How Much Is There In Less?

INSURRECTION IS MOUNTING in the beverage cooler. The once meek and mild low-calorie health beverages, until recently relegated to the odd-ball health-nut niche, have grown rebellious. Premium bottled teas, lightly sweetened sodas, and electrolyte-enhanced waters are staking a larger claim to shelf space as a healthful alternative to sugar laden drinks. Consumers are reaching for them more as they look for beverages with… less.

Proof that the market for healthful beverages is growing can be found in the purchases new product decisions made by the major players. Coke paid $4.2 billion for glaceau, the maker of vitaminwater, for fear of missing the boat. AriZona, maker of a full sugar, 24 oz. 270 calorie can of iced tea, is pushing a 20-calorie (per 8 oz. serving in a 20 oz. bottle) line of “tea waters” with Nestle. Gatorade launched G2, which touts half the calories of their flagship sports drink. The trend towards better-for-you beverages is forcing the whole industry to react. But even so, the top selling SKU’s in the healthful drink category are still among the sweetest. So the question is: what are the outer limits of less-sweet?

The answer can be found in some of the new beverage categories that have been sprouting like weeds over the past several years. A broad range of products struggle to differentiate themselves by advertising energy properties, life-style claims, and health benefits. Consumers enjoy product choices that they never had before, leading them to expect a beverage more carefully tailored to their personal preferences. The American Beverage Association reports that the result of all these new choices has been a 9.6 percent decline in the consumption of fully sweetened drinks from 2000 to 2008.

The migration from sugar may be attributed to the recognition of America’s expanding waistline. But the demand for low calorie drinks in not new. Diet beverages, first introduced en-mass in the 1960’s, persistent long-term health questions aside, met consumer demand for “slenderizing beverages” for the second half of the 20th century. These health conscious beverages cut the calories but tried to stay similar in flavor to their full calorie brethren by using synthetic non-caloric sweeteners. What has changed is that now wary consumers have begun to read ingredient lists and are moving away from laboratory chemicals in favor of organic and natural ingredients. This has forced the industry to modernize its approach to formulating beverages.

The industry has rolled its response into one buzzword: innovation. It would appear that there has been action behind the corporate talk. Formulations experts are experimenting with how little sugar or sweetener they can put in a beverage and keep it palatable. This year Stevia is all-the-rage as a natural non-caloric sweetener. Organic certifications and paired down ingredients lists can be found on many new labels. This new approach acknowledges consumer concern about calories and chemicals and the result is a new generation of drinks in which less is more.

The chief motivator for change may be the perception that America is facing a major health crisis and sugar drinks are responsible. Walter Willett, a public health advocate, spelled it out in a recent report from the Harvard School of Public Health. He blames sweetened beverages for contributing to obesity and diabetes in America. Willett found a relationship between sugary drinks and weight gain in both adults and children.

Willett called for a new category of healthful beverages that are low in calories. But, he said, the traditional way of cutting calories, using artificial sweeteners, won’t foot the bill this time. He believes that solving the obesity epidemic demands a wholesale adjustment of the American palate, with kids and adults alike learning to enjoy a lower level of sweetness. That level? No more than two teaspoons, or eight grams, of sugar per eight oz. serving, or about 35 calories, and no additional non-caloric sweeteners. That’s the equivalent to the sweetness found in seven cherries, half an apple, or one 16 oz. bottle of Honest Tea.

Honest Tea is an interesting example because it lies in a product class, bottled teas, that has shed a lot of calories in the last few years and still sells well. Frank Del Corso, a Senior Food Technologist at Allen Flavors, a formulations company, said that bottled teas are a natural place to start cutting back on sweetness since people are already drinking them with the perception that tea is good for them. According to Del Corso, even AriZona cut back on calories with its green tea several years ago, helping scale back consumer expectation of sweetness and paving the way for the bigger cuts made by Honest Tea.

Del Corso says that mainstream companies are reducing the calories in their new formulations of edgier products as well. For example, he says, enhanced waters, “when they first came out, were pioneers at reducing calories. They came in at 50 calories using crystalline fructose. Now when consumers drink them it seems too sweet. It’s a change in consumer tastes.”

Even CSD’s, long the chief culprit for fostering American’s affinity for sugar, are pushing the edge of less-sweet. GuS, Grown Up Soda, a premium, no preservatives, soda that uses cane sugar, has found appeal among people who want a more refined flavor. Steve Hersh, founder and CEO, says that, from a formulation perspective, he can’t offer fewer calories or less sweetness because he uses fruit juices that carry a heavy load of calories, and the acidic flavors and carbonation require a higher level of sweetness to make a palatable drink. At around 60 calories, GuS weighs in below the typical CSD (Coca Cola Classic has 97 calories), but nevertheless exceeds Willett’s criteria.

Hersh says, “This is not a radical departure from traditional sodas, just a less sweet departure.”

If GuS is a moderate departure from the typical CSD than Dry Soda is a sea change. Their soda weighs in between 35 and 40 calories, which does fall within Willett’s criteria. Dry Soda started in 2005 by targeting high-end restaurants in Seattle, with the idea that a low-sugar soda would pair well with food. And momentum is building: Starbucks picked them up this spring and now offers Dry Soda as a single serve option in their Northwest locations.

Even more interesting is the motivation behind the brand: Sharelle Klaus, founder and CEO, says that she started Dry Soda because she felt that, “there wasn’t innovation in the carbonated beverage market for people who wanted a less-sweet option from a palate standpoint.”

Of course Dry is a premium option – at $5.99 a four pack – and if it is going to become more than a niche product it will need to become price competitive with its canned competition. “We are creating a new category that will continue to grow for the next 10 to 15 years,” Klaus says. “We can get price competitive, but it will take time.”

Klaus isn’t the only one who is optimistic about the future of less sweet premium beverages. Honest Tea is an interesting barometer of less sweet in the bottled tea category, as many of its products have only 17 calories. And now with Coke owning a 40 percent stake in the company, at least one big player is also betting that there is a future in less sweet.

Barry Nalebuff, Co-Founder of Honest Tea, and economics professor at Yale, applied economic reasoning to their low sugar approach to beverages. Honest Tea includes a graph on the Green Dragon Tea label that shows the margin of utility curve of sugar and how it begins to decline after about two teaspoons per eight oz. serving. Why add more sugar when you aren’t getting anymore bang for the calorie?

Also playing in the less-sweet category is owater. An enhanced water brand that approached the sports drink market with an equally low sugar profile, owater makes electrolyte-enhanced waters with 0 to 35 calories. This stands in sharp contrast to the original sports drink (no, not water) Gatorade, which packs a punch with 50 calories.

Tom First, the founder of owater, says, like Klaus, that wringing out calories is only part of the goal. “We are creating products that not only are low calorie, but are less-sweet. And I think those are two very different things. It’s a bigger challenge to go after sweet.”

First and Klaus may be swimming against the tide: humans appear to have an evolutionary preference for sweetness as a way to identify sources of nutrition. Dr. Maureen Story, Senior Vice President of Science Policy at the American Beverage Association sees the preference for sweetness as an innate human evolutionary characteristic. “We are programmed from birth to like sweet things… A recent study suggests that humans are hard wired to equate sweetness with surviving as well as growing.”

And we have grown, but mostly out. Unfortunately, in this calorie rich age, seeking calories through sweetness has not helped Americans thrive. From a public health perspective there is reason to hope for a mainstream change in tastes. With most of the products mentioned here still on the periphery the question is how to make them appeal to mainstream Americans?

One answer is external: there may be a regulatory clock ticking for the beverage industry. Willett would like to see the government stop subsidizing high-calorie beverages through exclusion from the food stamp program, and recommends a soft drink tax to reduce their consumption. He recommends evening the playing field by requiring beverage makers to include on the label the full bottle calorie count, a step already taken by some beverage companies.

A soda tax initiative has already been considered, albeit rejected, in New York and Maine. But it did put a previously unthinkable idea on the table, one that continues to maintain traction on Capital Hill as congress ponders a soda tax to help fund health care reform.

Few in the beverage industry want to see an increase in regulations. Bill Meissner, President of Talking Rain, a company that makes lightly sweetened waters, is in the position to benefit from a health-focused government regulatory policy. But he is not interest in a regulatory approach. “I don’t think that they should have any legal or regulatory involvement in what is made available to consumers.”

The shadow of regulation may spur real innovation in the industry that might lead to a large-scale change in consumer preferences. But in the mean time, the market driven answer may be found in the excitement surrounding Stevia, a natural sweetener that recently received FDA approval. Whether or not that particular sweetener is the answer remains to be seen, but the buzz reflects that consumers are gravitating towards beverage brands with a strong health aura. And it is the appearance of health that is selling the less-sweet beverages.

Melissa Abbott, a Senior Trends Analyst at the consumer-research consulting firm, the Hartman Group, has found an upswing in the consumer preference for less-sweet beverages. She says that the decline in CSD consumption over this past decade was followed by an increase in consumption of comparatively less sweet athletic beverages and people making their own concoctions at home with seltzer and juice.

Abbott says, “There is a strong trend for the future of less-sweet beverages as consumers become aware of what they put in their bodies.” She has found that people are rejecting beverages with unfamiliar sweeteners and choosing naturally sweetened beverages like GuS or Izze that use sugar or juice.

To that end beverage makers have tapped into the consumer desire to protect themselves from undesired chemicals. First, of owater, found that the key to bringing customers to his product is to make the product relevant to them by emphasizing the healthful aspects. “You’ve got to tell a story,” he says. “We’re getting a lot of help from the media, from doctors, from scientists. There’s a trend towards lower sugar, more natural, cleaner foods and cleaner beverages.”

This story has been emerging slowly over the past decade and as a result American tastes appear to be slowly shifting.

Seth Goldman, co-founder and CEO of Honest Teas, realizes that he took a risk leaping out ahead of this trend when he started the company in 1998. “Ten years ago we were way ahead of our time,” he says. “At 17 calories, we got a lot of blank looks. We decided, instead of sweetening our products, let’s hope that people catch up to us with their preferences.”

Now with Coke invested and helping with distribution, we will soon find out how much more ‘less’ Americans want in their beverages.