Look Ahead

WHAT’S COMING

IN 2017

What will 2017 hold for trends, innovation and emerging categories in the non-alcoholic beverage industry? We asked several veteran beverage executives and observers for their takes on what’s to come and how they see the industry evolving over the next 12 months. Here are their responses, some of which have been condensed and edited for clarity.

Package Design


Fred Hart
Creative Director
Interact, a food and beverage packaging design and branding agency based in Boulder
1

As the beverage category has “naturalized,” simplified and cleaned up ingredients, we’ve seen form follow function and art mimic life. Beverage design over the past few years shifted towards minimalism and “transparent” design mimicking these “clean” evolutions. HPP juices like Suja and Blueprint, nut milks from New Barn and MALK, drinkable soups like Tio Gazpacho and Zupa Noma, and startups like Nomva and Mother Beverage all exude this simplistic design trend. In 2017, we’ll see the pendulum swing past this simplified design trend towards self-expression, moving the conversations from the “what” of brands into the “why,” a rich and emotional territory. Early adopters of this trend are brands like Humm Kombucha, PepsiCo’s new LIFE WTR and even vintage-turned-cool LaCroix. They all use expressionistic design to inspire people, drive engaging personalities and tell unique stories beyond just the “what” of the product. Color, pattern and evocative typography will come to prominence more than ever.

Rifle Hughes
Managing Director
McLean Design, a strategic branding and packaging design firms in beverage and other CPG categories

2We are already seeing the shakeup of the incoming FDA update to nutrition and supplement facts. Many of our established beverage clients are scrambling to assess the potential impacts to their formulations regarding “added sugar,” “from concentrates,” protein, fiber, and claims derived from vitamins, such as antioxidants. These formulation changes will ripple out to not only on-pack messaging and claims, but more critically, they could alter the foundation of the brand position, which in beverage, is anchored in a unique and impactful bottle design. For the next year or two, I expect that we will be working though many projects aiming to maintain consumer trust through design solutions.

At a more basic level, the revised nutritional has wider design implications. The new panel’s larger size squeezes into other existing elements on the back-panel, like romance copy, requiring a more in-depth redesign. It’s not something that can be satisfied by printer updates or a cover up label. The impact is that brands of all sizes will need to invest in redesign and printing new labels.

 

Investment


Nicole Fry
Managing Director
First Beverage Group, an advisory and investment firm focused on the beverage industry

We expect the non-alcoholic beverage environment for M&A and investment to remain very robust in 2017. Both strategic and financial investor interest remains strong for attractive brands and we saw several high profile transactions completed in 2016 at very high multiples, including Danone’s acquisition of WhiteWave, DPSG’s acquisition of Bai and Pepsi’s purchase of KeVita. In addition, several emerging, high growth brands continued to raise large amounts of capital, particularly in high growth beverage categories, including kombucha, cold brew coffee, dairy alternatives, super-premium juice and enhanced waters. There is an increasing trend of strategic players investing in earlier stage brands, either through direct investments or through venture arms they have created (Coca-Cola/VEB, DPSG/Allied Brands, General Mills / 301 Inc., Campbell’s / Acre Venture Partners, etc.), and we expect this type of activity to remain robust as many strategics realize the benefits of acquiring growth and innovation vs. trying to develop new brands internally. Despite the strong interest in the non-alcoholic beverage category, we do think competition will intensify for brands seeking capital or a strategic partner, particularly in categories where investors already have made an investment. That being said, we believe brands that can demonstrate a differentiated product offering, evangelist consumer base, attractive margin profile and robust innovation pipeline will continue to be attractive to a range of investors in 2017 and beyond.

Duane Primozich
Managing Partner
Boulder Investment Group Reprise

The non-alcoholic beverage space and specifically the natural segment has been and will remain hyper-competitive. Similar to the natural foods space, there are far fewer quality assets than there are dollars chasing those assets and there are a number of market dynamics attracting investors and acquirers to earlier and earlier stage companies. This of course encourages innovation, which in turn encourages investment and so the virtuous circle spins.

Tom Spier
Founder & Managing Partner
Boulder Food Group, a venture capital firm that partners with early-stage food and beverage consumer product companies

From a capital markets standpoint, we believe that high performing brands will continue to attract equity capital. The Bai and KeVita transactions will serve as strong reminders for the shifting consumer landscape and the importance for the largest beverage companies to adjust their portfolios accordingly. As always, at the earliest stages of business development, the best entrepreneurs will continue to do what they always do, find ways to raise capital even under the most extraordinary circumstances even without the business metrics that a high performing business might have. As a result of the ever increasing number of investors pursuing consumer packaged goods, I don’t know how the capital markets can do anything but become more competitive from the investor’s viewpoint.

Trevor Nelson
Co-Founder and Managing Partner
Alliance Consumer Growth, a private equity firm that provides growth capital to branded consumer companies

I think we will see a number of interesting investments and acquisitions in the non-alcoholic beverage space in 2017. Over the last 2-3 years, emerging brands in several categories such as natural soda, kombucha, and RTD coffee have received meaningful capital and have attracted experienced management teams. 2017 may prove to be the year when many of those brands – and their teams who are used to quick success – will either emerge as real category leaders or require a change of direction. I am also very interested to see whether Coke and Pepsi assert their leadership as acquirers in 2017 or whether they will allow other acquirers to get a disproportionate share of emerging brands.

Michael Burgmaier
Managing Director & Co-Founder
Whipstitch Capital, an investment bank and advisory firm focused on consumer goods

We believe that 2017 will continue with intense acquisition and investment interest in emerging, healthy beverage brands. Consumers will continue the massive shift to lower-calorie, functional, clean beverage products, including functional water, premium sparkling water, nut milks, and kombucha, where Health-Ade, Humm and Revive, among others, will battle it out for the “next” winner after KeVita and GT. We see premium juice brands filling a needed niche for low-calorie, functional juice (with the requisite attitude) and in declining categories like orange juice, virtually all the growth will come from the organic realm. And there are ingredients we love like turmeric and almonds that will continue to move consumers.The best brands will continue to be unique, deliver on taste, function and nutrition and thus when consumers get to know them, they not only buy them – but they talk about them with their neighbors – this is how winning brands emerge.

 

Legal/Regulatory


Justin Prochnow
Shareholder
Greenberg Traurig, an international, multi-practice law firm

This year I think there will be increased focus and attention on calories and serving sizes. Several revisions to the regulations are coming together to emphasize the amount calories in products to consumers. The federal menu labeling regulations become effective in May, requiring restaurant chains with more than 20 locations to disclose the calories on all menu items, including beverages. Additionally, revisions to the federal labeling regulations governing the display of nutrition information on the packaging of beverages and food must be implemented within the next two years. Those changes include the highlighting of calorie declarations on labels by putting them in bold type and in type size 2-3 times the size of other nutrition information. In addition, the standard serving size of non-juice and non-milk based beverages has been increased from 8 oz. to 12 oz. With single serving containers now including anything under 200 percent of a serving size, this means anything under 24 oz. will be a single serving container. With the increase in the number of calories to be declared if a single serving is 16 oz. or even 20 oz., as opposed to 8 oz., and the increased prominence with which those calories will be displayed, companies will likely be looking at decreasing the size of containers or reformulating products to reduce calories, even more than they have already been doing.

Michele SimonJD, MPH
Executive Director
Plant Based Foods Association

Last May, the FDA released its final updates to the Nutrition Facts panel, which includes requirements for listing “added sugars”. Companies have until mid-2018 to comply, and while it’s possible that the new administration will delay these changes, I wouldn’t count on it since the largest companies are likely already implementing the updates. Meanwhile, three cities in California (San Francisco, Oakland and Albany), Boulder, Colorado, and Cook County (includes Chicago, topping 5 million residents) passed soda tax measures in 2016, joining Philadelphia and Berkeley. While the laws are usually assessed at the distribution level, it’s likely that for beverages with added sugar, pricing will be impacted if the distributor passes the added cost on to retailers. We can certainly expect these dramatic victories against “Big Soda” to inspire other cities (and maybe even states) to pass similar measures. The impact on sales remains to be seen. The dairy industry has recently lobbied Congress to ask FDA to not allow companies making dairy alternatives to use words like “milk”, despite how long soymilk has been on the market without much fuss. Given the growing consumer interest in plant-based alternatives to meat and dairy, this issue is not going away anytime soon.

 

Ingredients/Emerging Categories


Hope Lee
Senior Beverages Analyst
Euromonitor International, a global market research firm

Organic as a sustainable agriculture model will attract further interest in 2017, as the demand for organic produce is out-gripping supply in many markets, showing both a challenge and opportunity for certifiers and players on the value chain. Danone’s pending acquisition of WhiteWave means the French dairy giant will become the largest company in the global organic packaged foods and beverages market.

Mark Rampolla
Co-Founder
Powerplant Ventures, a private equity firm focused on investment in plant-based nutrition

While all things plant-based have been hot for a while, watch the segment further blossom and leverage the rich diverse of the green kingdom. Adaptogens are the bridge to personalized health beverages; turmeric, kava, mushrooms, vinegar and ancient ingredients work differently for each of us but will all have mainstream appeal. Move over soy, almond and pea; while these core sources will remain relevant and grow, watch for a new wave of ingredients, from pumpkin, sunflower, hemp and coconut to chickpea begin to flex their muscle as great and tasty sources for protein, fat and micronutrients.

Kara Rubin
Co-Founder
Beyond Brands, a brand incubation and consulting firm

Ingredient focused trends will include: continuing to refine what “clean label” means (moving away from extracts, “natural flavors,” etc. in favor of focus on food-forward ingredients and emphasis on the flavors of those ingredients); of course, low- and no-sugar, or at least no added sugar; taking functionality to another level (examples: Ayurvedic-, adaptogen- or cannabis-driven formulas); continuing to see brands tying their products to the food waste challenge, using produce that might otherwise have been wasted (ugly fruit, pulps, peels and rinds); defining a brand story around innovative sourcing (biodynamic and regenerative farming practices); and continuing to see more innovation around plant-based and other alternatives to animal proteins.

Retail/Distribution


Ken Sadowsky
Sr. Beverage Advisor
Verlinvest, a family-owned investment holding company specialized in food and beverage

The ever expanding importance of refrigerated, fresh beverages for consumers will cause retailers to rethink their space allocations, consumer foot traffic within stores, and where refrigeration interrupts consumers mindsets. Distributors will also be forced to consider their role in this cold equation. Emerging categories for probiotics are one factor; kombucha, kefir, apple cider vinegars are all reasons. Immediate consumption for non-perishable beverages will be important for large format stores, especially, but as channels blur for retailers, it will be important across all channels.

Cyrus Schwartz
Founder
Dora’s Naturals, a New York-based DSD distributor of refrigerated beverages

I see craft soda, natural energy, and natural hydration as exciting areas for growth in 2017. We will continue to see migration from established baby boomer brands to millennial brands. The perishable beverages category will also continue to grow, with perishable DSD capacity further developing developing around the country.

Scott Uzzell
President
Venturing and Emerging Brands, an operating unit of the The Coca-Cola Company focused on finding and developing the next generation of brands with billion-dollar potential.

We expect consumers to look for more and more ways to customize and personalize their experiences and purchases. For the beverage business, that means we’ll see a growing desire for new products that meet specific needs. At the same time, rapid changes in both technology and e-commerce will continue to reshape how people buy our products. The early success of voice-activated, “smart” speakers are just one example of how the retail experience is changing. In beverages, it will be critical to understand how to reach consumers in an environment that is becoming more fragmented than ever.

Chuck Casano
Co-Founder
HiTouch Distribution, a Southern California-based DSD distributor of fresh, perishable, organic, natural products

I’m excited to see a continued increasing trend towards real food and traceability from new brands. The up-and-coming successful brands all have legitimate stories about their sustainability practices and have real ties to their sources. The tea segment has been a little stale and is overdue for a brand to break through.

Jerry Reda
COO
Big Geyser, the largest independent DSD distributor in metro New York

We love premium water and energy for 2017 in New York. Energy drinks are very underspaced in the New York market and we need to develop the market and create the demand. Monster has the strongest energy portfolio in the world and we need to gain more drinkers.3

 

Marketing/Branding


Joy Blakeslee
RDN, Director Culinary and Nutrition Studio Manager, Vice President
MSLGROUP’s North America Culinary & Nutrition Center

With food emerging as the leading topic of conversation on social platforms, food bloggers have become powerful social influencers with four times the following of other bloggers. That’s only natural – food is a common interest with endless variety and frequent consumption. Food attracts clicks in huge numbers. That’s why in 2017, every consumer brand manager will be asking: How can we use food to start a conversation about our brand? Additionally, as the pharmaceutical industry’s reputation continues to suffer, life expectancy declines and the health insurance landscape faces destabilization, consumers will invest differently in their health. In 2017, food will increasingly become their favored “medicine,” in both meals and food-based supplements. Even doctors will increasingly get on board.

Greg Fleishman
Co-Founder
Purely Righteous Brands, a management consultancy specializing in fostering the growth of ‘green space’ companies.

As consumers continue their demand for a clean and green lifestyle, we will see a greater expansion of products utilizing biodynamic ingredients, compostable/earth friendly packaging, and food waste reduction or re-purposing core to their offering. Effective marketing strategies then will need to play all this up including proprietary direct ingredient sourcing, superior sensory experiences, and ease of use. Authenticity is paramount so relying on open one-to-one connections with consumers leveraging the power of digital marketing is mandatory. It’s the only way to interact on an intimate and mass level. The main point here is that all companies will need to become technological masters in order to be successful.

Jenny Zegler
Global Food and Drink Analyst
Mintel, a global market research firm

Time is an increasingly precious resource and our multitasking lifestyles are propelling a need for short-cut solutions that are still fresh, nutritious and customisable, already we have seen so-called “biohacking” food and drink that offers complete nutrition in convenient formats. In 2017, the time spent on – or saved by – a food or drink product will become a clear selling point, inspiring more products to directly communicate how long they will take to receive, prepare or consume. People are seeking the safety of products that are recognizable rather than revolutionary. The trust in the familiar emphasises the opportunity for manufacturers to look to the past as a dependable source of inspiration such as “ancient” product claims including ancient grains and also ancient recipes, practices and traditions. Potential also exists for innovations that use the familiar as a base for something that’s new, but recognizable, such as cold-brew coffee.