Cott Corp, which has been scrambling to reinvent itself to rely less on private-label CSDs, turned in solid 2d qtr in core biz even as recently acquired water and coffee delivery service suffered hiccup from drought hysteria out West.

On conference call this morning, ceo Jerry Fowden continued to give major branded CSD players only limited credit for the price restraint they’ve been touting, pointing to significant lapses around Memorial Day period, particularly in mass/grocery channel that’s key part of Cott’s biz.  Cott detected spike in national-brand promos during 2-week period surrounding Memorial Day holiday that “lasted a little bit longer than we would have expected or liked,” he said.  As noted in BBI ahead of holiday, point of particular contention was 12-packs of 12-oz cans at $2.50 – fortunately for Cott, because 2-liter PET bottles are more important format for co, Fowden noted.  By contrast, the smaller pack sizes that major branded players are employing to nudge upwards the price per oz they get from shoppers are concentrated in c-stores and other small-format retailers where Cott doesn’t play much.  Still, in large-format chains where Cott competes, its 3% CSD decline outperformed category’s overall decline of 5%, and “all in all, we continue to believe our North American business is in a more stable position.”  Reassuringly, Cott’s best customers “seemed keener about supporting our business with them,” he added.

Recall that COT shook up investors a few months ago by acquiring DS Services, major home and office delivery player in bottled water and coffee, move that some viewed as expensive disconnect with core identity as producer of private-label sodas and other items.  So Fowden has been building case for deal, while also selling new common shares to redeem preferred shares needed to do DS deal.  Between DS deal and shift away from private-label CSDs to other activities like sparkling water and contract packing, he’s reduced CSD share of total biz to 19% from 80s when he arrived at struggling co 6 years ago.

In qtr, revenue jumped 42% to $780 mil thanks to addition of DS; excluding that, revs sagged 5%, in large part, Fowden reminded, because contract mfg biz yields lower top-line # to generate same amount of profit.  (That’s because ingredients and packages typically stay on customer’s books.)  In N Amer, volume eased off 0.6% in cases, 2% in servings.  Excluding slight foreign exchange hit, revenues were off 4% to $359 mil in core market.  But gross margin jumped 1.65 points to 14.5% and operating income rose 20% to $18 mil.  All told, there was a $10 mil mix shift, half from move into contract production, rest from move to categories like sparkling water and mixers.  Decline in private-label CSDs and shelf-stable juice was largely offset by growth in contract mfg, up another 7 mil cases despite lapping strong year-earlier qtr when major contract was ramping up.  New wins leave co at 39 mil cases of contract biz, about halfway toward upper range of 50-80 mil target COT was hoping to attain in another year and a half.  Sparkling water and mixers grew by high single digits.

On DS side, home & office delivery side scored just 3.9% revenue gain, enduring 6-week period of softness from May thru early June due to significant media attention around the drought and need for water conservation, particularly in Calif, Fowden noted.

Since arriving at vitamin and supplements marketer NBTY a year ago after long runs at Coca-Cola and Labatt/InBev, prexy/ceo Steve Cahillane has been on recruitment drive: just in past few months he’s enlisted Kraft vet Andre Branch as cmo and Abbott and Nestle vet Matthew Roberts as chief scientific officer in May, and now fleshing out team with new flock of hires.  Latest arrivals include Kraft Foods, MillerCoors and Diageo vet Alison Potts as vp sales and distribution and bev-brand vet Dan Holland as vp health & fitness, with mandate to build RTD bev biz and expand Sports & Active Nutrition portfolio thru health & fitness channel, per memo from chief customer officer Andrew Archambault.  After long run on distribution side, mainly at Haralambos Bev in LA, Dan has been involved with early stage bevs including Activate, Nawgan and XXIV Karat Wines.  Sports & Active Nutrition unit is run by another recent Cahillane recruit, svp/gm Bradley Charron, a former Chobani exec.  Publicly traded NBTY, based in Ronkonkoma, NY, is maker of vitamins and supplements under brand names like Solgar, Nature’s Bounty, Balance Bar and Met-Rx.  Carlyle Group is major investor in co. 

For visitors and TV viewers of new Major League Soccer franchise playing at NY’s Yankee Stadium the past few months, it may have been a bit puzzling: heavy signage activity for brand called Coco Joy, but no further activation nor any product presence, not within stadium itself nor at local retail.  Chalk it up to rumored labeling difficulties that kept Coco Joy out of country and delayed launch planned for earlier this summer.  But it seems co is over the hump now and debut is finally at hand that would bring diverse array of coconut water, juice, oil and ice cream to city.

Development was flagged by announcement in Australia by City Football Group that it’s extending Coco Joy’s year-old alliance with CFG’s Melbourne City FC team in Australia to its 2 other clubs: its Manchester City megafranchise in England’s Premier League and its fledgling New York City FC team in MLS, which is co-owned with NY Yankees baseball club and has signed trio of global superstars that are drawing big crowds to stadium.  CocoJoy is among roster of NYCFC sponsors that includes Heineken, Nissan, Ford and Etihad Airways.  While heavy exposure at games suggests tie has been done deal for a while, announcement seems to signal new phase of active promotion of brand in city.  “In addition to a wide range of activations in Melbourne, Coco Joy will also boost its presence in New York and Manchester, engaging local fans with giveaways and money-can’t-buy experiences,” team said in announcement made during Man City’s pre-season tour of Oz, where it stopped to play exhibition vs Melbourne sibling.  Added Omar Berrada, commercial dir of CFG’s marketing arm: “As the popularity of coconut based beverages continues to grow, there couldn’t be a better time to work with Coco Joy to bring the joy to our fans all over the world.”

Coco Joy, which employs lifestyle-oriented tagline “Bring back the joy,” is part of FAL Food & Beverages, itself part of 75-co FAL Group conglomerate, and is run by former Coco Fresco exec Tim Xenos.  Big-spending City Football Group is owned by Abu Dhabi United Group (ADUG), investment vehicle of Sheikh Mansour bin Zayed Al Nahyan.  It also has part ownership in soccer team in Japan not yet linked to Coco Joy.

Day before San Francisco’s ban of ads for sugar-sweetened bevs on city property went into effect, American Bev Assn along with local retailers and advertisers came out swinging in suit filed Fri.  ABA, California Retailers Assn (CRA) and Calif State Outdoor Advertising Assn (CSOAA) joined in suit, while ABA also filed separate request for preliminary injunction vs city seeking Aug 28 hearing to halt ad ban for now. 

“At its very core, the First Amendment forbids the government from suppressing private speech that it disagrees with, and equally forbids the government from compelling private speakers to express the government’s views,” notes complaint.  Yet SF’s ad ban on city property and planned warning label “violate these core principles.”  The warning label and ad ban “reflect the City’s opinion that sugar-sweetened beverages have little or no value, and its value judgment that there is no place for them in a healthy diet and lifestyle,” claims ABA.  “No matter how zealously the City holds its views, the First Amendment forbids the City from conscripting private speakers to convey them while suppressing conflicting viewpoints on this controversial topic.” 

Preliminary Injunction Sought   SF City Council ordinance “expressly bans all advertising promoting sugar-sweetened beverages on City property, while expressly allowing all advertising that criticizes or discourages consumption of sugar-sweetened beverages,” notes suit.  “It also expressly targets and punishes producers of sugar-sweetened beverages by prohibiting them from using their names to promote events – even political, social, cultural or athletic events – on city property.”  Without a preliminary injunction, San Fran’s new ordinance “will cause Plaintiff irreparable harm by suppressing their speech in violation of the First Amendment throughout the duration of the suit.”

Warning Label   Complaint points out that City “is free to try persuade consumers to share its opinions” about sugared bevs, but is going about it all wrong with warning label and ad ban, noting it could “sponsor its own advertising campaign promoting those opinions.”  Instead, it’s “trying to ensure that there is no free marketplace of ideas, but instead only a government-imposed, one-sided public ‘dialogue’ on the topic.”  Another problem: SF warning label requirement, scheduled to begin Jul 25, 2016, “singles out sugar-sweetened beverages among all foods and beverages,” and also “conveys the misleading and controversial view that they are hazardous in any quantity and more hazardous to health than any other food or beverage about which the city requires no warning.”

CSOAA is also aggrieved that warning label requirement exempts TV, newspaper, magazine, radio, supermarket circular and “other electronic media.”  “Its narrow scope ensures that the Warning Mandate will accomplish little other than harming outdoor advertisers and other covered media by incentivizing those who promote sugar-sweetened beverages to switch to exempt alternatives.”      

Is life about to get more complicated for marketers of sugar-sweetened bevs?  FDA is doubling down on efforts to flag added sugar in foods and bevs, right on heels of widely discussed report in British Medical Jnl that linked consumption of sugar, artificial sweeteners and juices to incidence of type-2 diabetes.  Developments occur as front-page analysis in NY Times on Sunday likely lent further ammo to those arguing that anti-soda messages can be effective in curbing obesity.

After last year proposing addition of a line in nutrition panel denoting amount of added sugar, in grams, Food & Drug Administration now is reaching further, proposing that daily value % also be included, not exceeding 10% of daily calories.  “That works out to 200 calories within a 2,000-calorie daily diet, or 50 grams (12 teaspoons),” calculated MediaPost.  “That's the amount of sugar in a 16-oz can of regular soda; a 20-oz serving would exceed the maximum recommended intake by 30% (showing a daily value of 130%).”  FDA proposal is in synch with recs made earlier this year by Dietary Guidelines Advisory Committee and yesterday inaugurated 75-day public comment period that’s sure to draw thousands of comments.

While lobbyists for big food and bevcos have strenuously objected to move on grounds that sugar is sugar, whether added or naturally occurring, FDA argues that “it is difficult to meet nutrient needs while staying within calorie requirements if you consume more than 10% of your total daily calories from added sugar," in words of Susan Mayne, dir of FDA's Center for Food Safety and Applied Nutrition.

“Proponents of added sugar disclosures argue that the science showing the dire health consequences of excessive sugar consumption is indisputable, and that the industry simply fears that disclosing amounts of added sugar and recommending daily consumption limits will add even greater momentum to consumers' growing rejection of traditional packaged food and beverages,” MediaPost reported.  Of course, sugar is widely added not just to non-alc bevs but also to food items sold in grocers’ central aisles, segment that’s been feeling brunt of consumer skepticism about processed foods.

Neither British Medical Jnl study published last week nor Times analysis published on Sun brought new clinical evidence to debate, but both seemed to be drawing broad media attention.  BMJ offered so-called meta-analysis that evaluates existing literature and, as soda lobbyist American Bev Assn pointed out in quickly issued rebuttal, can’t claim to find causal connection between sweeteners and diabetes.  Still, study concluded that “habitual consumption of sugar-sweetened beverages was associated with a greater incidence of type 2 diabetes.”  While findings of similar link between artificially sweetened bevs and fruit juice and diabetes “were likely to involve bias,” Jnl allowed, “nonetheless, both artificially sweetened beverages and fruit juice were unlikely to be healthy alternatives to sugar sweetened beverages for the prevention of type 2 diabetes.”

NY Times analysis found that, since peaking in 03, calories consumed by “typical American adult . . . are in the midst of their first sustained decline since federal statistics began to track the subject, more than 40 years ago,” with declines cutting across most major demographic groups.  “In the most striking shift, the amount of full-calorie soda drunk by the average American has dropped 25% since the late 1990s.”  Coinciding with calorie decrease has been halt in rise of obesity rates for adults and school-age children, “suggesting the calorie reductions are making a difference.” 

Of course, decline in consumption of full-calorie sodas is no secret to those in bev biz, and soda cos and ABA continues to argue that singling out sugar consumed in soda is unfair and ineffective.  But Times analysis, sketchy as it is, may lend further weight to view that “the attitude more and more in this country is that it’s not a good idea to consume a lot of soda,” as paper quoted former surgeon general David Satcher, who’d issued report on obesity in 2001 that sought to have similar mobilizing impact as institution’s 1964 report decrying cigarette smoking.  Times analysis presented declining calorie consumption trend as sign that initiative has been successful.

Jones Soda said its vp finance, Mark Miyata, had tendered his resignation effective Aug 7 “for personal family reasons and to pursue other career opportunities in a different industry.”  JSDA’s ceo, Jennifer Cue, will assume those duties while search for replacement is undertaken.  Recall that Jennifer, in 3d go-round with co, had served as cfo from 1997 to 2005 and also in 2011.

Hain Celestial Group has strengthened its position in plant-based foods/bevs in Europe with acquisition of $50 mil (sales) Mona Group, which markets soy-, oat-, rice- and nut-based drinks as well as plant-based yogurts, desserts and creamers under brands like Joya and Happy.  New brands buttress Hain’s participation in segment via its own Dream, Lima and Natumi brands, bringing total plant-based sales in Europe to over $100 mil.  Mona operates facilities in Germany and Austria and distributes mainly to those countries and Eastern Europe.  Acquired co should also provide opportunity for Hain to expand presence of its brand in other segments, such as Celestial Seasonings teas, to that part of Europe, said founder/ceo Irwin Simon.  Mona had been owned by several venture capital groups and members of current and former mgmt.  Its ceo, Wolfgang Goldenitsch, will stay on, reporting to Hain Celestial Europe ceo Bart Dobbelaere.

Starbucks is in early stages of plotting RTD foray under its Teavana brand, possibly without PepsiCo as partner.  Sources in trade say SBUX execs have been seen visiting potential production sites with view of producing line on their own for 2016 launch and going directly to grocery, rather than operating thru Pepsi’s bottling system.  To date, all SBUX RTD items on coffee side have moved thru partnership with Pepsi that’s spawned such franchise brands as Starbucks Frappuccino, Iced Coffee and Doubleshot Coffee Energy, and cos also teamed up on RTD version of Tazo Tea, which has been eclipsed within Starbucks by more recently acquired Teavana entry as primary tea brand.  Keep in mind, tho, that it’s still early days and nothing has been locked in yet.  Starbucks and Pepsi reps had little to say in response to inquiry placed a week ago.  “We are excited about the opportunity to enter the ready-to-drink category with Teavana and aspire to capture a large share of this $50 billion category,” said SBUX rep.  “We haven’t made any specific announcements related to timing.”

Any move by Starbucks to go it alone on Teavana wouldn’t necessarily reflect any weakening of 2 partners’ ties.  After all, alliance is focused on coffee products, and Pepsi likely had to go to its longstanding tea partner, Unilever’s Lipton, for permission to use different partner for higher-end Tazo line.  This week’s decision to expand the 2 cos’ coffee/energy partnership to Latin America offers further evidence that those ties remain strong. 

Still, Tazo RTD line proved only modest performer and sometimes was seen selling at steep discounts, which likely wouldn’t have gone over well with premium-focused Starbucks.  Nor did SBUX hesitate to pull its whole-bean coffee biz from grocery partner, Kraft, even at cost of lawsuit from spurned partner.  Also recall that Starbucks has ventured into craft soda biz, via in-store Fizzio entry, making it nominal rival to PEP in that realm.  For PepsiCo’s part, co has been encountering strong success lately with PureLeaf teas produced with Lipton and may not see itself as needing another high-end entry, particularly at cost of complicating its Unilever relationship. 

Starbucks continued its torrid performance in 3d qtr, scoring double-digit revenue and operating income gains that left qtr standing as “among the strongest and most remarkable quarters in our over 23 years as a public company,” as chmn/ceo Howard Schultz exulted. 

Net revenues soared 18% to $2.9 bil thanks to 7% gain in same-store sales, acquisition of Japanese operation and opening of 1,592 stores, net of closings, over past year.  Operating income gained 22% to $768.5 mil.  In core Americas segment, net sales rose 12% to $3.4 bil thanks to 8% pickup in same-store sales and 592 store openings. Operating income jumped 17% to $855.3 mil.  “Firing on all cylinders,” said prexy/coo Kevin Johnson.  In fast-growing China/Asia Pacific region, revenue grew 127% to $652.7 mil, +20% excluding the $390 mil incremental revenue from Japan acquisition.  Same-store sales soared 11%. Operating income soared 49% to $150 mil. Pending launch of RTD Frappuccino bev should add another leg to growth there.  Channel-development segment, which includes canned and bottled Starbucks bevs, grew 8% to $403.6 mil, thanks mainly to burgeoning K-Cup portion packs, despite increasing price pressure from existing and new rivals.  Iced coffee pods, intro’d 3 months back, showed momentum heading into summer, and pending hot-cocoa pods launch, in Classic and Salted Caramel flavors, should continue momentum into fall, Johnson said on conference call last night, reported here with assist from TheStreet transcript.

US Drivers Include Cold-Brewed Coffee, Teavana-Branded Teas    In US, Johnson said, core bev offerings contributed half of comp growth, with blended and espresso platforms driving over two-thirds of that growth.  Beverage innovation such as flat white coffee, Frappuccino minis and in-store-produced cold-brewed coffee combined to contribute about 1 point of comp growth.  S'mores Frappuccino quickly became highest-selling limited-time Frap offering ever.  And Teavana-branded shaken iced teas helped drive 10% increase in tea bevs in US stores, contributing 1 point of comp growth, he said.  Fourth qtr should benefit from impact of cold-brewed coffee and Teavana Mango Black Tea Lemonade, both launched just ahead of summer and exceeding initial expectations, per Johnson.

Few New Details on Starbucks Roastery, Reserve Plans    Starbucks Reserve, intended as SBUX’ response to burgeoning Third Wave coffee roasters and cafes, got big lift from opening in Seattle of massive Roastery, where all Reserve blends are roasted, with special micro-lot varietals often selling out as soon as they’re made available.  Some of design elements from Roastery now are being harnessed in new store format, Starbucks Reserve, that will showcase both Reserve coffees and newest coffee brewing methods, as well as Teavana loose-leaf and packaged teas featured at integrated kiosk.  No further details on call on specific locations of Reserve stores nor of 2d roastery planned for US.  Schultz:  “The Roastery and Starbucks Reserve is a big, big idea that’s going to put a halo on the entire company, as we’re not going to allow any small company or independent in any way to subordinate our position as a leader in all things coffee.”

Pepsi Partnership for Latin America   Starbucks is expanding longstanding RTD partnership with PepsiCo to Latin America, where roaster operates 870 stores in 14 markets and plans addition of several hundred more in coming years.  Focus of tie will be RTD coffee and energy items, tapping into LatAm RTD segment pegged at $4 bil, Johnson said.  Initial RTD items will emerge in grocers and c-stores in 10 markets next year, he said.

Ultimate success of Monster Beverage alliance with Coca-Cola may be big imponderable, but MNST shares continue to surge.  Yesterday, co hit valuation of $30 bil, trading at nearly $150 per share, capping runup that more than doubled shares since announcement of Coke investment and distribution alliance last Aug.