Three federal legislators have released a report that accused energy drink companies of making products that sport inconsistent labels and are marketing highly caffeinated products directly at young people.
The report contained several recommendations for the energy drink industry in order to reduce confusion and increase transparency about ingredients, but also came at a time when leading energy drink companies are already moving in that direction. Nevertheless, the direction of the companies’ marketing efforts is likely to become a hot-button issue.
The report, What’s all the Buzz about?, included the compiled responses of 14 energy drink companies that had received letters from the offices of Rep. Ed Markey (D-MA) and Sens. Richard Durbin (D-IL) and Richard Blumenthal (D-CT) into their products’ ingredients, marketing strategies and regulatory positioning. According to the report, there are inconsistencies in labeling and classification, widespread marketing to adolescents, and unsafe caffeine levels within the energy drink category.
“It’s time for energy drink makers to stop masking their ingredients, stop marketing to kids, and start being more transparent with their products,” Markey said.
The report found that comparable drinks are classified as both conventional beverages and dietary supplements, which they believe could lead to consumer confusion and regulatory conflicts. It also explains that caffeine levels in these products are often above the caffeine level affirmed as safe by the FDA (approximately 71 milligrams of caffeine per 12 fluid oz.) and occasionally not disclosed on the packaging
“All consumers, especially parents, have a right to know that these drinks claiming to enhance stamina and strength can be highly risky,” Blumenthal said
In response to their findings, the legislators advise energy drink manufacturers to label products with a clear description of the caffeine level (in milligrams), display a “prominent precautionary statement” for products with unsafe caffeine levels, stop marketing to children and adolescents, and report to the FDA any serious incidents resulting from energy drink consumption.
But Rockstar, Monster and Red Bull, the leading energy drink companies, either already disclose or are moving to disclose their caffeine levels; most companies already also feature a warning statement of some kind.
Packaged Facts: Consumers Increasingly Seeking Innovative Juice Products
A new report on the market for fruit and vegetable juices finds that while dollar sales and consumption of juice drinks has since 2007 remained stagnant, consumers are increasingly embracing new and innovative juice products and flavors – and mainstream retailers are paying attention.
The report, published by market research firm Packaged Facts, stated that over the last five years, consumption of regular orange juice has declined by 3.6 percent while that of frozen orange juices has slid by 14.7 percent. In the meantime, health and wellness trends and consumer marketing about healthier lifestyles have pushed the growth of juice bars and smoothie chains, and in turn, given way to the rise of new premium and super premium juice products.
And while natural and specialty retailers were once the exclusive domain for innovative and exotic juices, traditional grocers are now stocking their shelves with a range of coconut waters, blended juice drinks and “superfruit” smoothies. Packaged Facts expects the trend of mainstream retail adoption of these products to continue as the demand for healthy juice drinks continues to grow.
Along these lines, Packaged Facts forecasts that three factors that are likely to lead and accelerate growth in the juice market, despite weak momentum in recent years.
• The increase in the number of large households as a result of the rise in the population of multicultural consumers will have a disproportionate impact upon growth in the overall market for juices and juice drinks.
• An intensive effort by juice marketers to introduce a broader array of low-calorie products based on safe alternatives to sugar in response to consumer concerns about the high sugar content of their products by.
• Marketers will continue to innovate and launch new, premium, high-profit, better-for-you juice products that attract health-conscious millennials and baby boomers seeking out the latest flavor fad.
Lance Collins’ last ride is now going to be on a Dr Pepper truck.
Body Armor, the brand started by Fuze founder Collins and backed by heavyweight investor and Vitaminwater sales chief Mike Repole, announced that the nutrient-enhanced “superdrink” will be distributed by the DPSG network in New Jersey and Northern California.
“They’re a great distributor, a great bottler,” Collins said. “It’s hard to pull a strong network together to service the chains, especially since the industry is consolidating. We’re lucky to have them on board.”
Body Armor is putting together a strong field marketing push behind the new distribution, which starts in New Jersey next week and in north of Santa Barbara on May 1, Collins said. Additionally, the company has begun to add cultural celebrities to join its team of athletic endorsers like Mike Trout and Rob Gronkowski.
“You have to create brand awareness,” Collins said of the celebrities. “But obviously, our field marketing efforts are three times what our athletic programs are.”
The new route to market for Body Armor is creating strange bedfellows: the new arrangement will put competitors Neuro, Bai, and Body Armor, three well-known health-enhancing functional products, all with brightly colored liquids and proprietary packaging, and all with strong ties to the former Vitaminwater sales and marketing organization — on the same trucks.
“We can’t compare our brand to any other brand,” Collins said, calling the brand his last ride through the beverage business. “There’s no guarantees in the business, and you’ve got to make things happen.”
Judge Tosses Out “All–Natural” Lawsuit Against AriZona
AriZona Beverages can breathe a sigh of relief now that a federal judge has tossed out a long-running class-action lawsuit claiming that the company misrepresents its products as “all-natural.” In his ruling, U.S. District Judge Richard Seeborg decertified the class of consumers in the suit and stated that the plaintiffs did not introduce any evidence to prove their allegations that high fructose corn syrup (HFCS) and citric acid are artificial ingredients.
The lawsuit was one of several filed in recent years against beverage companies, ranging from entrepreneurial companies like Xing Tea marketer New Age Beverage Co. to PepsiCo and the Coca-Cola Co., Inc. each of which use the terms “natural” or “all-natural” in marketing and labeling for some of their brands. Plaintiffs in many of the cases allege that consumers are misled about the origins of the ingredients in the products.
In the AriZona lawsuit, which was first filed in March 2010, Judge Seeborg rejected the plaintiffs’ claim that “HFCS is not natural because patents have been issued for the process of producing it” and “that if HFCS were a naturally occurring substance such as ‘a new mineral discovered in the earth or a new plant found in the wild’ it would not be patentable,” is rhetoric as opposed to a valid argument, particularly considering that U.S. patent law is not permissible as evidence under federal guidelines.
Judge Seeborg also rejected the plantiffs’ allegations that AriZona is confusing consumers who do not know what “all-natural” means. The plaintiffs argued that testimony from co-founder Don Voltaggio about his decision to drop the phrase “a hundred percent natural” in AriZona’s marketing and begin using the terms “All Natural Tea,” “No Preservatives,” “No Artificial Color,” and “No Artificial Flavor” was an admission that the company’s labels confused the public. The judge stated that the testimony “does not demonstrate that it is probable that a significant portion of the consuming public could be confused by the ‘all natural’ labeling of defendants’ products.”
And while AriZona produced a range of evidence to counter the claims of the lawsuit, including an expert witness to testify that that HFCS and citric acid are indeed natural as well as letters from its suppliers indicating that the ingredients are natural, the judge noted that the plaintiffs failed to present a viable case and that their attorneys had not sufficiently addressed basic and mandatory legal standards.
“Defendants have established that they are entitled to summary judgment by showing that Plaintiffs have not introduced any evidence showing that HFCS or citric acid are artificial, nor have they produced any evidence from which damages may be assessed,” Judge Seeborg said.
“Nor, at this late stage in the litigation, could plaintiffs obtain such evidence as discovery is closed.”
In a rather scathing rebuke, Judge Seeborg called the plaintiffs’ counsel “dilatory” and said that their efforts “did not begin to approach due diligence.”
“Plaintiffs had more than six months after the entry of the scheduling order to identify an expert, and failed to do so,” he said. “They then waited for nearly five more months after their deadline for doing so had passed to file a motion requesting that expert discovery be extended.
While the ruling was a significant win for AriZona, the result of the case and, in particular, Judge Seeborg’s rationale in dismissing the lawsuit, could work to the advantage of other beverage companies defending themselves in similar class-action lawsuits. Justin Prochnow, an attorney with Greenberg Traurig LLP, who specializes in labeling and regulatory issues affecting the beverage industry, noted that the biggest takeaway from the case was the judge’s reasoning that a processed ingredient does not necessarily mean that it should be precluded from being called “natural.”
“The case gives other companies a good road map for defending themselves against possible arguments [in other lawsuits],” Prochnow said.
Ex Drinks is an ex-beverage company… at least in the U.S. The company, which marketed a range of functional beverages, announced that it would cease sales in the U.S. The company notified BevNET and other business contacts of the news via a short e-mail, which offered no specific details on the decision.
“Ex Drinks, LLC was hopeful to move forward based off the collective hard work, substantial growth and success,” the company said in the e-mail. “Regretfully, we are no longer able to bring Ex Drinks to the US market.”
Owned by Otho and Deborah Behr, a husband-and-wife team who are also the heirs to the Behr Process Corp., makers of the Behr line of paints, the company operated as the exclusive U.S. distributor of the Extreme Drinks Company, a subsidiary of UK-based The Extreme Sports Company. Ex Drinks sold natural beverages in several categories including relaxation, enhanced water and energy.
It may be a disappointing end to a once promising beverage brand, but Pitaya Plus founder Chuck Casano said that discontinuing his company’s line of pitaya drinks is for the best. Casano and his team are now focused on the growth and development of its raw, organic frozen smoothie packs while continuing to support its social mission in working with independent pitaya farmers and single mothers in poverty-stricken communities in Nicaragua.
Although Pitaya Plus rapidly gained distribution and retail placement across the country, the company, which has three full-time employees, was unable to adequately support marketing and promotion of the brand. As a result, the juice line suffered from weak velocity, which combined with high manufacturing costs, led to Casano’s decision to discontinue the drinks.
“We are extremely grateful for all of the support from our customers over the past two years, however, the current model is not sustainable,” Casano said in a statement.
Casano also noted that he sees weakening demand for pasteurized super premium juices (Pitaya Plus was a pasteurized product) as consumers – particularly in the natural channel – are shifting toward brands that offer raw and high-pressured processed products. Moreover, competition in the ever-expanding category is “mindboggling,” he said.
While Pitaya Plus drinks faced a steady downward decline in sales, Casano said that the company’s foodservice line of frozen pitaya smoothie packs has rocketed in growth. The products are currently sold to over 100 cafés and juice bars in Southern and Northern California and New York City, and will soon launch in all 83 locations of Juice it Up!, a chain of natural juice bars. Pitaya Plus will introduce a consumer retail version of the packs in Whole Foods stores in Southern California this summer.
With Ex Drinks and Pitaya Plus drinks as the latest brand to fall, the steady flow of companies shutting down beverage lines, and, in some cases, entire business operations – including Mix1, Bossa Nova, Bean & Body and Brain Twist, the marketer of Slap Energy drinks – has become an alarming trend.
White Rock Buys Fizzy Lizzy
As one of the best-known carbonated soda alternatives to emerge in the last decade, Fizzy Lizzy has always had a profile that far exceeded its overall sales; the all-natural juice drink has been celebrated in venues ranging from the pages of a profile in the New York Times Magazine to BevNET’s own Best Of awards.
But it’s hard work running a small beverage company, and after 13 years, founder Liz Morrill and her husband and partner, Aaron, have finally taken an exit, selling the company to venerable New York soda company White Rock Beverage.
“Aaron and I have loved it,” Morrill told BevNET. “But we have also found we want some time to do other stuff. That was increasingly getting away from us.”
Morrill said she is considering pursuing a teaching career, while Aaron Morrill has other investments and is also writing music.
“It was the most incredible experience in the world,” Morrill said, adding she felt that the brand was in good hands with White Rock, which has been in operation since 1871.
Kroger “Leaning In” on Natural, Organic Beverages
As the largest supermarket chain in the country, Kroger is used to meeting the needs of millions of customers on a daily basis. But it’s also facing competition on all sides – the treasure seekers of Costco, which recently passed Kroger as the country’s second-largest retailer, and the big-basket shoppers frequenting Wal-Mart, the country’s biggest retail chain.
Perched just below all three companies, however, are Whole Foods and Trader Joe’s — perhaps not in terms of size or store count, but in attracting the highly desirable group of natural and specialty consumers.
It’s those consumers, who will spend more for food that fits with a lifestyle vision, that Kroger, Costco and Wal-Mart are targeting; for several years, Wal-Mart has emphasized an organics program, while Costco has also increased the number of organic offerings it has while focusing on trend-seeking consumers.
Now, however, Kroger, the country’s largest collection of grocery stores, is ramping up its own efforts to put the shine on the organic apple. The company has formed a strong internal strategy under VP of Natural Foods Mary Ellen Adcock to try to remake itself in the minds of natural and organic consumers as a place where they can go to discover new, on-trend drinks and other products. It is also increasing its own private label natural and organic offerings.
“As a company, our strength to this point has been leveraging our size and scale for the established mainstream grocery piece,” Adcock told BevNET. “We want to enhance our leverage with emerging brands and be more first-to-market with innovation.”
On the beverage end, the company has entered an agreement with product incubation company L.A. Libations to act as its “category captain” for the emerging beverage category.
As such, the group, which does business with a broad swath of emerging brands, from Coke/VEB offerings Zico and Illy to independent players HiBall, Just Chill, and FRS, to its own brand, Aloe Gloe, will be assisting the grocery giant with strategic space and merchandising allocations for the category. LA Libations will also have a set of coolers called “Taste of Tomorrow” in more than 80 stores under the Kroger-owned Ralph’s banner, offering consumers a grab-and-go look at some emerging beverage categories.
The partnership between the two companies began when L.A. Libations offered an assessment of the emerging beverage category to Kroger brass last year – at the time, the company broke the nascent beverage world down into five parts: chia, healthy energy, aloe, relaxation and probiotics. The larger coconut water category wasn’t included because, as co-founder Danny Stepper said, “that category has already emerged.”
The new beverages curated by L.A. Libations are expected to help buttress Kroger’s own in-house “Simple Truth” private label organic and all-natural lines. While there are just a few beverage offerings in that group, including natural sparkling drinks and teas, the brand’s “Free from 101”guideline, which is a list of 101 artificial preservatives and ingredients that its products don’t include, will serve as the basis for new branded product additions as well. It’s a list that Adcock said compares favorably with Whole Foods’ own list of unacceptable ingredients.
“Our list is more robust,” she said.
Consumers have responded, according to Kroger, which said recently that Simple Truth sales had been 33 percent higher than their original target.
With more than 2,400 grocery stores and almost 800 more convenience stores under its corporate umbrella, the push across all Kroger-owned groceries to increase natural and organic products is going to have to be coordinated through several different grocery formats: in some stores, there are natural store-within-a-store segregated sets, while in others natural or organic alternatives sit on-shelf next to conventional versions of the same products. But it will be pervasive, because the competition is aiming for the same group of consumers.
“From our standpoint, customers have told us it works both ways,” Adcock said. “But what they’ve really done is tell us they like what we have, and they want more.”
On the beverage front, a lot of the “more” that consumers want may, in the long term, flow through L.A. Libations. While the plan is to start with the Ralph’s stores in the Los Angeles area, the intent is to eventually scale through all of Ralph’s and, finally, larger geographic regions, Stepper said.
It’s a unique arrangement: in helping set up the emerging beverage category for Kroger, L.A. Libations is the only outside firm helping to run Kroger’s push for natural and organic innovation. The company will continue to build across all product types, Adcock said, but beverage is a key introduction point for the company.
“Sales are increasing across all categories, but we’re really leaning in through beverage,” she said. “We are looking at categories where there’s the most innovation and that are growing categories – some are more accelerated than others, like beverage – dairy is another, snack is another – but the demand for the whole set of offerings is definitely increasing.”
Hoping to take advantage of the growth of craft beer, a start-up company plans to spend $100 million on building five new contract brewing facilities over the next five years.
The company, Brew Hub LLC, was started by former Anheuser-Busch executive Tim Schoen. It is majority-owned by Yucaipa Companies, a private equity firm started by billionaire Ron Burkle.
Craft beer has had double-digit sales growth for seven straight years, and many existing craft breweries are trying to expand their capacity to meet the growing demand for their products; Brew Hub would provide an alternative for contract partners eager to grow production volumes but currently struggling with capacity constraints.
“As we worked on the concept over the last two-and-a-half years, it became evident that we could become the ultimate resource for brewing services as well as marketing and distribution services,” said Schoen.
Construction of the first Brew Hub facility begins next month in Lakeland, Florida. That space will have an initial capacity of 75,000 barrels and Schoen hopes to begin brewing by the summer of 2014. The Lakeland facility will also serve as a blueprint for future Brew Hub locations; Schoen is currently eyeing a number of regions, including the Northeast, Mid-Atlantic, Midwest, Texas and West Coast, as potential areas for Brew Hub facilities.
In addition to manufacturing resources, Brew Hub also plans to offer a range of incubation capabilities to help differentiate it from more traditional contract breweries like Third Street Brewhouse, Minhas Craft Brewery or the recently established Two Roads Brewing.
“It’s truly a partnership,” Schoen said. “It’s all about brand building and establishing a brand locally or regionally. Because of our backgrounds, we also have a global reach and are able to create strengths for our partners.”
Brew Hub will initially target three tiers of craft breweries, ranging in size and capability.
“Large, medium and small brewers will all have a different set of needs and wants from us,” he said.
While the rules aren’t fully hardened yet, Schoen defined a large brewery as one that produces over 100,000 barrels annually while a small brewery would make less than 25,000 barrels.
One potential obstacle to Brew Hub’s plan to become a major player in beer production is that there is already a move among many brewers to add capacity for themselves. Schoen agreed that a significant amount of new brewing space that will soon be coming online from large craft players like Sierra Nevada, New Belgium and Lagunitas Brewing will help to alleviate some of the capacity issues, but he said there’s a need for more. He also questioned whether that new capacity was properly positioned in the right locales.
“Ultimately it is going to come down to which brands have relevancy in different geographies,” Schoen added. “There are inherent risks putting the capital out, but will those brands be relevant in certain geographies? That is the nature of the consumer business. Whenever you put capital in a different geography, it’s a risk.”
Schoen, who boasts 28 years as the vice president of global sports and entertainment marketing for Anheuser-Busch, said he also plans to leverage his branding expertise and existing distributor relationships, as an extension of Brew Hub’s client services.
Brew Hub brewing operations will be led by Paul Farnsworth, a longtime brewing industry expert who has consulted for over 100 breweries in 10 different countries. As chief brewmaster, Farnsworth will oversee all aspects of design, layout, construction and day-to-day operation of the new brewing, production and warehouse facility in Lakeland.
Symphony IRI: Craft Continues Strong Growth in Supermarkets
By spreading its footprint in supermarkets and convenience stores, craft beer continued its strong growth in 2012, seizing a greater share of the beer category.
Dan Wandel, senior vice president of beverage alcohol client solutions for Symphony IRI, a Chicago-based market research firm, validated craft’s growth with statistics he shared as the featured guest of Power Hour, a online seminar hosted by Pete Johnson of the Brewers Association.
Wandel analyzed numbers within two different platforms: multi-outlet (MULO), which includes food, drug, club, dollar and military stores, and multi-outlet and convenience (MULC).
In MULO, craft’s dollar sales increased 17.1 percent from the previous year, dollar share in the category increased by 7.6 percent, case sales increased 13.4 percent from the previous year, and case share in the category increased by 4.7 percent.
Meanwhile in MULC, craft beer sales increased by 18.5 percent from the previous year, dollar share in the category increased by 4.3 percent, case sales increased by 14.4 percent, and case share in the category increased by 2.6 percent.
A significant factor in this growth, Wandel said, was the continued success for craft in October, November and December, or what he calls “the OND period.”
“Make no mistake,” Wandel said, “the OND period of time is craft’s biggest selling season.”
Craft’s share of sales in supermarkets during this three-month period has steadily risen. In 2009, the segment had 4.3 percent share of total alcohol sales (including wine and spirits), 4.9 percent in 2010, 5.5 percent in 2011 and 6 percent in 2012.
In the beer category alone, the craft segment’s dollar share in supermarkets has also risen, from 9.5 percent in 2009, to 11 percent in 2010, 12.4 percent in 2011 and 13.8 percent in 2012.
This growth will likely continue, Wandel said, despite the also rising price per case. In 2010, craft cases averaged a price of $32.97, increased to $33.38 in 2011, and finished at $34.44 in 2012.
Successful new offerings served as another key factor in craft’s continued growth last year. While the actual level of innovation with these products is debatable, the sales figures were undeniable.
“I’m here to tell you today that the beer category really answered the call and stepped it up in terms of innovation,” Wandel said.
While Anheuser-Busch InBev dominated with its two new darlings, Bud Light Platinum ($97,146,640 in sales) and Lime-A-Rita ($46,087,584), new craft offerings made their own mark in supermarkets. Deschutes Chainbreaker White IPA tallied $2,601,975 in sales, New Belgium Shift Pale Lager tallied $2,151,305, and Sam Adams Whitewater IPA logged $2,066,139.
American Craft Beer Exports Increase 72 Percent in 2012
U.S. consumers apparently aren’t the only ones with a thirst for craft beer.
Based on results from a recently-completed industry survey, The Brewers Association (BA) today reported record exports of American craft beer in 2012. U.S. craft brewers shipped 72 percent more beer than in 2011, generating an estimated $49.1 million in sales. That’s up from $23.4 million one year ago.
In a statement, BA chief operating officer Bob Pease said he was pleased with the continued growth of craft beer exports.
“Consumers continue to view American craft brewers as leaders in innovation and among the standard bearers for quality; maintaining that perception is a priority for the craft brewing community,” Pease said in the statement.
Canada and Western European countries were the largest export markets, accounting for 124,384 barrels shipped. Barrel shipments to Canada increased by 140 percent.
Many popular craft beer brands like Stone Brewing Company, Oskar Blues and Brooklyn Brewery are enjoying higher profiles overseas. Brooklyn Brewery’s number two market (behind New York City) is Sweden and Oskar Blues recently invested in what the company calls an “international can,” featuring text in seven different languages.