For kombucha, mainstream adoption is no longer an issue of “if” but “when.”
That’s not exactly breaking news to those within the industry: according to market research firm SPINS, the refrigerated kombucha and fermented beverage category has grown 31.4 percent year-over-year, while household penetration has increased 20 percent. Yet those statistics also reveal item introduction for kombucha and fermented beverages has declined by 25 percent in 2018, with only 280 new launches compared to 374 last year. Combined with M&A and investment activity across the spectrum of the gut-health functional beverage category, the numbers suggest some sections of consumers have found brands that speak to them.
Having established a level of awareness for the category – one that continues to rise – kombucha and probiotic drink makers are now looking to grow their consumer base beyond the mix of urban millennials and traditional homeopaths that helped put them on the map. Part of that evolution involves moving the category beyond its traditional home in the natural channel and expanding distribution in convenience and drug channels. And beyond getting more product into more hands, manufacturers are also seeking flavors, formats and formulations that can change the way consumers think about the category overall.
Surveying the U.S. market for refrigerated kombucha and other probiotic drinks, the overall picture shows gains being made across the board, albeit with ample room for continued growth.
As mentioned earlier, the U.S. market for refrigerated kombucha and fermented beverages has grown 31.4 percent over the last year, according to SPINS. Cross channel aggregate sales, which includes total U.S. sales in the natural, specialty gourmet and convenience channels, reached approximately $689 million over a 52-week period ending on Oct. 7, 2018. More significantly, the category has made significant strides in the convenience and drug channels; refrigerated kombucha and fermented drinks have seen dollar sales increase 71.9 percent in C-stores (approximately $23.3 million) and 89.7 percent (approximately $7.7 million) in the drug channel.
Narrowing in on refrigerated kombucha specifically, dollar sales are accelerating even faster across all channels. U.S. multi-outlet dollar sales were up 43.4 percent, reaching over $404 million in sales, while C-stores saw an increase of 71 percent and drug stores were up 102.7 percent respectively. Despite relatively low volumes for each of those channels — total U.S. dollar sales at drug stores was approximately $6.4 million, up from $3.2 million the prior year — the high growth rates indicate consumers are finding kombucha in more places than they were 12 months ago. And though overall U.S. household penetration is still only around 9.2 percent, a 20 percent year-over-year increase for refrigerated kombucha and fermented beverages underscores that progress.
In an email to BevNET, Andrew Henkel, SVP of brand growth solutions at SPINS, said that kombucha’s development is a reflection of the overall consumer expectation that beverages will deliver meaningful functional benefits in addition to taste. By ticking both boxes, he said, kombucha has been able to siphon volume from traditional mainstays (soft drinks, juices and waters, for example) from immediate consumption channels like convenience and drug. At the same time, the category leaders are solidifying their positions at the top of the heap.
“Kombucha has been a highly regional category, but we’re seeing this market start to consolidate around three national players who are pulling ahead of the pack: GT’s Living Foods, KeVita and Health-Ade,” Henkel noted. Brew Dr. and Humm are “neck-and-neck with potential for acceleration,” he noted, while adding that Revive is “offering the most frontal attack on the CSD source of volume.”
“This consolidation of the market behind these leaders is clarifying who retailers should back and making it harder for newcomers to make a play in the space,” Henkel said.
In adapting their products to meet the needs of consumers in these different channels, brands have shown a willingness to experiment with different formats and flavors. Oregon-based Brew Dr. Kombucha launched three of its flavors in 4-packs of 12 oz. cans earlier this year as a Whole Foods exclusive, but the brand plans to use a larger 16 oz. can to directly target convenience retailers as a channel exclusive starting in January. The cans, available in Mint Lemonade, Ginger Turmeric and Strawberry Basil SKUs, will be sold individually (SRP $3.99) and in 4-packs at C-stores in the Pacific Northwest.
Humm, another Oregon brand, is also exploring cans and other mainstream-friendly formats and flavors – having recently launched both a 40 oz. glass bottle package and a two-SKU line of reduced sugar kombuchas – to feed into conventional and mass retail partners like Costco, Target, Walmart and Safeway.
“Humm started in mass channels and is still mostly there,” said Humm founder and CEO Jamie Danek. “I think the latest research we did in late Spring showed that 20 percent of the U.S. knows what kombucha is. There’s still such a broad market of educating people on what this product is and people who aren’t even buying it yet. With that, many retailers are expanding their refrigerated space because people keep buying it and brands keep coming in.”
The challenge then becomes, as Danek explained, giving new consumers an entry point to the category while continuing to satisfy longtime drinkers.
“For the audience you already have, you want to keep it fresh and exciting and you want to constantly have new flavors and new innovation rolling out so they are still excited about your brand,” she said. “In terms of giving people different ways to access the product, I think we are looking at both flavors and formats because there’s such an opportunity in the blank space.”
Expanding On Premise
In terms of actually getting kombucha into the hands of more consumers, on-tap and on-premise service is playing an increasingly important role. By meeting consumers where they work, live and play, brewers have an opportunity to showcase kombucha in different ways and in a different context than grocery store coolers.
As its name suggests, San Diego-based Kombucha On Tap has made kombucha the foundation of its keg distribution service, which also includes cold brew coffee, cold pressed juice and other beverages. The company, founded by husband and wife team Deanne and Jared Gustafson, works with a range of brewers, from national brands like GT’s, Humm, Health-Ade and Suja, to local manufacturers such as Culture Kombucha and Bambucha. Even as kombucha’s relatively low sugar content has served as one of its more significant callouts, the Gustafsons noted that brands on the sweeter end of the spectrum have been crucial in serving as a soft introduction to the category for wary first-time consumers.
“There has been a big change (over the last two years) with more companies hitting the marketplace and catering to a wider audience,” Jared Gustafson told BevNET. As such, flavors like Babe Kombucha’s Maui Wowie (coconut and mango), Humm’s Mango Passionfruit, and top-seller GT’s Trylogy have become reference points for the company as it explains the proposition to clients, framing it as a healthier, lower sugar alternative to soft drinks.
The profile of those clients is also beginning to change. In addition to offices, bars, and restaurants, Kombucha on Tap provides kombucha to a growing array of venues, including San Diego Wild Animal Park and the Legoland California Resort in Carlsbad, Calif. The company also recently worked with Valley View Casino Center, an indoor arena in San Diego with a capacity of just over 16,000, to integrate kombucha into its better-for-you concessions program, where it sells for around $10 for a 20 oz. glass.
In introducing kombucha into new venues and to new audiences, Jared Gustafson said the company has purposefully focused on a few key aspects of the beverage to make it as simple as possible to understand. As a company, Kombucha on Tap also works with clients to curate the presentation and experience.
“Part of our approach is to use very simple signage and highlight a couple key points about what kombucha is, and if people want to dig deeper, we provide some info on where they can do that,” he said. “We want them to get an idea for what kombucha is and pique their curiosity rather than try to do too much.”
Some brands have also recognized the opportunity for low-alcohol kombuchas, still a relatively small subcategory, to have an impact in bars and restaurants, where it is positioned as a sessionable, better-for-you alternative for social drinking occasions. A handful of emerging brands – such as Boochcraft, Kombucha Dog, Wild Tonic, Kyla and Kombrewcha, which is backed by investment from Anheuser-Busch InBev’s venture arm ZX Ventures – have pioneered the segment.
With the launch of Flying Embers Kombucha, an organic hard kombucha that contains 4.5 percent alcohol by volume (ABV) and is infused with adaptogenic herbs, KeVita co-founder Bill Moses is confident there is a wide path ahead for the category.
“They say if God gives you lemons, make lemonade,” Moses told BevNET. “Well, God gave us kombucha, which is fundamentally an alcoholic product, so letting it run free and not necessarily over-restricting it is something that I think is a natural evolution for a kombucha category that is growing into its adolescent years.”
In Southern California, Flying Embers, available in Lemon Orchard, Ancient Berry and Ginger & Oak varieties, is part of a growing hard kombucha set that has found a place in retailers like Whole Foods and Safeway, as well as at self-serve taproom concept Tap’d. The big opportunity is coming, however: it was also recently picked up for distribution by Reyes Beverage Group, which serves over 57,000 retail accounts each year according to its website.
Having experience in kombucha on both sides of the alcohol divide, Moses sees the category as standing on its own merits but also as the potential launchpad for a range of beverage plays that could extend its reach.
“Kombucha has become a great format for other functional benefits and ingredients to play out, whether its coffee, immunity, CBD or something else,” he said. “From my company’s perspective, it’s definitely a platform for a better-for-you alcohol offering. There’s so much innovation across many brands that it’s exciting to see the format of kombucha actually broaden its shoulder and carry a lot more in terms of functionality.”
Taking the Lead
As has happened in the past with other beverage categories, the industry’s major companies are eager to build upon the work kombucha entrepreneurs have done to build the market up to this point.
This past year has seen several larger players enter the kombucha space. In June, Molson Coors announced its first acquisition of a non-alcoholic brand when it picked up California-based Clearly Kombucha for an undisclosed fee via its TAP Ventures unit, which is charged with identifying investment opportunities outside of beer. Later, in September, The Coca-Cola Company purchased Australian label Organic & Raw Trading Co., which produces and markets MOJO brand kombucha exclusively in Australia in around 4,000 outlets nationwide.
Out of the large strategics, PepsiCo has made the firmest commitment to the kombucha category so far in the form of its approximately $200 million acquisition (around 4.5 times its revenue, according to Forbes) of KeVita in 2016. The brand, which markets a variety of probiotic drinks, including kombucha and apple cider vinegar tonics, is now housed within PepsiCo’s Los Angeles-based Premium Nutrition Marketing and Innovation Team, alongside Naked and O.N.E.
For KeVita, the focus is to bring the brand’s consistent messaging across it’s various lines: the role of gut health in holistic wellness, an idea manifested in the company’s “Alive Like You” marketing campaign. The slogan speaks to both the “functional and emotional messaging we want to convey,” Cortinas said, but also more broadly looks to entice consumers to explore KeVita’s range of flavors and offerings. As they do so, the possibility for a larger conversation about fermented food and beverages becomes possible.
In bringing in celebrity chef and food truck pioneer Roy Choi as a brand ambassador this summer, for example, KeVita showcased fermented flavors as they exist in traditional Asian cuisine, though most of its consumers will likely never actually cook with those products. Choi, best known for his Korean taco truck Kogi, partnered with KeVita to create dishes — pineapple peach kimchi and a cauliflower adobo rice bowl, as well as a salad dressing and a cocktail — that were added to the menu for a limited time at Choi’s Chicago restaurant Chego in September and October.
“Partnerships are key for us,” Cortinas said. “There are a lot of reasons why KeVita and Roy Choi are natural fits together. At the base of it, we are all trying to do the same thing: answer the question of how do we expand access to healthy, quality food and beverages to more consumers. KeVita does it through drinks, and Roy does it by making good food readily available.”