Starbucks move brings focus to healthy juice category

by Allison Gibeson
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With Seattle-based Starbucks taking a major step into the health and wellness segment through its acquisition of Evolution Fresh, the potential for beverage companies to grow by catering to consumer desire for better-for-you beverages has become crystal clear.

“If you look at beverage innovation today, I would say the single most significant driving force in new product introductions is healthier and better-for-you products,” said Gary Hemphill, managing director at Beverage Marketing Corp., New York. “It’s a fairly broad-reaching trend that cuts across all categories and at one time or another resonates with virtually all consumers.”

While it will be going head to head with world class competitors (see related story on Page 40), Starbucks has indicated that the acquisition of Evolution Fresh has helped it define the $1.6 billion super-premium juice segment and paved the way for its entry into the $50 billion health and wellness sector.

“Our intent is to build a national health and wellness brand leveraging our scale, resources and premium product expertise,” said Howard Schultz, chairman, president and chief executive officer of Starbucks. “Bringing Evolution Fresh into the Starbucks family marks an important step forward in this pursuit. Over the last year and a half, we have looked comprehensively at possible opportunities and chose Evolution Fresh because it stood above everything else in terms of premium quality, nutrition and potential for growth.”

Mary Egan, senior vice-president for strategy at Starbucks, said at the Morgan Stanley Global Consumer Conference that the company plans to follow a strategy selling juice that proved successful with its coffee in the early days of the company. Specifically, she said when Starbucks first started, consumers weren’t saying their coffee was bad and generally were satisfied with it, but Starbucks came along and delivered a new product the company believed to be technically superior. She said the company is doing the same thing with Evolution juice — presenting a technically superior product consumers didn’t even realize they
were missing.

Ms. Egan said the product is “technically superior” because it has no flavors added and uses high-pressure pasteurization as opposed to heat pasteurization.

“Evolution is not a deal that’s just about juice,” Ms. Egan said. “This is a deal about health and wellness. Health and wellness is a new platform for Starbucks. As we look at acquisitions, we’re looking at them very much with a health and wellness lens. Over the past several years, we’ve done a number of things to bring more health and wellness into the offerings we have for our customers. We’re going to continue in that vein, so this is just the beginning.”

Ms. Egan also said Starbucks is planning some health and wellness retail stores in the future.

In terms of successful retail health and wellness juice products, Mr. Hemphill said Trop50 from Tropicana, which is marketed as having 50% less sugar and calories and no artificial sweeteners, has been especially successful.

With such a focus on health and wellness in the marketplace, categories not positioned primarily as such might need to refocus.

“We have seen the carbonated soft drink category have soft performance for a number of years now, and one of the reasons for that is the category is positioned primarily as fun refreshment, and consumers more often than not are looking for healthier refreshment today,” Mr. Hemphill said.

Carbonated soft drink manufacturers are looking at natural sweeteners and flavors as well as lower-calorie options to convey health, but ultimately Mr. Hemphill said health and wellness means different things to different consumers. He said some consumers view diet soft drinks as healthier because they have fewer calories, but other consumers don’t see diet soft drinks as healthy because they aren’t all natural.

When it comes to specific functional benefits consumers are looking for in their beverages, Mr. Hemphill said energy is the No. 1 functional success story in beverages today.

“It’s hard to think of a consumer need state that is bigger and broader than energy,” Mr. Hemphill said.
He said virtually all consumers relate to the need for energy at some point or another during the course of the day, and consumers feel the energy products on the market deliver on the promised benefit. He also noted relaxation beverages have received some attention in the market, but this benefit isn’t as easily definable as energy, and is more subjective. In functional beverages, he said it’s key for consumers to understand what the product’s benefit is and for the product to actually deliver on the benefit.

“The demand is there for healthier products,” Mr. Hemphill said. “You are going to continue to see innovation around health and wellness. I think that’s going to be the focal point. How that manifests itself and morphs as time changes depends on what’s important to consumers and how they define health and wellness.”

Starbucks competing with Coca-Cola, PepsiCo in juice category

Based in San Bernardino, Calif., Evolution Fresh, Inc. will be a wholly-owned subsidiary of Starbucks Corp. The acquisition of Evolution by Starbucks places the latter in direct competition against beverage giants PepsiCo and Coca-Cola, which, respectively, own Naked Juice and Odwalla.  PepsiCo acquired Naked Juice in 2007, and Coca-Cola acquired Odwalla in 2001. Jamba Juice also will be a competitor, especially with all of its products available in retail stores. Starbucks plans to expand Evolution Fresh distribution beyond current channels into Starbucks company-owned retail stores.

Evolution Fresh was started by the original founder of Naked Juice, Jimmy Rosenberg, and is currently sold in retail stores on the West coast, including Whole Foods Markets and PPC. Starbucks has named Mr. Rosenberg chief juice officer of Evolution Fresh, and he will lead product innovation and development of the brand. Starbucks calls Evolution Fresh “one of the only true juiceries left in the industry that still cracks, peels, presses and squeezes its own raw fruits and vegetables.”

“Consumers trust the Starbucks brand to deliver on superior best-in-category quality and taste,” Mr. Rosenberg said. “On behalf of all of us at Evolution Fresh, we are proud to join the Starbucks organization.”

According to SymphonyIRI Group, a Chicago-based research firm, total supermarket, drug store and mass merchandise sales of refrigerated juice and juice drinks in categories excluding Wal-Mart totaled $4,440,991,000 for the year ended Aug. 7. This was up more than 2% from the previous year. Odwalla sales of refrigerated juice/drinks over the 52 weeks ended Oct. 30 were $109,975,900, down 4% from the year before. Naked brand juice sales were $268,461,300, up 16%.

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