Beverage makers deliver more 
than thirst-quenchers

In a manner of speaking, beverage manufacturers have a captive audience. After all, every living being needs to drink or they, quite frankly, cease to be a living being. Naturally, there’s always tap water, but for the majority of consumers, they would rather have something with a bit more of a kick. That doesn’t mean the living is easy for the industry, however. On the contrary, increasing competition and consumers’ seemingly insatiable thirst for new and different products keep beverage makers hopping, always in search of the next big thing.

Clearly, carbonated soft drinks remain the beverage of choice for millions of Americans. Overall, the category grew by 1.7 percent in volume in 2001, according to Chicago-based Information Resources Inc. Colas account for the lion’s share of sales, but flavored products are showing up on shelves with a more visible presence. The Coca-Cola Co. and Pepsi-Cola continue to dominate the category, making up more than 70 percent of market share in the United States across all channels, based on data from IRI and ACNielsen.

Over the past year, Coca-Cola, Atlanta, reported a worldwide case volume increase of 4.0 percent with 17.8 billion cases of product sold in nearly 200 countries. Carbonated soft drinks continue to account for Coke’s largest growth with major brands Coke, Diet Coke, Sprite and Fanta leading the way. This past summer, the company expanded its franchise with the introduction of Vanilla Coke.

That being said, Coca-Cola’s non-carbonated segments are growing three to four times faster than its carbonated business, according to financial reports from Morgan Stanley. However, the non-carbonated business accounts for just 13 percent of Coca-Cola’s total volume.

On the diet cola front, Coca-Cola’s Diet Coke and Pepsi-Cola’s Diet Pepsi outpaced other brands for the second consecutive year. Both companies have been putting substantial budgets behind advertising, as well as R&D for the brands. In the fall of 2001, for example, Coca-Cola rolled out Diet Coke with Lemon, the first extension in the history of the brand.

Coca-Cola’s top rival Pepsi-Cola, a division of Purchase, N.Y.-based PepsiCo, took innovation to new heights and managed to keep up a steady buzz of excitement throughout the year. According to Morgan Stanley, Pepsi’s key drivers lie in the further extension of such blockbuster new products as Code Red, a cherry-based carbonated soft drink under the Mountain Dew brand umbrella. Other recent introductions include Pepsi Twist, Mountain Dew Amp, a lemon-lime variety of Sierra Mist, and Pepsi Blue, a berry-flavored concoction.

Such efforts seem to be paying off, as IRI figures place Pepsi firmly in the No. 2 spot with a 34.5 percent volume share across all channels. Pepsi’s growth was more than double that of the category as a whole. Its biggest leap in volume took place in mass merchandise outlets where sales were up 44.1 percent over the previous year.

Maintaining the No. 3 position with a 17.5 percent share, Dr Pepper/Seven Up posted strong gains over the past year, particularly in mass merchandise outlets and drug stores where volume rose 57 percent and 27.4 percent, respectively. Although 7 UP was impacted by Pepsi’s competitive launch of Sierra Mist and Diet Sierra Mist, the company reports that strong performances of its core flavors — in particular, Sunkist and A&W — offset the pressure. Sales of Sunkist Orange rose 19 percent in volume, according to IRI, while sales of A&W flavors grew 8.5 percent. Such growth helps make up for the 3.1 percent slip in volume experienced by the 7 UP brand.

The Dr Pepper brand’s total volume was up 2.1 percent, with Diet Dr Pepper continuing its 11-year growth trend, reporting a volume increase of 5.9 percent, according to IRI. Still, company executives weren’t fully satisfied with sales figures for its key brands, leading to the announcement of new advertising, as well as a new initiative dubbed VIP — Volume Impact Plan.

On the non-carbonated front, Cadbury Schweppes worked through the settling in of the acquired Snapple Beverage Group, White Plains, N.Y. Overall, Cadbury’s non-carbonated business enjoyed a strong year, thanks in large part to growth in Hawaiian Punch and Clamato.

Although branded soft drinks continue to rack up sales gains, they are completely aware that not all consumers are fiercely brand loyal. That’s led to an ever-growing private label presence in the soft drink category. According to IRI, private label soft drinks experienced a 1.3 percent increase in volume sales over the past year, bringing its share to 8.1 percent. Potentially indicative of trends to come, flavors play a more significant role than colas in the private label category. As consumers seek a broader assortment of products, private label manufacturers have been reaping the benefits. Private label flavors represent a 5 percent volume share, more than double the 2.2 percent share of private label colas. What’s more, flavors reported a 2.9 percent increase in volume, compared to a cola decrease of 0.3 percent.

Water keeps chugging along

The soft drink category isn’t the only area where Coca-Cola and Pepsi-Cola reign supreme. In recent years, the big boys have come to dominate in bottled water as well. Pepsi’s Aquafina is now the biggest selling bottled water on the market, growing more than 61 percent in sales and increasing volume by 35.2 percent over the past year. Meanwhile, Coca-Cola’s Dasani grew 90.5 percent in dollar sales to $201.6 million and gained more than 61 percent in volume sales.

Under Coca-Cola and Pepsi-Cola’s leadership, sales of non-carbonated water soared 28.5 percent in dollars in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, according to IRI. That’s not to suggest that other brands have faltered. On the contrary, Perrier’s Poland Spring grew 28.9 percent in dollar sales for a total of $114.2 million. Danone’s Evian brand didn’t fare nearly as well, dropping 9.2 percent in dollar sales to $91.2 million. Its Dannon Natural Spring Water also failed to reach expectations, falling 19.9 percent to $76.3 million.

Private label continued to grow its share of the non-carbonated water business, reaching $149 million, up 37.5 percent over the previous year. That enabled it to capture the No. 3 position with 10 percent of the market. In the seltzer/tonic water/club soda category, private label boasts a 27.2 percent share, making it the category leader. The top branded carbonated water, Cadbury Schweppes’ Canada Dry, fell 3.5 percent to $64 million. Canada Dry still holds more than 23 percent of the carbonated water market, however. The company also has the No. 2 branded carbonated water with Schweppes, which increased 1.4 percent to $46.2 million.

With flavored waters, herb-infused waters and “fitness waters” hitting the market in increasing numbers, the line between bottled water and soft drinks is becoming blurred. Introductions include Quaker’s Propel fitness water and Pepsi-Cola’s Aquafina Essentials. Other value-added offerings include Snapple Beverage Group’s Snap20 and Arizona’s Water Aid+.

Deerfield, Ill.-based Baxter Healthcare has thrown its hat into the functional water ring with Pulse vitamin-enhanced water, currently available in the Chicago and Phoenix markets. Veryfine Product Inc.’s Fruit2O, a naturally flavored spring water, went national this year.

On the fitness side, Clearly Canadian rolled out Reebok Fitness Water Enhanced Water Beverage, while Corona, Calif.-based Hansen’s introduced Hansen’s Energy Water with vitamins and taurine. TriWater USA Inc., Neptune, N.J., debuted O2GO, an oxygenated distilled water, boasting five times more oxygen than normal drinking water. For consumers seeking even more oxygen, O2GO XS boosts that figure to eight times. Meanwhile, PentaHydrate from San Diego-based Bio-Hydration Research Lab Inc., is said to be saturated for “ultra pure oxygen” and molecularly structured for rapid absorption in the body.

Juices get a boost

The same factors that are driving consumers to bottled water also has them seeking out juice products. The desire for good health and concerns over soft drink consumption have fueled interest in juice products far beyond the good ole orange juice that traditionally took its place at the breakfast table.

That said, refrigerated orange juice continues to lead the category with a greater than 70 percent market share. However, consumer preferences clearly are changing. Dollar sales of chilled orange juice fell 1.9 percent over the past year, while sales of shelf-stable bottled lemonade rose 15.5 percent. Meanwhile, dollar sales of fruit juice and fruit smoothies soared a phenomenal 37.3 percent. Other categories had a harder time staying in the black. Canned juices dropped 6.5 percent, while shelf-stable juice and juice drink concentrates fell 16.4 percent.

Sales results may have been varied in 2001, but innovation has been rampant. Across the board, juice makers are listening to and responding to individual needs as they fortify their products with functional ingredients and devise clever new packaging that not only preserves juice quality, but also makes it easier to pour.

PepsiCo’s Tropicana Products Inc., Bradenton, Fla., rolled out Tropicana Pure Premium Low Acid, a not-from-concentrate, low-acid orange juice. The product joins Coca-Cola’s Minute Maid low-acid orange juice as an alternative for consumers with sensitive stomachs.

Coca-Cola spent the past year reinvigorating its Minute Maid business through a series of product introductions and acquisitions. Simply Orange, a not-from-concentrate juice, rolled out last year in the Northeast in unique carafe-shaped bottles. The product is available in four varieties — Original, Calcium Fortified, and Grove Made (high pulp).

At the end of 2001, Coca-Cola acquired California-based Odwalla in a deal valued at more than $180 million. In the months that followed, new products emerged in both the company’s flagship Odwalla and Samantha’s brands. Odwalla Glorious Morning orange juice boasts cranberries, calcium, magnesium, vitamin D and larch arabinogalactan, an immune system enhancer and source of fiber. Meanwhile, Samantha’s Calci-Yum took its place in the company’s Baby Zoomers line. The calcium-fortified orange cranberry blend contains vitamin D, magnesium and chicory root extract.

Lakeville-Middleboro, Mass.-based Ocean Spray Cranberries Inc. focused its recent R&D efforts on pumping new life into the shelf-stable cranberry and grapefruit businesses. New product entries include Ocean Spray White Cranberry, which is made from cranberries that have been harvested ripening, creating a clear juice that is not as tart as traditional cranberry juice. Ocean Spray Sweetie Grapefruit Juice Cocktail is made from Sweetie grapefruits, which have been cultivated to be sweeter and less bitter than traditional grapefruits.

Hoping to reap the same success that milk processors have enjoyed from single-serve beverages, Apple & Eve, Port Washington, N.Y., rolled out 16-ounce PET versions of its 100% Pure Fruit Juices and Premium Juice Cocktails. Three varieties of 100 percent juice and five varieties of juice drinks are available in the single-serve size.

Apple & Eve is far from the only juice maker pumping out new 100 percent juice products. Langers Juice Co., City of Industry, Calif., introduced Cranberry Berry 100, a calcium-fortified 100 percent cranberry and berry juice blend, boasting 100 percent of the recommended daily allowance of vitamin C. Meanwhile, Old Orchard Brands, Sparta, Mich., rolled out 64-ounce pinch-grip PET bottles of Orange 100% Juice and White Grape 100% Juice, both of which feature 200 percent of the RDI for vitamin C and added calcium.

For those consumers who want the goodness of juice with the fizzy appeal of soft drinks, Fizzy Lizzy, Port Washington, N.Y., has unveiled a line of carbonated juices in Ruby Red Grapefruit, Cranberry, Orange and Pineapple flavors. Meanwhile, another carbonated juice, appropriately dubbed The Switch, has hit store shelves in Richmond, Va., in Apricot Peach, Fruit Berry, Orange Tangerine, Citrus Blend and Watermelon Strawberry flavors. The product is targeted towards the key trend-setting consumer group of 18- to 34-years-olds.

Coffee/tea sales brew up lukewarm

In light of all the positive findings on the health benefits of tea in recent years, one would expect category sales to be going through the roof. On the contrary, tea sales have been experiencing somewhat of an ebb and flow momentum. IRI data shows the bag and loose tea category down 5.1 percent in dollar sales to $658.8 million. With 253.2 million units sold, the category certainly isn’t in any serious trouble, but of the Top 10 players, only three eked out small increases in sales.

Private label reported a sales increase of 2.3 percent; Twining Tea sales rose 4.1 percent; and Stash Tea racked up a 6 percent gain. The remaining big players all reported losses, ranging from Tetley Tea’s meek 1.4 percent sales decrease to Bigelow Tea’s harsh 18.1 percent loss.

When it comes to the healthfulness of coffee, the verdict is still out. But Americans’ much publicized love affair with java — with caffeine — would have most people thinking that coffee companies would have a hard time grinding out enough product to meet the demand. Much like the situation with tea, however, that’s not the case. Whether whole bean, ground, ground decaffeinated, instant or instant decaffeinated, all the movement is downward, according to IRI.

The whole bean coffee category topped $290 million and more than 56 million in unit sales in 2001. Unfortunately, those figures represent a 0.7 percent decrease in dollar sales and an infinitesimal 0.1 percent increase in unit sales. In the instant coffee arena, Folgers Café Latte hit the jackpot, soaring 113.3 percent in dollar sales to take the No. 6 spot.

Among the big name brands in ground coffee, Starbucks was the only one to experience much of a sales boost, rising 30.2 percent in dollar sales. Overall, both regular and decaffeinated ground coffee sales reported sales declines of nearly 9 percent. Quite a few of the leading caffeinated brands reported double-digit declines, including Folgers, Maxwell House, Chock Full o’ Nuts, Yuban and Maxwell House Lite. On the decaffeinated side, Maxwell House, Yuban, Hills Brothers, Maxwell House Sanka and private label all reported similar declines.

Despite the slipping figures, data from various industry groups, including the National Coffee Association, indicate java consumption is rising in volume and number of drinks. New consumers are entering the category and are finding more outlets in which to purchase coffee products, many of which are not represented in IRI or Nielsen scanner data.

“Part of coffee’s success story is that it’s gone beyond [traditional outlets] into C-stores and other outlets,” said Gary Goldstein, spokesman, National Coffee Association. “The coffee houses are selling on Web sites, and they’ve created broader distribution.”

Powdered drinks take a beating

The easy availability of ready-to-drink beverages seems to be taking a toll on the powdered drink industry, as the majority of products are struggling to keep their heads above water. Across the board, dollar sales were down: Powdered fruit drinks fell 2.5 percent; isotonic drink mixes dropped 4.2 percent; and instant teas were down 4 percent, according to IRI data.

Within individual companies, results were mixed. Kraft Foods, which leads the powdered fruit drink category, saw its Kool-Aid sales fall off 6.3 percent. The brand’s line extensions fared even worse – sales of Kool-Aid Mega Mountain Twists decreased more than 16 percent, while Kool-Aid Island Twists dropped 16.4 percent. Crystal Light managed to eke out a 0.6 percent increase, while Country Time sales rose a meek 0.3 percent.

In what might possibly be a sign of the economic times, private label fruit drink mixes jumped 21.3 percent in dollar sales. However, volume sales increased just slightly, suggesting price increases were responsible for the surge, rather than improved sales.

With a 77 percent market share, Gatorade clearly is the leader of the powdered isotonic drink mix category. However, dollar sales of Gatorade mixes dropped 5.3 percent and Gatorade Frost mixes fell 3 percent over the last year. Those losses are miniscule compared to those suffered by Coca-Cola’s Powerade brand, which plummeted 15.1 percent.

With good news about the health attributes of tea abounding, one would expect sales to be up across the board. However, powdered tea leader Lipton experienced a year of varied results. Overall, Lipton teas were down 1.8 percent, and Lipton Instant Teas fell 3.6 percent. Yet Lipton Brisk enjoyed a sensational year with sales surging nearly 231 percent for a total of almost $2 million.

Nestlé USA also racked up varied results among its Nestea family of products. While sales of Nestea mixes fell 3.8 percent, Nestea Free sales rose 3.5 percent and Nestea Decaf sales increased by nearly 6 percent. Other instant tea brands failed to reap great successes — sales of Country Time mixes increased 0.9 percent, but parent company Kraft saw its overall instant tea sales fall 3.1 percent. Still, consumers seem to have chosen branded instant teas over private label products, which have failed to capture even a quarter of the instant tea market and fell 9.3 percent this year.

With a growing number of ready-to-drink flavored milks hitting the market, milk-flavoring mixes have found themselves losing ground. Overall, the category fell 7.8 percent, and all of its leading brands faced a very difficult year: Carnation sales fell 10.1 percent; Swiss Miss sales decreased 7.6 percent; and NesQuik sales were down 8.8 percent.

Spirits continue to soar

When times are good, people drink to celebrate – a new job, a new house, a new car, all occasions for lifting a glass and making a toast. Perhaps it’s just human nature that many people also drink when times are bad, in order to mourn a loss or soothe a pain. Therefore, it only makes sense that the distilled spirits category experienced an up-tick in sales during these turbulent times.

“People tend to drink more during tough times,” JP Morgan beverage analyst John Faucher told Reuters in January. “That fits into the current environment, both from a Sept. 11 standpoint, as well as an economic standpoint.”

Overall, the category racked up a 6.1 percent sales increase to more than $2.3 billion throughout U.S. supermarkets and drug stores, according to IRI data. Leading that growth was light spirits and vodka, in particular. Vodka garnered an 8.6 percent increase during the past year, with domestic vodka providing the bulk of the sales, up 8.8 percent. Dollar sales of imported vodkas rose 8.5 percent.

Smirnoff Vodka dominated the category, posting sales nearly double that of its closest competitor, Absolut. Possibly bolstered by the popularity of its offshoot malternative Smirnoff Ice, UDV’s Smirnoff brand gained almost 25 percent in dollar sales to reach $130.5 million in the measured channels. Meanwhile, Absolut, which changed ownership last year to become a product of Deerfield, Ill.-based Jim Beam Brands, dropped 3.9 percent for a total of $66.4 million. Domestic private label vodkas held on to the No. 3 spot with nearly $68 million in sales, an increase of 1 percent. San Francisco-based Skyy Vodka made significant gains, reaching $31.3 million, an increase of 15.7 percent.

In spite of the fact that they represent a smaller percentage of vodka sales, imports showed big increases, thanks in large part to their premium image. Sales of Stolichnaya increased 6.1 percent; Ketel One gained 17.4 percent; Finlandia grew 18.1 percent; Belvedere rose 34.4 percent, while sales of Grey Goose surged a phenomenal 67.6 percent. Even the smaller brands experienced big increases: Fris sales jumped 27.7 percent, while Vox Vodka soared 67.2 percent.

North American whiskey takes its place behind vodka as the most popular liquor with almost $541 million in sales. Canadian whiskey leads the category, followed by bourbon and Tennessee whiskey. Brown Forman’s Jack Daniels Tennessee Whiskey proved to be the big winner, accounting for $78 million of the total $84 million Tennessee whiskey category. The brand grew 6 percent last year, while premium Gentleman Jack jumped 9.8 percent. Likewise, Jim Beam Brands’ flagship Jim Beam Bourbon holds the top spot in the bourbon category with a 34 percent share.

One of the few categories to experience a decrease in sales, Scotch whisky fell 1.4 percent. Single-malt Scotch continued its upward climb, however, rising 7.9 percent. Top brand, Glenlivet, experienced a 6.1 percent increase, while Glenfiddich and Macallan round out the Top 3 with increases of 9.8 percent and 5.3 percent, respectively.

Tequila remained on a hot streak, exhibiting gains across the board with sales of category leader Jose Cuervo increasing 4.3 percent to $79.6 million. Meanwhile, Patron, Montezuma and Herradura gained 43.8 percent, 44.8 percent and 35.2 percent, respectively.

The gin category bucked the import trend, turning in mixed results between domestic and import brands. A domestic brand, Seagram’s Gin, has captured the top spot, while import Tanqueray comes in a close second. Sales of brandy and cognac increased 3.2 percent, while cordial sales grew 6.9 percent. Cream liqueurs, the most popular of the cordial category, rose 9.2 percent, but the tiny chocolate liqueur subcategory had the last laugh, racking up an astounding 184 percent surge in dollar sales.

Beer companies brew up profits

Setting out to prove there’s truth in the old cliché about “strength in numbers,” beer and spirits companies have teamed up to offer an array of malt-based products — affectionately dubbed “malternatives” — which look like their beer siblings, but bear the names of their liquor relatives. A number of big name brewers have jumped on the malterative bandwagon: Anheuser-Busch rolled out Bacardi Silver; and Miller Brewing Co. launched Skyy Blue. With more than 5 million barrels sold in 2001, the malternative segment represents about 2 percent of the nation’s total beer sales, according to Beer Marketers Insights.

“It’s unclear whether [malternatives are] going to be a long-term proposition… but it’s a major factor in the short term,” says Bill Pecoriello, analyst with Morgan Stanley, New York. “Even if it’s a fad, they can’t ignore a trial spike. You’d rather cannibalize yourself than have the profit going to others.”

Industry data show the malternative category grew 87 percent from 2000 to 2001, compared with 12 percent growth for imported beer; 9 percent growth for premium light beer; and 6 percent growth for premium beer. The category was launched in 2000 with Smirnoff Ice from Diageo, which sold 25 million cases of the product in 2001. 

Despite the malternative boom, traditional beers are holding their own, according to “The Beer Industry in 2001”, an annual report authored by Ann Gurkin and Devon McElwee of Davenport & Co. LLC. Domestic consumption grew 0.7 percent in 2002 to 202.3 million barrels, although estimates showed per capita consumption declined by 0.5 percent to 21.7 gallons per person.

The beer category continues to be dominated by the big three – Anheuser-Busch with a 49.6 percent market share; Miller with a 19.2 percent share; and Coors with 11.2 percent of domestic consumption, according to the Davenport & Co. report. A-B grew its volume 1.2 percent in 2001, as its powerhouse brands duked it out for the leading position. Bud Light grew 8.6 percent and overtook Budweiser as the U.S. market leader. Domestically, A-B’s production numbers were estimated at 107.7 million barrels in 2001, up significantly from 2000.

Meanwhile, Miller Brewing Co. had a rough start to the year, the early months of which were rife with speculation about parent company Philip Morris Cos. floating the brewer, which eventually happened. Miller Brewing is now part of South African Breweries (SAB), which industry analysts believe should help the brewer, which has been struggling to grow over the past decade. Miller volume declined 2.5 percent in 2001, bringing its market share figure down 0.6 percent. Coors also struggled this year, with volume figures down 1.7 percent to 22.7 million barrels. Coors Light also faced an uphill climb, but the company has announced plans to put some extra effort into that product in the coming months with a seasonal marketing campaign.

In spite of the sluggish economy, U.S. consumers are leaning toward high-end and premium beers, resulting in a 9 percent growth for the import market, according to the Davenport report. Corona Extra and Heineken continue to battle it out for the top spot, while Labatt, Becks, Molson and Guinness follow their lead. The bad news for domestic beer makers is that once consumers make the switch to imports, they typically don’t switch back, according to a survey by Morgan Stanley. Not only are beer drinkers opting for high-end products and imports, but they are exhibiting loyalty as well.

Although the microbrew craze hit its peak in the late 1990’s, craft brewers continue to offer unique and specialized products to defined demographics. One of the founders of the craft brew industry, Boston Beer, announced the national roll-out of Sam Adams Light, illustrating the growth potential in the light segment. Other craft brewers have also extended their lines with new flavors and seasonal products and have been updating their packaging in order to stay on top of the overall beer category. F&BR

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