new product trends: Category Analysis: Drinking Games
The sheer variety of beverages in the average supermarket could be regarded as overwhelming, particularly when considering that many of the category's offerings often are split among several areas of the store: juices and sports drinks in one area, carbonated drinks in another, the growing variety of waters elsewhere. While, at first glance, this would seem an inconvenience to shoppers, it has not deterred the rapid growth of beverage sales. Shelf-stable, ready-to-drink (RTD) beverages, carbonated drinks, juices, waters and sports drinks will hit $26.7 billion this year, a 14% jump from 1999 says Mintel (Chicago).
While Mintel's recent report “Consumer Choices in the Beverage Aisle” covers all of the aforementioned beverage options, this analysis will focus only on those items with value-added ingredients. Hence, bottled water, seltzers and the like, while covered in-depth in Mintel's report, will be given little attention here. Furthermore, the June issue of Prepared Foods featured a category analysis of energy drinks and sports beverages, so those will be addressed only briefly as well. Please note that statistics referring to the category as a whole, however, include all of the various segments found in the Mintel report.
A Beautiful MindsetCiting exclusive consumer research, Mintel's report finds that consumers are increasingly drawn to the aura surrounding a particular drink brand. In their minds, the purchase of a sports drink, an herb-infused juice or a cola associated with a celebrity is an acceptance of the personality of that drink and a willingness to associate it with themselves. This is evidenced in the booming sales of sports drinks, in particular. The segment is estimated to hit $1.3 billion in sales this year, a 28.4% jump from 2002, yet activity levels and participation in sports by average Americans have not risen. Even more impressive--despite sports drinks' fairly high calorie and carbohydrate content--these products have managed to lure consumers desiring energy and refreshment.
These products also cater to one of the leading trends facing the industry today: convenience. Many sports drinks and virtually all energy drinks are found in single-serving containers, though the packaging is found across the category's segments. However, while the single-serving option has multiple advantages (including suitability for on-the-go consumption and minimizing the risk of spills), the single-serving container has boiled down to a battle between plastic and aluminum. Plastic bottles can be resealed, but resealable aluminum bottles are on the horizon and currently are used with a number of energy drinks; they reportedly are the subject of a market test by Coca-Cola (Atlanta).
Canned GoodMore widespread, at least among carbonated beverages, has been the typical can, though the means of delivery has shifted from the 24- and six-packs to the 12-pack. Coca-Cola's Fridge Pack, introduced in 2002, has propelled the popularity of this type of case, and other beverage makers have followed suit with their own take on refrigerator-friendliness.
Despite facing its share of difficulties in recent years, Coca-Cola still leads in sales among regular carbonated beverages, which is by far the largest segment in the category. While the segment has maintained its top spot, however, it has had a rather bleak decade, with relatively flat growth. Regular carbonated beverages account for over $10 billion through supermarkets and mass merchandisers, but they face serious obstacles, including but not limited to various warnings and efforts to rid diets of “empty” calories, as well as lackluster advertising campaigns. These factors do not even include the carb-cutting fervor which has overtaken the industry and prompted the category's two leading manufacturers to cull carbohydrates for the diet-conscious masses, leading to Coca-Cola's C2 and PepsiCo's (Purchase, N.Y.) Pepsi Edge.
Though neither is mentioned in-depth in Mintel's report, C2 and Pepsi Edge debuted with strong advertising support, yet early results suggest the pair have not fared well in the marketplace. It may well be the products simply were too late to catch the carb-cutting wave at its peak, as numerous studies have cast doubt on the diets' success rates and government agencies have begun to ponder carb-related labeling issues.
Any problems with these two products would not appear to result from a lack of dietary awareness, although consumers may regard current diet offerings as low enough in carbohydrates. In fact, Mintel finds the diet carbonated beverage segment experienced steady growth from 1999 to 2004, managing to wrest control of the number-two spot from canned and bottled juices. While not the fastest-growing segment, diet carbonated beverages is the largest segment posting steady growth during the period under review, boosting sales 22% in constant dollars during that time.
Between 2001 and 2003, sales of diet offerings rose for all of the category's big three companies--PepsiCo, Coca-Cola and Dr Pepper/7Up (Cadbury Schweppes, Plano, Texas), as sales of their regular versions slipped. This leads Mintel to speculate, “Though the solid growth of diet drinks shows that it is not necessary for a beverage to carry a health benefit to succeed, the absence of a health liability may be a prerequisite for significant growth.”
A Little FlavorThe popularity of diet drinks coincided with the public's growing concerns about health and obesity, not to mention the efforts of various food companies and foodservice establishments to address caloric content, as well as negative publicity surrounding high-fructose corn syrup and other forms of sweeteners. However, a look at the success of diet carbonated drinks has to consider the improvements made to the products. Since 2000, consumers have seen a wave of flavor extensions, both to regular and diet varieties. While lemon and vanilla had their allure in the regular versions, a number of consumers (particularly those who may not care for the taste of artificial sweeteners) may have prized the masking efforts of such flavors in their diet drinks. Furthermore, the use of sucralose has been hailed as a vast improvement for diet beverage offerings.
In both regular and diet carbonated drinks, the same companies lead the pack, though Coca-Cola leads PepsiCo by a wider margin in the diet segment. Each saw increases in diet sales, as did the offerings from number-three Cadbury-Schweppes. Not only did new diet offerings boost sales--even established brands enjoyed a growth spurt between 2001 and 2003.
The Coca-Cola stable of diet carbonated drinks maintained its lead in the segment during the period under review, but PepsiCo's batch was the one that managed to increase market share between 2001 and 2003. The battle here would appear to rest in the lemon-lime area.
Sierra Mist, PepsiCo's own lemon-lime carbonated beverage, debuted during the period under review and was accompanied by a diet version. While envisioned as a competitor for Coca-Cola's Sprite and Cadbury-Schweppes' 7Up, the latter experienced a significant sales decline, dropping $21 million (15%) between 2001 and 2003. Diet Sierra Mist sold $66 million in 2003, its second year, while sales of Diet Sprite grew.
Cadbury-Schweppes has made efforts to rejuvenate the 75-year-old 7Up brand (both the regular and diet versions), as sales have drifted downward for the better part of 20 years. In fact, the brand has not posted any growth at all in a decade. PepsiCo's launch of Sierra Mist certainly did not help matters, considering that, by the end of the 1990s, 7Up relied heavily upon the Pepsi bottling system, which accounted for about 40% of the brand's U.S. sales volume. By the start of 2003, Sierra Mist was the lemon-lime choice for most of Pepsi's bottling system. As a result, 7Up can be found fairly easily in supermarkets, but Coca-Cola and PepsiCo have vast systems to reach smaller stores and vending machines--not to mention 7Up's travails at retaining fountain accounts.
Despite this challenging environment, 7Up is not backing down. The brand is launching 7Up Plus, a carbonated, caffeine-free beverage fortified with calcium and vitamin C. The lemon-lime also boasts a splash of real fruit juice. Only time will tell if this fortified effort will be successful, but consumers have embraced flavored versions of established brands in the past, as evidenced by the success of Diet Cherry Coke, Diet Vanilla Pepsi and Diet Mountain Dew Code Red, the latter a PepsiCo offering.
Something Old, Something NewThe success of such flavored offerings suggests that Americans like new drinks but, at the same time, like some familiarity. With a number of Mountain Dew offerings, PepsiCo has experimented with using limited availability to boost awareness and drive future interest. Mountain Dew LiveWire was the first such attempt. Adding orange concentrate to the citrus staple, the product sold from Memorial Day to Labor Day with aggressive marketing, and the effort has continued with this year's limited run of Mountain Dew Pitch Black, melding the citrus flavor with black grape flavor.
Mintel finds, however, that such products with a smaller potential base may be the victim of cannibalization, as evidenced by the Mountain Dew extensions. The namesake brand achieved its best sales the year before the Code Red offering debuted, which hit its peak the year before LiveWire briefly appeared. In fact, LiveWire's $55 million haul in 2003 roughly matched the sales decline for Code Red that year.
The same is seen in the regular carbonated arena, which has experienced no significant constant dollar growth since 2000. Mintel finds that beverage companies face a conundrum: a familiar name is a strong selling point, yet “putting that name on a product that is too different risks brand dilution or, worse, attaching the name to a high-profile failure. As a result, many of the 'new' products from Coca-Cola or PepsiCo are not remarkably different from the products whose name they share.”
Therefore, original, new beverage brands are more apt to come from a company other than the big three. The company may start with very limited distribution, develop a good track record with a certain client niche and, as was the case with SoBe and Snapple, get acquired by one of the major players--PepsiCo in SoBe's case, Cadbury-Schweppes in Snapple's.
Speaking of Snapple, the tea segment posted growth from 2002 to 2004, but it is one of the category's smallest segments and is largely composed of aging brands, Mintel says. Snapple and AriZona Iced Tea (AriZona Beverage Co., Lake Success, N.Y.), both relatively young brands, have contributed the most to the segment's 19% sales growth since 1999. Both stand out through packaging and other means. Nevertheless, the segment saw a decline, as a drop in sales of more-traditional teas undercut the gains made by the leading brands; Mintel believes this may foreshadow difficulties ahead for the segment. Many consumers may regard simple sweetened and unsweetened varieties as old fashioned, suggesting companies may need to “find some new tack or angle to provide themselves with the sense of personality that has become essential in beverage marketing,” speculates Mintel.