BMI Archives Entry
Tho KO has explicitly made case that its refranchised areas have outperformed those still operating as part of Coca-Cola Refreshments, Modi's done some field work of his own to gauge impact. His conclusion: markets that have been refranchised for 6 months or more have seen "significant improvement" in volume of 500-1,000 basis points. (In biz where low single-digit growth often is grounds for exultation, that's big change.) Modi offers 5 reasons it's having such outsize impact, including a couple we hadn't considered much. For one, Coke seems to be picking its partners carefully. "Not all bottlers are created equal," he writes. "Some are better operators, others are more cooperative with TCCC." He feels it's no accident that Coca-Cola Iberian Partners, considered role model on cooperation, is playing instrumental role in consolidation in Germany with Coca-Cola Enterprises (CCE). His 2d rationale: while CCR prefers "dynamic" model of shifting route drivers from day to day, most indie partners opt for keeping same drivers in place, building stronger relationships with retailers, particularly up-and-down-the-street stores that blow out the most high-margin 20-oz impulse packs.
Third is "the bottler match" - indie bottlers' propensity to boost their own spending when KO pumps marketing dollars into its brands. Fourth pertains to out-of-stocks, which Nik estimates accounts sap about $1 bil in sales per year, or 4% of KO's total volume in N Amer. "Based on our field work, it seems three-quarters of the problem is at Walmart and the remainder primarily in the up-and- down-the-street channel (or smaller independent c-stores)." The UDS issue can be resolved via better execution as KO refranchises, Modi believes. On other hand, Walmart issue "will likely take a bit more finesse, as that requires having Walmart change the amount of inventory they take and allowing KO merchandisers into the store more often." His 5th reason: he believes KO has moved away from offering perpetuity franchising deals in favor of 10-year perpetual renewable agreements, following model it has long employed outside US. Under that model, bottlers who don't hit performance targets get 1-2 years to cure the problem at risk of losing franchise. Co had less reason to be so disciplined in US first time around, as it was anxious to put franchisees in place quickly during post-World War II growth spurt.
In analysis Nik doesn't draw any comparisons, onerous or otherwise, to PepsiCo, which continues to maintain that integral system is more effective and conducive to innovation, nor with Dr Pepper Snapple Group, which at one point had made strengthening its company-owned bottling systems a strategy priority before opting instead to accept large payments from KO and PEP to retain rights to certain DPS brands after both had moved to buy their bottlers at start of decade.
AriZona Vet Roberts Builds Co-Packing Plant in Wis; Develops Cira Aloe Line, Splurge Teas/Juices
Last BBI readers heard about NJ-based AriZona Iced Tea vet Joe Roberts, he was pushing tea and energy brand called Cintron (BBI, Jun 14 2007). Citing settlement agreement, he's not saying much about where that venture stands, but he's moved on to flock of new undertakings. Operating as Increase Beverage, where he's prexy/ceo, Joe has been building value-priced but all-natural iced tea and juice line called Splurge intended to vie with AriZona and general-market-oriented aloe vera drink called Cira Aloe, both of them shelf-stable brands targeting DSD distribution. Both have found prime distribution options in home market of NY: Splurge recently got picked up by Big Geyser while Cira's been moving thru PepsiCo's Tropicana network. As intriguing, he and his chmn/cfo Dan Wergin, a Wisc entrepreneur and commercial real estate investor, are building expansive, 6-line production facility in state's Manitowoc/Two Rivers area on Lake Mich. Roberts boasts ties to Mexico's Femsa, helping develop private-label brands for its Oxxo chain that will be produced at new plant when it comes online. They're working with investor Sam Fairchild, former colleague of Wergin in wind energy biz, to take co public down the line. Here's rundown on the brands and the plant.
Splurge is packed in brightly hued, full-wrap 20.3-oz PET bottles prepriced at 99 cents. Sweetened with cane sugar, line is out in 5 real-brewed teas, from Lemon Tea to Cranberry Red Tea, and 7 juices, including Green Apple, Tropical Delight, Fruit Punch and Strawberry Lemonade. They come in at 60 calories per serving, prompting slogan, "Splurge on taste, not your waist." It's intended to offer natural, lower-sugar alternative vs NY mainstays like AriZona and Brooklyn Bottling's Tropical Fantasy. Launched last Jun, it's been picked up to date by DSD shops Metro in Philadelphia, Leadoff in Baltimore/Wash, MillerCoors house Triangle in Wis, Tri-State in Ohio and Vision Sales in Chicago. Geyser added it about a month ago now.
Cira goes out as pulp-laden aloe vera drink that seeks to break category out of ethnic niche while offering rival to general-market rivals that are gel-based and the mainstreaming ethnic brand Alo that doesn't offer exclusive contracts to its DSD houses. Produced from pulp and concentrate sourced in Thailand, Cira is out in half-liter, clear PET bottles with vibrant renditions of aloe leafs and fruits, in Original, Watermelon Strawberry, Peach, Fruit Punch and Mango flavors. At 62 calories per serving, it's well below sugar content of ethnic entries. Brand name, Italian for "sun," is supposed to carry upscale, stylish vibe. SRP is $1.79. Out in NY a year now, Cira has has generated better than 50% repeat biz via Tropicana, backed by feet on street. Aside from Trop in NY and Swartz & Sons in DC, it's built similar DSD network to Splurge so far.
Wisc Plant to Have Coldfill, Hotfill, Retort Capability In Wisc, Wergin's been on mission to find new uses for extensive plants abandoned by area's shipbuilders and other mfrs. So he's repurposed former Manitowoc Cos peninsula on Lake Mich as wind farm called Tower Tech Holdings (now Broadwind Industries) before teaming with Roberts in late 2012 to turn former electronic timers plant once operated by AMF's Paragon unit into bev plant to be called Paragon Packers LLC. (The real estate itself is owned by Wergin and Roberts under Paragon Partners name.) The 316K-sq-ft plant situated on 27 acres is to be equipped with 3 hotfill lines, 2 coldfill lines and 1 retort line to handle iced-coffee and hot-chocolate needs of Femsa. Last in hands of Jewish parochial school in Chicago, it's in mint condition, Wergin told BBI on Fri, and boasts water source that's clean enough to be sold into Green Bay municipal system. Construction is under way, with equipment sourced in China. All told, including building, it's $65 mil investment, Joe said. It's anticipated to be running by year-end.
Mixed Opinions on Coke's 'Unified' Packaging
So far investors are giving "mixed reviews" to Coca-Cola's announced "unified" packaging that makes greater use of its iconic red color across Coke family of brands, reported Advertising Age. It notes that Sanford C Bernstein poll of 65 investors found "close to 20%" had some fears new look would confuse customers, tho some offered "some credit for its efforts to unify the brand." Packaging changes, which roll out in Mexico next month and won't hit US for at least a year, "could prove to be the biggest test" of KO's new one-brand strategy, noted mag. One creative design agency dir, who didn't work on new look, praised KO's new unified pkgs. "I think it makes all the sense in the world to start to own red more, which sounds crazy to talk about a brand like Coke that arguably owns red more than any other brand on earth," said Sam Becker of Brand Union. As reported, new strategy puts more marketing oomph behind broad Coke trademark than individual brands like Classic Coke, Diet Coke, Coke Zero and Coke Life.
Because BPA is essentially ubiquitous in containers for canned foods and bevs, Calif's Office of Environmental Health Hazard Assessment (OEHHA) issued emergency regs to guide placement of warning labels in retail establishments starting May 11. That actually represented retreat from earlier plan to require warnings on the cans themselves - a move that some Calif officials worried would scare stores and shoppers in poor neighborhoods away "away from some of the only fruits and vegetables available - canned ones," as LA Times reported. Instead, stores are being required to post general warnings at checkout counters about dangers of BPA and note that some canned and bottled products being sold have liners containing the chemical.
Currently, American Bev Assn, Beer Institute, Grocery Mfrs Assn and other trade groups are working together "to establish a collective means to provide retailers in California with notice of the emergency regulation, warning signs and identification of covered products on behalf of all of our member companies with products sold in the state," per ABA, which has set free webinar on issue for this coming Tues.
Most in food/bev biz say it's confusing issue all around. With BPA levels considerably higher in steel cans used for foods, pressure is higher on food makers like Campbell Soup, which recently said it will stop using can linings containing BPA by mid-2017, seguing to linings made from acrylic or polyester materials. Phaseout is beginning right away. Recall that just a few months earlier, CPB responded to another perception-is-reality issue by saying it's phasing out GMOs, too. On bev side, exec at can co told BBI yesterday, "the federal government has set (acceptable) levels and we're well below it, on order of 1,000 times." Still, now that issue is out in open, BPA-NI material "is quickly coming to market. We're in production now." Exec requested that neither he nor his co be identified.
Given minute safety risk with bev cans, issue has put on the spot on marketers like Zevia, which employs aluminum cans for its cold-filled stevia-sweetened sodas but has typically taken progressive stance on issues. Brand's website seeks to put consumers at ease, assuring them that "the FDA approved liner in our cans contains a trace amount of bisphenol A. But what does that mean? That level is 2,000 times lower than the FDA acceptable level. Also, experts say bisphenol A is released at high temperatures. Unlike canned vegetables, for example, our production process does not involve heat." (Zevia cans are filled at 34 degrees F.) "We believe in and support Proposition 65," Zevia ceo Paddy Spence told BBI last week. "But how soon will there be an alternative? The jury's still out." As for BPA-NI label, which is drawing derision in some quarters, Paddy noted naming logic is not much different than calculation that went into GMO issue, with nobody claiming their product is "GMO-free" but rather saying it's "non-GMO."
SCANNER TRENDS: Volume Sags 5% but CSD Pricing Stays Solid in Mid-Cycle Update; Red Bull Down
Slower Energy Gains; Red Bull Down Energy drinks volume growth slowed to +3.5% last 4 wks compared to gains over 12-wk period (+4.7%) and 52-wk period (+7.5%). That's even with slight (-0.1%) decline in avg prices for segment last 4 wks. Red Bull fell 3.3% last 4 wks in all-channel stores on avg 1% price increase. Monster Energy volume up 4.1% (generally in line with its 12-wk trends) on avg 1.8% price hike last 4 wks. That's down from +2.7% pricing for 12 wks. Rockstar volume slowed to +9% last 4 wks, half its gain pace for 52 wks. Avg prices on Rockstar up just 0.4% last 4 wks. PepsiCo (Amp) up 7.5% while avg prices were basically flat last 4 wks.
Sports Drinks Volume, Pricing Slide Sports drinks volume was flat last 4 wks, down from 2.7% gain for 12 wks. Avg prices slipped down to -0.3%. PEP (Gatorade) volume off 0.5% (vs 2% gain for 12 wks) with 1% price drop last 4 wks. KO (Powerade) slipped 1% (vs +2.5% for 12 wks) with avg price drop of 2%. That's same price decline for 12 wks as well. Meanwhile private-label sports drinks posted 6.6% gain on avg 6% price increase last 4 wks.
Water Gains Decelerate Bottled water volume increased 5.2% in all-channel stores last 4 wks, down from gains of 8.2% for both 12 and 52 wks. Avg prices were down 1.8% in latest period. Nestle was only top water supplier to decline, off 2.4% despite avg price drop of 0.8% last 4 wks. Coca-Cola water volume was up 6.7% (matching 12-wk gain pace) with steep 3.6% price drop. PepsiCo gain pace was more than halved to +5% last 4 wks vs near 12% gain for 12 wks. PEP's avg price improved from -4% for 12 wks to -2.7% for 4 wks.