Back in the ancient days when I covered technology companies (I mean the early 1990s), I recall being awed by a management style at Hewlett-Packard that allowed three printer operations in three separate geographic regions to go after each other in the marketplace, dot-matrix versus inkjet versus laser. At first it struck me as a ludicrous abdication of the corporate office’s role in serving as a sort of conductor of the orchestra, masterminding a portfolio strategy that focused each operating unit on its perceived competitive advantage and drawing careful boundaries on where not to stray. I mean, how’s Brahms gonna sound if you let the clarinets play the viola parts, right? (Like Stravinsky?) As I came to learn, H-P actually was pursuing an enlightened strategy, in a fluid environment where those three technologies increasingly were overlapping and the headquarters team wisely concluded it was poorly positioned to try to anticipate where things would shake out. Better to let retailers and consumers adjudicate the relative merits of these products with their dollars. As another tech executive, I think at Compaq Computer, controversially phrased it at the time: “If you don’t eat your own children, somebody else will anyway.” (As I recall, he later clarified that he loves children and tries to be a good father.)
For a decent stretch H-P’s strategy proved successful. If an inkjet machine can yield nearly the same quality as a laser printer at barely half the price, doesn’t that leave the user the winner? Meanwhile, it gooses the Laserjet guys into hustling more on the innovation front. Eventually, the approach ran its course and H-P had to rein things in, and these days, of course, computer printers isn’t such a great business to be in in the first place. Still, the episode made me realize that sometimes being a strong manager means being willing to let the reins loose.
I’m seeing a bit more of that attitude in the beverage business these days, as the business takes on the degree of uncertainty and disruption that has long characterized the technology sector. At a time that managers at major companies seem to recognize they don’t do so well on the innovation front, and that all of the growth in mature CPG categories is being absorbed by small startups, they seem to be tilting toward getting credible entries into the game rather than overthinking the implications they may have for fading incumbent brands. The competitive frenzy among food and beverage companies to align with promising newcomers has stoked a FOMO factor that further is thrusting these cautions aside. And let’s not forget that brands increasingly are probing hybrid segments like coffee energy or protein water that further blur category boundaries and stoke potential portfolio conflicts. Harkening back to my experience covering H-P all those centuries ago, in technology years, I think a somewhat laissez-faire attitude is a smart way to go, at least for now, when things seem so unusually unsettled.
Take PepsiCo, which has been trying to figure out a path for its plummeting Amp Energy line while also mulling a play in the emerging “healthier energy” segment that eschews the artificial sweeteners, colors and preservatives and weird energy blends of conventional energy drinks. I can’t predict whether that segment finally is ready for prime time, but Anheuser-Busch just made a small bet via its Hiball acquisition and big players like Monster, Rockstar and perhaps even Red Bull are analyzing whether they need to go there.
So Pepsi restaged Amp as an organic, plant-based (yerba mate) energy brand, an interesting move and one that likely doesn’t have much downside given Amp’s recent performance. Then along came Pepsi’s partner, Rockstar, with its own yerba mate brand, called Yachak. Since Pepsi is Rockstar’s main distribution partner in the U.S., it was pitched that brand, and I’m guessing there was some internal debate over whether to take it, since Rockstar went out pitching Yachak to independent distributors too, presumably to have a backup option. Lo and behold, at the NACS c-store show in October, there was Yachak, being dispensed at the Pepsi booth. Too much with the yerba mate? As I suggested, I think carrying both is a smart move. After all these years, can a conventional brand like Amp carry a better-for-you entry? Maybe not. So why not also harness the innovation smarts and creative branding offered by the Rockstar team?
I see a similar evolution unfolding at Dr Pepper Snapple Group. It wasn’t so long ago that Bai Brands – then still an independent ally of DPS – caused a bit of a kerfuffle within its distribution partner by extending into tea. After all, DPS already has a tea, and it’s important enough to be part of the corporate name. Meanwhile, DPS’ bottled water partner Core was adding an extension called Core Organic that, while different in some fundamental ways, bore a striking resemblance to Bai. That too, I heard at the time, caused an internal kerfuffle in some DPS quarters. But on DPS’ third-quarter earnings call a couple of weeks ago, its top executives were exuberantly touting their restage of the Supertea line from Bai (now a wholly owned subsidiary) even as they’re quietly getting Core Organics established in all of Core Waters’ accounts. On the same call, one exec even cited kombucha and tea as promising segments where they’re eyeing the potential of new brands. None of this is to say they’ve lost interest in Snapple, and they were careful to emphasize that point. But they seem to recognize that Snapple is a very down-the-middle tea, and that their efforts at internal product innovation haven’t been very impressive anyway. So why not give other tea-based entries a chance to connect with consumers? If one of them shows signs of igniting, that may be the time to make some hard decisions about editing down the portfolio. To overthink portfolio conflicts now is to limit the chances of landing that breakout entry. To me, that’s a steeper downside than a bit of portfolio overlap and confusion. For big beverage players groping to land the next hot brand, this may prove to be a smart direction to take.
Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.