Is this the year that alternative beverages really break out?
Like many others who inhabit this world of beverage innovation, I’ve been predicting for years – a couple of decades! – that the moment of ignition is at hand, when these items explode from niche to mainstream. Sure, over the years soda has slipped a lot and bottled water has gone from an obscure necessity in places where the tap water is bad to fashion accessory of the young and active. Energy drinks have exploded, but they can be viewed as just a new twist on sodas, and they certainly don’t represent a move toward health and wellness. (Even boutique sodas, using real sugar and somewhat better ingredients, developed only a small, if durable, niche.) There have been incremental additions to the landscape in segments like iced tea but, at least until recently, most were just a new breed of sugar water, often cold-filled and made from tea powder, with any actual tea taste barely perceptible or even purely imaginary. Vitaminwater was a cleverly disguised sugar water delivery system and big segments like isotonics haven’t budged in their essential formulation in decades. Starbucks, together with Pepsi, built an impregnable iced coffee franchise, but so far much of that business has been Frappuccino drinks that I tend to view as milkshakes for grownups. So that promised land of healthier, more authentic beverages? It was kind of like the old saw about Brazil: “It’s the country of the future, and it always will be.”
But maybe this time is different (to use that old fallback of economic prognosticators during the early stages of a bubble). Even an eternal optimist like me knows the boom in better beverages won’t be an explosion, certainly not as long as most peoples’ incomes are stagnating, income inequality keeps growing and the big strategic players wield the usual tools, from control of the distribution system to ironclad exclusive restaurant and arena contracts, to maintain their hegemony.
But still … I think there is more reason for optimism now than in recent years. This isn’t an anti-Big-Soda screed: the changes may be giving those companies enough of a nudge to finally get serious about accommodating consumers’ desire for more authentic, healthy products. There’s no reason they can’t fully participate in these new realms and some of their recent investments suggest they are moving in this direction.
So what signs are showing me that the pace of change may be about to accelerate? For starters, it’s the dramatic shift among mainstream retailers’ beverage assortments. Not so long ago, remember, such relatively small retailers as Whole Foods comprised the main bastion for natural and organic foods. These days, other classes of retailers have enthusiastically jumped aboard, broadening their selections and making it easier for younger brands to get in and scale up – to the point that there is real concern on Wall Street that the natural food pioneers like Whole Foods and The Fresh Market may find themselves in trouble soon. These mainstream retailers include the supermarket behemoths Safeway and Kroger, as well as the mass merchandisers Walmart and Target, once unlikely oases for these types of products. Convenience stores have been a bit slower to come along, but recall that once there was very little overlap between the offerings to be found at Natural Products Expo West and the National Association of Convenience Stores show. Now stroll the NACS floor and you’ll encounter coconut waters, organic milks, cold-pressed juices. Clearly, many marketers are betting that opportunity is at hand in a channel that not long ago coasted on sales of gasoline, soda, beer and cigs.
This is all happening, of course, as increasing numbers of consumers, particularly younger ones, are gravitating to food and beverage styles that have heritage, use a narrow, understandable ingredient list, and tend toward fresh.
Another compelling sign: decisive moves we’ve seen lately among fast food and fast-casual chains to upgrade the quality and ingredients of the beverages they serve, in parallel with moves they’ve been making on the food side. These are enterprises in a ruthlessly competitive category, with thin margins, where lucrative exclusive contracts awarded to the big beverage companies can make a serious difference in their viability. Yet we are still seeing a growing number of chains writing sodas out of their children’s meals, picking up natural and even organic brands (as Wendy’s did with Honest Tea). Moving up the value chain a notch or two, Panera Bread has fired a shot across the bow of its longstanding beverage partner Pepsi that CSDs sweetened with high-fructose corn syrup are being written out of the menus in coming years. Edicts like this seem to have spurred a bout of innovation at Pepsi, which has launched real-sugar-sweetened sodas like Caleb’s Kola, Stubborn Soda and 1893. (Meanwhile, its executives imply that a viable natural sweetener that might resolve the dilemma is right around the corner.) As concepts like Pret a Manger, Dig Inn, Sweetgreen and Chopt flourish, they are opening doors to new beverage concepts.
And while the relentless consolidation of independent retailers that traditionally have served as incubation grounds for new beverages poses a challenge, that is at least partly balanced by a fragmentation occurring elsewhere in the landscape that is opening doors to new brands. I’m talking about such channels as food trucks, yoga studios, spinning classes and crossfit boxes. The major beverage companies and their distributors seem to barely know the existence of some of these, let alone have them locked up in binding contracts, so they offer a sort of stealth respite for new brands.
So am I getting ahead of myself again? Yeah, it’s quite likely. Still, I’m pretty excited about seeing how this year plays out.
Longtime beverage-watcher Gerry Khermouch
is executive editor of Beverage Business Insights,
a twice-weekly e-newsletter covering the
nonalcoholic beverage sector.