How high is up for so-called “craft” sodas?  New report from researcher Mintel suggests that there may be considerable wind at their backs, with 57% of surveyed consumers saying they believe CSDs made with natural ingredients are healthier than those made with artificial ingredients.  And 34% would like to see CSDs that bring added benefits, such as protein, vitamins or minerals.  Survey sees millennials and parents as particular proponents of craft sodas, seeking not just exotic flavor experiences but alternatives to alcoholic bevs.  Still, noted bev analyst Elizabeth Sisel, “the segments are still too small to generate a huge impact on category sales . . . Manufacturers need to justify high prices and build awareness to grow sales.” 

A federal court ruled against Pom Wonderful on marketer’s request for injunction to stop Pur Beverages from using word “pom” on its energy drink labels, reported NY Times.  This was 2d time Pom had sought injunction vs Pur and failed.  Co had originally sued Pur Bevs in 2013 for trademark infringement.  In Aug 6 decision, US Dist Court Judge Margaret Morrow ruled vs request because, in her view, Pom Wonderful “could not show it would be harmed” by Pur using label.

Dr Pepper Snapple Group’s $20 mil investment in marketer of Body Armor seems likely to turn around perception of new-generation sports drink as expensive and possibly futile hobby of Vitaminwater millionaire Mike Repole, even as it suddenly puts soft drink marketer squarely in game of writing checks to promising brands.  Until its recent $15 mil investment in Bai-5 marketer Bai Brands – which it didn’t even bother to announce – Plano, Tex-based had seemed to stake out position as willing to distribute but not invest in emerging brands. 

In garnering 11.7% stake in BA Sports Nutrition LLC, DPS investment implies company valuation of $171 mil, considerably below $500 mil valuation accorded Bai, where DPS investment of $15 mil got it just 3% stake.  But Bai is considerably better-developed at this stage, moving almost entirely thru DPS’ captive distribution system and seems to have generated momentum winning over consumers abandoning once-hot Vitaminwater brand as alternative refresher that’s perceived as vaguely beneficial.  By contrast, Body Armor is just finding its legs.

Still, it’s been carried within fair stretch of DPS’ captive system since 2013, presence that will be further bolstered in coming year.  With tightened tie to DPS, Body Armor will attain national availability by first qtr of 2016, Mike told BBI today, for first time enabling brand to pursue all national accounts.  “We are currently up 180% this year and we expect next year’s growth to be more,” he promised. 

“We’ve been pleased with Body Armor’s growth over the past 2 years and believe it has strong potential as a premium sports drink,” said Rodger Collins, DPS’ president of packaged bevs. “It’s already a great part of our allied brand portfolio, it has a management team with the experience and passion to succeed, and we’re looking forward to contributing to that growth and success over the long term.”  Recall that, years ago, DPS attempted to crack sports drink segment on its own with Accelerade brand that proved expensive fiasco, joining long list of “better” isotonics that had failed to make dent vs smart marketing and relentless price promos of PepsiCo-owned segment leader, Gatorade.  Two decades into its own challenge via PowerAde, Coca-Cola has won barely 20% share, mainly on back of its own reliance on price promos and market development programs.

Body Armor was launched out of LA in 2012 by Lance Collins, who’d earlier sold Fuze and NOS brands to Coca-Cola, and who at some point early in process bought in Repole as silent partner.  Soon enough, tho, Repole’s role had become public and he’d taken lead in operating co out of his NY base, with Collins shifting his day-to-day focus to another startup, Core Water.  Current and past Body Armor staffers say Repole has lost none of his energy or tough-love mgmt style, particularly as he’s shed other involvements like Pirate’s Booty snack brand and Energy Kitchen quick-serve restaurant chain.  Tho Collins remains in brain trust as new-product specialist, plans for lower-calorie and other extensions have been put on hold by Repole as he works to get core entry seeded, simplifying ingredient list, improving flavor, moving price below $2 and recruiting such high-profile athlete endorsers as Kobe Bryant (a significant investor), Andrew Luck and Kevin Love.  Innovation pipeline going 3 years out is already set, Repole said today.  Brand’s all-natural formulation, with coconut water base and pure cane sugar, is intended to set it apart from legacy brand like Gatorade, not much changed from decades-old formula it launched with.

Tho DPS has highest exposure to CSDs among the Big 3 soda makers, about 80%, until recently it had seemed content to stay on sidelines where equity investments in promising brands that it distributes were concerned, making lowball offers for brands like Vita Coco (which went elsewhere for growth capital) and asserting to Wall Street that it’s not in biz of creating new Glaceau-style millionaires.  The equity stakes it did accumulate in brands like Big Red or Hydrive a few years ago are presumed to have been offered as quid pro quo for access to its distribution system.  So latest move, coming just a few weeks after Bai investment, suggests game plan has changed, with soda co willing to put skin in game to better align interests with its allied brands, even if it’s still disinclined to take full ownership.  As noted in past, some within DPS have taken view that, since early-stage cos aren’t profitable, straight distribution deal is sufficient to capture all the available margin anyway.

That said, it should be noted that DPS’ strategy remains conservative so far in targeting shelf-stable, modestly premium entries that are smooth fit within its CSD distribution system and go into same sections of stores as its other noncarbs like Snapple.  That’s stark contrast to recent investment by Coca-Cola in refrigerated Suja Juice, superpremium player in store perimeter aisles that brings array of challenges in scaling up production and distribution.

DPS was careful to note that “transaction will not have a material impact on DPS’ financial statements,” and many outside co view the investments as effort to sway perception on Wall Street that co isn’t really that interested in segments outside CSDs.  Certainly, that’s way msg has been received by analysts like Wells Fargo’s Bonnie Herzog, who wrote this morning, “We are encouraged by DPS’ numerous partnerships and investments in rapidly growing brands within its Allied Brands stable which includes Body Armor, Big Red, Fiji Water, Vita Coco, Bai Brands, Neuro beverages, SunnyD and Hydrive energy drinks.  We expect that DPS will continue to leverage these growing brands to help support improved volume growth and offset overall weakness in the CSD category,” with Body Armor potentially approaching $100 mil in retail sales next year.  In recent survey of c-store retailers, Bonnie had picked up some commentary that those allied brands have been performing better than some expected, she reminded.

As noted, investment could also change street view of Body Armor as expensive hobby of Repole, on par with his extensive stable of thoroughbred horses.  Brand’s been dogged by persistent perception that, for all resources invested in winning it broad retail exposure, it simply doesn’t turn.  Indeed, 3 years into brand-building effort, Body Armor doesn’t seem to have sold much more than $12-15 mil at wholesale last year.  Still, given decisive restage brand undertook a year ago under Repole, co execs argue that it should be viewed as new brand, and it’s on track to at least double this year. 

Distributor supporters – several of them investors in Glaceau in past and Body Armor currently – have maintained that Body Armor is on brisker growth curve than Vitaminwater was in its early days – in NY, 2 years ahead of VW progress at same point in life cycle, noted Jerry Reda, coo of local distributor, Big Geyser.  “It’s a very special brand that people are finally seeing as a viable threat to Gatorade or PowerAde,” Reda told BBI this morning.  Up until now, “nobody’s been able to pierce Gatorade’s veil,” aside from limited progress made by Coke’s Powerade on back of relentless price promotion.  Tho brand originally seemed to resonate best in distrib’s Long Island territory, Reda said by now it’s starting to sell throughout footprint, as brand’s aggressive field marketing programs accelerate and brand is embraced as new-generation sports alternative by student athletes from middle school to college levels.

Founder of Chobani yogurt brand has taken majority stake as sole outside investor in fast-expanding La Colombe Coffee Roasters.  Hamdi Ulukaya, Turkish-born entrepreneur who told NY Times that La Colombe had been revelation to him when he was seeking quality coffee purveyor for Chobani café he opened in NY’s Soho nabe, plans to take hands-off role, with no board responsibilities.  That will leave La Colombe cofounders Todd Carmichael, its ceo, and JP Iberti to run Philadelphia-based co, which operates 12 cafes in Philadelphia, NY, Chicago and DC and is planning 5 more openings this year.  Cofounders also have made no secret of their desire to crack RTD segment soon, too.  Ulukaya said he’ll continue to devote his full energy to managing Chobani, where he remains chmn/ceo . . . FAL Food & Beverages, which has been releasing info about its US launch of Coco Joy coconut products in steady trickle lately, said it’s enlisted Genesis Brand Developers to devise national sales campaign for its bev entries, Coco Joy Coconut Water and Coco Joy Kids Flavored Coconut Waters.  Genesis, launched by group of food and bev vets dispersed around key regions of country, will be targeting DSD distributors and c-stores in initial phase, said coo Jeff Jonke.  Genesis has done work for clients including Icebox Water, Attitude’s Phase III protein recovery drinks and Hill Billy sauces.   As reported, Coco Joy has been building presence in NY via sponsorship of newly launched NYCFC soccer team playing at Yankee Stadium, tho its coconut waters do not appear to have hit city’s shelves yet (BBI, Jul 28).  It’s also bringing in coconut milk, coconut oil and other coconut-derived items.

New version of Diet Pepsi, replacing sweetener aspartame with combo of Splenda and ace-K, is hitting stores nationwide this week.  While those 2 sweeteners are “also artificial,” they “haven’t sparked the same controversy” as aspartame, wrote Wall Street Journal this weekend.  Brand change has spurred much concern over whether Diet Pepsi drinkers will welcome new version or, if switch, will become another reversal like New Coke in ’85 or, more recently, Vitaminwater’s rapid erosion.  “In the tech category, change is great,” Allen Adamson, chmn of branding co Landor North America, told WSJ.  But when it comes to food/bevs, consumers are “creatures of habit and it’s very hard to assess the risks in making a change because the association people have to those products is more emotional and not rational,” he cautioned.  PEP said it’s just responding to consumers’ continued concerns about aspartame.  “We frankly would not be good business people if we didn’t listen to consumers,” said Seth Kaufman, svp for Pepsi trademark.  PEP “isn’t making the sweetener swap quietly,” noted WSJ, as the message, “Now Aspartame Free,” will appear on cans and be echoed in in-store advertising for brand’s NFL sponsorship. Co is also prepping “aggressive” sampling effort and coupons “at major retailers” in next week, noted report.  

Coca-Cola looked to garner some goodwill with announcement yesterday that its Coca-Cola Foundation donated $26.2 mil in first half of yr to various global orgs to promote healthier living, strengthen communities and environment.  Donations went to groups all over the world, including UN-backed efforts, White House and Red Cross.  However, it’s a much smaller $1.5 mil donation to a nonprofit called the Global Energy Balance Network that was basis of lengthy NY Times expose this weekend exploring KO’s backing of various scientists and research that promote a message many health professionals don’t advocate that absolves sugary bevs of responsibility for obesity epidemic.

KO’s “backing a ‘science based’ solution to the obesity crisis: To maintain a healthy weight, get more exercise and worry less about cutting calories,” wrote Times.  In doing so, KO has “teamed up with influential scientists who are advancing this message in medical journals, at conferences and through social media,” wrote Times.  No surprise that health “experts” believe the more-exercise-and stop-blaming-the-food message “is misleading and part of an effort to deflect criticism about the role of sugary drinks.”  Article points out too that GEBN’s Web site “omitted the mention of Coke’s backing” until obesity expert from Univ of Ottawa inquired about its funding. “As soon as we discovered that we didn’t have not only Coca-Cola but other funding sources on the Web site, we put it there,” assured Dr Steven Blair, org’s vp.  KO’s involvement with GEBN “is not the only example of corporate-funded research and advocacy to come under fire lately,” wrote Times, pointing out Kraft, McDonald’s, PepsiCo and Hershey’s also faced similar criticism.  One unrelenting industry foe, Marion Nestle, claimed KO’s “agenda here is very clear:  Get these researchers to confuse the science and deflect attention from dietary intake.”  Times gives plenty of space to its critics and points to other programs and studies it has backed and disclosed its involvement and includes too that as part of its health initiatives, KO “has donated money to build fitness centers in more than 100 schools across the country” in recent years.

Tho Webcast portion of Monster Beverage annual meeting on Fri shed little new light beyond disclosures of prior day’s Q2 earnings report, some analysts who attended gleaned a few more details.  Wells Fargo’s Bonnie Herzog reported that Monster could enter China market “as early as next year, possibly with a concentrate model,” view that suggests some flexibility to stance taken a day earlier by ceo Rodney Sacks that co is committed to retaining its finished-goods model for core brand.  (By contrast, the energy brands that came over to Monster as part of transaction with Coke will continue to operate under concentrate model.)  And Bonnie also reported that co expects to transition several more overseas territories to Coca-Cola bottlers next qtr.

On portion of meeting that was Webcast to investors, Sacks offered a bit more color on strategizing being undertaken by cmo Mark Hall to set course for array of different energy brands that MNST picked up from KO 6 weeks ago under names like Mother, Play and Burn.  In most countries that means deciding which will be secondary brand in portfolio behind Monster as strategic brand.  “Some regional brands will clearly remain part of the system,” he said.  But there are exceptions.  In US, both Monster and NOS, which just came over from Coke, will be treated as primary, premium brands, while another Coke brand, Full Throttle, will serve as more of a value alternative.  There also may be brands that function outside that scheme on account of their reaching different demographic.  Example: Nalu, reaching female, slightly older consumers than Monster’s core demo.  That brand, which launched in Belgium and is being rolled out in Netherlands, may serve as separate niche brand in some territories, he said. 

Celsius Holdings continued on brisk growth path in 2d qtr, reporting 71% revenue surge to $4.66 mil, putting co on track to top $20 mil in sales this year for its line of functional bevs positioned as “the world's first and only negative calorie and fat burning beverage backed by clinical science.”  Ceo Gerry David cited balanced growth across all channels, with int’l biz surging 62% to $5.45 mil and all domestic channels up 37% or more, led by health & fitness channel up 55%.  Gross profit doubled to $2.3 mil and gross margin fattened by 4.2 points to 43.6%.  Co’s string of 2 consecutive profitable qtrs was broken, tho, on account of $758K increase in stock-based compensation, apparently to pay agency for marketing opportunity presented for upcoming NACS c-store show in Oct.  That threw bottom line into $520K loss, still narrower than year-earlier qtr’s $723K loss.

The continuing growth, along with key partnership inked in Apr with group that includes Chinese magnate Li Ki-Shing, hiphop entrepreneur Russell Simmons and his designer wife Kimora Lee Simmons, is prompting the Fla-based co to turn on the spigots of sales and marketing efforts after period of austerity that David inaugurated upon his arrival at beleaguered co in 2011.  It’s finding Bud houses bereft of their Monster Energy brand to be fertile base of potential DSD distribution, just inking deal with A-B house in Omaha, Neb.  Given entertainment firepower of the Simmonses, it’s also doubling down in LA, as way of reaching urban market that’s into stars like Will Smith, Mark Wahlberg, Jennifer Lopez and Mary J Blige.  Range of activities there will include All Def Comedy Live venue for up-and-coming comedians hosted by Tony Rock (Chris’ bro) and Youtube series featuring celebs, comedians and other notables working a 22-foot Celsius demo truck that’s being outfitted for that market.  Co is hiring sales reps, merchandisers and other staff to support push.

Playing the Consumer Impression Game    On conference call this afternoon, ceo David was able to float big numbers to support notion that brand is starting to make headway building awareness.  With pr house 5W working an endorser mix that also includes Fla rapper FloRida and Nascar driver Blake Koch, Celsius has been accumulating consumer impressions – all told, 753 mil in Q2, nearly as much as the 800 mil in all of 2014, as media like Reuters, CBS Sports, Forbes.com and US News & World Report rushed to interview Simmons.  In the 36 hours after announcement that group was investing $16 mil in co, over 200 mil impressions were garnered thru the news media and another 300 mil via social media as likes of Kobe Bryant and Dwayne Wade talked up brand to their followers.  Product requests came pouring in from Kim Kardashian, Justin Bieber and other celebs, David said.  A satellite media tour, which generated 654 TV segments, drew an estimated 231 mil impressions.

Overseas Pushes in Europe, Middle East, Brazil; Will Try Again in China   David had previously recounted how pair of enthusiastic young entrepreneurs operating as People’s Choice had picked up brand in Sweden in 09 and run with it, in process turning that into arguably most successful market.  (Co has claimed 7% share of fitness & energy market there.)  Now that’s been acquired by Finland’s Func Foods, strong player in sports nutrition, which will accelerate expansion in Europe.  Meanwhile, co is pursuing Halal certification to advance move into Middle East.  And it’s pushing into initial 4 states in Brazil via new distributor Latco Beverages, assisted by social media from brand’s endorser, racecar driver Emerson Fittipaldi.

Investor asked about China, and David acknowledged that earlier foray into that market 2 years earlier hadn’t panned out.  But he’s heading over there next week, orchestrating a new attempt, this time with influential Li Ki-Shing using his connections at Horizons Venture Group to open doors.  “This is a new day for us at it relates to all of Asia,” David assured his listeners.

Dean Foods shares went on wild ride yesterday, skidding nearly 20% in early trading despite robust 2d quarter earnings report, apparently on disclosure that DEAN chmn Tom Davis has departed co for no publicly stated reason.  But after market digested news, shares recovered nearly all losses.  And behind fireworks, co offered progress report on launch during qtr of DairyPure, co’s effort to create elevated national brand that might win back consumers distracted by organic milk.

Net sales dropped 15.8% to $2.01 bil, but operating profit came in at $56.7 mil, reversing year-earlier loss of $3.5 mil.  Co noted that results repped highest quarterly gross profit and per-gallon operating profit since 2012, and 4th consecutive qtr in which greater price realization was enough to offset volume declines.  On conference call, ceo Gregg Tanner also pointed to some fundamental trends that may presage better days for fluid milk biz, including upswing in birth rate, moderation in folks abandoning cereal for breakfast (occasion accounting for 30% of demand) and signs that key dairy alternative, almondmilk, may be plateauing.  “It may be on its way to ending its growth cycle much sooner than soy,” Gregg observed.  With many consumers fixated on protein these days, co is working to get across message that 8 oz of conventional milk contains 8 g of protein, same amount one must consume 64 oz of almondmilk to obtain. 

Separate from earnings release, co disclosed in regulatory filings that its non-exec chmn, Davis, a 14-year board vet, had departed co, but offered no reason for his exit.  That initially seemed to spook investors, who sent shares skidding early in day.  Pressed on call that morning to offer some explanation, Tanner insisted, “We feel more optimistic than ever about the future of Dean Foods but I can’t provide any additional color to that.”  Some observed that departure doesn’t necessarily reflect any collision over strategy but may have been for more  personal reasons.  As noted, shares recovered most of losses by close of trading.

Qtr was noteworthy for including launch of co’s new DairyPure brand, effort to offer nationally branded milk that can hold its own vs more expensive organic entries, in conventional milk segment dominated by regional brands, including Dean’s own, and private label.  Tho effort has drawn some skepticism from outsiders as offering no meaningful differentiation beyond branding, Tanner describes it as intended to reassure consumers that they don’t have to buy organic to be sure that their milk is free of antibiotics and growth hormones, and should be regarded as “more of a long-term play for us as we take the DairyPure brand and move it into adjacencies.”  While it’s early days, DEAN is pleased enough with performance to be heavying up ads and promos for balance of year.  The message focuses on the health and nutritional benefits of conventional white milk, while also tapping into consumers’ increasing interest in protein by touting it as cost-effective source.  New brand has already won 1 mil Facebook fans, and coupon redemption rates are trending above CPG industry norms, Tanner said.  He reported that major retailers seem to appreciate fact that it simplifies things with single UPC code and offers chance to unify what can be a welter of individual promos behind regional brands.  Meanwhile, co’s other national milk brand, flavored True Moo line, grew 4% in Q2 in category that declined 1%.

Another among new breed of healthy-and-sustainable fast-food eateries that make cold-pressed juice a menu mainstay is getting ready to go national: Snap Kitchen.  Austin-based chain, which currently operates nearly 30 stores in Tex and Chicago, has brought in former Weight Watchers Int’l chief David Kirchhoff as ceo and completed $22 mil fundraise with view to going national, tho co isn’t ready yet to disclose what areas it’s targeting.  Co has carved out a niche for offering freshly prepared, reasonably priced meals, sometimes via several daily deliveries from commissaries, and cold-pressed juices.  New round came from existing investors including cofounder Bradley Radoff and private-equity shop Catteron, which earlier invested in Sweet Leaf Tea, Odwalla and Adina.  Enlistment of Kirchhoff will allow cofounder/prexy Martin Berson to segue to closer focus on menu development, SpecialtyFood.com reported.  Stores are about size of c-stores, at 1,000-1,500 square feet.  Newsletter noticed that co has posted on LinkedIn for positions in Philadelphia, suggesting one possible expansion market.  Array of in-house cold-pressed juices includes, per online check of Austin locations, likes of Almon’ccino, Far East Turmeric Elixir, Easy Greens and Chai Cashew “Milkshake.”  Menu also includes cold-brewed Black Coffee and outside brands like Hint Essence Water, Honest Tea tulsi and teas, Ito En sencha shot, canned C2O Coconut Water, Cielo Oxygenated Water and regional kombucha brands like Kickin’ and Holy.