New

financial filing by Coca-Cola has offered evidence that ongoing spinoff of bottling and distribution operation to

outside partners could offer bigger boost to margins and return on invested capital than some KO-watchers had

previously presumed. That’s conclusion drawn by Wells Fargo’s Bonnie Herzog from close scrutiny of 8-K

filing dated Wed, which broke out Coca-Cola Refreshments bottling arm from N Amer operations and reclassed it

as part of co’s Bottling Investments Group (BIG), which KO brass has sometimes called “hospital ward” to

reflect temporary status of ops that are housed there until attractive enough to go to outside franchise partner.

Move had effect of making more visible CCR performance that, even at sales beyond $10 bil, was buried as part

of huge N Amer biz. So what did Bonnie see?

Scrutinizing restated finances, she’s trimmed back her earnings outlook for 2017 fiscal year by 12 cents to $2.09.

But looking a bit further out to 2018, by which time KO plans to have entire bottling system in hands of outside

partners again, she sees significant boost compared to fiscal year 2015, when refranchising initiative was just

getting going. Gross margins should surge to 68% from 60.6% in 2015, operating margins should soar to 36.5%

from 23.4%, and ROIC widen to 34.2% from 20.6%. Those are big numbers! “Further,” she adds, “despite the

significant $13.2 bil decline in revenue from FY15 - FY18E as a result of the refranchising, we still expect high-

single-digit EPS growth to continue over that time period, an impressive feat in our view.” Of course, in addition

to getting assets worth roughly $10 bil off co’s capital base and placing distribution operations in hands of more

agile outsiders, KO will get solid revenue stream from quarterly territory rights payments as well as normal

concentrate sales payments. “Importantly,” writes Herzog, “KO will likely recover its initial investment in CCE

(the bottler it acquired to establish its in-house bottling system); however, the new model should have far more

synergies and alignment than the system before KO purchased the NA bottlers.” Analyst has got an “outperform”

rating on KO shares.

Voss Water seems to

have drawn encouraging reception to the flavored sparkling entries it’s launching. Hitting shelves now, new

culinary-style entries in Lemon Cucumber and Tangerine Lemongrass have won acceptance at broad range of

retailers, including WaWa, Stop & Shop, HEB and Safeway Northern Calif/Pacific NW, co indicated.  To back

new items, NY-based co will be running in-store sampling programs from May thru Jul, as well as mixology

programs for on-premise biz where Voss traditionally has had strong presence.

Drinkable soup Tio Gazpacho apparently has become first bev to enter portfolio of

301 Inc incubator established by packaged-food giant General Mills, which led $1.25 mil Series A round that will

be used by founder Austin Allan to proceed with previously disclosed push to offer smaller size at more

accessible price point. As recently reported, Austin is aiming to devise 10-oz bottle priced at $5 as complement

to core 12-oz bottle at $8, echoing other HPP players like Suja, Daily Greens and BluePrint who’ve been adding

smaller sizes at lower price and calorie count in hope of building broad grocery biz (BBI, Feb 16). Tio

Gazpacho’s capital raise was by crowdfunding player CircleUp, which last fall drew 301 Inc as first Fortune 500

co to park investment fund there with view to serving as “strategic funnel” steering innovative food plays onto

CPG giant’s radar. Venture arm’s website at 301INC.com lists its other partners as Beyond Meat (plant protein),

Good Culture (cottage cheese) and Rhythm Superfoods (nutrient-dense snacks). The unit also helped parent

General Mills acquire Epic Provisions . . . Pulmouone Foods has agreed to purchase assets of Vitasoy USA in

move to boost its clout in tofu segment, where it already plays in its native South Korea, Japan, China and the US

via base in Fullerton, Calif. Deal includes Nasoya, Azumaya and San Sui brands of Vitasoy, which is based in

Ayer, Mass.

Retail chain Pressed Juicery is latest to find itself in crosshairs of FDA

that’s taking increasingly skeptical view of high-pressure processing for refrigerated low-acid items, receiving

warning letter that expresses concern over execution of anti-pathogen safety measures at its Fresno, Calif, plant.

Agency is taking hard line that mfrs must employ control mechanisms to insure that pathogens don’t proliferate

even “should the juice, as offered for sale by the processor, be kept unrefrigerated in distribution or by

consumers. FDA believes that it is necessary to address the control of hazards that could occur in low-acid

refrigerated juices subjected to severe temperature abuse,” per its letter.

Letter dated Mar 23 and addressed to ceo Hayden Slater details its concerns over his Nov response to warning last

Oct that inspection had found “serious violations.” Agency points to control measures it feels don’t “consistently

produce, at a minimum, a 5-log reduction of the most pertinent microorganism(s) of public health significance

that is likely to occur in the juice, for at least as long as the shelf life of the product.” Letter can be found on FDA

website here: http://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2016/ucm492227.htm

Count Charlottesville, Va-based Lumi Organics among HPP players that’s going smaller on package size to get

price point down. Organic juice player has buttressed 16-oz bottle at $6.99 with 10-oz pack at $4.25, with Fresh

Market taking 4 of items chainwide while continuing with 16-oz. That 16-oz pack continues to do well at Whole

Foods too, said founder/ceo Hillary Lewis. All core items – including likes of Farmhouse Greens, Belmont Beet

and Upbeet Pear – have added smaller size, and there are pair of 10-oz- only additions: Jumpshot (kale, spinach,

collard greens) and Harvest Apple (using seasonal fruit). Its Wahoo Orange juice, using Valencia oranges, is

adding both 10-oz and, soon, 32-oz packs to mix.

On the way for summer is the Lumi Shot Box, retail 6-packs of 2-oz shots that are outgrowth of success brand

enjoyed last summer with shots in coffee shops and yoga studios in markets like Philadelphia. It’s available in 3

flavors: Fully Loaded (broccoli leaf, lemon, ginger), Hot Shot (beet, lime, jalapeno) and Gold Rush (turmeric,

ginger, pear, lemon, cayenne pepper) at single-unit retail price of $3.75. The fruit/veggie juices have shelf life of

50 days from date of HPP; the citrus/apple entries 60 days.

Unusually among many cold-press players Lumi (whose name is short for “Love U Mean It”) has been self-

distributing, not just in its core town of Charlottesville, but in Philadelphia, DC and Richmond/Virginia Beach,

with Whole Foods among retailers receiving brand that way. Lumi just added Charlotte to mix. And rather than

toll its product elsewhere, from start Lumi has operated its own small Hiperbaric HPP unit. (It’s reserved for

Lumi’s own needs, not for any outside tolling customers, Hillary said.)

It

won’t be a shock, but bottled water, energy drinks and RTD coffee were the growth stars of the liquid

refreshment bev segment in 2015, per newly tabulated data from consultancy Beverage Marketing Corp.

Measured by volume, RTD coffee surged 16.5% in 2015, while energy drinks soared 9.8%. Regular old bottled

water was up 7.9% and “value-added” bottled water up similar 7.5%. (That said, coffee, energy and value-added

water all remain small categories.) With RTD tea up 6.1% and sports drinks up 5.5%, only losers were CSDs (-

1.5%) and juice drinks (-2.1%). Bottled water could become #1 bev by volume as soon as this year, co noted.

“Consumers have spoken,” said BMC chmn/ceo Michael Bellas. “They’ve made their preferences clear. The

rapid growth in bottled water and functional and niche alternatives like energy drinks expresses a shift away from

most large traditional beverage categories.” All told, LRBs slightly accelerated their growth, rising 2.8% to 31.8

bil gals after 2.2% in 2014.

Among major trademarks tracked by BMC, top 4 all lost volume: Coke (-2.6%), Pepsi (-3.9%), Mountain Dew (-

1%) and Dr Pepper (-0.8%). But next 6 all gained: Nestle Pure Life, Gatorade, Sprite, Poland Spring, Dasani and

Aquafina. Gatorade, including variants like G2, returned to 1 bil gal level that it hadn’t seen since 2011.

Secretive

development project Juicero has revealed key details of “world’s first countertop cold-press juicer” as appliance

finally goes live, initially shipping to Calif customers. Enhanced site at Juicero.com shows stylish countertop unit

that’s crammed with sensors that scan juice packs’ QR codes for optimized pressing profiles and connects to

Internet for real-time updates. In contrast to recently unveiled bev appliances like Keurig Kold, derided for

clunky footprint, hardware occupies only about 10-inch- square space, with bead-blasted aluminum door and other

finishes offering upscale vibe. It’s claimed to offer 4 tons of pressing force within 31-lb unit via use of aircraft-

grade aluminum and precision-forged gearing components, replicating high-pressure processing employed by

marketers of juices like Suja, BluePrint and Daily Greens. Smartphone app, which is required for use and is

going live with hardware launch, offers detailed info on nutrients traced back to organic farms where plants were

grown. Packs, priced at $4-10 for 8-oz serving size, will be offered in 5 initial recipes like Sweet Greens, Spicy

Greens and Sweet Roots. Co is offering 30-day risk-free trial. No specific word yet on when it will move beyond

Calif borders. As noted in past, co has drawn array of tech-oriented capital as well as investment from endemic

bev player First Beverage Group.

Lotsa sugar buzz this week. Here’s a sampling:

1893, Black Dew Join ‘Real’ Race As PepsiCo rolls out 1893 line made with “real sugar,” Wall Street Journal

noted growing crowd of soft drink brands touting real or cane sugar instead of HFCS. “The goal for soda

companies to spritz up fizzling soft-drink sales. The appeal: Sugar is natural,” observed paper. As noted Tues

(BBI, Mar 29), ads for 1893 airing next week “feature a sommelier” touting brand’s “refined” taste. Boylan’s

Bottling’s sodas tout “in capital letters” that they’re made with cane sugar. Puck’s fountain sodas, along with

PEP’s Caleb’s Kola and Stubborn fountain line, also tout real sugar content. While HFCS works well for

AriZona Beverages flavors, even that co “is hedging its bets with its launch of Good Brew,” using “hand

selected” teas sweetened with real sugar. Push for more natural ingredients is showing up in scans. “Organic”

sugar sales were up 15% for year ended Feb 20, while sales of “natural” sugars increased 10.5%, per Nielsen. Of

course, most nutritionists say sugar is sugar and there’s no particular dietary benefit associated with “real” sugar.

Pepsi dropped another real-sugar bomb this week, too: it’s rolling out Mtn Dew Black Label. That’s “deeper

darker Dew” that works both “real” and “craft” into positioning: it features “real sugar, crafted dark berry flavor

and herbal bitters,” for times “when Dew Nation wants to live it up – with a touch of class.” Rollout is

culmination of deliberate strategy that saw matte black cans seeded at 600 colleges last fall, letting students’

social media efforts carry marketing burden. Results were successful enough that PEP is not only rolling out

entry but extending “Boldly Refined” campaign via such efforts as “Gentlemen of the Jacket” digital video

showing boarders, skaters, gamers and mixologists “crossing over to the classier side of Dew with the help of

putting on a unique jacket.” (Spot can be viewed here: https://www.youtube.com/watch?v=YYhqhWzJVmI )

Other elements of activation, which started a week ago at Austin’s South by Southwest fest, include grassroots

sampling bar featuring pop-up sampling bar. That’s moving pretty far from brand’s “Yahoo, Mountain Dew!”

hillbilly roots and continues in bev marketer’s vein of moving upscale via such other efforts as opening of a

lounge in NY’s trendy Meatpacking District.

Sugar Shaming At same time bev makers are eager to promote their brands made with real sugar, drumbeat to

disclose how much sugar is being consumed continues. This week NY Times ran opinion piece on high levels of

sugar in bevs. Noting soda taxes in Mexico and planned changes in UK (below), Times argued, “There are other

ways to encourage people to drink less soda. Perhaps the most direct is to tell them what’s in it, in a way that’s

easy to understand.” A bill in NY State proposed by Assemblyman Jeff Dinowitz would require warning labels

on bottles and cans with this message: “SAFETY WARNING: Drinking beverages with added sugar contributes

to obesity, diabetes, and tooth decay.” Similar proposals are being floated in Calif and Wash, noted Times.

Dinowitz, chmn of Consumer Affairs Committee, got bill thru his committee but so far hasn’t had much luck with

full Assembly. “It’s an uphill battle,” he acknowledged.

Will UK’s Tiered Soda Tax Be Better Policy? There are soda taxes and there are soda taxes. New tax on brink

of being passed in Britain is garnering attention for tiered structure that penalizes lower-sugar items less than

high-sugar items. Like sugar-free bevs, those with less than 3 teaspoons of sugar per 12-oz can escape tax, while

those with 3-5 tspn pay 9 cents and higher-sugar items pay 12 cents. Idea is to reward those who gravitate from

full-sugar to lower-sugar items even if they don’t abandon sugar entirely, unlike blunter instruments that have

been imposed in other jurisdictions like France and Mexico. NY Times analysis quoted expert who argued

structure could boost innovation. “If there were small changes they (bev marketers) can make to get under the

threshold without really affecting mouth-feel and taste, they may well do that,” said Urban Institute tax policy

expert Donald Marron.

Realignment at PepsiCo in wake of departure of Frito-Lay

chief Tom Greco is being interpreted as further advancement of so-called Power of One strategy, with N Amer

bevs chief Al Carey now elevated to role overseeing bevs, snacks and Quaker Foods biz. Recall, the Bronx-

raised 35-year PEP vet had long run at Frito before seguing back to bevs side. Stepping into top role on bevs side

is its current coo Kirk Tanner, who’s also been running global foodservice side. He takes prexy/coo title, not

quite at ceo level held by Carey, who continues to report directly to chmn/ceo Indra Nooyi. In other key move

Frito coo Vivek Sankaran takes prexy/coo title there. Occasion for reshuffling was Greco’s move to unidentified

co outside bev/snack sector where he can be ceo.

Moves were broadly interpreted to signal further commitment to Power of One strategy opposed by activist

shareholder Nelson Peltz and his Trian investment vehicle. “As the former ceo of FLNA,” reminded Wells

Fargo’s Bonnie Herzog, “we believe Carey is very well positioned to lead the entire North America division and

should be able to further leverage the ‘Power of One’ that PEP has focused on promoting.” And Stifel’s Mark

Swartzberg considers “the North America unification more evidence that PepsiCo seeks to better integrate

procurement, merchandising and other functions across its food and beverage businesses. We, therefore, believe

Trian and others favoring a split of the company face increasing managerial opposition to doing so.”

On succession front, upheaval allowed chmn/ceo Nooyi once more to tout co’s “deep bench of world-class

leaders.” Among them, Carey would ostensibly now be in prime position to succeed Nooyi should she move on

any time soon. But, as Wells Fargo’s Herzog noted, since Al’s several years older than Indra, should she stay in

post for longer stretch, this “would suggest that Hugh Johnston as well as both Kirk Tanner and Vivek Sankaran

are the ones to watch.” Tanner’s a 24-year co vet who’s worked at 11 domestic and int’l locations, including

significant stint on Frito side too. Sankaran’s more recent arrival, 7 years ago, and like Nooyi comes from

consulting side, as McKinsey partner in his case.

Starbucks has set barrage of new RTD items for spring and summer that includes

single-serve Black Iced Coffee in sweetened and unsweetened versions and pair of canned Refreshers items

incorporating coconut water in juice blend. They’re all made in collaboration with longtime RTD partner

PepsiCo.

For co that’s built $1-bil- plus biz around frothy Frappuccino items that might be viewed as indulgent milkshakes

for adults, addition of black items comes as striking contrast, spurred in part, said Starbucks execs at NY

showcase today, by 25% of in-store customers who don’t want dairy in their coffee. Packed in 11-oz glass bottle

at $1.99, unsweetened version contains 15 calories derived entirely from the coffee, a Latin American-sourced

medium roast. Sweetened version contains 60 calories. Lactose-intolerant consumers should also be drawn to

entry, they figure.

On coffee side, co also showcased newly announced Cold Brew entry set for limited launch this summer,

although that was lone item featured that wasn’t ready for tasting yet. Item dubbed on pack as “super-smooth”

will be made from same blend of Latin American and African beans used for in-store versions via retort process

for shelf-stability, Starbucks marketing exec indicated. A 9.5-oz glass bottle will command $3.29 at retail. Also

on RTD front are new Frappuccino offerings including likes of White Chocolate Mocha for summer and Pumpkin

Spice for fall. And after limited-time Salted Caramel Mocha did well in stores, co is moving that recipe to

multiserve format under Iced Espresso Classics banner, first time in-store offering has made that transition. The

40-oz bottle offered just for this summer season goes for $4.99 at retail.

Among new canned energy offerings, green-coffee- based Refreshers line packed in 12-oz cans is getting pair of

entries employing coconut water: Black Cherry Limeade and Peach Passion Fruit. Their 25% juice content

includes 10% from coconut water, a nod at consumers, including lotsa younger ones, who’re into coconut water.

Doubleshot line that goes directly vs 16-oz entries like Java Monster and Rockstar Roasted is going more exotic

in its new flavors, adding Mexican Mocha and Spiced Vanilla, both with dash of cayenne pepper. They join

range that to date has gone with more conventional flavors like Coffee, Hazelnut and White Chocolate.

On heels of co’s extending alliance with Keurig Green Mountain, SBUX offered range of new K-Cup items,

including first that includes flavor pack in box in effort to replicate Chai Latte offerings that have proved popular

in Starbucks own stores for at-home consumption by consumers who don’t own frothing units. The 2-step

process offered under Tazo brand name first asks consumers to pour contents of sweetened dairy packet into

bottom of their mug before brewing latte tea blend in conventional K-Cup. Line is offered in Classic Chai Latte

and Vanilla Caramel Chai Latte flavors, in boxes containing 6 K-Cups and accompanying packets.

Recall Seattle co brought out Tazo-branded K-Cups last year; now it’s adding more flavors that can be brewed

hot for use in iced tea: Unsweetened Iced Mango Green Iced Tea and Unsweetened Peachy Black Iced Tea.

Unsweetened formulation should suit the 50% of in-store customers who prefer their iced tea unsweetened, while

other users can sweeten to taste. Those are priced at $8.99 per 10-count box.