Segment Or Brand?

BEVERAGE WATCHERS HAVE seen it many times over the years: a new brand in a new segment breaks out, followed by a scramble of big and small companies to get in on the action; soon, we end up with a clutter of entries that fail to move the needle anywhere like the original. Disappointment ensues.

It’s easy enough to see why. Within marketing organizations clamorous for new sources of growth, a conspicuous success inevitably breeds a knockoff. Even if a brand manager harbors reservations about the opportunity or the fit for the company, the boss is sure to be asking, “Why aren’t we in this?” and the path of less resistance is just to get something out there.

Then there are the demands of the channel itself, particularly if it’s DSD, where brands generally go exclusively to one house in a given market. The other houses will want to be represented in the promising new category, and the retailers have mostly learned that it’s not always great to allow a single supplier to dominate a coveted new segment.

All those factors conspire to bring a flock of new brands to the segment, whether they’re outright knockoffs or, hopefully, something with a little twist. After all, isn’t it the unerring dialectic of the beverage business: every Coke needs its Pepsi, every Bud its Miller?

But it doesn’t always pan out that way. Entries come and go, but none makes a real dent, except maybe as a value alternative. That’s got me wondering: is it possible that sometimes what we think of a great new segment isn’t really a segment at all, but just a great new brand?

This distinction carries some practical relevance to those of us invested in the innovative side of the beverage business. It implies that what appears to be abundant opportunity really is a solo success story, and all the pretenders are doomed to exhaust a lot of money, energy and credibility in a fruitless effort. That doesn’t mean there aren’t ways to build off that conspicuous success, but it won’t happen just by throwing your hat in the ring with your own version.

Of course positing this theory is one thing; recognizing the situation, or at least recognizing it reasonably early, is another. Once enough casualties have piled up it becomes kind of obvious. Take enhanced water. After all, who among the numerous rivals to Glaceau’s vitaminwater has really managed to make a dent? Only a handful attained any degree of success: Kraft’s Fruit2O during the early days, before vitaminwater was fully established, and currently, Pepsi’s SoBe Life Water. Brands like Snapple Antioxidant Water, Jones 24c, Vital Lifestyle, despite often arduous attempts to establish themselves as somehow distinctive from vitaminwater – adding more meaningful amounts of vitamins or other nutrients, less sweetness – have inevitably missed the mark. Another brand, Talking Rain, put most of its effort behind its ActivWater enhanced water for the past year or two, but has found retailers gravitating instead to its Twist juice-sweetened water brand. Whatever ingenuity the company has put into ActivWater, it’s still defined to retailers as another enhanced water, while Twist is a bit more unusual.) As for Life Water, it’s built volume lately, but it’s had Pepsi’s muscle behind it, including Super Bowl ads, and it’s made many of its gains strictly on price.

I can see this dynamic unfolding in other segments. Energy shots, for one, may not be so much a segment as a single powerhouse brand – Living Essentials’ 5-Hour Energy. Nobody else among scores of challengers has made a real dent aside from Red Bull, which has only eked out an 8 to 10 percent share despite its powerful retail clout. I wonder whether kombucha also falls into this category, with GT’s Synergy overwhelmingly defining the ready-to-drink part of this nascent category.

Looking back, one certainly can wonder whether sports drinks are not so much a category as a single brand – Gatorade. (Sorry, I mean G.) True, Powerade has carved out at least a minority share, but at the cost of literally hundreds of millions of dollars invested over a 15-year period.

That doesn’t mean these powerhouse brands are invulnerable. But it sure seems hard to beat them by offering an essentially identical proposition under a different brand name. With Gatorade, the only way to attack was at the flanks, as Glaceau’s vitaminwater and its electrolyte water smartwater have done, or as coconut waters may be about to do. (Incidentally, smartwater itself has drawn a flotilla of attackers, but it remains to be seen whether any of those will make an appreciable dent.)

For enhanced water, the verdict is still out on whether a second generation may be able to carve out a parallel presence, perhaps via clinically functional lines like Function or through a new delivery system, like Activate’s. In energy shots, it may be very difficult for another energy shot to dislodge 5-Hour, short of some fatal misstep or some exogenous factor, like a regulatory crackdown. But maybe, as with Gatorade, there’s room at retail for other functions that can be delivered via the shot concept. It’s worth being receptive to ideas like those, but I think we can see that a healthy skepticism must be maintained about brands that are just expecting to cruise down the roads carved by segment pioneers.

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