Beverage Bonanza

Innovation more than a buzz word for soft-drink manufacturers

LAS VEGAS Never let it be said that soft-drink makers aren't trying to spice things up. During the 2005 NACS Show, myriad new products flooded the show floor from major manufacturers and small startup companies. On both the carbonated and non-carb sides, new products will be hitting the shelves in droves in 2006, which beverage analyst Bill Pecoriello of Morgan Stanley & Co. Inc., New York, has dubbed the year of the cherry vanilla.

The 2006 innovation pipeline for the U.S. soft-drink players continues to develop, Pecoriello wrote in a recent [image-nocss] research note. Coke's non-carb pipeline is filling out, balancing a portfolio that in our view looked heavily skewed to CSDs [carbonated soft drinks] a few months ago. Pepsi continues to build its CSD portfolio selectively in order to remain competitive in the CSD segment.

According to Pecoriello, Pepsi is likely to launch Pepsi Cherry Vanilla Swirl to compete against Coke's January 2006 introduction of Black Cherry Vanilla Coke. Both of these products follow the 2005 success of Cherry Vanilla Dr Pepper from Cadbury Schweppes Americas Beverages.

On the non-carb side, Pepsi introduced retailers to Propel Calcium, Gatorade Rain and Tropicana Twister during the NACS Show in Las Vegas. It also showed revived vigor behind its Mountain Dew MDX energy drink.

Over at the Coca-Cola booth, in addition to sampling Black Cherry Vanilla Coke, retailers got a glimpse (and a sip) of VAULT and VAULT Zero, new energy-drink/soda hybrids designed to appeal to 20-something, blue-collar males. The company continued the hybrid theme with ADVANCE by POWERade, a combination of sports drink and energy drink characteristics.

Energy drinks also got a strong showing with the unveiling of Tab Energy, aimed at women; and Sugar Free Full Throttle and Full Throttle Fury, line extensions of the successful Full Throttle energy drink introduced at last year's NACS Show. Coca-Cola also highlighted its new relationship as the exclusive distributor of the Rockstar and Von Dutch energy drinks.

Of course, bottled water also was highlighted as Coke introduced Dasani Sensations, a line of lightly carbonated and sweetened bottled waters. The February 2006 launch will include three flavors: Original, Lemon-Lime and Mixed Berry.

According to Pecoriello, additional innovation is expected from Coke in 2006, as well. Coke's potential additions to its non-carb portfolio include Fruit Falls, flavored water containing fruit; U BE, a juice drink fortified with vitamins and minerals; and Vanilla Being, a soy-based beverage used as a milk substitute.

Finally, Cadbury Schweppes isn't sitting on it laurels either. In addition to plans for more Dr Pepper flavored line extensions, the company also offered samples of two new 7-Up Plus flavors: Cherry and Island Fruit.

The implications of all this new product development, according to Pecoriello: The key issues continue to be: 1) whether non-carb growth can offset continued greater-than-expected weakness in the CSD category, 2) the cost associated with the launches while supporting core brands, 3) the incrementality of the new CSD and non-crab products, and 4) the increased cost of complexity.

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