|Carbonated soft drinks remain under pressure, with declines affecting diet brands in particular.|
KANSAS CITY — Bottled water sales grew. K-Cup partnerships formed. An energy drink manufacturer found an avenue for global growth.
The beverage industry experienced success in 2014, but one category, formerly a steady performer, stumbled. Carbonated soft drink manufacturers dealt with dropping sales for diet brands.
“Diet is taking us down,” said Larry Young, president and chief executive officer, in a July 24 conference call to discuss second-quarter earnings for Dr Pepper Snapple Group, Plano, Texas.
He said the company had programs for the second half of the year designed to address the diet soft drink situation. Dr Pepper Snapple Group was testing naturally sweetened carbonated soft drinks that have 60 calories per 12-oz can, Mr. Young said. The drinks are sweetened with sugar and stevia.
The Coca-Cola Co., Atlanta, also had a diet problem as Diet Coke and Coca-Cola Light declined mid-single digits in the second quarter ended June 27, said Muhtar Kent, chairman and c.e.o. of Coca-Cola Co., in a July 22 conference call.
“While this was a sequential improvement from the first quarter, we do recognize that we have more work to do here,” he said.
The company pointed to success for its flagship brand, Coca-Cola, which grew 1% in volume, both globally and in North America, in the second quarter. More than 60% of the volume increase in brand Coca-Cola in the second quarter was driven by double-digit growth in mini-can and 16-oz intermediate consumption packages.
PepsiCo, Inc., Purchase, N.Y., posted double-digit growth in mini-cans and 12-oz glass bottles in the second quarter ended June 14, said Indra Nooyi, chairman and c.e.o., in a July 23 earnings conference call. Carbonated soft drink volume declined 2% in North America, though.
The soft drink category overall faced challenges. A July 7-10 Gallup poll showed 63% of Americans were trying to avoid soft drinks, which compared to 51% from July 8-11, 2004, and to 41% from July 9-11, 2002. The percentages of Americans trying to avoid sugar were 52% from July 7-10, 2014, 51% from July 8-11, 2004, and 43% from July 9-11, 2002.
“Since 2002, soda and sugar have moved into the category of food a majority of Americans appear to consider bad for them,” the poll’s authors said.
U.S. retail sales of carbonated beverages for the 52 weeks ended Aug. 10 were $19,159,834,624, a decrease of more than 2% from the previous 52-week period, according to Information Resources, Inc., a Chicago-based market research firm.
|Keurig Green Mountain and the Coca-Cola Co. are developing Keurig Cold, a home cold beverage system.|
Keurig’s next move
Sales figures were more positive for single-serve coffee. As fall approached, the industry awaited the next innovation, the Keurig 2.0 brewer, from Keurig Green Mountain, Waterbury, Vt.
“We continue to execute on our three key priorities: the imminent launch of our new Keurig 2.0 hot beverage system, the transition to portion packs that are compatible with the 2.0 system and adding brands to the Keurig system that will provide consumers with even broader choice and variety,” said Brian Kelley, president and c.e.o. of Keurig Green Mountain, in an Aug. 6 conference call to discuss third-quarter earnings.
Keurig has a partner in the J.M. Smucker Co., Orrville, Ohio, which owns the Folgers brand.
“Clearly we are confident that we are with the right partner,” said Mark Smucker, president, U.S. retail coffee for the J.M. Smucker Co., during an Aug. 20 conference call to discuss first-quarter earnings. “Our partnership with Green Mountain, as we’ve said before, has been fantastic, and we continue to be optimistic about that. We will play in all of the formats that the 2.0 machine will brew.”
Another partnership was announced in August. Keurig Green Mountain will license, manufacture and distribute branded coffees from Kraft Foods Group, Inc., Northfield, Ill., in formats compatible with Keurig brewing systems under a multi-year agreement.
U.S. sales of single-serve brewing systems grew 8% to $930 million in 2013, according to The NPD Group, Port Washington, N.Y.
Private label single-serve beverages increased 90% in the second quarter of 2014 as measured by I.R.I., said Sam Reed, chairman, president and c.e.o. of TreeHouse Foods, Inc., during an Aug. 7 conference call to discuss second-quarter earnings. TreeHouse Foods, Oak Brook, Ill., has about two-thirds of that private label business, he added.
During the conference call, Mr. Reed said TreeHouse has developed an unlicensed single-serve coffee pod that is compatible with Keurig Green Mountain’s 2.0 system. Earlier this year TreeHouse filed a lawsuit against Keurig Green Mountain that claimed the 2.0 system is anticompetitive.
“Well, given the pending litigation, I really can’t comment about the prototypes and the process by which we reverse-engineered this, but I will stand by the statement I made also that what we’ve done once again here is, in this case, we’re not only earning again the trust of our consumers, but in a rare move for grocers we have actually earned their gratitude,” Mr. Reed said Aug. 7.
U.S. retail sales of ground coffee from Keurig Green Mountain, the vendor category leader, were $1,631,424,896 for the 52 weeks ended Aug. 10, which marked a 21% increase from the previous 52-week period, according to I.R.I. Folgers, the leading brand, had sales of $1,247,187,456, a 9% drop.
|Tea is growing in the single-serve category.|
Single-serve tea, too
Keurig has a presence in the tea category as well.
Honest Tea will become the first Coca-Cola Co. brand to be available in K-Cup packs, Coca-Cola and Keurig announced Sept. 3. The two companies back in February signed a 10-year agreement to collaborate on the development and introduction of Coca-Cola’s global brand portfolio for use in Keurig’s Keurig Cold at-home beverage system.
Coca-Cola had U.S. retail sales of $47,707,708 in canned and bottled tea in the 52 weeks ended Aug. 10, according to I.R.I. The company trailed category leader Pepsi Lipton Tea Partnership ($687,413,682) along with AriZona Beverages USA L.L.C. ($529,973,312) and Dr Pepper Snapple Group ($282,975,584).
Packaged Facts in March forecast that sales of tea will reach $25 billion in 2014. Retail sales will account for $6.2 billion while food service sales will account for $18.8 billion. Ready-to-drink canned and bottled tea sales are flat, and instant tea mixes are declining, according to Packaged Facts.
A Monster deal
More opportunities to increase global energy drink sales materialized on Aug. 14. Coca-Cola that day announced it will acquire about a 16.7% ownership interest in Monster Beverage Corp., Corona, Calif., and will have two directors on Monster’s board of directors. Coca-Cola will transfer ownership of its worldwide energy business, including NOS and Full Throttle, to Monster while Monster will transfer its non-energy business, including Hansen’s Natural Sodas and Peace Tea, to Coca-Cola. Also, Coca-Cola will become Monster’s preferred distribution partner globally.
“I would think this is the first time that any brand has truly got itself into and become a true part of the Coke international system,” said Rodney Sacks, chairman and c.e.o. of Monster Beverage Corp., in an Aug. 15 call.
|As part of a deal announced in August, Coca-Cola will transfer ownership of its worldwide energy business, including NOS and Full Throttle, to Monster Beverages.|
He added, “Obviously, our primary objective is to end up with Monster as a truly global brand. We believe this will become a real competitor, and the energy industry will really, we think, in the long term become an industry brought down to Red Bull and ourselves.”
Monster Beverage Corp. had U.S. retail sales of $820,583,232 in the energy drink category for the 52 weeks ended Aug. 10, which marked a 15% increase from the previous 52-week period, according to I.R.I. Category leader Red Bull North America saw sales increase 5% to $899,641,984.
ResearchandMarkets, Dublin, Ireland, in January 2014 forecast the global energy drink market to have a compound annual growth rate of 13% from 2013-18. The increasing use of natural ingredients in energy drinks may spark growth, but government regulations might prove a challenge.
In sports drinks, category leaders offered cleaner labels. Coca-Cola recently removed brominated vegetable oil (B.V.O.) from fruit punch and strawberry lemonade bottle varieties of its Powerade sports drinks. PepsiCo recently removed B.V.O. from its Gatorade sports drinks. An emulsifier, B.V.O. is recognized as safe by the Food and Drug Administration, but it also is found in flame retardants.
Gatorade Fierce Blue Cherry also entered the market in 2014.
Bottled water and juices
Bottled water sales in the United States grew by 4.7% in 2013 to reach a volume of 10 billion gallons, according to the Beverage Marketing Corp., New York. Per-capita consumption was 32 gallons. Nestle Waters North America had U.S. retail sales of $2,112,080,256 to lead the category in the 52-week period ended Aug. 10, according to I.R.I.
In juices, Harvest Hill Beverage Co., a portfolio company of Brynwood Partners VII L.P., acquired the Juicy Juice business from Nestle USA in July. U.S. retail sales of refrigerated orange juice were $3,131,202,304 in the 52 weeks ended Aug. 10, a 5% decrease from the previous 52-week period, according to I.R.I.