The days of mass-market beverage brands are disappearing. No longer are drinks designed with everyone in mind.
“Most new beverage products are designed for a specific reason,” says Gary Hemphill, senior vice president of information services for Beverage Marketing Corp., New York. “They are much more targeted to either usage occasions or consumer demographics, so they’re not marketed and introduced as products that can be all things to all people. The market is becoming more splintered and niche."
And manufacturers are finding it necessary to think this way. For the 10th consecutive year, sales of carbonated soft drinks (CSDs) have dropped, according to Beverage Marketing Corp. Last year’s decline was 2.3%.
Coming along to pick up the slack are a slew of healthier beverages, each category designed to meet the needs of a certain segment of the population.
This is not a new story, but rather a tale of the 21st century, as the trend toward health, especially in thirst quenchers, plays out.
“People want healthier beverages and more variety,” says Hemphill. “Most products coming out today have health-and-wellness attributes, and they are outperforming on the market.”
What is challenging, though, is that moniker: healthy beverages. What does it mean? According to many, it’s a broad category: water, fortified beverages, juices, teas, smoothies, kombucha, yerba mate and sometimes even energy drinks.
Market-research firm Mintel, Chicago, saw sales of sports drinks, nutritional drinks (including meal replacements) and protein drinks rise by 48% from 2008 to 2013. This segment totaled $12.3 billion in sales last year and is expected to grow by 44% to $17.7 billion by 2018.
Ready-to-drink tea is also on the rise, growing nearly 20% since 2009 to an estimated 2014 reach of $7.3 billion, fueled largely by millennials. And Mintel projects that sales will grow nearly another 17% by 2019 (or 4.7% annually when adjusted for inflation).
It’s true that Americans are still drinking more sodas than anything else, across all channels, Hemphill says. But healthy beverages are growing at a brisk pace.
The diversity of beneficial beverages suggests retailers must be mindful of their respective markets and competitive landscapes, and exploit the healthy-beverage line that is particularly popular with their respective customers.
CONTINUED: Good to Growl
Good to Growl
At Robinson Oil’s six Northern California Rotten Robbie stores, a sweet surprise has been Guayaki’s yerba mate, a caffeinated beverage with health benefits including vitamins, amino acids and antioxidants.
“We brought it in after various stores had customer requests,” says Kris Kingsbury, marketing and merchandise manager for the Santa Clara, Calif.-based chain. So she hunted down a beer distributor who now supplies the product.
Rotten Robbie sells around 150 units per month—not bad for a beverage with a higher margin than a CSD (eight points higher, Kingsbury says).
Caffeine has also been driving sales of healthy beverages for the past three years at Stop and Go, a one-store company in Bend, Ore. This store offers 16 taps of two local brands of kombucha, a fermented tea beverage said to help fight diseases such as cancer and arthritis. It’s low in sugar, contains probiotics and has about a third of the caffeine found in coffee.
“We were developing a growler filling station and started selling craft beer,” says co-owner Kizer Couch. “The beer took off like crazy, and a local kombucha company brought in some samplers.”
Couch was understandably skeptical: “Our side of town isn’t really kombucha drinkers but more the working construction guy.”
Surprise, surprise: The drink’s a big hit. “You’d like to think it’s the granola person, but it’s not,” he says. “I get 60-year-old construction guys wearing their hammer bag coming in, and they buy it.”
Stop and Go sells kombucha mostly by the growler at a handsome margin of 45%. It sells for 20 cents per ounce, or roughly four times the cost of soda, and $11.99 for a growler.
The store also carries natural sodas from Hot Lips, a Portland, Ore., company, as well as Odwalla juices and POM Wonderful pomegranate drinks.
They’re in the grab-and go case, which also features sandwiches and healthier food options. “It’s all grouped together and it’s all a lot more expensive,” Couch says.
Symbiotic Relationships
Other big sellers at Rotten Robbie stores are Sparkling Ice (flavored sparkling waters with no calories), teas (the less sweet, the better) and coconut water.
Sales of beverages with sugar, such as enhanced beverages, are dropping off, says Robert Perkins, vice president of marketing for Rutter’s Farm Stores, York, Pa. But sugar’s OK, he says, if the beverage is offering some benefits, too. So if it’s a juice or a smoothie bursting with nutrients and natural sugar, consumers will buy it.
Rutter’s 34 stores are also enjoying good sales of its private-label Rutter’s Teas, especially unsweetened, says Perkins: "People see tea as a healthy beverage because of the antioxidants.”
It’s a strong category, he says, and comparable to CSDs in share of sales, though he was unable to share sales figures. The pricing, he says, “is very competitive with other private-label teas in the market and typically lower than other ‘healthy alternatives.’ ”
The teas are merchandised from the cooler but juices and smoothies are placed in Rutter’s Fresh Forward case, which holds fresh foods such as sandwiches and salads, usually at a premium price.
“We don’t put any CSDs or any typical cooler items in there,” says Perkins, “and these drinks are $3.50 to $4. It’s about satisfaction, and consumers are willing to pay for that.”
Having these beverages in the case creates a symbiotic relationship, he says: “It does wonders for us on the food side. Sales of each drive the other.”
CONTINUED: Healthy Blends In
Healthy Blends In
As opposed to drawing attention to healthy beverages, Rotten Robbie’s Kingsbury takes a different approach. “I’m attempting to integrate them and not make them different,” she says. “They’re available when you go to a particular cooler door. I’m trying to make it not difficult for a customer to find something.”
She does at times put them into the deli with the prepared foods because “it makes a nice tie-in and additional purchase,” she says.
Combining fresh foods and healthy drinks is a great strategy, says Jay Jacobowitz of Retail Insights, Brattleboro, Vt.
“You have to convince the consumer that this is a meaningful, targeted strategy,” he says, “and it has to be supported throughout your store—over on the coffee bar with teas and healthy snacks, on the food bar with some veggie dogs and with fresh grab-and-go meals. If it’s just beverages, there’s no context.”
Both the cooler and the fresh case make sense because each is targeting a different customer, says Suzanne Ginestro, chief marketing officer for Bakersfield, Calif.-based Bolthouse Farms, which sells smoothies, protein drinks and café drinks in convenience stores. “In my ideal world we’d be in both places, because it’s likely two different occasions,” she says.
Most of the healthy beverages sold at Tedeschi Food Shops—Sparkling Ice, private-label Tedeschi Select sparkling waters in four flavors, 100% juice, protein drinks, coconut water—are in the coolers.
“The cooler is a destination … so it’s important to have healthy beverages there,” says Dan Powers, beverage category manager for the 190-unit Rockland, Mass.-based chain. “They can choose what to have. That means you also have the opportunity to convert more customers to healthier drinks because they see them there.”
Green Spot Market in Dallas also places most of its healthy beverages in its cooler doors, except for two products: kombucha from a tap, and fresh fruit juice, which is served from a gallon jug that’s kept refrigerated under the front counter. It’s made fresh every day from well-recognized fruits.
A dry-erase board behind the counter announces the daily juice, and customers can buy either an 8-ounce ($4) or 16-ounce cup ($6).
“I can’t keep up with it in the mornings, but it doesn’t make us a lot of money,” says store manager Adam Velte. However, “it’s good for our image,” he says.
Meals for the Young
True, healthy beverages come at a heftier price. But most customers seem not to mind.
“They’re thinking, ‘If I’m going to spend my money, I may as well get some health out of it,’ ” Velte says. "That’s a pretty common mindset, particularly if they’re independent and not relying on their parents to bring home groceries.”
While drinks are, overall, more expensive, Velte doesn’t make better margins on them. “We’re not going to mark them up any more than we have to because it would be even more discouraging to customers,” he says. Generally, the healthy beverages cost $3 to $4—or twice as much as a soda.
“This category is being consumed by an active balancer: someone who is balancing between wanting good nutrition and doing the things they love to do,” says Bolthouse’s Ginestro. “They want a meal in a bottle or a drink that has nutrients or fortification. They’re looking for sustenance; it’s not refreshment. If these people are drinking calories, they want it to be food or nutrition.”
Retail Insights’ Jacobowitz agrees: “It’s about at least partial meal substitution and having something you can hold in your hand while on the go.”
CONTINUED: Merchandising Power
Merchandising Power
Selling these drinks isn’t the challenge, says Kingsbury—it’s letting the customer know you have them.
For example, Rotten Robbie stores have used pumptoppers to get the word out. But even such passive education is not necessarily aimed at the quick conversion.
“People might not buy them right away, but when they come back later they remember,” Kingsbury says. “It’s more about the communication than getting them to come in and get it right now. It’s about changing the perception of c-stores.”
Tedeschi touts bundling such as “buy a Kind bar and get a free Tedeschi Select sparkling water,” Powers says.
At Rutter’s, it’s about applying traditional marketing to a more expensive part of a store’s offering. “You used to see two-for-$1 or two-for-$2 offers in beverages. I now do two for $5 or $6,” Perkins says. “We do a lot of ‘two for’ deals.
“Customers see the savings, but it also drives sales. They might pick up another drink for later or for a friend.”
Simply Sampling
The easiest, most effective way to drive sales of better-for-you beverages is through: sampling.
Sales of Zone 8 tea beverages at a convenience store in downtown Chicago were practically zero this past June, says company president Tim Megenbier. So he sent a crew to the store to do two days of sampling. “It boosted sales three- to four-fold,” he says. “We now sell two or three cases per week.
“You really need to get the product in people’s hands and mouths, and the way to do that is sampling.”
Norman Snyder, president and CEO of Avitae, Cleveland, which produces caffeinated flavored and unflavored waters, does sampling events at retail.
“One of the things we’ve discovered is once we hook a consumer, we’ll sell them five bottles a week,” he says. “We’ll do events just handing out product in parking lots. If you spend a few days there, you’re going to hit a lot of regular customers, and that helps you make people aware. If you start a lot of fires everywhere, you create momentum.”
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