Beverages redefined: Driving the drinks game
Beverage categories are undergoing massive redefinition around the world – with a proliferation of brands and products, consumers have more choice than ever before. We’re at the beginning of a period defined by experimentation and fragmentation, with people and companies willing to try new ideas to an unprecedented extent. New Nutrition Business unpicks this driving trend.
Natural refreshment, hydration, less sugar and consumers’ restless experiments with taste and ingredients are all helping drive an increasingly fragmented beverage market-place.
There’s an unending flood of new product concepts – waters with botanicals or cannabis, low PH water, RTD coffee drinks, plant waters, smoothies with charcoal, matcha or protein and tens of others – competing for consumers’ attention.
As NNB said back in 2016: “New opportunities lie in a flourishing world of healthy niches”.
The beverage business is now in Year 6 of a period that can be summarised as:
Beverage aisles are undergoing a massive redefinition around the world, the proliferation of new products and new brands presenting people with ever more choices.
Consumers are willing to be experimental and try new flavours and ingredients to an extent that was unthinkable 10 years ago. Beverages are increasingly about fashion – flavours and ingredients come in and out of favour as much as clothes do.
Pomegranate brands such as Pom Wonderful for example, came to market in 2001 on a surge of consumer enthusiasm – which died away, leaving Pom operating as a big niche brand.
Fuelled by this fragmentation, new beverages are coming from hundreds – perhaps thousands – of start-ups. Of these, 1% or 2% will become big success stories, 50% will create a niche business, and the remaining 48% will struggle along and eventually disappear (usually because of poor taste performance, lack of a worthwhile point of difference and/ or inability to get distribution).
But if you think this is all about start-ups, think again. The owners of all those cute independent brands have one aim which is, sooner or later, to sell out to a big player – ideally a Coke or Pepsi – as many already have.
The big players have learned to keep separate the identities of the brands they buy, such as Coca-Cola’s acquisition of Innocent and Pepsico’s of Naked. While the beverage aisle will display a proliferation of brands, the ownership will remain much as it is today.
Big Beverage still in charge
The titans of the business are still controlling it, to a great degree, despite major and even game-changing incursions by one start-up after another.
“You can’t discount the power of those who make the market in the beverage industry at retail,” says Tom Pirko, president of Bevmark International, and a beverage industry expert.
“They still have the resources to command and everyone else has to follow or try to compete against them and break the mould. And no one can do that, either, without looking very carefully at what the dominant companies are doing.”
Thus, he said, it’s still “hard to find companies that don’t have an extremely high sense of risk in this market, and even getting angel investment is extremely difficult.”
And thanks to their technical skills, production know-how, distribution skills and marketing muscle, “Big Beverage” companies are competing, by producing bold moves of their own.
Examples of how “big beverage’ is innovating and keeping up with the trends include:
- PepsiCo’s introduction of its Drinkfinity pod-based beverage format in South America, the US, the UK and Sweden.
- Nestle’s launch of Nescafé Azera Nitro, a nitrogen-infused coffee drink, sold in 192ml cans in variants with and without milk, retailed in convenience stores, foods service, bars and clubs.
Risk in beverages is higher than ever and change is rapid. The days of billion dollar – or even $100-million – beverage brands may be over.
As in many other categories, beverage companies will find themselves curating a large portfolio of brands – some their own creations, some acquired (including small brands in which they have an investment stake but no control), some mass, but many more niche and premium.
Where are the opportunities:
Water is the ultimate in ‘naturally healthy’ – connected to better physical and mental well-being in consumers’ minds, crucial for hydration, it’s the thing we have been told since the 1990s we need eight glasses of a day (an assertion not backed by science).
Water remains a big growth opportunity, particularly for anyone who can find a way to add value – whether that’s with cannabis or low PH or provenance.
Bottled still waters and various forms of “sparkling” waters are the brightest performers in the beverage industry. While bottled water overall “is experiencing healthy growth,” noted Gary Hemphill, MD of research for Beverage Marketing, “sparkling water is on fire [and] is growing the fastest” of any water segment.
One way in which sparkling waters have deviated from still-water brands is that they’ve managed to establish and maintain a premium stature, while the issue for regular water is downward pressure on pricing, and it’s tougher and tougher to differentiate. In a bid to get better pricing, “regular’ waters are making more use of provenance claims.
One of the biggest growth opportunities – and one in which there are still gaps for new brands – is the alcohol-free drinks market.
It’s a global trend that skews strongly to younger consumers and should be of interest to anyone who wants to grow their Millennial market. NNB’s consumer survey found that 73% of people aged 25-34 were trying to reduce their alcohol consumption, for health reasons, compared to 49% of those aged 65 or older.
Growth is being driven by both an improvement in the taste and offer of no-alcohol beverages (beers, wines, spirits) and consumers’ concerns over alcohol’s impact on health and weight management in particular.
Coffee is getting a new lease of life as a natural energy drink with a wealth of new types of consumption.
In fact, since the 17th century, coffee has been the energy drink for adults (energy and alertness were the benefits promoted for coffee when it was first introduced in Europe and America 400 years ago).
Safety reviews in Europe and the US have found that caffeine has no health concerns up to 400mg a day (equivalent to four cups), and caffeine even got a seal of approval from EFSA in Europe, which passed five health claim approvals for caffeine – a move that reflects the amount of science behind caffeine from a body that has rejected 90% of all health claim petitions.
Coffee is taking a leading place in the strategy of more companies, as evidenced by Coca-Cola’s 2018 $5.2 billion (€4.5 billion) purchase of the Costa Coffee chain, which has more than 2,400 UK coffee shops as well as some 1,400 outlets worldwide. Costa Express has 8,237 vending machines worldwide.
The surge in RTD is also seen in Néstle’s latest launch, Nescafé Nitro, a chilled RTD coffee with an appeal different from the classic energy drink.
Chilled coffee is thriving in the US, growing at least 10% annually between 2013-18. More than half (56%) of new RTD coffee launches in the US were cold brew in 2017, up from 38% the year prior.
In the US, cold brew sales at retail reached an estimated $38-million in 2017, representing a single-year growth of 137%.
It is younger consumers who are leading the shift from hot coffee to chilled RTDs. Two-thirds (66%) of UK 18-24-year-old coffee drinkers say chilled coffee is a good alternative to sugary drinks, compared to a quarter (26%) of drinkers aged 45+.
This echoes what is happening in America where younger drinkers, who are less ingrained in the ritual of drinking coffee hot, have driven RTD coffee growth.
The barriers to entry for kombucha, a fermented drink based on green or black tea and which originated from China, are relatively low, and many brew it at home.
Little wonder it’s an attractive proposition for entrepreneurs, particularly those that already have brewing equipment.
In the US, where kombucha first appeared as a commercial product in health food stores around 2004, sales are rocketing, increasing by 43% in 2018 compared to 2017, according to Nielsen data, and retail sales are on course for $1-billion (€870-million).
The US market is led by the pioneering brand, GT Living Foods, with a 50% market share. But in second place is KeVita, with over $200-million (€173-million) in sales. KeVita has been owned by PepsiCo since 2016 and is one of the brands that has successfully modernised and westernised this lightly effervescent drink.
There’s also a surge of activity in the UK, where there are around 30 small brands on the market. In fact kombucha may be on its way to mainstream acceptance among younger consumers in some markets – it’s possible to find kombucha on sale in bars and pubs in both central Amsterdam and rural Scotland.
With all the new launch and start-up activity, kombucha is likely to go through a period of over-supply then consolidation. The brands that win will be those which, like KeVita, excel with flavours, packaging and getting access to shelf-space.
If a kombucha comes to market that can offer a scientifically-backed probiotic (none does at present) that delivers a ‘feel the benefit’ effect, it creates a point of difference in a crowded segment.
Given the importance to consumers of digestive wellness and younger consumers’ love of effervescent drinks with a ‘naturally healthy’ halo, there is likely to be a lot more growth to come.
Categories under pressure
Some categories are showing signs of stalling or even failing, notably the following.
- SMOOTHIES AND JUICES
Juice and smoothie brands have long depended on having a strong “naturally healthy” image. But their core consumers include the most health-conscious people and they are also the first ones to have taken onboard the anti-sugar message.
The vitamins, antioxidants and fibre found in many (but not all) juices stopped being a source of competitive advantage some time ago – and today these benefits are increasingly overshadowed in the minds of many consumer by worries about sugar.
In the US sales of fruit beverages have declined five years in a row. Orange juice – once the mainstay of the market – experienced a 21% decline between 2010 and 2014. In the UK market leader Pepsi-owned Tropicana experienced a 12.2% drop in sales in 2018.
Luckily most consumers still consider fruit juice healthy – NNB’s 5-country survey found that compared to the 61% of consumers cutting down on soft drinks, just 28% were dropping fruit juice.
But juice and smoothie manufacturers can’t look forward to any growth. Even just to stand still they’ll have to keep up with consumers’ fashion-driven approach to drinks.
- PLANT WATERS
Although coconut water brands such as Vita Coco have demonstrated that it’s possible to offer all-natural hydration, without any added sweetness, coupled with a plant-sourced health image, other plant waters have not fared so well.
There’s been a proliferation of plant waters from maple, birch, palm and bamboo trees, but they have often failed to create a point of difference from coconut and have had a problem of consumer acceptance.