and Matt Casey
In a year marked by consumer retreat and major economic downturn, there wasn’t a major breakout brand like 2008, which saw 5-Hour Energy and Muscle Milk both hit the gas pedal. That doesn’t mean that retailers don’t have brands to pin their hopes on in the months to come: by biding their time, several companies appear ready to take off.
But just because brands didn’t break out doesn’t mean that there weren’t any underlying themes for the year. Here are 10 stories that kept us talking:
Pepsi’s Marketing Stumbles and Fumbles
Its flagship CSD might always end up second to Coke, but cobbling together a strong portfolio of brands in other categories is what propelled PepsiCo to the top of the beverage company value chain a couple of years ago. Then it stumbled. Gatorade, Tropicana and Aquafina, category-leading brands owned by PepsiCo, all suffered major declines in share and revenue in 2009. While Aquafina has gone down with the rest of the bottled water category, the Gatorade and Tropicana losses were particularly embarrassing because they were the result of the company’s own marketing strategy. Letting Gatorade be re-branded as “G” cost it relevance among armchair athletes, while having Tropicana pull an ad campaign just weeks after rolling it out certainly soured the company on its “brand architect,” Peter Arnell. Since Arnell’s redesign of Pepsi Cola’s own “smile” logo has also been poorly received over the past two years, the company’s top four brands are all now ripe for freshening – and that doesn’t even count AMP, which got a little TOO fresh via a quickly-withdrawn social media campaign that offered young men pickup advice on stereotyped young women. Meanwhile, any freshening needed won’t take place during the Super Bowl – instead PepsiCo will be offering ads on a philanthropic campaign. Tough times indeed for a company that has always been a marketing juggernaut.
Change at the Top
From the beverage industry’s biggest companies to some of its smallest, there was significant turnover. At Coke’s glaceau unit, which has struggled to find its role and purpose at a company that paid more than $4 billion for it, former consultant Brent Hastie was brought in to replace parent company stalwart Hal Kravitz, and PepsiCo’s Chief Marketing Officer for North America, Dave Burwick, abruptly departed at mid-year. In just a few days, the man responsible for your dancing, roller skating, crazy-acting babies, Evian’s Elio Pacheco, will be heading for an international role rather than one with Evian USA.
Meanwhile, impatient investors led the ousters of veteran entrepreneurs C.J. Rapp, of Jolt Cola, and Hoby Buppert, of BAWLS Guarana, both of whom were pioneers in the new age beverage movement. Bob Miller, the man who was supposed to build Function’s sales network, instead departed to run a smaller company, and Wild Waters’ Chris Testa folded his tent and went to work for UNFI. In a year in which few multi-million dollar investments took place, it’s almost surprising there wasn’t more saber-rattling – although who knows if the first quarter will bring more.
Bello’s Last Ride?
It started with an investment, but it looks like Adina Beverages is turning into an obsession for SoBe founder and serial beverage entrepreneur John Bello, who has pulled together much of his old sales organization – and the bravado behind it – into a huge push for distribution. His attempts to take a nascent brand – the company was selling coffee as of last year and is still tinkering with the sweetener formulation in its prime Holistics line – and to lay the groundwork for a national presence by getting old-line DSD companies on board is an interesting case study in whether past performance may lead to future success. With a veteran crew including President – and company co-founder – Greg Steltenpohl as well as sports marketer Bruce Burke providing intellectual muscle and sales savvy to accompany the “Lizard King’s” famous drive, Adina could reach critical mass fast – or fail to ignite. Either way, watching the rollout was one of the year’s voyeuristic pleasures.
Incubators Heat Up
The Coca-Cola Co., Inc.’s Venturing and Emerging Brands Unit didn’t have a bad year at all, investing in coconut water maker-ZICO, importing gourmet CSD Cascal and helping develop a high-end coffee drink in Illy Issimo. But it was hardly the only incubator on the block. The Pepsi Bottling Group revealed itself as a hard-charging innovation magnet itself, netting fast-growing alternative sports brands Muscle Milk (with a distribution contract) and O.N.E. (with an investment and distribution partnership) in the past 12 months. Meanwhile, Nestle Waters North America has unveiled its own Innovation Group, one that is working with its prized new investment, Sweet Leaf Tea, to push against VEB’s fast-growing Honest Tea line. While those two Coke competitors have stepped up their games, Anheuser Busch/InBev pulled its 9th Street Beverage non-alcoholic products team off the field, saying that investments in small, entrepreneurial companies wasn’t the ticket to building blockbuster brands, and instead trying to develop those brands itself, as with its new Paradise Key line of teas.
Stevia in everything
Stevia hasn’t changed the world, yet, but give it time. The zero-calorie, natural sweetener’s initial appearance in beverage containers resembled a whisper after the drumbeat that heralded its pending arrival, but the sweetener gained momentum in 2009. The Coca-Cola Co., Inc. heavily promoted its stevia-sweetened vitaminwater 10 line (soon to be relaunched as vitaminwater zero), while PepsiCo rolled out two more zero calorie flavors of SoBe Lifewater. Smaller companies, taking advantage of the pipeline opened by the big two, put stevia in everything. Dr Peper Snapple Group debuted All Sport Naturally Zero; Hansen Beverage Company launched an entire line of stevia-sweetened sodas, and NERD launched a stevia-sweetned version of its energy drink – not to mention Zevia, which reformulated with a better stevia derivative, and Steaz, which returned to sparkling diet sodas with Zero-Calorie Sparkling Green Tea. And with Jones Soda and Reed’s on board, the trend looks poised to continue. Flavor houses report they’re still learning to work with the sweetener, and, as they get better with it, so will the products.
Washington policymakers made the beverage industry a side note this year in the nation’s most pressing political debate. Several politicos, including President Obama, floated a tax on sugary drinks as a possible way to help solve the U.S. health care crisis. The idea, which, according to the Associated Press, never gained traction at the federal level, drew a zealous reaction from the industry. Beverage lobbyists pumped more than $7 million into Congress in just three months this summer and early fall, the AP reported, and The American Beverage Association launched an offensive through blogs, tweets, editorials, television commercials and news show appearances that cast the proposal as an ill-informed, irresponsible federal money grab. The federal soda tax is effectively dead, but the ABA continues the fight in New York City. The city’s Department of Health and Mental Hygiene is waging a campaign urging New Yorkers to not drink themselves fat.
Sports drink category restructures
The sports drink category shifted in 2009 – largely to Gatorade’s detriment. Powerade fought the banner brand directly, while coconut water aimed at its crunchy fringe, and vitaminwater flanked it by redefining what makes a sports drink. The enhanced water brand has long been noted as a threat to Gatorade, but, now, some analysts have dispensed with the pretense that the products exist in different categories. Meanwhile, The Coca-Cola Co., Inc. launched a new Powerade formulation, and ZICO promoted its coconut water as “Nature’s Sports Drink.” PepsiCo, facing falling revenues and market share for its electric-yellow juggernaut, responded by changing Gatorade’s emblem from a lightning bolt to a capital G, and PepsiCo Americas Beverages CEO Massimo d’Amore recently announced that the brand’s focus will shift from rehydration to more robust exercise support.
It’s hard to say more about coconut water than BevNET already has by awarding ZICO, Vita Coco and O.N.E. its Product of the Year award. Through the fervor of these three companies, coconut water has gone from an ethnic-store curiosity to a serious threat to become the first non-kids’ product to succeed in Tetrapak. That success has drawn the attention of deep pockets. The Coca-Cola Co.’s Venturing and Emerging Brands unit invested in ZICO, and PepsiCo inadvertently doubled-down on the category. The company bought Amococo, Brazil’s largest coconut water producer (and a copacker for O.N.E. and ZICO), while the Pepsi Bottling Group, soon to be part of PepsiCo, invested in O.N.E. Vita Coco boasts an investment from Verlinvest, who once invested in vitaminwater and holds stakes in Sambazon and Hint, among others. Competition between the three leading brands will likely heat up in 2010, but, in 2009, all three really arrived simultaneously.
Shots go mainstream
The revolution Living Essentials’ 5-Hour Energy started at GNCs and truck stops has now reached mainstream status. The brand now boasts shelf-space at Wal-Marts, and the category notched additional milestones. Red Bull entered the fray in March, joining energy rival Monster. Sports nutrition company Cytosport also rolled out a Muscle Milk-branded shot, and a number of smaller firms have pushed shots into new territory. drank and RelaxZen debuted relaxation shots, while Pur Blu, best known for its Give line of charity-based waters, rolled out a six-function Potion line. Harcos, which made a name for itself with novelty shots shaped like potions from World of Warcraft, released the strangest shot of the year, Blood Energy Potion, in a package that resembles an IV bag. All of this shows that shots, once the kid brother of energy drinks, have become their own medium.
In a move that surprised the industry and lead to a high-stakes chess match, PepsiCo announced plans in April to acquire its two largest bottlers, Pepsi Bottling Group and PepsiAmericas. PepsiCo said the merger would give the company upwards of $200 million in efficiencies, and the potential for greater agility in moving new products into the market. But their announcement came with a struggle and set off a chain reaction throughout the industry. Pepsi’s bottlers initially rejected the $6 billion buyout, calling the price too low. Then they exchanged a round of suits. Meanwhile, the specter of the merger raised questions about the future of Dr Pepper, distributed by Pepsi bottlers in some areas, and left The Coca-Cola Co., Inc. facing questions over whether it, too, would buy its bottling networks. Ultimately, PepsiCo, PBG, PepsiAmericas and Dr Pepper Snapple group came to agreements. Barring unexpected regulatory intervention, the merger will proceed with a $7.8 billion price tag. DPSG will also get nearly a billion out of the deal. Coke, meanwhile, is standing by its franchise model, leaving the big two with distinctly different structures for the foreseeable future.
and Matt Casey