Gourmet CSDs Battle On

By Jeffrey Klineman

These attempts to make over the pedestrian soda category with highbrow products seem to come every year, making for a diverse set of companies for retailers and distributors to consider.

The entrepreneurs wouldn’t mind the consideration – it’s tough out there, they say, when you’re competing with the Cokes of the world. But things are starting to turn: recently a high profile investor took a stake in one brand, while a fast growing retailer interested in building high-end consumer brands took a chance on another: Emil Capital Partners invested in Sipp, while The Fresh Market opened its doors wide for upstart brand Block Island Beverages (Bibbs).  Meanwhile, older brands like Maine Root, Steaz, Izze and Reed’s remain stalwart in their ongoing battle to make a place for themselves in the market.

Izze, for example, is undergoing yet another round of route-to-market tinkering at PepsiCo, where it sits in the emerging Naked/Izze innovation group.

“The brand has potential and the category has potential,” said George Kuhn, who works on sales strategy and planning with Naked and Izze. “There’s definitely a play within certain demographic groups.”

That doesn’t mean that it’s not hard. Sipp, for example, an organic soda brand started by former bartender Beth Wilson-Parentice recently pulled in growth capital from Emil, which was founded by a family with expertise in consumer products. You might think that Ms. Wilson-Parentice would take the investment as a positive sign, but she recognizes that the cash is just fuel for another round of production and battling to get traction in more stores. With a small proof of concept in place – Sipp is available in about 400 Philadelphia-area accounts – she said that she knows the road is still a long one.

“It’s been an interesting road,” Wilson-Parentice said during the Natural Products Expo East event in Baltimore in October. “Now, we’re interested in being able to go forward.”

Despite the difficulties, many gourmet soda operators see white space in the market. One place they like to point is New York City, where Mayor Michael Bloomberg is in the process of banning the sale of high-calorie beverages larger than 16 ounces.

Steaz, a carbonated tea brand that has been on the market for nearly a decade, is one brand whose owners seem to believe it has found the caloric slipstream to success.

“Steaz is part of the solution, not the problem,” noted spokesman Tom Sellwood in a recent missive. “Steaz believes 16 oz. at a time is ample for refreshment.”

Most gourmet CSDs seem to buy into the notion that less is more, both in terms of packaging and calories. It’s the places they don’t skimp – real fruit for juice-based carbonated products or sweeteners like cane sugar or agave syrup – that they believe will motivate buyers.

“Even though CSDs are down 11 percent since 2006, the ingredients give us an advantage,” says Len Zide, the founder of Block Island Beverages, which makes carbonated blackberry sodas and lemonades. “People still are thirsty, but they’re reading labels.”

And beverage industry gatekeepers are reading labels as well; The Fresh Market, for example, took a chance on Zide’s products and ordered two truckloads as a way to debut a new product that fit in its wheelhouse of innovation and natural origin. While he’s still fighting it out with the bigger companies on price and shelf space, he’s not deterred. For every Fresh Market, there are several more Whole Foods, Wegmans, and other supermarket account focused on the high end.

“We’re going to live or die being the best we can be,” Zide said. “There’s still room, and the market seems to be evolving in our direction.”