Fat Profits! The Rise of Keto Beverages

While diet trends come and go, the rapid rise of the ketogenic diet represents a new variation on the evergreen low-carb approach to nutrition. Proponents of the diet claim it can bring significant weight loss, alleviate health problems like chronic pain and diabetes, and renew energy through an extreme high-fat approach to eating; despite its restrictive nature, it’s a fast riser in the meal replacement category.

Avocados, meat, and nuts often make up large portions of a keto-friendly diet, while carbs, legumes, and sugar are to be avoided at all costs. The result is that after several weeks on the diet, the body goes into “ketosis,” a process where it begins burning fat for energy instead of carbs. Several studies have backed up some of the heftier health claims from evangelists, including a proven reduction in seizures among epileptics and initial weight loss. Other reports cast doubt on its long-term efficacy, including a study published last year in the journal Nutrients warning it can potentially result in fatty liver disease and insulin resistance. Regardless of the risks, the diet has gone from relatively obscure to one of the top trends of the moment in just a few years time, recently surpassing both Paleo and Vegan in consumer interest according to Google Trends data.

Many entrepreneurs believe the diet is now here to stay and because keto demands such specific dietary needs, it has created a space for meal replacement brands like Bear Squeeze, Cave Shake, and Sated to build platforms around it. These products stake their claims to the space by offering complete nutrition and dessert beverages that keep consumers full and offer better-tasting alternatives to the often repetitive dinners the regime demands.

As consumers, investors, and retail buyers pay increased attention to the space, online communities are helping to fuel momentum, and proponents hope the rapid growth proves the diet has staying power.

Online Culture

Thanks to the proliferation of wellness bloggers, podcasts, YouTube channels, and Instagram influencers, keto has been able to spread via online word-of-mouth and dedicated web communities where adherents ask advice, share recipes, and post updates of their weight loss process. Niche forums and subreddits dedicated to keto have become a vital source for brands to find their base, translating likes and upvotes into ecommerce sales as many keto platform companies focus on building the business online before considering brick-and-mortar retail.

Sated, formerly known as Ketolent, produces a line of powdered keto shake meal replacements. CEO Ted Tieken founded the brand in 2014 after he adopted the keto diet on the advice of a friend and soon launched the company’s website, promoting the product as a nutritionally complete meal. Speaking to BevNET, Tieken said he had anticipated a 10 year stretch before keto might take off, but the accelerated popularity has taken him by surprise and hastened his growth schedule.
“I thought we’d have another three to five years before we’d be on trend,” Tieken said “But it caught fire way faster than I expected.”

Keto is largely a lifestyle trend, Tieken said. According to market research conducted by Sated, roughly 2.3 to 3.8 percent of Americans currently practice the diet in some form. Although the base is niche, 73 percent of surveyed consumers said they plan to stick with the diet for the foreseeable future. An additional 6 percent wrote in an answer on the survey, saying they anticipate staying on keto for the rest of their life. The dedication also turns evangelical, the research found, with 74 percent of consumers reporting they were highly likely to encourage their friends and family to try the diet.

Max Baumann, founder and CEO of Bear Squeeze parent company Bear Brands, said he has embedded himself in Facebook groups and YouTube channels in order to learn more about what people are eating, not eating, and what’s missing from the market. Like Sated, Baumann plans to build his brand around keto. His initial product – a “semi-ready-to-drink” powder in a bottle – is the first of what may eventually be a larger platform expansion as the company builds loyalty and awareness in the community. The company is still pre-launch, but has garnered buzz among proponents with an IndieGoGo crowdsourcing campaign that to date has raised more than $200,000.

Baumann said he sees the “content and commerce model,” where influencers and passionate amateurs promote products and advocate for the diet via social media, beginning to push the needle on keto’s popularity. The growth has also been aided by more established brands such as Bulletproof 360, which built its product portfolio around its unique keto-variant Bulletproof Diet and has used its public visibility to educate consumers on the science behind ketosis.

“What I’ve found is that the brands who are most successful are the ones that are very focused on a core target demographic,” Max Baumann said. “It could be smaller at first, but it will build over time if you really have a love affair with that brand. We don’t want to be everything to everyone, we want to be something extremely special to a target group that is growing rapidly.”

The growth potential is also attracting capital investment. In March, bone broth and protein brand Ancient Nutrition raised $103 million which, among other new product lines, is set to fund a keto expansion. Although Bear Squeeze is still pre-launch, in February the company announced a $715,000 pre-seed round led by AccelFoods. The round also included investment from Ryan Lewendon, a partner at The Giannuzzi Group, Shopify senior account executive Tyler Nemiro, AdQuadrant CEO Warren Jolly, MVMT CEO Jake Kassan, and Andy Chase, managing member of The Chase Group at Morgan Stanley.

“Keto is not a new diet but one that has recently seen significant growth in popularity,” AccelFoods said in a statement sent to BevNET. “While it is still early to see how wide an audience the Keto diet will appeal to, we expect to see continued growth as the diet is inline with current consumer healthy living, dietary and lifestyle goals.”

Efficacy and Sustainability

Keto has seen some resistance from health experts since taking off in popularity. In January, U.S. News & World Report ranked it last in a list of 40 diets, stating that although it was effective at short-term weight loss, the record for keeping the weight off was spottier. The expert panel expressed concern for those with liver and kidney conditions and said the “jury is still out” on whether the diet is more helpful or harmful to those with diabetes. In contrast, the panel tied the Mediterranean Diet and the government-sponsored DASH Diet (Dietary Approaches to Stop Hypertension) for best diets.

The widely publicized report has appeared to have little impact on keto’s popularity, however. In March, Food Business News reported that keto-friendly food and beverage products were one of the top trends at Natural Products Expo West 2018. The rise appeared to coincide with a decline in products marketed toward the raw food diet.

The length of diet trends is difficult to predict, but the low-carb basis of keto has long been a mainstay in American diet trends and on that backing keto-friendly CPG products are poised to perform well, especially in the evolving meal replacement space. According to MarketResearch.com, overall meal replacement sales – both shakes and bars – are growing at 7.2 percent per year. Last year, the category was valued at $4.42 billion, a 6.2 percent increase from 2016. The report predicts sales of $4.7 billion in 2018. Although these statistics include non-keto products as well, the opportunity is present for the trend to grow within the space.

Innovation: The “SRTD”

Bear Squeeze’s “semi-ready-to-drink” format, or “SRTD” as Baumann calls it, is not the first meal replacement to take the approach of putting powder in a bottle. Ample, a meal replacement brand, has also recently launched with a product in the same format, offering both keto and non-keto products.

According to Ample CEO Connor Young, the format solves the often messy preparation and cleanup process endemic to powdered meal replacements. When Young first began making meal replacement powders, he said he witnessed many people skipping vital preparation steps (such as mixing in oil) out of confusion or frustration. But the just-add-water format of the powder-in-bottle solves the issue, while also increasing shelf life and decreasing ship weight; a major cost-saving measure for a DTC brand.

Young said he hopes Ample can leverage social media and podcasts to position the company as a thought leader in health and nutrition. However, unlike Bear Squeeze, Ample is not solely a keto company. Instead, Ample is seeking to provide complete meals for consumers regardless of diet, currently offering vegan and keto SKUs in order to meet dietary needs.

“My philosophy is that there is no one size fits all to nutrition,” Young said. “In the keto community, and the diet community in general, there’s usually an in-crowd or an out-crowd. So we never are truly in the in-crowd, because we have a keto product but we’re not a keto company. Just like the vegan crowd, we are not a vegan company we just have a vegan product. So this is one of our things. Our goal is to educate people so we don’t have to be so dogmatic about our diets.”

Into the Real World

Sated has announced a ready-to-drink product that will launch sometime within the next year, Tieken said. In recent months, he said he has seen increased attention from retail buyers to put the brand in stores, and the RTD line will be his first brick-and-mortar play. He anticipates it will quickly become the company’s top selling product.

“It seems the grocery buyers lag the internet trends by about two years so we’re right at the point where we expect to see grocers carrying keto product,” he said.

The rebrand from the Ketolent name to Sated, he said, was also a way to grow the brand’s potential beyond the keto base. While all future Sated products will be keto-friendly, and any non-keto products would be under a new brand name, Tieken said he didn’t want to scare away consumers who had a negative impression or uneasiness about the keto diet.

Billie Jo Cavallaro, co-founder of keto meal replacement and dessert brand Cave Shake, told BevNET that some grocers are beginning to put an increased focus on keto and that buyers are beginning to call her company looking for a product to fill out low-carb, high-fat sets.

New York-based grocery chain Lucky Farms, she said, has begun creating keto displays in its stores, while Erewhon and Whole Foods have been similarly enthusiastic about increasing their low-carb grab-and-go selection. Cave Shake, which is non-dairy and low sugar, also fits nicely into other product sets, Cavallaro added, and that many keto-based products can blend into grocers existing plant-based or paleo sections.

“People trying to reduce sugar and carbs is so big,” Cavallaro said. “Even my parents in the Midwest are calling me asking how to reduce sugar.”

Cave Shake, which launched in 2015, has run into issues scaling in the past, something Cavallaro said the brand has solved with a reformulation that increases the shelf life. Because the ingredients of any keto product are vital, the brand was limited in how it could formulate, and in turn kept its brick-and-mortar distribution focused around the California market where freshness could be ensured. Now, the company is preparing for an eventual expansion.

For Bear Squeeze, however, Baumann plans to keep the brand online for the beginning, and has turned down offers from retailers to launch brick-and-mortar. Stating he wants to be “in the resale business, not the sale business,” he plans to continue honing in on his niche target audience and building their loyalty before attempting to reach a wider consumer and taking the risk of scaling too fast.