-popular import beers in convenience stores tells a significant story: Corona Extra up 8.3%, Heineken up 8.0% and Modelo Especial up an impressive 27.6%.
“We expect continued solid performance at the high end of the beer category,” says Hemphill of Beverage Marketing Group. “Specialty beers continue to outperform the market and gain share.”
That’s because consumers are continuing on a trend “toward higher-value beers: craft and import,” says Jeff Schouten, director of channel marketing for MillerCoors, Chicago. Yet strength remains in the “core” premium beers in the industry: Bud Light, Coors Light and Miller Lite, which is growing again.
For beer brewers, this means investing in high-profile promotions, extending their most popular brands and investing in specialty beers like never before.
“We are providing product and merchandising expertise on craft beers through our craft division, Tenth & Blake,” says Schouten of the MillerCoors arm started in 2010. “You’ll see product innovation, including Third Shift Amber Lager, Redd’s Apple Ale and Batch 19, as well as new offerings from the Blue Moon and Leinenkugel’s brewing companies.”
Heineken USA, meanwhile, is focused on building its major import brands to drive continued sales.
“Wherever beer is growing, ‘upscale’ is driving that growth,” says Nick Lake, senior director, category management, national accounts for Heineken USA, White Plains, N.Y. “Winning in the upscale segment is about building long-term consumer brands that appeal to beer lovers, delivering smart innovations that change the game and providing real value to our retail partners.”
For retailers, this focus on new products and brand building requires knowing what your customer wants.
“Convenience-store operators must win the upscale consumer by optimizing assortment by focusing on variety vs. duplication,” Lake says. “The key is to understand which packs actually drive incremental volume and which are substitutable.”
More fundamentally, Schouten says, “Retailers should consider beer as a destination traffic driver, as they do with other categories such as coffee and foodservice. [They] should take a hard look at the space they devote to beer, especially as they enter into the craft category. Beer inventory turns are already among the highest in the store, making out-of-stocks a risk.”
Tony Gaines, vice president of small format for St. Louis-based Anheuser- Busch, agrees, saying, “Most retailers use weekly supply as the metric to make sure they have enough coverage in their sets, but more than 60% of beer is purchased Thursday night through Sunday afternoon.
“Winning retailers need to be on top of available cold beer for the weekend, while managing selection. The driver for a convenience store is premium beer. If the store is out of premiums, the consumer will move to another store.”
Meanwhile, another trend in alcohol beverages, arguably started by sweet-flavored vodkas and other spirits, is taking root throughout the category.
“Consumers continue to look for slightly sweeter options,” says Gaines. “A key consumer is the millennial, who may not be in the beer category. Since only 20% of the [convenience-store] channel can sell spirits, brands such as Bud Light Platinum and Bud Light Lime-A-Rita can target a traditionally hard-liquor-buying consumer and are strategic items to focus on in these stores.”
A-B has made a concerted push toward these sweet tastes, extending its Budweiser and Michelob brands: Bud as mentioned above, and Michelob with fruit-flavored extensions.
It also has introduced Michelob Ultra Light Cider, which capitalizes on recent growth in hard ciders, a trend also recognized via purchases by MillerCoors and Heineken USA and a brand rollout by Boston Beer Co. [CSP—Dec. ’12, p. 151].
This swing toward sweet has also hit the wine category, where traditional vintners have introduced sweeter vino, inspired by the strength of moscato.
“You’re starting to see a bunch of moscato-flavored items coming out, such as a pink moscato, red moscato, not just from Gallo, but from competition. It’s basically going after what we believe the consumer wants,” says George Ubing, director of the convenience channel for E&J Gallo Winery, Modesto, Calif. Gallo’s recent product launches include a Chocolate Rouge Wine, as well as a new malt-based line under the name Delicia.
A Clear Rebound
“Price continues to be an ongoing story for bottled water,” says Hemphill of Beverage Marketing Group about water in all categories. “There remains significant pricing pressure in the category with the emergence of private label as a force in the category.”
In c-stores, however, SymphonyIRI Group scan data shows private-label bottled-water volume sales dropped 22% in 2012. Coca-Cola’s Dasani and PepsiCo’s Aquafina saw some growth as a result, but Nestle Waters North America’s regional brands and premium waters were the real winners. And that growth is expected to continue after a couple of slow years in the late 2000s.
“We project bottled water will see 5% to 6% growth in 2013 and 2014, and even into 2015 due to health and wellness trends,” says Jim Donker, director of national accounts for Nestle Waters North America, Stamford, Conn.
Hemphill also credits the move toward health and wellness as the driving force that allowed bottled water to “rebound since the depths of the recession.” “The category is aided by its positioning as the ultimate health beverage,” he says.
“Bottled water is the No. 1 selling beverage around the world, but here in the U.S. it still trails carbonated soft drinks,” Donker says, underscoring the potential of the category. “We’re looking closer at when bottled water will pass CSDs as [the most popular] packaged beverage [in all channels], and what we’re seeing now is probably as soon as 2018.” Of course, in c-stores, water surpassing CSDs is a distant reality—5.4 billion units for CSDs vs. 1.9 billion for water—but the movement in all channels illustrates the opportunity.
Landis of Coca-Cola agrees there is tremendous opportunity in the noncarbonated-beverage business and says Coca-Cola hopes to lead the way in innovation. “This whole space for consumers in an active, healthy lifestyle, the hydration space, really resonates well with us,” he says. “Vitaminwater Zero and PowerAde Zero have opened up that category, particularly to women that … wanted the hydration benefits but never wanted the calories.”
One Drop at a Time
Meanwhile, enhanced waters have reached a new level of prominence as several beverage company startups—Karma, Activate, etc.—have entered the category to challenge vitaminwater, which dropped almost 5% in volume in 2012.
Adding to the new bevy of brightly colored bottles are enhancers that consumers can add themselves. Products such as Crystal Light to Go and MiO from Kraft Foods, Dasani Drops from Coca-Cola and private-label brands have pioneered a new beverage/general merchandise subcategory.
“We continue to see consumer trends toward customization, flavor variety and convenience,” says Jessica Sheth, senior associate brand manager for Kraft Foods, Northfield, Ill., about the rollout of MiO Liquid Enhancer in 2010. MiO and Dasani Drops come in less-than-2-ounce bottles and are intended to be mixed with bottled water, allowing the consumer to add as much or as little to their preferred taste. “Specifically, MiO targets millennials, and while price is an important consideration for this group, uniqueness and trend-inspired attributes are also essential,” Sheth says.
Extensions of MiO have already included an “energy” line that adds caffeine and a “fit” line, rolled out in January, that provides electrolytes for a sports-drink-like beverage. MiO Energy sold more than 7 million units in c-stores in its first year on the market, according to SymphonyIRI Group data.
Retailers and consumers can likely expect extensions of Dasani Drops if the first four flavors, introduced this past fall, catch on.
“Dasani Drops—that’s an enhanced water, just in a different form,” says Landis. “How do we add value to core water, whether it’s nutrients or flavor or whatever it is? … The whole ingredient-enhanced thing is really interesting. If you can do drops in flavors, why can’t you do nutrients in concentrate? Why can’t I do energy, vitamins, etc.?”