The Shrinking Space Race

The deal is done. PepsiCo went and swallowed Izze, the biggest jewel in the alternative soda shop earlier this month.

At two million cases last year, the sale of the sparkling juice company marks a major change in the high-end CSD segment. Whether it’s a validation of a growing category or the beginning of the end remains to be seen, however.

For retailers, the $75 million purchase, on face, shouldn’t make it any harder to get hold of their stock of Izze – or any harder than it’s been to get hold of to date, that is. Word from Pepsi and Izze at the time of the sale indicated that the Boulder-based company would be left to maintain its own distribution network – despite recent changes the company had been forced to implement to increase its ability to fulfill orders.

Still, if you’re in the business of making highend sodas – and it has been a growing business, estimated at $495 million by Jones Soda CEO Peter van Stolk during a recent shareholders’ meeting, you’ve either got to look at it as a positive development, or else throw in the towel. And soda makers are a pretty resilient bunch.

The positive spin comes from spunky fighters like Cricket Cola’s Mary Heron, who insists that the purchase showed larger companies “have opened their eyes to upscale products, ones that, like Izze, are better for you, come in a glass bottle and have great packaging.”

But at the same time, there are fears that that discovery is going to result in squeezed routes to market for the products that don’t get picked up. With the purchase of Izze, there’s bound to be a counterstrike or two, she agrees. The question of whether big companies like Coke or Cadbury Schweppes will pick up more sparkling juice companies (like Fizzy Lizzy or The Switch) or go prospecting for more gourmet versions of their own products (Pop Soda or Boylan’s) is just part of what will determine the direction of the business. The fact that there are now a couple of clearly positioned leaders in the production of alternative CSDs is another: in scooping up Izze, (as well as smaller functional soda maker Airforce Nutrisoda), Pepsi has grabbed one of the best-known properties available, one that has a considerable amount of marketing momentum.

The question of whether other pure carbonated juice companies will be able to stake a national claim has to hang heavy in the air for those companies, as well as the retailers and distributors who carry them. But there is nevertheless some optimism that carbonated juice makers will be able to take advantage of the purchase in much the same way Monster Energy slid onto vacant trucks after competing brand Rockstar signed a near-exclusive distribution deal with Coca-Cola Enterprises.

“Some of their distributors have already been calling,” says Richard Beswick, the national sales manager for The Switch. “They’re worried about losing the money they’ve spent building the brand and they want to have something else to cover it. The same thing happened with Snapple.”

Beswick makes it clear that he’s not concerned that shelf space will dry up.

“If you’re in the right market, the audience is still there,” he says. “Grocery stores are all putting in natural sections that deal with our product.”

“But if you’re in gourmet sodas,” he adds, “It’s just poorly defined.”

In saying that, Beswick taps into the issues facing the larger contingent of non-juice alternative soda makers: some are anchored in tradition and nostalgia, while others appeal to a new breed of aspirational gourmets. Depending on consumer response, the effect of the Izze purchase on them is likely to be more tangential, but a much larger question is the direction of the soda category overall. While CSDs are still the most widely purchased beverage product in the country, they are quickly losing share overall, leaving craft CSDs facing the prospect of becoming a very good anachronism.

“We’re considering taking the word ‘soda’ off the (White Rock Organics) bottle,” says Larry Bodkin, White Rock’s president. “When we sample, people say to us, ‘I just don’t drink soda anymore.’”

At forward-looking Jones, things have taken a slightly less gourmet direction, as it has hooked up with bargain soda maker National Beverage and plans to start selling through K-Mart. Still, K-Mart isn’t exactly Whole Foods, and Jones seems satisfied to be a well-distributed alternative to mainstream sodas rather than one that stakes its claim in the high ground of gourmet authenticity. Jones’ pipeline approach should appeal to retailers who find their customers overlapping with Jones’ current direction. Hansen’s, with its re-tooled Blue Sky soda, is taking a similar middlebrow approach, only in the natural foods galaxy.

As for smaller producers, expect them to keep plugging away, hoping to catch lightning in their bottles, and then hoping to get those bottles into your cooler. Companies like Maine Root, GuS, Virgil’s and Cadbury’s own Stewart’s have their own regional fan bases, and some have built strong on-premise followings, as well. The stronger the following, of course, the more likely they’ll attract some attention.

For a homegrown soda maker like Cricket’s Heron, the option of slowly, organically building market share at a select set of retailers has its romance; she, like many other soda makers, are always hunting for someone new to give them a try on their shelves.

But she recognizes that Izze’s route has its own advantages, as well.

“Hey, that model is a good one,” Heron says. “Acquisition is a pretty nice thing to have happen.”

Guarana Sodas: Tiny Market Share, Growing Opportunity?

Amidst all the discussion of “energy sodas” Vault and Mountain Dew MDX, there is another attempt to cross the streams of energy drinks and sodas, only this time, it’s the energy drinks who are trying to leap into the CSD pool.

Products like Bawls Guarana, Sol Maté and Golly Guarana are taking a micro-soda approach to traditional energy drink ingredients like the guarana berry and yerba mate extract, brewing these natural caffeine sources up into CSD’s that range from 50 to 100 percent more caffeine than your average Coke or Pepsi.

The idea is one that Pepsi actually attempted itself prior to the energy drink craze with a short-lived guarana soda called Josta, which launched in the mid-1990s. The beverage lasted just a few years.

It might be time for a revival, though. With the nation becoming more caffeine-aware, the guarana and yerba mate sodas might have the potential to take double advantage of that increased knowledge. For some consumers, the idea that they’re drinking a naturally-occurring caffeine product would top an artificial source. For caffeine junkies, however, the idea that these products actually have twice the boost of a regular soda could be a major attraction.

Bawls is still marketed largely as an energy drink – and has achieved a small level of success in that form, making the top 20 in that category. Sol Maté, which has high-power yerba maté as its caffeine analog, hasn’t quite figured out where it stands with regard to the energy drink/CSD divide. But both come in upscale, design-heavy glass bottles that could easily translate into a spot on a gourmet soda shelf set. Golly Guarana, with a 12 oz. can and 20 oz. bottle, has more of a mainstream look.

The key element of success for all three, however, is the ever-present consumer education component. Given the massive growth of energy drink consumption, it’s likely that many more consumers have consumed guarana than could actually discuss what it is.

“I don’t know if the benefit of guarana is mainstreamed yet,” says Mary Heron, CEO of Cricket Cola, a green tea soda that spent years waiting for that now red-hot additive to break into the mainstream. “I have trouble even pronouncing it.”

That might be true, but with both guarana and yerba maté consumption on the rise, and caffeine awareness growing, retailers might find it to be something worth learning.