Khermouch on Kombucha

It may be hard to imagine how, just a few short years ago, even to an informed readership like BevNET’s, kombucha was just a curiosity. The fermented tea product was the domain of a single significant player, was beset by misunderstandings (that it’s made from mushrooms and the like) and rarely was encountered outside its mainstay natural-foods retail habitat. I remember trying to convince a former colleague of mine who was at the Financial Times to do a story: after all, kombucha had so many quirks, it should be the perfect vehicle for his British editors to indulge their penchant for lampooning Americans and our weird byways. (And besides, Lindsey Lohan was detoxing with the stuff, so there was some celebrity bait too.) My friend duly made his pitch, but even with those lures – too obscure, he was told.

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It would be premature to deem kombucha mainstream yet but boy are things changing. It’s certainly moving into some mainstream accounts, though whether those shoppers flock to it or not remains to be seen. Live Soda Kombucha is hitting 1,500 Target stores with its hybrid kombucha sodas that mimick brands like Dr Pepper; Reed’s Inc. is using its grocery clout to place its Reed’s Culture Club kombucha into mainline grocers, and Bucha has entered some Costco stores. The category pioneer and leader, GT’s, has started selling kegs of the stuff, tapping growing on-premise interest. Among traditional grocers, those in hotbed markets, like Ralphs in Southern California, are taking a flier on four or five brands, mingling national brands with local and regional ones, much as grocers like to do with craft beers. Kombucha is also crossing over into other categories, not just soda as with Live, and into beer, via players like Unity Vibration and Beyond Kombucha. (It may only be a matter of time before the Brewing Association adopts kombucha beers as a separate judging category at the Great American Beer Festival.) A North Carolina brand called Buchi even has frozen its booch into sorbet that’s available in nearby Whole Foods stores. As with craft beer, some early-adopter markets like Portland, Ore., are offering a glimpse of how far the category can go: last time I passed through Portland’s airport about a year and a half ago, I counted four different kombucha brands for sale in the concessions. Meanwhile, almost all players are adopting formulations that move away from a tart vinegar bite in favor of more approachable palates.

Given the premium pricing, local sourcing and avid followings of many brands, it’s exciting to see this category flourish. As with craft beer, ardent homebrewers swap recipes and share their mother cultures, and increasing numbers of bars and restaurants are offering kombucha by the bottle or on draft. By now, the segment even is a year into having its own trade group, the Kombucha Brewers International, with every sizable player up to GT’s represented. There seems to be a lot of momentum to ride.

But there are quite a few challenges ahead, too, before kombucha can be said to have truly conquered mainstream markets. As I detailed in a recent column in this space on exciting refrigerated segments – not just kombucha, but HPP juices and cold-brewed coffee –distribution remains a bottleneck. True, there are ample numbers of dairy distributors and broadliners with refrigerated capacity, but if kombucha – and those other segments – are to develop into truly high-velocity categories, more classic DSD distributors like beer houses and Snapple distributorships are going to need to get in the game. Some have refrigerated warehouses now, thanks in part to their expanding craft beer portfolios, but most don’t have refrigerated trucks. Kombucha proponents generally seem to feel that, as the category proves its mettle, those accoutrements will come.

Another hurdle: kombucha is an exceedingly tricky product to produce, particularly at scale and with consistency. Right now, most producers opt to make it themselves, but perhaps we’ll see some diligent copackers come into this market to ease both the capital burden and reduce the shipping lanes of brands that choose to go big and broad. Participants are nervously watching the entry of institutional capital into the segment: these investors can support the expansions, but will they be patient enough not to meddle with the brands’ authenticity? And while few folks care to talk about it publicly, there’s also the thorny area of compliance: for some people, their first awareness about kombucha arose four years ago when Whole Foods pulled the entire category after several brands were found to contain unacceptable levels of alcohol. (At the time, having heard the rumors, my newsletter was both amused and appalled that Lohan had chosen one of the believed offenders as her detoxing agent.) Progress has been made on that front, but it’s pretty clear that compliance is not universal. Beyond the alcohol issue, some players privately grumble that a few brands are understating their calorie content as well, in a way that tilts the playing field in their favor. Another labeling issue: many players like to present themselves as raw, to distinguish themselves from pasteurized entries that are lower in flavor and efficacy, but given kombucha’s origins in a tea that must initially be steeped, is the “raw” label likely to draw the attention of a hyperactive plaintiff’s bar? Given the category’s momentum, nobody wants to act as a whistle-blower on their peers and risk destabilizing the entire category again, but these are all topics that producers as an industry will have to work out before kombucha truly is ready for prime time.

Longtime beverage-watcher Gerry Khermouch is executive editor of  Beverage Business Insights, a twice-weekly e-newsletter covering the
nonalcoholic beverage sector.