Beverage wise, this last year ranks as one
of the most exciting I’ve seen. The major
companies explored provocative ways of shifting
their business models with the times, even
as smaller brands picked up traction in highermargin
segments of the business. Major Coke
and Pepsi bottlers, as well as Anheuser-Busch
distributors, continued to put their core suppliers
on notice that they expect more in the way
of innovation. That degree of ferment has to be
healthy for the industry in the long run. Here
are a handful of themes distilled from a year of
covering this fascinating business:
INNOVATION STILL SEEMS TO BE THE
PROVINCE OF THE SMALLER GUYS.
Sure, every major beverage corporation has put a
priority on stepping up innovation, and several
have gone to ingenious lengths organizationally
to try to get there. Nevertheless, when I take a
stroll down the store aisle, almost everything
truly exciting seems to have emerged out of a
garage, metaphorically speaking. No question,
the big guys are bringing lots of new products to
market, and the onrush may be having a salutary
effect in attuning their production and distribution
systems towards handling a more diverse
portfolio. But most of these products seem to
be line extensions or by-the-numbers concepts
(“Let’s see, coffee and canned energy drinks are
booming and we do sodas, so let’s create Coke
Blak”). There are exceptions, but too few, and,
in some cases, such as trying to convince consumers
that 7Up is now “natural” or that Bud
Select somehow is a breakthrough in brewing,
too contrived: the companies seem to harbor
hope that brilliant marketing can mask a lack of
genuine innovation. Indeed, megabottler Coca-
Coca Consolidated took a slap at the qualitynot-
quantity issue when it recently attributed its
weak quarterly results to a “decline in significant
innovation.” Its core supplier is Coca-Cola:
enough said.
BIG GUYS, NEEDING INNOVATION, WILL PAY A
LOT FOR THE SMALLER GUYS WHO HAVE IT.
The valuations paid for some smaller brands in
the past few months have struck veteran beverage
watchers as rich, even outlandish. Not just
Tata’s stake in Vitaminwater marketer Glaceau
(at an enterprise value of roughly $3 billion) but
also Anheuser-Busch’s $82 million purchase of
declining Rolling Rock and Pepsi’s $75 million
purchase of still-tiny Izze. But these guys are far
from crazy. The trend reflects their awareness
that, though there may be few entry barriers to
duplicating the formulations of some of these
products, it is not so easy to successfully knock
them off after all. (Witness Pepsi’s humiliating
effort with SoBe LifeWater.) Once these brands
have achieved first-mover advantage, consumers’
perception of their authenticity makes them
hard to dethrone. Better to ungrudgingly pay
the premium and hope you can keep the magic
going once you incorporate the brand into your
own system. And yeah, good luck on that one.
IF YOU’VE GOT INNOVATION,
LAUNCH IT IN A BIG CHAIN.
For decades, the mantra was that innovative
brands are built up and down the street, generating
the consumer intrigue that might finally,
along with a $40,000 slotting check, make the
chains take notice. Can it be that that notion
is being turned on its head? I think it often.
I’ll walk into a dingy New York deli and spy a
premium beverage in the cooler – one of those
açai drinks or some highfalutin coconut water.
“Did somebody from that company actually call
on you?” I’ll ask the manager. No, I’d be told,
the manager had spotted it in Whole Foods
and approached the company. Certainly, the
aura-conferring status of Whole Foods can no
longer be denied. I’m a bit more dubious about
the degree of cachet that accrues from landing
on the shelves of Target Stores, but a national
or super-regional presence that comes of cracking
chains like those seems to lend credibility
to a new brand, and opens doors up and down
the street. Sure, some of this theory is mere rationalization
by marketers who can’t land a decent
DSD distributor; also, a heavy reliance on
fickle chain buyers carries its own dangers. But
as retail consolidation concentrates power into a
handful of mega-chains, there’s no question they
have become a route to instant awareness and
recognition. Crack the chains, and the up-anddown-
the-street guys – and the distributors who
service them – may follow.
Longtime beverage-watcher Gerry Khermouch
is executive editor of Beverage Business
Insights, a twice-weekly e-newsletter
covering the nonalcoholic beverage sector.