Closing Corner: Beverage Trends

Beverage sales experienced an unprecedented decline in 2008 only to be followed by a second year of declines. Whole categories that were the bulwark of grocery sales are slipping (soft drinks, for example).  DASH Advisors is a San Francisco based consultancy with more than 25 years with clients that include Odwalla, Naked Juice and Whole Foods Market. Principals Danny Rubenstein and Janet DiGiovanna offer retailers these insights.

Natural Food Network: What do you advise to replace the shelf space held by titans like Coke and Pepsi? Is this a big opportunity for alternative sodas like Zevia and GUS or do you recommend grocers weather the economic storm and hold onto the acreage dedicated to DSD bottlers? 

DASH: Innovation always begins at the edges and even the giants like Coke and Pepsi are aware that if they don’t pay much closer attention to the niches and micro trends (rather than fads) when deciding what brands and products to market, they too can lose meaningful market share.

Don’t get us wrong; according to Neilson, the CSD market in the US, excluding energy drinks, is huge with sales of approximately $13.5 billion for 2009 and it is not going away any time soon. It is also interesting to note that over a third of that total revenue comes from CSD’s that are classified as low calorie. Liquid teas as a category had the strongest growth in 2009 at 3.4%. Only 40% of the beverage categories experienced positive sales growth in 2009 so knowing where the trends are within the beverage industry is just that much more important. To borrow a phrase from Fared Zakaria, it’s the “rise of the rest” that will begin to level the playing field. This is one of the main reasons why large companies have begun to invest in smaller and smaller brands that show potential to satisfy growing trends. Examples include Pepsi’s investment in One Natural Experience and Coke’s investment in Honest Tea and Zico to name just a few.

What advise can we offer to the retailers? We’d suggest they demonstrate to their consumers that they are aware of and committed to what is important to those shoppers by gradually shifting their beverage mix toward healthier, lower calorie beverages in general, and especially those in the CSD section. Today’s shopper is more value driven then ever and so these offerings will need to priced and promoted correctly for the store to generate trial and repeat purchase. Done correctly, unit sales should not suffer and the average price could rise, offering the retailer greater profits while increasing the loyalty of their core consumers.

NFN: Vitamin waters fell and “value enhanced” waters in general suffered setbacks. Bottled water saw some uptick (OWater). Does this signal a time to go with commodity water and a small selection of known premiums (like Perrier)?

DASH: People want authenticity. We believe the backlash against Vitamin Water comes as a result of people asking themselves, “Does this really deliver on its promise? Is it really better for me?” and they come away less than convinced. Commodity waters that are priced well should fare well because of the increasing public concern about the safety of drinking water. Smaller, premium waters should also do well, as long as they don’t over promise and aren’t priced too high, because they are an easy and relatively inexpensive way for a consumer to do something special for herself.

NFN: Reconcile customer desire for locally produced food and beverages with the challenges of distribution and cost of establishing a local transportation network. Can locally produced boutique beverages, from beer to bing cherry cider, find a market in grocery? 

DASH: Consumer desire to “buy locally” for both social and environmental reasons is on the rise and we expect it to continue to do so. If the local (or regional) brands can deliver and equal to or better product, effectively get their message out, and price it within 10-20% of the larger brands, there is room for them in grocery.