Bevscape Business

Fighting the Current

Three CSD companies with rising fortunes. By Mike West.

It’s been a rough year for soda companies, as A.C. Neilsen reported that carbonated soft drinks are down 3.5 percent. But while mainstream soda brands are hurting, a few CSD’s have risen above the general malaise.

Unit sales at Cheerwine, for instance, are up 30 percent this year. Tom Barbitta, VP of marketing for this old-time North Carolina-based maker of cherry flavored soda, attributes these numbers to a new marketing approach.

“This brand has been around for 92 years in a land of giants,” he said.

The new strategy is based on the idea that “small is becoming the new big,” he said. He sees an authenticity in the brand based on its age and regional popularity that plays well with 18 to 24 year-olds.

“You can’t market at these people. They have a BS meter,” Barbitta said.

Barbitta believes, that young people’s corporate cynicism has turned them away from the large multinational soda companies like Coke and Pepsi, in favor of Cheerwine.

This family owned beverage company has already launched in New York City and intends to expand into the national market place. The new ad campaign is based on a relaxation motif. Cheerwine has launched a new website and pursued internet ad space as well as making a traditional summer advertising push.

If Cheerwine is a restless old-timer, Zevia is a lively youngster. After working out some start-up kinks, it is on the move with SPINS reporting sales growing 700 percent in the first third of the year. Zevia overhauled its product line, improving their packaging and after some tinkering, settled on a Reb-A (stevia)-based formulation.

Derek Newman, a principle and director of Zevia, attributes the recent growth to their unique place as a natural zero calorie beverage.

“Consumers are tired of sugar and chemicals,” Newman said.

Zevia is currently in the natural foods channel and plans to expand into the grocery channel.

As Zevia enjoys a growth spurt, Reed’s Inc, the quirky Coca Cola of natural foods, wants to expand into a high traffic area. Already ubiquitous in the natural food section of many big box grocery stores, Reed’s is expanding into the mainstream beverage aisle, with Weis Markets stocking it in 150 of their stores.

Christopher Reed, CEO and founder of Reed’s Ginger Brew, said that the company has had modest growth during the economic down turn, in part because they have consolidated their distribution network to focus on the grocery channel.

“We would love to get the Mom and Pops, but right now we are focused on the big box accounts,” said Reed.

Distribution is only part of the story. Reed’s beverages are uniquely brewed, requiring it to run its own plant, which is usually considered a liability for beverage companies. Reed’s has expanded into private label brewing and expects to bring in $5 million in private label this year.

Whether there is a category wide lesson in the example set by these companies is hard to say. But one lesson is clear: different and quirky has helped these companies defy a downward trend.

Energy Shots Move off the Counter

In what may be the birth of a trend, a convenience store chain has moved energy shots off of the counter and into their own display rack.

5-Hour Energy gave birth to the category as a cluster of little bottles in close proximity to the cash register, but Terry Johnson, director of marketing for the 40-store Uppy’s chain based in Chester, Va., told Convenience Store/Petroleum magazine that he decided to raise the segment’s profile by giving it its own rack.

Johnson created a six-shelf rack to display the shots and called it the “Energy Shot Headquarters.” But while he’s moved shots off the counter, Johnson said he kept the rack near the cash register to induce impulse purchases.

So far, he said, the displays seem to be doing well, and they help him deal with the wild proliferation of energy shot brands arriving on the market.

“With the new brands coming out, we would have had all that sitting on the counter,” Johson told CSP “There’s just not place for all that stuff.”

He added that the shots are “high profit and selling well.”

Simplification, Private Labels Could Squeeze Beverages

In the age of new thrift, retailers have stepped in to reverse the trend of ever-increasing specialization in product lines. According to the Wall Street Journal the new mantra in retail is “Less is more.”

Retailers now want the number of brand SKUs paired down because, the WSJ reported, reducing the number of products in a category can increase both sales and profits for the stores.

The drive to simplify has focused mostly on food and household products – like cookies and toilet paper – but the trend runs squarely into another that has had a more direct impact on beverage brands: private label products.

Putting fewer SKUs on the shelf creates more room for store brand products, which retailers have increasingly favored as both a sop to thrifty consumers and a way to pad their own incomes.

This could be bad news for both young beverage brands and expansive beverage brands in grocery channels, as they will now have to compete with not just Coke and Pepsi, but also the retailers themselves.

Will Bottled Water Get Trapped?

Bottled water, its sales already on the decline and suffering from a dinged-up public image, took another hit in July when federal regulators told Congress that consumers may benefit from more bottled water regulation.

The Government Accountability Office told Congress that the U.S. Food and Drug Administration’s authority over bottled water pales in comparison to their authority over tap water. The FDA can require lab tests for tap water, but cannot require the same kinds of tests for bottled water, the GAO reported.

The FDA has recently increased its regulation of bottled water – creating requirements that bottled water companies eliminate all E. Coli bacteria from their products and disclose any tests that reveal potential health threats – but water bottlers are not required to report the source of their water, how it has been treated or what contaminants it may contain.

Joseph K. Doss, president of the International Bottled Water Association, argued against increasing regulation, saying that bottled water is thoroughly tested before it reaches consumers.

Several major beverage companies, including Nestle Waters North America and PepsiCo, rushed to point out that they already engage in the kinds of practices the GAO said the FDA requires for municipal water systems. PepsiCo already lists Aquafina’s source – purified municipal water – on the brand’s bottles, and Nestle penned a letter to the Wall Street Journal boasting that “We test approximately 2,000 samples a day of bottled water, and gallon for gallon, our water is tested nearly 68 times more frequently than most municipal water supplies.”

But that kind of inspection and disclosure is not required, and, the GAO said, “our work suggests that consumers may benefit from such additional information.”