Reasons To Love The Beverage Business

The beginning of the year can fast leave you in the doldrums, while the economy can just plain make you feel like you’re sinking. But in times like these, while you might be planning for the worst, it’s always advisable to hope for the best.

So that’s what we’re doing here: providing a broad look at the reasons the beverage business remains an environment that is fun, creative, profitable and forward-looking. After all, looking forward is a good option when a look at the present is hard to handle.

INDRA NOOYI

You could’ve knocked us over with a feather. Deep in the bowels of a Manhattan hotel ballroom, the CEO of PepsiCo was talking about her daughters, what they drank, and what the company’s place is in the world. With executives from dozens of potential competitors, aspirants and investors, Indra Nooyi, composed and smiling, let us in.

To say that such an event could occur at a beverage conference isn’t necessarily a falsehood; there are plenty of young buck types who are all about sharing their personal story as a way to sell product. But Nooyi wasn’t – isn’t – like that. Her story – a brilliant Indian MBA graduate who worked her way up through some of the biggest and best companies in the world – might no longer sing “fish-out-of-water” comedy, but that doesn’t mean you find someone like Nooyi that often in American industry.

Of course, even the normal parts of Nooyi’s resume aren’t normal, mostly because the moves she has advocated at the company has advocated in the past have been consistently good ones, from spinning off PepsiCo’s fast food business and bottling group to buying Tropicana and Quaker Oats, which enabled the company to embrace its portfolio-based strategy even as CSDs stopped growing. At a time when so many executive decisions face tough scrutiny, Nooyi’s track record is nearly impossible to argue against.

And its unassailability is what makes it even more interesting. While the big beverage companies aren’t afraid to hire outsiders as their CEOs – when was the last time Coke hired domestically, anyway? – to see Nooyi is to see the normalization of what was once unthinkable: an Indian woman at an old-school American company who followed the path, not of an outsider but an insider, on a route to the top. That, more than anything, shows PepsiCo’s confidence in both its business model and in the woman who had such a strong hand in shaping it. And how much things have changed in terms of what a CEO “looks like.”

Still, there’s something else that’s going on with the selection of Indra Nooyi as a person that has us excited – there’s this idea that a generational shift has occurred, that a CEO who takes very seriously the idea that big business might have a role in the world as a driver of good works, not just good returns. It’s not a change in what the CEO looks like, in other words, but what she sounds like. Nooyi makes it clear that she respects the idea that she is part of something larger than herself or her company. She is willing to admit that the caloric trajectory of the beverage business needs to be altered, both in the company’s snack and beverage businesses, as well as in its approach to the environment.

Bringing that kind of philosophy to a corporation is in step with current notions of leadership, notions reflected in the presidency, in the communitarian views of the online community, and in the targeted consumers that can carry these companies forward in the years to come. It’s encouraging, because it looks to the future.

METHYLATED XANTHINE DERIVATIVES

They’re those special chemicals in coffee, tea, chocolate, guarana, and yerba mate that lend them their bit of zip. And they are all part of a class of chemicals called methylated xanthine derivatives. They’re caffeine, theophylline, theobromine, and one or all of them probably woke you up this morning.

When ingested, they cross the special blood/brain barrier, which means they take a trip up into your brain where, due to their chemical structure, they do a great job of impersonating adenosine, a brain chemical that causes neurons to relax. Instead, they speed those tired neurons up, increasing brain and central nervous system activity. And that’s a good thing if you’ve got to do stuff like arrange shelf sets, find your way to the next stop on your route, or finish a presentation to a distributor.

Without a healthy dose of the most commonly used xanthine, caffeine, trust us, most of this magazine wouldn’t get written. Knowing that xanthines are being explored in new ways excites us even more: the “calm energy” of tea or yerba mate can’t just be from the caffeine they contain; there’s something else, an interaction between, say, the theophylline or theobromine and the other compounds present in the drink, like flavanoids, amino acids, vitamins and polysaccharides.

We don’t imagine that too many beverage makers consider the words “methylated xanthine derivatives” when they start wondering what to do for their next concoction. All we care about is that the vast level experimentation continues! And we’re more than happy to supply the BevNET team for lab rat status.

COCKTAIL DRIVEN INNOVATION

We’re always delighted when a new juice, high-end soda, or enhanced water crosses our desk. Not only do we get to try new products, we also get to think about how well these new products will mix with booze.

And no, that’s not (solely) attributable to our own degeneracy. For a decade, cocktail culture has been a vibrant part of the development and growth of new non-alcoholic beverage products. It’s been a two way street: drinkers have been exposed to new flavors through creative mixology, while the use of new flavors in non-alcoholic products has helped spark a new wave of products and mixed drinks served from behind the bar.

The idea that new age beverage products could be rendered attractive through their use in on-premise settings didn’t have any kind of high-end beginning: it really took hold under Red Bull, when bars saw the bucks they could net through a half can and a shot of vodka. But that introductory period, while launching a thousand late-night dance parties, also helped launch a real cocktail renaissance, as makers of new soft drinks began to explore their potential as mixers. More than a few non-alcoholic beverages have made their marks as much as mixers as for their intended use since then: look at Izze, Pom, and Reed’s Ginger Brew for three strong examples. Meanwhile, flavors like acai, blueberry, passionfruit, lychee, starfruit and kiwi have flowed back and forth over the bar with increasing frequency.

Cocktail culture has walked hand in hand with the growth of awareness about food and cooking, but it’s been slower to circle back around to create derivative soft drinks. Still, mojito-flavored sodas are now appearing in stores, along with margarita-flavored Lost Cadillac and Monster’s Irish Blend and Russian coffee energy drinks. Even craft root beers owe a great debt to the burgeoning craft brew market – one is not such a far step from the second, and many of the best-selling craft sodas emanate from breweries.

And we think there’s a lot of the industry out there thinking the same thing, from makers of sparkling juices to those messing around with superfruits, coffees and teas, even some sports drinks. It’s exciting that they’re taking their inspiration from liquor – Lord knows, many a time, we sure have.

BIG DREAMS

Even in a downturn the beverage business continues to supply a steady stream of new companies with new, innovative products, from obscure native blends to the latest in highfalutin science.

What is it about the beverage business that makes it so interesting to small operators with big dreams? Maybe it’s the low barrier to entry. Maybe it’s that everyone drinks something. Maybe it’s just the result of too many folks getting high on their own sugar and caffeine supply. Maybe they all want the chance to have LaToya Jackson endorse their product.

Regardless, there’s a steady flow of entrepreneurialism in this business, and with it comes an ever-ready chance for refreshment. Whether it’s purple corn, oxygenated water, enhanced colas or even just plain water, sooner or later something is going to hit.

Maybe it doesn’t happen right away. Citrimax has been around a long time. So have green tea and guarana soda. Who would have figured that Muscle Milk was headed to breakout status? The point is not to scoff at the stuff you haven’t heard of before. It might be coming back, and it might be coming back huge.

Tracking that is mostly our job; what keeps it fun is that constant possibility that the next company we talk to, the next second try by an old friend or first attempt by a new one, could be the one that has the next great breakthrough product.ALUMINUM

For years the aluminum can has been regarded as the Joe Blow of the beverage industry: cheap, pedestrian, and so unglamorous as to be able to be stuck into a 48-pack. But this year, which marks the 50th anniversary of the switch from tin to aluminum in cans, requires that this metal be reconsidered.

After all, it still has the potential to be an instant game-changer.

Look at the energy drink slim can, the container that launched a $5 billion category. What started with a sleek 8 oz. can has evolved, over a brief decade, into a parade of innovations, from the vaunted 32 oz. “BFC” to the re-sealable battery top.

Beyond simple cans, however, the flashy, malleable metal is morphing into a new raft of shapes and containers: right now it’s hot at Coca-Cola, which has released a stunning series of aluminum bottles – including one for its Stevia-sweetened Sprite product – with all-over branding and PepsiCo, which has gone even further by having artists create a series of collectible aluminum 20-ouncers. Meanwhile, there’s new usable innovation as well, with the Coors cold can.

When packaging designers get creative with glass, it gets a high gloss, sure, but it gets heavy, intricate, and costly. When they start playing around with PET, a good or bad label can quickly spoil the whole thing. But the very fact that companies rarely take aluminum into a high-profile package is what makes it stand out at this point in time.

We’d like to see them do it more, because aluminum has many advantages: it’s lighter than other materials, so it takes less gas to ship it. Its recyclability, while not the straight bottle-to-bottle reuse seen for glass, is the only one of the three that can be evolutionary: in other words, when you’re looking at an aluminum can right now, you could be looking at part of tomorrow’s 747.

Those empties have a lot of value: Recent data from the Container Recycling Association indicates that the aluminum recycling rate is double that of either glass of PET plastic; in the previous decade, it was more than 50 percent.

There’s a tendency to look to glass as the top of the pyramid for beverage quality, followed by plastic, with the beleaguered can at the very bottom. But that guy who is roaming your neighborhood with a shopping cart on trash day might be able to tell you better; same thing with that European club kid, whose aluminum Coke bottle is a shiny red beacon on the dance floor.

SUPER BOWL ADS

The thing that you have to love about Super Bowl beverage advertisements is how big they are – in scale, stakes, effort and, if the advertiser is lucky, payoff. These aren’t just 30-second spots. These are 30-second spots with 30-year lifespans.

Think of the Budweiser Frogs. What started unassumingly with three frogs watching a beer sign in a bayou grew into a four-year campaign and merchandising blitz. The frogs appeared on everything: Bar signs, T-shirts, figurines. It was so successful that Budweiser expanded the cast to include two loquacious lizards and a ferret that was even less intelligible than the monosyllabic frogs. The campaign eventually ended, but it lives on as a low-culture touchstone. Walk into any bar. Take a friend with you. Say “bud.” Have your friend say “weis.” Repeat. Eventually, someone will say “er.”

But this, one of the most successful TV commercials of all time, was not without its risks. Anheuser-Busch paid $1 million per 30 seconds of airtime in 1995, and the commercial could have sputtered. Advertisers sink too much time and effort into these commercials for them to actually fail, but many fail to catch fire. Think of Pepsi’s 90-second opus from 2001. The ad featured Britney Spears, a troupe of dancers, a slack-jawed fast-food worker, a portly women’s bowling team, ex-senator Bob Dole, and Bob Dole’s dog. For the $6 million it cost Pepsi to get the spot on the air, the commercial lives on most memorably as the butt of a Lewis Black stand-up joke too vulgar to reprint here.

The price of failure only grows higher each year. Thirty-second spots sold for $3 million apiece for Super Bowl XLII, and this year’s advertisers had to struggle against a weak economy. Not only did big game buys represent a larger chunk of advertising budgets than it would have in flush times, but research says that consumers do a poorer job of remembering big-budget ads when their wallets feel light. Gallup & Robinson pegged retention during uncertain times at 11 percent lower than normal times, and 36 percent lower than boom times.

Still, that’s all the more reason for marketers to try to raise their games even more. And the economy didn’t stop firms from trying to be original. MillerCoors gambled by buying just a single second of air time during the big game, and PepsiCo helped bring America its first 3D Super Bowl commercial break ever. That alone might be memorable, but only time will tell if either of these efforts achieve the same enduring presence as three frogs reading from a one-word script. Regardless, they’re the essence of branding. Just like the players in the big game itself, the Super Bowl is the creative director’s shot at immortality.

STEVIA

For the first time in recent memory, small beverage firms might have to chase the big ones for more than a check. In recent years, Coke and Pepsi have earned a reputation as lumbering behemoths that can only innovate by shelling out millions (or billions) to buy up-and-coming brands, but, when it comes to stevia-sweetened beverages, to their credit, they are setting the curve.

The two giants recently unveiled the only seven beverage SKUs sweetened with the stevia derivative rebaudioside-A (Reb-A) available in the U.S. Right now, they stand as a proof-of-concept, but, if they succeed, they could change the face of the beverage market and leave beverage startups scrambling to catch up.

Reb-A, branded as Truvia by Coca-Cola and Cargill and as Purevia by Pepsi and Whole Earth Sweeteners, satisfies two once-mutually exclusive groups of consumers: it’s all-natural and therefor is LOHAS-friendly; with zero calories, it satisfies the diet crowd.

That happy combination didn’t come easy. Stevia sweeteners have been around for years as lightly processed leaves, but they suffered two disadvantages. First, they imparted an unpleasant aftertaste, and, second, they had been banned by the FDA for use in anything but dietary supplements.

Coke, Pepsi and their partners cleared the regulatory hurdle by performing extensive testing, and addressed the aftertaste by strenuously processing the herb. The process isolates the sweet-tasting rebaudioside-A at a 97 percent purity rate, which should give it a flavor similar to that of sugar, according to David Bishop, executive vice president of international affairs for sweetener producer GLG Life Tech Corporation.

Combine a sugar-like taste, zero calories and a natural source, and you can see why some have called Reb-A the “Holy Grail” of sweeteners. If consumers cotton to Coke and Pepsi’s test balloons, and, between Odwalla, Sprite Green and SoBe Lifewater, there are plenty of test balloons in the air, it’s likely that other brands will hop on the Reb-A train as well.

And while Pepsi and Coca-Cola have done much of the work to clear the way for Reb-A, they have no claim of exclusivity to it. Bishop said GLG Life Tech, which has a massive contract with Coca-Cola and Cargill, can still sell Reb-A to anyone it likes. That leaves the door open for small brands to play copy-cat. Nevertheless, for the first time in a long time, Coke and Pepsi will be driving the trend instead of buying their way into it. Pretty sweet.THE RETURN OF COLA

Now is a great time to be a cola fan. For years, the nation’s most popular soda flavor has been dominated by Coke and Pepsi, while third-party options came in the form of geographically-constricted craft sodas, private-label knockoffs or Quixotic attempts to best the big two at their own game. Now, consumers willing to venture into off-beat channels have a plethora of cola options, and Red Bull’s Simply Cola gives mainstream consumers a substantially different third choice.

Steve Hersh, president of Grown-up Soda, credited cafes and natural food stores for the cola renaissance. It was a matter of necessity, he said. Cola is the nation’s number-one beverage flavor, but natural food stores won’t sell Coke or Pepsi because both products contain artificial ingredients. Cafes, he said, don’t want to carry mainstream products – and especially don’t want Coke or Pepsi delivery trucks backing up to their establishment – because it tarnishes their all-important image.

That market gap created an opportunity for products like Jones Soda, Virgil’s Real Cola and a dozen others. Hersh, whose Grown-up Soda focused mostly on fruit flavors, said he decided to add Dry Cola to his line after he noticed a cola-shaped hole at Whole Foods. Now, he said, customers tell him that, since finding his product, they can now stop smuggling Coca-Cola with cane sugar from Mexico.

But why so much passion for a fizzy brown liquid? Despite its thick, brown color, Hersh said, cola has a surprising amount of citrus in it.

“Just knowing that, it makes sense that it’s a really good flavor – that it’s really refreshing,” Hersh said.

While he and other beverage marketers have focused on premium markets, last year Red Bull pushed a premium product into mainstream channels. The banner energy brand surprised the industry and put an exclamation point on the cola renaissance when it announced the natural cola. Simply Cola costs more than Coke or Pepsi – significantly more – but it comes with an ingredient panel full of things consumers recognize, a flavor that departs from the big two, a smart-looking can, and distribution that puts it in mini-marts and grocery stores nationwide.

Now, cola drinkers have a natural option wherever they go, and mainstream consumers get a chance to find out what it is that Cola snobs have been raving about. At a time when big companies are focusing on their core fizzy products, a cola revival couldn’t come any sooner.

RESPONSIVENESS TO CONSUMERS

All consumer goods industries are – to a certain degree – about giving the people what they want, but the beverage industry is particularly good at it, and not just when it comes to what’s in the bottle.

While beverage brands big and small have catered to consumer drink desires through everything from reducing calories, to adding nutraceuticals or protein to using only natural ingredients, they have also addressed broader consumer concerns.

Last year, Coca-Cola and PepsiCo responded to consumers’ new interest in their waistlines by announcing that they will voluntarily copy calorie and serving information on select products to the front of the package as part of the Smart Choices program. Bottled water companies, responding to environmental backlash, have reduced the plastic in their packaging and announced carbon neutral or carbon negative initiatives. Elsewhere in the industry, an emerging subcategory has started giving back to the community by promising to donate a specific portion of their purchase price to causes guaranteed to give consumers a warm, fuzzy feeling. On the fermented side of the business, MillerCoors and Anheuser-Busch InBev agreed to remove the caffeine from Sparks and Tilt after a coalition of state Attorneys General mounted a campaign to put an ?end to what have been called “speedballs in a can.”

All of these noble decrees are, on some level, about driving sales or responding to pressures – and that’s okay. We live in a capitalist society. People vote with their dollars. Even if beverage firms’ prime motivation is to goose their case sales, it’s really no different from offering a new flavor or functional ingredient. The consumers still get what they want – whether it’s protein, easy nutrition information or the promise to help a good cause – and the beverage firms still get a sale. Give the people what they want, and the people will give you a slice of their paychecks. In the end, everybody wins.

THE WORLD AT YOUR TASTEBUDS

These days, a visit to the nearest beverage cooler can take your taste buds for a trip around the globe. Modern consumers are increasingly interested in tasting the world they live in – especially those places that they may never visit – and beverage firms have been happy to offer them a travel agency ?in a bottle.

Just look at the RTD tea category. As consumers’ interest in tea spikes, marketers are offering a diverse set of unique international tea flavors. Ito En, for example, brought authentic Japanese green tea to U.S. shelves. A handful of brands, including Noyu and Tropiking, now make a point of sourcing their green tea from Taiwan, and Guayaki has bottled the South American yerba mate tradition. Some RTD teas have gone even more exotic. High Country Kombucha adds yeast to tea in an ancient Chinese tradition, and Numi follows the similarly-ancient Chinese tradition of using fermented tea leaves. For a tea-like diversion to Africa, a number of brands, including POM, have formulated RTDs using rooibos, sometimes called “red tea.”

While beverage firms experiment more deeply with world teas each year, they’ve also shown fruit flavors as fertile ground for bottled exploration. A handful of motivated brands, including Sambazon, have raised America’s awareness of the Brazilian acai berry, but there are more exotic fruits on the way. Honest Ade’s recently-released Super Fruit Punch features yumberry and goji berry, (both from China) and essn offers a Sparkling Meyer Lemon (also from China).In the meantime, the South American acerola fruit continues to gain traction through brands like Zola and Purity Organic.

Not satisfied with fruits and teas, some firms have turned to other world beverage traditions. Lifeway bottled the Middle Eastern probiotic tradition of kefir. Sayan Chaga formulated a line of beverages based on a Siberian herb, and Dahlicious has bottled a traditional Indian probiotic yogurt ?drink called lassi.

Some of these flavors may never make it to the mainstream, but some already have. vitaminwater has a long tradition of including exotic fruit flavors like acai and dragonfruit in its formulations, and PepsiCo included a goji flavor in its SoBe Lifewater line. But even if a flavor doesn’t get picked up by a major brand, that doesn’t mean that it isn’t available. Rooibos, for example, has been available in RTDs from independent brands for years, and there always seems to be a marketer trying to transform aloe-based drinks from an Asian market curiosity to a mainstream reality. So, open a bottle, take a drink, and take a trip. Without the passport.