ELIXIR FOR SALES

Retailers who wish to satisfy customers thirsty for choices are keeping the beverage aisle awash in a stream of new products.Shoppers want alternatives to traditional carbonated soft drinks, and these days there are many options. Aside from the brand extensions offered by the soft-drink category leaders, many companies are creating new brands and even categories in the beverage market.The strongest

Retailers who wish to satisfy customers thirsty for choices are keeping the beverage aisle awash in a stream of new products.

Shoppers want alternatives to traditional carbonated soft drinks, and these days there are many options. Aside from the brand extensions offered by the soft-drink category leaders, many companies are creating new brands and even categories in the beverage market.

The strongest categories include bottled and canned coffees, sparkling waters, premium sodas, premium bottled waters, isotonics (sports drinks), bottled teas and single-serve fruit drinks, according to Gary Hemphill, vice president of information services at Beverage Marketing, New York. Within these categories are subsegments, such as vegetable and fruit blends, nutrient-enhanced beverages, fresh juices with a short shelf life and smoothies.

Commonalities among new categories include premium pricing; single-serve sizes, kept cold for immediate consumption; positioning as a "health product"; and unique packaging and labeling that encourage impulse buying.

While the new brands do not add up to a whole lot of volume, they still have a great effect on the marketplace, since they are creating innovation, explained Hemphill.

Clearly, the marketplace is changing. One indicator is that diet-soda sales have been slowing steadily over the past several years, with market share declining from 29.8% in 1990 to 22.9% in 1997. This falling off may be related to the surge in sales of bottled water, which is the fastest-growing beverage category.

Beverage Marketing reported that overall industry sales for water increased from $1.1 billion in 1984 to more than $3.9 billion in 1997. According to "Share of Stomach," a report by Wheat First Securities, Richmond, Va., fruit-beverage sales in 1997 grew 2.5% and soft drinks 3.3%, while bottled-water sales grew 9.6%. In the retail segment, bottled water was up almost 30%, according to Beverage Marketing.

Indeed, water is an expanding category well beyond the choices of "still" and "sparkling." Kevin Fitz, beverage category manager for Associated Grocers in Seattle, Wash., noted that water is a growing category that is doing very well.

"These days, many people will reach for a bottle of water, where they used to go for sodas," he said.

According to industry reports, it's not uncommon for a customer perusing the grocery shelves to find electrolyte-enhanced water, oxygenated water, caffeinated water and nutrient-enhanced water. Special drinking water for babies, with no sodium and added fluoride, is even turning up in the baby aisle.

"The water segment is huge right now," said Dale Kamibayashi, director of grocery purchasing at Wild Oats Community Markets, Boulder, Colo. "Oxygenated water is the latest and hottest addition to the segment. Here at the store we even sell our own water product -- Wildwater -- which is filtered, and then electrolytes are added."

Nutraceuticals are also flying off the shelves.

"Customers are looking for enhanced beverage products," said Tim Casper, grocery buyer for Henry's Markets, San Diego. "SoBe beverages are the largest seller for us right now. We can't stock up on them fast enough. It seems we're always selling out of their products."

"The herbal-enhanced, nutraceutical sodas and juices are showing the greatest incline and success right now," agreed Kamibayashi, "especially those with herbs that offer calming effects, energy enhancement or mind alertness." Some of the products Wild Oats carries include Blue Sky and Journey beverages.

"You have to be careful with the new products," he advises, "especially the ones that tout health benefits from herbs. It's easy for a company to slap on a label with gingko or ginseng, but that doesn't mean there's enough in the product for the customer to reap any benefits."

Wild Oats will carry only products with labels that specify the amount of supplementation, so that consumers can better judge potential health benefits, Kamibayashi explained.

Energy drinks, a subsegment of the nutraceuticals category, are on the wane, according to some retailers who spoke with SN.

Tony Lucia, general manager at Lunardi's, San Bruno, Calif., noted that energy drinks such as Red Bull seem to be just a fad, and that the category has already peaked. His opinion was echoed by Casper of Henry's Markets. "Energy drinks in a can aren't doing well," he reported. "We don't even carry them anymore. They seemed to hit their peak immediately, and then they died out just as fast."

Smoothies, a healthier version of the milkshake, are popping up all over the supermarket -- in the dairy case, the grocery aisle and the frozen-food section.

"Smoothies are doing well for us," said Casper. "It definitely helps that they are found in so many places in the store. And Snapple is making a comeback with WhipperSnapple." The new Snapple smoothie is shelf-stable.

This year Welch's rolled out a line of Frozen Fruit Smoothies, a nondairy frozen drink that can be prepared by heating it briefly in the microwave.

Premium sodas are also gaining in popularity, according to Fitz of Associated Grocers. He said that the most successful products are the premium class of traditional sodas, such as IBC's Root Beer and Black Cherry, in addition to sodas with more exotic flavors.

Fitz said he is conservative about trying new items, because many of them turn out to be a fad. Nonetheless, when Shasta offered him a soda line targeted at Hispanic shoppers, he decided to try it.

"Of the three flavors -- tamarindo, mango and horchata -- we decided to try mango first, because it seemed the flavor most likely to appeal to the mass market. We had anticipated that it might do well, and as it turned out, all three flavors are doing well across the board," he said.

He observed that products targeted to a specific market often become popular in the mass market. Such is the case with Goya's new Coconut Water, which, like all of Goya's products, has its roots in the culinary traditions of Hispanic culture. A traditional drink in Caribbean countries and throughout Latin America and Asia, shelf-stable Coconut Water is now available in mainstream supermarkets.

Organic and fresh juices are also gaining popularity as alternative beverages.

Juices from Odwalla, Santa Cruz Organics and Fresh Samantha are among the new products crowding the shelf. "Juices are going the same route as the nutraceuticals," observed Kamibayashi. "They're using pure, organic ingredients and value enhancements to bring greater integrity to the product."

Meanwhile, ready-to-drink coffees and teas have not lost their place in the beverage aisle. According to Beverage Marketing, iced teas are experiencing continued growth, and ready-to-drink coffees are up close to 100%, due in large part to Frappuccino, the Starbucks/Pepsi joint venture.

Also adding variety to the beverage aisle is a new sweetener -- sucralose. It is being marketed as "Splenda" by McNeil Specialty Products, a division of Johnson & Johnson, New Brunswick, N.J. Pepsi One, a new product made with Splenda, will be rolled out in October. Diet RC Cola is already on the shelves with the "Now sweetened by Splenda" tag line, and Diet Veryfine products with Splenda are expected to be in supermarkets this fall.

But the new sweetener currently isn't getting much attention at the retail level. Retailers interviewed by SN didn't carry the products and weren't aware of the new Splenda sweetener. That was not surprising, considering that the trends in new beverage products are related to flavor and nutrients, as opposed to calories.

As with any new product, new beverages need the support of in-store merchandising and promotion to be successful.

"Promotions are a regular part of our merchandising, especially in the warmer summer months," said Fitz. "We'll put significant dollars into promotions during that time of year." Throughout the year, new beverages are usually promoted through price points, and occasionally with a buy-one-get-one-free promotion.

"We always try to demo products," said Lucia of Lunardi's. "We just naturally get a better response when the beverage is put into the hands of the customer. People like to know what they are buying, especially if it's a new product."

At Wild Oats, new beverages are usually merchandised in aisle end-stacks.

"We have point-of-purchase information readily available for customers, listing what's in the product as far as ingredients are concerned. We also tend to demo new beverages so that the customer can experience them instead of just reading about them," Kamibayashi said.

Food Markets Northwest, Seattle, has a slightly different approach. According to David Thorp, grocery manager for the store, all new beverage products are integrated at the shelf.

"We think it gives the consumers a chance to compare the new products to the products they normally would buy and opens them to the possibility of choosing a new product," Thorp explained.

"If the new products were stacked separately, we feel the customers might be intimidated by something unfamiliar or just naturally gravitate to the shelf they always choose from. So we make the new beverage as accessible as possible," he continued.

Food Markets Northwest has a new products section in its in-store circular that profiles items every week, Thorp said. The flier is another avenue used to familiarize customers with new items.

But who are the customers likely to pick up these new products? According to Thorp, they are in their late 20s or older and are more informed, educated shoppers. They read labels, know exactly what they are getting, and are more conscious about what they are putting into their bodies.

Kamibayashi agreed and added that they are likely to have a more athletic, active lifestyle.

"People are much more interested these days in what they are getting in a product, as opposed to what they don't want in terms of calories and fat," he said. "They don't let price stop them, and they are willing to pay more for products that deliver the benefits they want in terms of either taste or nutrients."

Said Lucia, "The trend now is that people are not worrying so much about diet or light beverages. They're going for a full flavor, without concern over calories."

Casper of Henry's finds that customers also gravitate toward new products initially because of their labels.

"They are attracted to cool or funky artwork on the labels, and seem to shy away from the traditional brands," he said. "They are looking for not just new, but different."