Hot Times in the Cold Channel

These days, innovation seems to have gone cold in beverages. No, I don’t mean that there’s no innovation in this segment. I mean a lot of the innovation is happening on the refrigerated side of the business, particularly in what we might call the 3 C’s: cold-pressed juice, cold-brewed coffee and kombucha.  (C, K – same thing. Readers, please don’t break my chops on this!)

SUJA_KaratCold-pressed juices, many of them employing high-pressure processing, have opened eyes with the hefty price points they’re able to command, and have drawn plenty of interest from strategics and capital providers, whether it’s the purchase of Evolution Fresh by Starbucks and BluePrint by Hain Celestial, or the reams of money that Suja Juice seems able to draw. Shockingly to me, when I visit the cold box in Whole Foods, I often see a price war of heavily promoted natural teas, sodas and enhanced waters occurring on one side of the cooler, even as cold-pressed juices seem to sail serenely along on the other side at prices of $8 and up per single-serve bottle. Affluent consumers seem to be buying into the notion that the high prices are merited by the abundant produce and high nutritional content contained within the bottle, with efficacy preserved via a process that eschews the use of taste- and nutrient-destroying heat. The movement seems to offer a new life to a refrigerated juice segment in which brands like Odwalla and Naked, in the hands of Coke and Pepsi, have seen their shelf lives extended and ingredients compromised to the point of abandoning much of their original promise.

BlueBottle-FrontAt a time that there’s lots of talk about the fourth wave of coffee, when even big cities’ financial districts are proving able to support shops that painstakingly prepare estate-grown blends one cup at a time, cold-brewed coffee seems to have struck some consumers as a revelation, too, for its rich, rounded flavor unsullied by any hint of bitterness. It’s coffee that can be drunk black with no taste tradeoff at all.  A few brands, among them Chameleon, Stumptown and Blue Bottle, are aggressively going national with their packaged cold brews, even as legions of independent coffeehouses flag the availability of cold brew in their store signage. Even the frozen yogurt chain Red Mango recently took the plunge.

Then there’s that third C, kombucha. This has been long dominated by GT’s, but much as with craft beer, we’re seeing a grassroots movement of homebrewers, local and regional players and on-premise consumption that augurs well for broader awareness of the fermented tea style.

gts_rawIt all sounds immensely promising, except that these segments contain all manner of barriers to profitable scalability and widespread dissemination. In their best versions, these items are produced via artisanal processes, essentially crafted by hand in small batches. They employ real ingredients, with all the procurement complexity and expense that implies. They need to rely for the most part on kept-cold-all-the-way distribution processes, an issue when the proven channel for getting new brands to attain high velocity has been a DSD network of beer wholesalers, Snapple distributors and the like, who generally don’t operate refrigerated fleets.

Each of the segments also carries special impediments to breakout popularity. The short shelf life of cold-pressed juices makes distribution particularly problematic, and the need to take back unsold product nearing its expiration date is expensive. Like craft-beer brewers, many HPP players are choosing to invest in their own processing system rather than seeking outside tolling help, an expensive decision that raises the capital nut needed to attain liftoff. And recognizing that there’s a finite number of consumers who will regularly purchase single servings of juice at $8 and up, Suja and BluePrint have begun offering lower-priced sublines that dilute original concepts that haven’t yet been fully established. That strikes me as kind of risky. So does the extensive reliance of many HPP brands on consumers engaged in cleansing regimens – an application for which the medical evidence is inconclusive, at best. Certainly, I know some capital-side people who are tempering their enthusiasm for this burgeoning segment out of fear that it’s tied far too much to what could prove a fad.

On the coffee side, we’re seeing a matrix of concentrate and full-strength versions, refrigerated and shelf-stable versions that no doubt are creating a fair amount of consumer confusion and will eventually have to get sorted out. Some players are launching RTD cold-brews that are blended with dairy and sugar, in a manner that completely obscures the taste revelation that cold-brewing portends. (It’s also interesting to ponder what impact a Starbucks foray into the segment might have: would the resulting awareness raise all boats, or simply blow most competitors out of the water?) As for kombucha, as far as I can tell, that segment still suffers from having alcoholic product out there that isn’t labeled as alcoholic, and some brands contain implicit claims in their back stories that strain credulity. When the alcohol issue first surfaced in 2010, recall, it led to a category-wide ban by Whole Foods and lots of unneeded turbulence. The category’s bigger now, and a repeat of the scandal would be more costly.

A forbidding array of hurdles to cross? Yes, but it’s often the most difficult of challenges that spur the greatest innovations. In groping to resolve these issues, entrepreneurs are challenging all sorts of entrenched assumptions in a way that could point to some new directions. On the matter of distribution, for example, some refrigerated brands are finding perches aboard insulated (but not refrigerated) beer trucks, arguing their products won’t be compromised in a pre-sell environment where products packed out in the morning quickly find a home in a store cooler. A bright innovation or a slippery slope? We’ll find out soon enough.

Meanwhile, many of these products hit all kinds of buttons that consumers these days find tantalizing: authenticity, artisanal craftsmanship, minimal processing, local sourcing (in the case of cold-pressed juices). There should be a real interest in seeing these new categories succeed, rather than the new strains of sugared water that too often pass for innovation in the beverage sector. So I think we all have an interest in seeing innovation stay cold in beverages.

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