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Flavor and Function

Consumers are still focusing on what is best for them, and health and wellness trends have been driving innovation in departments throughout the store. And when it comes to refrigerated beverages, products that promise functionality or naturally holistic benefits are beginning to gain mainstream popularity. In fact, while the overall U.S. beverage market volume shrank by 2% in 2008, 22,627 new beverage

Consumers are still focusing on what is best for them, and health and wellness trends have been driving innovation in departments throughout the store. And when it comes to refrigerated beverages, products that promise functionality or naturally holistic benefits are beginning to gain mainstream popularity.

In fact, while the overall U.S. beverage market volume shrank by 2% in 2008, 22,627 new beverage products were introduced worldwide in the same year — an 18% increase from just three years before, according to Mintel's Global New Products Database.

“Despite the general weakened performance of refreshment beverages in the last two years due to the economy, there are some bright spots,” Gary Hemphill, managing director for Beverage Marketing Corp. in New York, told SN. “Coconut waters have begun to grow and several other smaller niche segments have emerged.”

Two drivers are spurring sales in the beverage market, according to the “Beverage Trends: Culinary Trend Mapping Report,” recently released by the Center for Culinary Development, San Francisco, and Packaged Facts, Rockville, Md.

First, the “better-for-you” category has continued to perform well, benefiting functional drinks, drinks that feature nutritional boosts and holistic wellness beverages. The other driver is consumers' “quest for quality,” which benefits organic, local, artisan-made and retro/nostalgic beverages.

“Consumers want products that are refreshing but have nutritional and taste benefits as well,” said Ted Taft, managing director for Meridian Consulting, Wilton, Conn. Taft added that this shift has been one factor behind the ongoing softness in the carbonated soft drink category.

At Publix Super Markets, Lakeland, Fla., refrigerated functional beverages like kombucha, coconut water and super-premium juices are doing surprisingly well considering their price tag, noted spokesman Dwaine Stevens.

“They are continuing to grow,” Stevens told SN. “We added GT's kombucha to our GreenWise Markets last year, and they've done well enough that we added additional variety and have advertised them. Coconut waters and [brands] like Sambazon, Bolthouse Farms and some of the Naked Juice varieties are also performing well.”

Publix expanded space for these products by removing some of the duplicate varieties among brands it had in its refrigerated cases.

“Our customers [were] asking for them,” Stevens explained. “Also, because they have become more mainstream, distribution is now easier to obtain, so getting them to our stores is easier.”

For now, Publix only offers kombucha in its GreenWise Markets and merchandises it in the grab-and-go refrigerated sections at the front of the store. Super-premium juices are offered at all stores in the produce section, while coconut water is only available in the non-refrigerated section, Stevens said.

“Coconut water has been a staple item for our Hispanic customer for years,” he said. “In addition to the varieties found in the traditional sections of the store, several varieties and sizes of the coconut water can be found in our Hispanic sections.”

Dorothy Lane Market, Dayton, Ohio, carries both kombucha and coconut water, and has recently just expanded its kombucha offerings to eight varieties.

“The kombucha has definitely become really popular; it's a big seller,” said Joy Kemp, healthy living director for DLM. “The coconut water, we had had several years ago and it did not go over well. But due to popular requests for it, we have recently brought it back in.”

The coconut water at DLM is also currently carried in the non-refrigerated section.


A shortage of cooler space has always posed a challenge for retailers and department managers who would like to try something new with their refrigerated beverages.

But Michelle Barry, president of Tinderbox, a culture- and trends-focused division of The Hartman Group, Bellevue, Wash., said she believes the category is performing well enough that many retailers should consider finding new ways to add new items and expand selection.

“At this point, we'd argue that [refrigerated functional beverages] could benefit from additional or new space in retail,” Barry told SN. “Single-serve coolers are a must for new beverages, but the competition is intense and can be overwhelming.”

If there isn't enough real estate in the refrigerated section, Barry suggests that secondary placement in perimeter departments could be beneficial in terms of building awareness and driving trial of new items.

“For example, put the coconut water next to the coconuts, put kombucha next to the mushrooms — position the products to help shoppers understand what the product is, as most [shoppers] are unfamiliar and have never tried these flavors or ingredients,” she explained.

“Reduce the risk for trial by creating a better experience in the store.”

Most retailers have been working with functional beverages at least to some degree, industry experts agreed. Of course, some are doing more than others, with variation more evident by channel than by individual retailer.

“Natural and specialty channels are much further along the continuum than mainstream grocers; mass or club and drug and c-stores really aren't on the radar,” Barry told SN.

“Stocking and marketing these products, even just a few SKUs, does create a certain halo of health and wellness, but there are other gateway products that would make better sense to pursue more aggressively depending on the retailer's brand and product mix.”

Taft of Meridian Consulting agreed that trial in the market is important and that retailers need to think about beverages in a less category-centric way.

“The source of volume is very broad for a new product,” Taft said. “Manufacturers tend to look at beverage ‘categories' based on their own products — for example, coffee, tea, CSDs, flavored water and so on. The consumer is less ‘category-centric' and more focused on beverage options at different times of the day.”

Taft added that as a result, some retailers, like Kroger, are trying to develop a more integrated beverage strategy.

“This recognizes the broader mindset of consumers, and also allows new product segments to catch on and receive awareness and trial,” Taft said.

“Retailers need to stay on top of this since things can change quickly — they need to identify winners and losers. They also need to have a ‘beverage' mindset that transcends individual manufacturer-defined categories.”

Drinks like kombucha and coconut water have gradually moved into the spotlight as suppliers highlight their all-natural nutrition and health benefits. For example, kombucha is full of probiotics, antioxidants and amino acids, while coconut water, a natural isotonic beverage, is being billed as “nature's sports drink” by at least one brand.

Barry of The Hartman Group agreed and said these beverages are quite compelling in that they are fulfilling a broader trend in which consumers are seeking out naturally functional ingredients in beverages.

“These new products are also well differentiated amidst a wall of constantly evolving choices in beverages, particularly in single-serve,” she said.

“The flavor profiles are unique, narratives are rich, ingredients have historical validity and, in many instances, the brands have been well executed. These are all critical touch points for shoppers as they're standing at the shelf making decisions.”

“The Beverage Trends: Culinary Trend Mapping Report” cited coconut water at the middle stage of its Trend Map, and listed exotic functional flavors such as kombucha as a beverage trend.

“More consumers are reading labels, looking to avoid artificial ingredients of all kinds, whether color, flavor or sweetener,” the report said. “They are also looking to eat and drink more healthfully, to combat obesity, maintain weight or lower cholesterol.”

The report also stated that consumers are looking for drinks that correspond to their personal values, whether those values are centered around organic, natural, locally made, artisan or premium food and drink.

In addition, the report noted that 53% of U.S. consumers purchased a product specifically for its antioxidant content — a trend that should benefit a broad spectrum of functional beverages.

Stevens of Publix said its perception is that customers have heard or read about the health benefits of these products and are using them as a supplement.

Kemp of DLM agreed.

“I think people are just becoming more health conscious,” she said. “They don't want to have to go to the doctor, it's too expensive, and they're trying to find alternatives and using it kind of as a supplement to their diet.”

The Hartman Group has seen a variety of shopping behaviors because each product tends to serve a unique need or occasion, Barry said, adding that drinks like coconut water also appeal across demographics.

“For instance, we've seen Boomers and children drinking coconut water, each for different reasons — ranging from taste to hydration to lowering blood pressure — and within different contexts, such as a substitute for a glass of wine or after a soccer match,” she said.

Kemp said she's seen younger consumers really believing in kombucha.

“I'd say it is younger consumers that are buying,” Kemp said. “A young girl who's in her late 20s that works in our department thinks it's wonderful, and she has a little girl that loves it too. I'm seeing the popularity.”

Hemphill said he believes that, in general, these beverages appeal to similar demographics that are likely to purchase super-premium juices like POM, Naked Juice and Odwalla.

“Most of these products appeal to a fairly sophisticated, educated consumer with a higher disposable income,” Hemphill said. “This demographic group is generally open to trying new products and willing to pay the premium that they cost.”

Premium pricing hasn't slowed sales, though. Millennium Products, the privately owned business that sells GT's Organic Raw Kombucha and Synergy brands, brought in an estimated $50 million in revenues last year, according to published reports.

And, Coca-Cola recently purchased coconut water supplier Zico, offering it a $15 million investment that was accepted by the company in September. PepsiCo had already acquired Amacoco, Brazil's largest coconut water company, in August.

Barry said she has no doubt that distribution of these products will improve quickly as these major manufacturers enter the market with the purchase of these brands.

“This will resolve some of the significant barriers of awareness, mainstream availability and price,” she said. “What it won't resolve are barriers of taste, familiarity and brand trust.”

Taft agreed, saying that the key issue with all of these products is staying power.

“Particularly in juices, there are many products, blends and brands that are introduced,” Taft said. “Some catch on broadly, like Snapple; some are regional, like Nantucket Nectars; others last for a period of time and then fade.”

But, retailers have to remember to be as open to new products as today's consumers are open to trying them, Hemphill said.

“Today's consumers want healthy refreshment and variety, but they also want value; most successful new products will rate high on that criteria,” he explained.

“As long as the categories have growth, we will be seeing increasing amounts of emphasis on them. Retailers are seeking brands that can grow in today's uncertain economic climate.”