Bevscape Business

Tax Tussles

Advocates and opponents of beverage taxes busied themselves in May, with three tax proposals dead, one surfacing, one returning, and one thought-dead back on its feet.

N.Y. Gov. David Paterson resurrected his proposal with a revision that would create a sales tax exemption for diet sodas and bottled water while leaving in place a tax of one penny-per-ounce on full-calorie beverages. Meanwhile, environmentalists in Massachusetts renewed a push to extend the state’s deposit law to bottled water, and Rhode Island’s House Finance Committee heard an argument in favor of a soda tax.

Each of those measures will likely meet fierce opposition from beverage industry leaders. In May, the industry stifled tax proposals in Baltimore, Washington D.C. and Philadelphia, where a nearby bottler offered Mayor Michael Nutter $10 million to take his tax proposal off the table. He refused, but his soda tax push failed when the City Council voted to approve a budget that omitted the measure.

“Today the big soda lobby won and average Philadelphians lost,” Nutter declared.

Even with its recent run of success, the beverage industry should expect more tax battles. First Lady Michelle Obama recently endorsed soda taxes, and Washington D.C.’s City Council is now considering an alternative measure that would eliminate a sales tax exemption for soft drinks.

Market Outlook

Wall Street and the economy have buffeted the beverage segment recently, but according to Goldman Sachs, the storm may calming.

The brokerage firm predicted in May that sales of both alcoholic and non-alcoholic drinks will rise in the second half of the year. It upgraded PepsiCo and Hansen Natural Corp. to “buy” status, and bumped Jack Daniels’ owner Brown-Forman Corp to “neutral.”

“We are now increasingly constructive on the [consumer] staples sector, as we see potential recovery in the staples demand for the second half of 2010,” a Goldman analyst wrote in a note to investors. The analyst added that Coke and Pepsi’s bottler acquisitions could help both companies pursue value over volume.

But Wal-Mart may hamper those efforts. In a play to pull more customers into its stores, CNBC reported that the retailer has cut prices on Coke, Pepsi and DPSG products. While those cuts came at the expense of its own margins instead of those of the beverage giants, ConsumerEdge analyst Bill Pecoriello said that other grocers could respond in-kind, leaving the big three struggling to raise prices.

Killebrew Gets Killebrew

RJM Distributing, Inc., exclusive licensee, manufacturer and distributor of Killebrew Root Beer and Cream Soda, announced an endorsement agreement with Hall of Famer and Minnesota Twins slugger Harmon Killebrew.

As part of the agreement, the baseball veteran will endorse and market the brand’s root beer and cream soda products through personal appearances, advertising, point-of-purchase materials and packaging. Killebrew beverages also secured serving rights for Minnesota Twins home games at Target Field.

“The Twins got involved with the re-branding of Killebrew Root Beer because Harmon’s name is synonymous with the great history and tradition of our organization,” said Twins Vice President Eric Curry. “Having Killebrew Root Beer available to our fans at Target Field seems only natural since it is also brewed right here in Twins Territory.”

Evolution Fresh Adds Investment

Evolution Fresh announced a partnership with investment firm Fireman Capital Partners to fuel an American revival of fresh-squeezed, organic juices.

Naked Juice and Odwalla both lost their way after PepsiCo and The Coca-Cola Co., Inc. purchased them, said Shawn Sugarman, CEO of Evolution Fresh and former president of Odwalla. Both brands now save costs by using purees instead of whole fruits and vegetables, and Sugarman said that switch created space for a new super-premium juice (Evolution calls itself “ultra-premium”). But, he said, the company will face the same challenges as its predecessors.

“It’s not hard to make really good juice; it’s just hard to resist compromising your approach,” Sugarman said.

Fireman Capital’s investment, he said, will help the company overcome that challenge.

As the brand grows, its resemblance to the early days of Naked and Odwalla may continue: founded by Naked Juice founder Jimmy Rosenberg, Evolution Fresh, already hired a number of Odwalla veterans, Sugarman included. The company will likely expand its distribution in the footprints of the two incumbent brands, Sugarman said, and may look to old Naked and Odwalla hands to help it.

“There’s a lot of people that built the two incumbent brands over the years,” Sugarman said. “Some of them are wanting to do it again. We’re finding that there are a lot of people that want to join us and make this happen.”

Big Beverage to Help Cut 1.5 Trillion Calories

A coalition of food and beverage companies including Kraft, The Coca-Cola Co., Inc., PepsiCo and Nestle USA pledged cut 1.5 trillion calories from the American prepared food market by the end of 2015.

The Healthy Weight Commitment Foundation, in cooperation with First Lady Michelle Obama and the Partnership for a Healthier America, said it intends to achieve and maintain that decrease by developing lower-calorie options, changing existing recipes and reducing portion sizes of single-serve products.

Under the terms of the agreement, the HWCF will report its progress annually to the Partnership for a Healthier America. The Robert Wood Johnson Foundation will also support a rigorous, independent evaluation of the Healthy Weight Commitment Foundation’s efforts and publicly report its findings.

Turnover at the Top

Another fiscal quarter, another set of changes in the CEO seat at a pair of innovative beverage companies, mix1 and Steaz.

Despite being in a growth mode, Bob Pinkerton, the CEO of mix1, has been replaced by the company’s board of directors. “It’s a good brand; it’s growing fast, but it should be growing faster,” said John Burns, general partner of the Highland Consumer Fund, a minority investor in the company.

Burns himself has taken over as acting CEO, commuting weekly to mix1’s headquarters in Boulder, Colo. from his home in Boston. He said the company has been hiring and has grown nearly 50 percent in the last 12 months, but that the marketing message behind the unique protein and fitness product needed to be clearer. Co-founders Dr. James Rouse and Greg Stroh remain key parts of the sports-oriented marketing focus, Burns said, while Pinkerton remains an investor.

Meanwhile, Steaz co-founder and CEO Eric Schnell also left his company following changes in its investment structure. While sales of the company’s tea-based products have grown recently, investors led by the firm Inventages had tightened terms for reinvestment and forced cost cutting at the business.

Jim DePietro, who joined Steaz as its COO in 2008 after a career with Unilever, replaced Schnell, and the company promoted co-founder Steven Kessler to president.

Following his departure, Schnell took a position at consumer merchant banking firm 6Pacific, where he will act as an advisor and operating partner focusing on investing in beverages and natural products.