Before the Pebble Drops

As the year wraps up, it’s obvious to workers in all sectors of the economy that a mistake here or a bit of mismanagement there can quickly ripple out and affect you. Look at the price of oil, which resulted in the increased popularity of biofuels, which led to a change in the destination of the corn crop, which affected the price of High Fructose Corn Syrup.

You drop a pebble into the lake, eventually the water moves out to the edges.

From Economics to Eco-Friendliness, Energy to Efficacy, the beverage business in 2009 will be under the spell of major influences from the world at large. Some will be under your control, but many will place you in a reactive stance. Some of the pebbles will barely affect you, but others will hit like a cannonball.

Here at Beverage Spectrum, we pride ourselves at being reliably on-trend. But for every trend, there’s a counter-trend, and for every subculture, there’s a dominant paradigm. The most important part of forecasting, then, might be to figure out what part ?of the story applies to you and your business. That’s why it’s important to consult a range of people ?when you look to the future.

As part of our end-of-the-year wrap-up, we thought we should look at what is in the winds for 2009, and in keeping with the notion that you need a broad group, we really twirled the Rolodex. We wanted to make sure we tapped some of the ?great brains of the industry for a look at what they expect in the coming year.

What we got ranged from the frank to the fantastic, and all of it is food – or drink – for thought.

Sara Snow

Green Lifestyle Expert / TV Host

Today people are looking for foods and beverages that DO something for them, more than just quench their thirst or fill their bellies. Tremendous organic and natural foods companies are stepping up with innovative foods and drinks that do just that. Goodbelly with a dairy-free probiotic drink; Guayaki’s ‘good energy’ actually helps you metabolize; Sambazon delivers antioxidants with healthy fats, Zenergize has vitamin/flavor pellets to enhance your filtered tap water. These are innovative alternatives to so many of the unhealthy beverages on the market.

Bio: Snow has been called “first generation organic”, and “green living’s real deal.” She has a TV series with practical advice on living green for the Discovery Networks: Living Fresh and Get Fresh with Sara Snow, both of which have helped Sara reach millions of viewers with a message of simple, attainable green living. Today, Sara’s series air on Discovery Health and FitTV, she can be seen on CNN.com LIVE Thursday nights, she’s a featured blogger on Treehugger.com and host of the newest Gaiam’s DVD, Growing Green Babies.

Ed Nappen

Beverage category technical director, International Flavors and Fragrances

I think one of the biggest [trends] is there’s been the recent successes of blends of products that you wouldn’t normally see together. There will be alternative blends that will be popping up that will be equally successful [as AriZona’s Arnold Palmer.] There’s plenty of fruit-flavored teas on the market, but the classic Arnold Palmer is made with actual lemonade. There’s nothing stopping them from [offering] different varietals of green tea.

Bio: Nappen has been with IFF for nine years, and has spent 25 years in the industry. He holds a BS in Biology from Muhlenberg College in Allentown, PA, and has completed all coursework for his MS in Food Science at Rutgers University.

Larry Wu

COO, Bossa Nova Beverage Group

On the ingredient front, the crossover of goji berries from unknown health food to mainstream superfruit is complete. Look for goji berries in a wider variety of savory and sweet food products. It looks like young coconut water is the new sports drink of the Millennial Generation, delivering isotonics in their preferred natural format with eco integrity (it comes in its own package). Also, Stevia natural non-caloric sweetener will get approval as a “GRAS” ingredient and quickly replace Splenda as the sweetener of choice.

In the industry, it is already starting, but look for further consolidation. Smaller brands will be swallowed up as larger beverage companies look to grow faster through acquisition rather than through development and innovation. All companies will focus on retrenching, strengthening their performance, brands, and shelf space. Brands that can’t retrench fast may not be around much longer. Also, listen for the death knell of retail smoothie brands like Jamba Juice, as every retail food outlet and their brother offers smoothies as a menu option.

In the “waaaay out there” department, think about this: Gatorade will develop a Presidential flavor. With an athletically gifted POTUS committed to installing a basketball court in the White House, watch for G-Prez — blue colored, of course.

Bio: Wu is Chief Operating Officer of Bossa Nova Beverage Group and a 20-year food industry veteran. He joined Bossa Nova from Iconoculture, where he advised Fortune 100 corporations and advertising agencies on food and beverage strategy.

Brent Knudson

Founder and ?Managing Partner, Partnership Capital Growth Advisors

On beverages and 2009, I’m pretty bullish based upon some things I’m seeing. I think the functional category is seeing a new life with products that are both efficacious and actually taste good. Protein drinks are in that category with Muscle Milk’s new packaging, Mix1, and other very good products with great nutritional and taste profiles. I think we’ve had enough of energy drinks and hope that consumers are smarter than to think that a few more grams of caffeine is a good thing. I also think we’ll begin seeing more responsible packaging, whether that’s in water or other products, with an understanding that PET and plastic aren’t good for the planet ?and that there are?other or better packaging alternatives.

Bio: Brent Knudsen?is the founder and?Managing Partner of Partnership Capital Growth Advisors. Prior to founding PCGA, Mr. Knudsen was an original partner at North Castle Partners, a leading private equity firm targeting investments in the area of healthy living & aging, where he led investments in areas including spas, fitness clubs and nutrition.

Joey Allen

President, Allen Flavors

We’re still seeing a lot of demand for the super fruits. It looks as though a lot of the enhanced waters – its going more toward the high-end, exclusive-type waters. I called the flavor lab and they told me acai and goji are still going strong. People are looking to more sweeteners like agave and natural sweeteners. The sweeteners made from stevia seem to be making some headway.

We’re still getting the energy drinks, but it seems to be tapering off a little bit, [and] we’re getting quite a few inquiries about the stick packs. [We’re] Still going strong with teas. All kinds of teas. I don’t think that’s going to slow up – [especially] green tea… it’s known to be such a healthy drink that there doesn’t seem to be any let up in that at all.

Bio: Allen has been in the flavor industry for over thirty years. Allen Flavors, Inc. was founded in 1995.

Jessica Jones-Dille

Industry Trend Manager, WILD Flavors, Inc.

Some examples of the WILD N.E.X.T. team’s 2009 product and flavor trends related to beverage are holistic sleep, and a focus on anti-stress and anxiety. On the ingredient front, we see potential in health ingredients from the sea and a distinct regionalization of flavors and concepts. In flavors, we see more floral and fruit flavors, such as Blueberry Lavender, Strawberry Passionfruit, Orange Marigold, and classic sweet flavors,?such as Honey and Agave. Also, there will be more spice pairings, such as Chocolate Cinnamon, Berry Cardamom, Rosemary Lime, and “Fresh” profiles in flavors and menthol/cooling combinations.

Bio: Jones-Dille, specializes in developing market strategies focused on capturing trend driven food and beverage solutions. She leads WILD’s cross-functional N.E.X.T.Team in identifying emerging trends and determining their impact on the food and beverage industry. The N.E.X.T. team is devoted to coorelating these consumer and product trends into high value opportunities for WILD’s customers.

Tony Keller

President, TandemRain Innovations, Inc.

While 2009 will bring forth continued innovations in functional beverages, an increasing number of these products will make their mainstream debut from a historically unlikely source – Private Labels.

National Retailers will continue to introduce private label beverages onto a crowded shelf to build customer loyalty, reduce prices and increase their own margins. This increased placement will likely come as a cost to newly launched National Brand beverage products competing for the same space.

Also, just as National Brands have begun utilizing co-branding opportunities with non-traditional strategic partners to garner market share, National Retailers will also begin to accelerate their creation and utilization of co-branding opportunities. This will become a new way of promoting finished private label products in order to increase brand loyalty to the retail chain.

The increased sensitivity of our environmental footprint will force innovations in packaging, and increase market acceptance and demand for powdered drink mixes. This shift will not only lower our environmental impact, but will also ?increase product variety on crowded store shelves, and further amplify the need for timely innovation.

Regulations for functional beverages will also begin to converge in late 2009, with one of the following results: either separation of products in the grocery store between “Nutrition” and “Supplement” Fact Panel products; elimination/restriction of supplements (non-GRAS products) in traditional “Nutrition Fact” platforms (i.e. beverages); or restricting “Supplement” fact panels from making structure/function claims when the product is placed in a traditional “Nutrition” labeled format (i.e. Beverages/Food).

Bio: Keller has extensive experience in the food and beverage industry, with expertise in developing innovative products, introducing new manufacturing processes, securing national key accounts and capturing market share in domestic and global markets. Before joining TandemRain Innovations, Mr. Keller has served in key leadership positions at several companies.

Larry Young

President and CEO, Dr Pepper Snapple Group

No doubt about it, these are challenging times. But we’ve been here before, and our industry adapted each time and emerged stronger for it. In the late 70s, the price of sugar went through the roof and people predicted the demise of the CSD. Instead, HFCS was introduced in ‘83, lowering the price of sweeteners and putting us on the fast track for growth. In the late ‘80s, we rebounded after Black Monday. And in the late ‘90s, we fought through the Cola Wars and pricing battles.

2009 will be a tough year for our industry. But it’s just another part of the cycle. We expect the industry will emerge stronger and growth will begin ?again in 2010.

Bio: Young was named president and chief executive officer in October 2007. In his 30-year career, Larry has produced and sold beverages in the Americas and across Europe and Russia. He previously served more than 25 years in the Pepsi system.

David English

Vice President and General Manager, Anheuser-Busch’s non-alcohol division, 9th Street Beverages

We’ll see more enhanced waters, ready-to-drink teas and sports and wellness drinks coming to market. These beverages will offer consumers distinct functional benefits, sustainable packaging and they may be tied to a social cause. For these reasons, we’ll be focusing our efforts on products like the 180 line, which will have some enhancements next year, and BORBA Skin Balance Water.

We anticipate several new emerging non-alcohol beverage trends that will target consumers concerned with healthy aging and prolonging youth and who live a busy and active lifestyle. We’ll see more non-alcohol beverages that offer functional benefits, are made with all-natural and organic ingredients… we’ll see fewer beverages made with artificial ingredients and more beverages incorporating vitamins, minerals, fruits and vegetables.

Consumers are increasingly seeking healthy, functional non-alcohol beverages, and we, like others in this industry, will focus on offering products that meet this demand. We’ll see consumers selecting non-alcohol beverages based on individual needs: enhanced athletic performance, healthy aging and convenience. We’ll also see more consumers purchasing these products at non-traditional accounts such as spas, gyms and health stores, in addition to their local grocery and convenience stores.

Bio: English has worked for Anheuser-Busch for 22 years and has held numerous positions in Brand Management and beer marketing including Vice President, Revenue Management, and Vice President, Research. In 2005, English was named Vice President-Operations, President’s Office.John Bello

Partner, Sherbrooke Capital

Better for you – really better for you – will be the wave of the future in beverages, and the path will be through the natural channel into the mainstream. We’ve seen it with green tea, pomegranates, acai berries, blueberries and cherries. But flavor and refreshment still rule in the mainstream. Brands like Function have real stuff in it but are struggling due to taste issues [and the] inability to mask added nutraceutical components. Fair trade and organic will gain traction as long as they do not stretch the price envelope. These are not brand drivers, but we are going to see the greening of America with these kind of sustainability ?components expected.

Look for biodegradable packaging. The first to market with hot fill “compostable” packaging will win. It’s about “green.” More green in product and packaging delivery and less green as in impact on the wallet. I think price value will become increasingly important. People will want efficacy, great taste, natural and organic but I think it will not come at the same premium pricing as in the past… Beverages have always been a penny profit business. Volume is the key. With today’s economy and view of value, new concepts will have to come with a reasonable price tag, especially in the main stream. The 10 for 10 “bogo” promotion mindset that has wounded CSD’s is going to hurt new age premiums in my view. New concepts need to deliver natural and price value.

Bio: Bello is a partner at Sherbrooke Capital, but earned his reputation by turning SoBe beverages around and selling it for $337 million to PepsiCo, to whom he later also sold Izze for $75 million.

Seth Goldman

TeaEO, Honest Tea

Aside from the fact that Honest Tea becomes the unofficial beverage of the new administration, my prediction is that we will see the emergence of a new class of stock – D Shares. As the distribution environment for independent brands becomes increasingly challenging, distributors will insist on being able to buy equity as part of their contracts with beverage brands they take on. Stockholders of D Shares won’t necessarily have the same information rights as other investors, but this form of equity will become an important part ?of the contracts distributors will seek before they take on new brands.

The other prediction is that health-oriented segments of the beverage industry (such as tea and juice, not soda or beer) will continue their transition toward organics… with the projection that by 2011, 10 percent of all health-oriented beverages will be certified organic.

Bio: Goldman is President and TeaEO of Honest Tea, the company he co-founded in 1998 with Professor Barry Nalebuff of the Yale School of Management. Over the past ten years the company has thrived with a 66 percent annual compound growth rate, as consumers have shifted toward healthier and more sustainable diets. In 2008 The Coca-Cola Company purchased a minority interest in Honest Tea, fueling further growth as Honest becomes the first organic and Fair Trade brand to move into the world’s largest beverage distribution system.

Paul Altaffer

VP Business & Product Development, RFI LLC

No one knows how the current economic turbulence will affect business in 2009, but if 2007 and 2008 are a good barometer, there should be numerous new beverage product launches that take advantage of current consumer trends.It is hard to imagine a beverage product these days that does not contain açai, goji, mangosteen or acerola, to name a few, yet a few years ago these products were only known to core natural products consumers. A similar situation is true for green tea, white tea, yerba maté and matcha. And everyone seems to be into chocolate, the product that thrives in good times and in bad. There will likely be more products in the smoothie aisles that are designed as meal replacers and contain ingredients like greens, grasses, spirulina and chlorella. With aging, but highly active baby boomer consumers, mood and cognitive function are a major buzz these days, as this is the new “energy” category. Feeding the body and skin is another way to deliver benefits to consumers in functional beverages. The ingredient categories that offer the greatest promise for product developers are: super fruits, super teas as well as functional chocolate and coffee, super foods, Omega 3 fatty acids, mood and cognitive ingredients, probiotic and prebiotics, inner and outer beauty ingredients and novel sweeteners. Certified organic and fair trade products will continue to influence environmentally and socially conscious consumers, driving new standards for ingredient suppliers and manufacturers.

Bio: Altaffer has over 20 years experience developing, sourcing and marketing natural products. He was the founder of Nat-Trop, which merged with RFI in 2002, a pioneer in the development of natural and nutritional ingredients from South America.

George Kalil

President, Kalil Bottling

“I think there’s gonna be a lot of bottlers that think they can confuse and mislead the customer with 8-packs and 16-packs, and I have no plans of doing either. I believe that the best opportunity for quick growth is going to come with new diets and I hope that if one company picks one diet [sweetener] and ?another one picks another diet [sweetener], and they’re both approved by the FDA, I hope that our marketing geniuses in the industry don’t decide to spend a portion of their money talking about the ?other guys’ sweetener.

I don’t think that energy drinks or flavored waters have hit their full potential yet, and what new variations, what new categories come forward, I don’t know. I wish I knew, but I don’t know. I think what’s happened to energy drinks and vitaminwater is just unbelievable. I think that there’s a real chance that one of the next great things could be flavors. People love flavors… Of course we need more new-age products. And we need more direction talking about the benefits of our products and we need to avoid the temptation to try and have one foot on the gas pedal and one foot in the spokes of our competitor as we drive by. It’s easy to put your foot in the spokes of your competitor but there’s no fun in it and no benefit to anybody.

Bio: Kalil grew up in the family bottling business founded in 1948. He worked full time and began managing parts of the business while in high school and college before he became president in 1970. Under his stewardship, his company has grown ?from net sales of $400,000 to over $100 million.

Tim Brown

Executive Vice President, Retail Operations, Nestlé Waters North America

Like all liquid refreshment beverages in this slowed economy, we expect soft performance for bottled water into 2009. Beyond that, count on continued growth for the category. Looking ahead, people will have more, not less, interest in seeking healthy beverages to support wellness goals for themselves and their families. We at Nestlé Waters are focused on delivering bottled water products that sustain healthy hydration, with a lighter environmental footprint through lightweight, recyclable packaging and enhanced opportunities for people to recycle that bottle.

Bio: Brown has been with Nestle Waters since 1988, and has managed the Cold Channel, National Accounts and Perrier Re-Launch teams. Before coming to Nestle, he worked at Proctor & Gamble Distributing Co.

Gerry Martin

Vice President of Marketing

Polar Beverages

Energy continues to be a hot category, but it’s slowing down. [It’s unclear if] that slowdown has to do with energy shots, the economy or price points [but] functional energy versions make a lot of sense. That’s where there’s room for the category to grow. We just took on a brand called Celsius. We think that has the potential to be the next big brand. The trick will be they have to educate the consumer on the benefits…. Brands such as Hydrive have potential as well. I think teas will continue to grow. People are looking for something simpler, healthier. They’re label readers now. It’s amazing.

Bio: Martin is a 28 year beverage industry veteran beginning his 13th year as Vice President of Marketing and Sales at the Polar organization in Worcester MA. He worked for PepsiCo in several capacities before joining Polar in 1996.

Bill Sipper

Cascadia Consulting Group

My major prediction is Coke’s gonna buy Hansens and put Monster on all the trucks – and maybe keep Budweiser on premise.

[There will be] a lot more consolidation. We get 30 percent of the company today, and we get the opportunity to acquire up to 51 percent at a keyed in price. I think there’s a lot of maneuvering that’s going to occur. Coke, Pepsi, Cadbury… they don’t build brands anymore. They are a distribution force. [And] these guys don’t get it. It’s all about social networking today. They don’t even know what ?they don’t know. That’s how messed up they are. They can’t figure out what’s even going on around them.

Bio: Sipper, now a beverage industry consultant, earned his reputation through helping build successful companies like Nantucket Nectars and Evian. Currently, he works with High Voltage Beverages and OGO Bottled Water.