Lemonade: The Simple Beverage with the Complex Picture

We don’t like to become the story, unless it actually furthers the story. So here’s the story: last month, we ran a set of IRI numbers on lemonade, and, well, we ticked off the folks at Calypso. Here’s what we wrote:

calypso“Looks like Calypso is finally starting to level off, but with the summer months finally here, it will be interesting to revisit this category and see if the company’s past couple of years of growth have finally slowed. Hubert’s is changing hands in the Coke/Monster Deal. In refrigerated, Simply remains the franchise to beat.”

Calypso, and its president, Jeff Outlaw, didn’t like that one bit. His argument: the company’s 4.6 percent growth over the previous 52 weeks did lag the category, which was at about 9 percent, but Calypso was one of the few entrepreneurial brands on the list that was continuing to grow, and it has, in fact, been responsible for much of the sustained burst that pushed the entire lemonade category forward over the past six or seven years.

“I think back to where we were with the brand, where people would look at you like ‘What are you talking about? You’re a lemonade company?’” Outlaw said. “But in the last year and a half, two years, there are a lot of folks getting into it. We look at it as the brand is so small, it’s an age-old accepted thing, this flavor – but as it’s grown, I think, I the stage is set for even more growth of the flavor profile.”

Indeed, lemonade has grown in a lot of places beyond the non-alcoholic beverage space – or even the shelf-stable, single-serve zone – that comprises Calypso’s sweet spot. Lemonade flavors have shepherded the growth of the Budweiser ‘Rita franchise, as well as Mike’s Hard Lemonade; they have even moved over into beer with shandys. Candies like Skittles introduce it as a seasonal flavor. Even 5-hour Energy had a one-SKU surge behind a pink lemonade flavored limited-time offer. That means that bigger beverage companies feel the need to roll out a lemonade to be in the category, in much the same way that Pepsi will put out a Sierra Mist or Coke deploys Powerade. If it’s a category, you have to be a player.

“I go back to my early Red Bull days,” Outlaw said. “When you start to have the other people getting into the game even behind what seemed like a crazy idea, like a $1.99 eight ounce can, you know you’re getting there. Everytime we hear about a [lemonade] beer or a vodka, or even Skittles, launching, when you have major conglomerates with floors of analysts saying we need to be in lemonades, we see it as an opportunity to say to retailers, distributors, even if those bigger companies are getting in, we’re the sales per point of distribution leader.”

Screen Shot 2015-09-04 at 2.39.30 PMCertainly, it’s harder to show sustained growth numbers off a larger base, and as the largest independent brand in the grouping, Calypso was performing well, especially since it doesn’t have the kind of native distribution muscle behind it as Minute Maid, Lipton, V8 or Fuze. Those big brands come in and capture sales, propelling that category upwards, but they don’t necessarily last for the long term, Outlaw said.

This month’s readings – which go into mid-July, reflecting some of the summertime inflows into this seasonally-dependent category – show Calypso advancing even more on its independent peers. Some of the newer big-company brands are also riding the summertime surge, like Fuze and V8 Splash, but others, like AriZona’s Golden Bear, are starting to wear out. Meanwhile, Calypso, which has the majority of its distribution in independent c-store and grocery accounts, appeared to be faring well against its up-and-down-the-street competition.

huberts_lemonadeCoke-owned Huberts, for example, which has been transitioning over to the red system as a component of the soda giant’s deal with Monster energy, has been dropping for the past year. It’s a big comedown for a product that hit the market in 2013 and started gaining share at Cabana’s expense. By the end of 2014 it was at about $18 million, according to IRI. Now, even as the category has continued to surge, Hubert’s has dropped under $15 million. The Hubert’s team is hoping that its combination with other products in Coke’s VEB unit will help that brand find its way back to growth.

For a category associated with simple pleasures, the actual lemonade picture is a bit murky below the surface: plenty of juice drinks and teas offer lemonade mixtures, but they aren’t always classified as lemonade. Bai has had plenty of success behind its lemonade SKU, but it is rolled in with the rest of the line. AriZona’s Arnold Palmer tea/lemonade mixture had been a wildly popular introduction, leaving the Jack Nicklaus licensed Golden Bear in the dust. The mix doesn’t always work out, though: recently, coconut water makers Vita Coco and Zola tried to roll out coconut water and lemonade combos, to limited success. Meanwhile, Sparkling Ice’s lemonade line has helped add nearly $18 million to the company’s top-line growth, but that remains a small fraction of the now-massive flavored sparkling water brand’s portfolio.

Refrigerated sections of the store may also bear mixed results for the category. While Coke’s Simply and indie brand Newman’s Own have the carton business wired in the dairy case, produce-based juice brands like Odwalla, Naked and Bolthouse have all winnowed away their own, once-popular lemonade SKUs. That may create an opportunity on the high end, but for now, innovation in the category isn’t going toward premium-priced brands.

“There’s no preconceived notion that lemonades need to be good for you,” Outlaw said. “We know we don’t appeal to someone who’s ultra health conscious, calorie conscious. People are just used to sugar, lemons, water.”

It’s hard to replicate that flavor any other way, notes beverage expert Bill Sipper, who has worked with juice and lemonade brands at places like Nantucket Nectars, Naked Juice and New Leaf. With all of the tartness of the lemon, plenty of sugar has to go in as well for balance, he notes, although, he said, stevia works well with lemons and may yet have an impact. Even more of an issue, however, may be the expense of lemonade ingredients – the old adage about squeezing a lot of lemons is true.

Split between shelf-stable and the cold box, big cartons and single-serves, lemonade as a category might not be easy to nail down. But it does run deep. Which brings us back to Calypso, where the company asserts that the biggest growth obstacle last year was actually lack of capacity. At a brand that runs 20 flavors deep, including 13 flavored lemonades, along with limeades and “teamonades,” that’s something that demand will change, and it has, as the company has scaled up, building a centralized sales team from what had been a patchwork of brokers and bottlers. It’s landed some Kroger banners to go with an existing Wal-Mart footprint and has raised its marketing game, aiming to add more chains to the ones it’s already got and its strong DSD footprint.

“This is a small category still,” Outlaw said. “We don’t know if we’re writing a chapter of beverage history. But it’s a fun ride.”