Gerry’s Insights: Warming to the Cold

At those new-bev contests like BevNET’s own New Beverage Showdown, you rarely see refrigerated beverage brands in the mix. Even newcomers to our business seem to recognize the cold chain’s special challenges. Painstaking production with fewer copacking options. Difficult distribution, with fewer non-captive DSD operations to tap into. Retail challenges like the inability to mount floor displays.

And where’s the exit? Among the Big 3 beverage giants, Coca-Cola and PepsiCo both have shown reduced interest in the category. Coca-Cola killed its Odwalla juice brand and eased away from cold-chain brands like Health-Ade Kombucha and Suja Juice that it once helped incubate, though it retains its mainstream Minute Maid and Simply juice businesses. PepsiCo hived off its entire juice portfolio — including Tropicana and acquired brands like Naked and KeVita — into a joint venture with equity player PAI Brands. The third giant, Keurig Dr Pepper, showed no interest in the category to begin with (it viewed Keurig coffee as a closer adjacency, though it’s changed its mind on that now). Nor have the likes of Nestle or the beer giants. Starbucks acquired Evolution Fresh, the pioneer of high-pressure processing (HPP), then got rid of it. Most notoriously, Campbell Soup’s run-in with Bolthouse Farms left it on the ropes. Growing carrots doesn’t have much in common with producing canned soups, its CEO acknowledged as the wheels were coming off.

Even at the entrepreneurial end, disillusionment can set in quickly. Once he got his feet wet, Lemon Perfect’s founder segued with alacrity from creating a more approachable and affordable Suja to a shelf-stable hydrator. Even some natural channel mainstays have hedged their bets with shelf-stable extensions, including several kombucha marketers and Olipop and Harmless Harvest. So, for all its unquestioned nutritional credentials, the cold channel definitely is not for the faint of heart.

That’s why it was kind of inspiring to witness the public debut of Suja Life Inc. on the Nasdaq exchange in early May. These are the same fickle public markets, recall, that abruptly pivoted from exhorting CPG companies to grow at all costs to hammering the shares of those that tried to do just that. These days, it seems, hardly anybody besides Vita Coco – consistently profitable and growing by double-digits – seems to get a break from public investors. The grow-at-all costs crowd, from Oatly to Black Rifle Coffee, have shares that remain in the tank, try as they might to mend their ways.

Meanwhile, as the classic beverage strategics have lost patience with refrigerated beverages, a quiet ecosystem has been developing, based on a new set of strategics that believes in the category and intends to grow it both organically and via acquisition. With its public float, Suja Life now enters that mix more overtly. As it pointed out to investors in selling the IPO, it’s already demonstrated it could integrate an acquisition well, with its stewardship of wellness shot maker Vive Organics, which with $63 million in revenue last year was about two-thirds the size of Suja’s own shot business. Pursuing its house-of-brands approach, it’s also picked up the license for the discontinued Slice soda brand, now restaged as a gut pop. All told those marques brought a topline of $327 million last year. I should note, by the way, that Suja itself resists the “house of brands” label, arguing that its vertically integrated cold-pressing system in the San Diego area represents a considerable competitive advantage beyond the brands themselves.

Then there’s Generous Brands, the Butterfly Equity-backed collective that got started by rescuing Bolthouse Farms from its Campbell Soup nightmare, then successively added Starbucks orphan Evo Fresh and Health-Ade Kombucha. (It’s also helping acai player Sambazon with some functions.) At the helm is Jeff Dunn, a former Coke executive who’d led Bolthouse before the Campbell deal. It goes without saying that Tropicana Brands Group, in the hands of a PE player, is in the hunt too, even as it tries to work its internal innovation muscles a bit more vigorously than Pepsi did. They join more conventional strategics like Danone that are also presumed to be in the hunt for the right refrigerated acquisitions.

Is the time right now? Certainly, many consumers are starting to flock to straightforward formulations, with minimal ingredient lists, none of them unpronounceable chemical-sounding names. “Consumers increasingly demand transparency, functionality and authentic wellness benefits,” Suja CEO Maria Stipp argued to investors. For his part, Generous’ Dunn points to consumers’ increased awareness that they’re fiber-deprived. They may be starting to learn that those benefits break down in heat-processed drinks. And while juices’ sugar content has been a bugaboo, the major players are getting better at offering appealing lower-sugar entries even as some consumers seem more willing to brook a modicum of sugar for the right nutritional payoff – something the gut pops have proved. A new breed of juice tech that’s moved into commercial testing promises further reductions in sugar at no cost to flavor or efficacy. As for price, “consumers are willing to pay for that functionality,” Dunn argues.

As Dunn has also noted, to play successfully in refrigerated you need to operate at some scale. That doesn’t necessarily mean the scale sought by the likes of Coke, whose minimal level of success seems to be billion-dollar brands. By contrast, the scale of what Suja defines as the “natural healthy beverage market” – refrigerated juice, kombucha and other functional beverages including some of the newer sodas like its own Slice – amounts to $43 billion. That’s just one-third the total beverage market of $128 billion. But that smaller segment grew 13% over the past year, per SPINS data the company cites, compared to just 3% for the broader category. The strategics’ seeming disinterest would seem to make it a more placid segment to participate in, with less M&A churn, endless reformulations and price promotion bumps, where committed players have a better shot at steadily putting more Americans on a path toward better nutrition. That Suja investors are buying into that vision strikes me as a reassuring sight.

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