Beer Marketer's Insights
Monster Beverage is claiming a courthouse win, saying Florida judge emphatically denied rival VPX’s effort to derail launch of its Bang knockoff, Reign, via injunction. MNST cited ruling from US District Court for Southern District of Florida, where VPX is based, that “VPX has failed to meet any of the elements of a preliminary injunction” and that “VPX has failed to establish that it is likely to succeed on the merits – and, therefore, a preliminary injunction is unwarranted.” VPX has pointed to similarities in trade dress, flavors, etc, to argue that Reign reps unfair challenge to its Bang brand. So far, it’s not clear how much impact Reign has had on Bang, which continues to grow rapidly.
Whether or not non-alcoholic beer becomes a new go-to beverage for non-drinkers, let alone moderate drinkers, 2019 marks a clear shift in the market for beer and beer-like bevs with little to no alcohol. And that shift very much on display at recent Great American Beer Festival, organized by the Brewers Assn, as reported by Craft Brew News, a sibling publication to BBI. Beer lovers there couldn’t grab a taste of this yr’s biggest NA bet, Heineken 0.0. But Brooklyn Brewery not only served its NA entry, Special Effects, it splashed the brand’s blue/yellow look all over the co’s endcap booth to draw extra attention to the launch, announced just days earlier. At least 4 dedicated non-alc small brewers poured beer amongst the hundreds of other US breweries on the floor. And 2 other beer or beer-inspired NA bevs handed out samples to the fest’s tens of thousands of attendees from sponsored exhibitor booths. (Note an earlier version of this article appeared in Craft Brew News, a sister publication of BBI.)
As noteworthy as NAs’ presence in the hall (quite a few folks, upon encountering CBN editors, asked “have you seen all the non-alc?”), non-alc beers were judged and received GABF awards for the first time in over a decade, BA’s competition coordinator Chris Swersey explained during ceremony. Top award went to lager from Two Roots, the outfit largely focused on infused cannabis bevs that, like Colorado-based Ceria, also launched non-infused, alcohol-removed versions of its beers. Two Roots poured handful of NA beers on the floor, as did fellow Calif-based Bravus Brewing, around since 2015 and awarded other 2 NA medals at GABF. Also pouring: Athletic Brewing, brewery out of Northeast and often held up as the poster child for NA craft, and WellBeing Brewing from St Louis, which often kicked off earliest coverage we saw on emergence of NA craft. A brand called Grüvi also sampled its non-alc bevs at the fest as an exhibitor, offering its takes on an IPA, a Berliner Weisse and an NA prosecco.
One Half of One Percent: Small Share So Far, But Fast Growth; 20K+ Bbls? So non-alc brewers and non-alc beers represented somewhere in the neighborhood of 0.5% of the brewers and beers poured at GABF. Tiny. And oddly coincidental. Total NA beer has just over one-third of 1%, or 0.35 share, of beer $$ in IRI multi-outlet + convenience scans yr-to-date thru Sep 8. That tracks NA’s share of total US beer shipments in 2018. On the other hand, NA craft is just 0.001 share for craft $$ in IRI MULC YTD. And NA craft is only about 0.03 share of total NA beer $$ in scans, well behind craft’s 11.5 share of total beer $$.
But it’s ramping up. Over 1/4 of NA craft sales so far this yr occurred in just the last 4 wks. It’s essentially all incremental. Total NA beer $$ are up 19% YTD and +28% for 4 wks. And while traditional retail represents important channel for NA craft, players are not hindered by alc bev policy barring or limiting direct sales over the internet. Direct shipping is a “good chunk” of Bravus’ biz, but founder Philip Brandes would prefer to see more of it shift to traditional retail, he shared with CBN. Traditional retail remains a majority of WellBeing’s biz this yr, co’s sales/mktg leader Tom Halaska explained to us, but developing close connections to consumers via direct sales, learning from them and troubleshooting any issues that arise, a major benefit, he said.
And oppty is huge, in his view. WellBeing produces around 10K cases per month at O’Fallon brewery in St Louis, making it O’Fallon’s largest contract partner, Tom told us. This yr, WellBeing selling about 4X what it did last yr. With that kind of trajectory, Tom resisted pegging a specific total for where co will end up this yr. But monthly production suggests could be north of 8,000 bbls by year-end, we estimate. Recall, Athletic at 500 bbls per mo earlier this yr with plans to ramp up, suggesting it could finish yr in similar ballpark. Out in Calif, Philip at Bravus pointed to an identical 300% growth trend this yr, but demurred on providing any volume specifics. Add in Brooklyn’s Special Effects, Two Roots and Ceria. Lookin’ like north of 20K bbls of NA craft in 2019 could be a bunt. But that’s still only about 0.1 share of craft volume.
One Half of One Percent: a Magic Number? However, current production and sales may just be “scratching the surface,” as Tom told us. WellBeing is intentionally limiting itself, selling only what it feels like it can effectively support in the marketplace, he explained. Asked about potential, he quickly remarked on oft-cited goal of world’s largest brewer, AB InBev, to have 20% of its global volume in low- and no-alcohol by 2025. Tom recalled that it’s only about 8% right now and that every percentage point is worth a billion $$. So it’d be huge to just “carve out one-half of one percent of that number.”
One half of one percent is the legal limit for alcohol content in a beer labeled as non-alc. One half of one percent of US beer shipments is about 1 mil bbls. Last yr, NA beer totaled between 750K and 800K bbls in US. Heineken 0.0 on pace to import about 150K bbls or so in 2019, based on 8 mos of NA import shipments from the Netherlands, reported by Beer Institute. But scans suggest established NA beer brands balance out to flattish. So unlikely that NA hits that 1-mil-bbl, 0.5 share mark in 2019. With big new entrants aimed at Heineken scheduled for 2020, that one half of one percent of US beer seems within reach.
To reach a similar threshold, NA craft would need to quintuple, based on above estimates. That isn’t to say that there’s the same relative opportunity for NA within craft as within the total beer market. But consider this age-old craftism, used to support the rise of small breweries in communities across the US: craft consumers don’t go out to get drunk, they seek new, enjoyable flavor experiences. Huge, if true, no? While attention on NA craft ramped up alongside media interest in supposed “sober-curious” consumers and the alleged uptick in young adults choosing not to drink at all, the real big upside for getting NA craft right (from a flavor perspective) is in drinkers committed to moderate consumption.
“We sell more beer to people who drink than to people who don’t,” Tom at WellBeing told us. “The sweet spot” for the co and NA craft in general, in his view, is drinkers mixing in NA options within a drinking “session.” So co positions itself as “the best third beer” option available. That is, after drinking 2 regular beers, switch to a non-alc beer to keep from overconsuming. Offering that option is a major driver for Tom and WellBeing. But Philip at Bravus sees it differently. His best customers are “in the boomer and senior market,” he shared, and “our core market consists of those that do not drink at all, not those that are merely taking a break or are looking for moderation.”
HopTea, Other Brewers Build Bridges; Which Direction Is Traffic Flowing? But who’s to say consumers seeking non-alc options won’t simply turn to bevs with more familiar non-alc flavors? Boulder-based Hoplark HopTea builds an intriguing bridge between non-alc bevs and craft beer. Its 16-oz cans of dry-hopped, carbonated iced teas are brewed like beer at a brewery on equipment made for beer. The brand, which won BevNet Showdown competition last Dec (BBI, Dec 11), also exhibited at GABF, pouring samples and handing out cans of its core 4 varieties to attendees. We observed a number of brewers and brewery reps with open cans of HopTea for hydration while pouring beer samples for others.
It's been a short 18 mos since establishing the co and initially launching at local farmers markets. It quickly got greenlight from 17 regional Whole Foods stores and now HopTea is adding capacity to supply a national mandate from the retail chain, announced just last month, as reported in BBI. It’s one of only a handful of mandated tea brands for total Whole Foods US footprint, founder Dean Eberhardt told CBN. Right now it’s got exclusive contract with the Amazon-owned chain (aside from online sales thru its own site), affording co some focus and simplicity to its ops, Dean shared. But that exclusivity ends next yr, at which point HopTea can and will seek additional opptys.
Again, HopTea is produced in a brewery. It isn’t fermented at all, but Dean and co-founder Andrew Markley’s homebrewing roots pushed them to figure out how to make the tea-based bevs on brewing equipment. They’ve also got a tasting room attached to the brewery in beer-loving Boulder. The other dedicated non-alc brewers and those working in non-alc and cannabis-infused bevs also operate breweries. And breweries with most of their biz in beer are playing with lower- or non-alc options that sometimes squarely fit within the bounds of beer and other times slide around the edges. Lagunitas Hop Water? Definitely not a beer, but a solid, growing option in non-alc space for the co (and the base for its cannabis play). Then there’s more beer-like line-blurring bevs with modest alc content like New Belgium’s Mural or the fruity “Spritzer” offered by Calicraft Brewing on the floor at GABF. Those lighter, tropical fruit-forward bevs may attract folks who are not particularly interested in beer to the breweries where they’re made and the brewing companies that make them. More bridges between non-alc and craft open all the time, allowing consumers to move more freely between them. The trick for craft will be putting up enough signposts so more new traffic can flow in.
Cannabis venture called Truss Beverage that was set up a year ago by Canadian brewing giant Molson Coors and cannabiz Hexo Corp is beginning to pull back the curtain on its own suite of CBD bevs due in Canada this Dec, just a week after rival Fluent Beverage – a collab between Anheuser-Busch InBev and Tilray – began talking up its forthcoming entries (BBI, Oct 11). Truss is setting stage to launch 6 cannabev brands, starting with Tetra Pak’d flavored spring water infused with CBD in partnership with Flow Alkaline Spring Water, per media reports. The line will be called Flow Glow, and graphic at TrussBeverages.com depicts brightly colored boxes in Goji + Grapefruit and Raspberry + Lemon flavors, labeled as containing 10 mg of CBD. It will be produced in Belleville, Ont. Flow, backed by likes of Gwyneth Paltrow, has made inroads offering boxes as alternatives to plastic bottles. Truss ceo Brett Vye told Canadian Press that intention in offering spring water is to tap into wellness-oriented consumers who may be new to cannabis category. He wouldn’t offer detail on the other five brands, tho some will include psychoactive THC component, except to say the offerings would cater to “all the drinking occasions.” Nor would he confirm whether any beer-like items are in the mix but said Truss believes there’s opportunity for it, striking a contrast with Fluent execs who’ve so far indicated they’re leaning against using beer as base for its own entries. Truss ceo Vye is Molson Coors vet who’d served as chief commercial and strategy officer for brewer’s international div for 3 years before being tapped for Truss role. As for unusual name of venture, it’s not an S&M reference but rather is intended to signal that “we are joining together the extensive experience and excellent practices of each partner to build a powerful foundation for the future,” as the partners explained a year ago.
The momentum continued for Coca-Cola in Q3, with Atlanta soft drink giant reporting 8% revenue growth and ceo James Quincey able to cite balanced contribution from developed and emerging markets and across all operating segments as sign of “power of an aligned and engaged system” where disciplined risk-taking is being encouraged. “Another solid delivery,” seconded Nik Modi of RBC Capital Markets. “It's clear management is making the right decisions for the business. We expect the company will continue to drive share gains (especially vs PEP in the US) and deliver on full-year commitments.”
Net revenues grew 8% to $9.51 bil; on organic basis, revs rose 5% as 6% price/mix gain was partly offset by 2% concentrate decline. Operating income slipped 4% to $2.5 bil. Unit case volume rose 2%, including 1% gains in N Amer, Latin Amer and Europe/Middle East/Africa, 4% gain in Asia Pacific and 15% gain in Global Ventures, where KO parks investments in entities like Monster Beverage and Innocent Juice. (Quincey conceded to analyst that growth was off the mark in Global Ventures and Bottling Investment Group, but didn’t offer rationale.) Among global star brands were Coke Zero Sugar, up 14% YTD, and the “challenger brand” Fuze Tea, garnering 3 pts of $$ share in Europe in its 2d year thanks to sustained investment aimed at turning it into a leader. For 9 mos, net operating revenues rose 6% to $28.2 bil and operating income rose 8% to $7.92 bil.
In N Amer, revenues edged up 2% to $3.14 bil and operating income subsided 3% to $641 mil. Unit case volume rose 1%, led by strong performance in Coke and Sprite CSDs as consumers embraced no-sugar extensions and smaller, portion-control pack sizes. All key “category clusters” that KO reports were up, with exception of flat tea/coffee segment. Quincey cited “improving” noncarbs but acknowledged that “the water category is not as strong as we’d like.” He said KO is working on plans to address this “in the near future,” a possible reference to widespread expectation that it will launch sparkling challenger to La Croix and Pepsi’s Bubly. Some see slippage on once-solid Smartwater brand, too, that might require further tinkering.
No revelations in Q&A with analysts, most of them focused on spreadsheet inputs like foreign exchange, capital spending and cash flow guidance. Still, the encounters shed a bit of light on new brands Coca-Cola Energy and Costa Coffee. Coke Energy, headed for US early next year, represents version 2.0 of product launched in Europe, moving flavor profile closer to Coke Classic in effort to draw Coke drinkers to energy category and doubling sku range to 4 for greater shelf impact in energy sets that tend to be more crowded on this side of ocean. Rather than pricing brand vs Red Bull as in Europe, it’s going with “slightly more balanced starting point” here. “We’ll launch in the US and no doubt we’ll learn and continue to evolve,” James offered. Recall Coke Energy debuted in Spain and Hungary earlier this year and by now plays in 25+ countries, with US version unveiled recently at NACS c-store show in Atlanta (BBI, Oct 2).
On coffee side, Coca-Cola Plus Coffee by now is in 20 overseas markets with strong performance so far, company said. As for UK-based Costa brand acquired early this year, Quincey signaled he’s taking it slow, working to establish brand in a new market before rushing into RTD formats. But bottlers are embracing the new brand, he indicated. In its most developed market, UK, early sales of RTD entries are “doing very well,” he said. No mention at all on call, in prepared remarks or q&a, of energy/coffee partner Monster Beverage, which unsuccessfully took to arbitration the launch of Coke Energy as violation of its exclusive contract. By Quincey’s explanation, Coke Energy is looking not so much to pry away consumers from incumbent energy players like Monster and Red Bull as to guide non-users into category. That could cause some cannibalization of Coke, but at premium price in keeping with price realization strategy at KO.
‘Hospital Ward’ Being Released from KO Lexicon As Quincey has gotten ensconced as KO ceo he’s familiarized us with new vocabulary to describe initiatives he’s been stressing, say, “lifting & shifting” to describe transfer of successful bev from one market to another with needed tweaks. On today’s call he suggested one longstanding part of Coke lexicon be retired: “hospital ward.” That phrase has long been used by KO brass to described Bottling Investment Group, where it houses company-owned bottling operations, often during periods of transition, to signal that it’s temporary status on way to ultimate goal of having operation in hands of capable indie franchisee. But, Quincey noted today, that has “invited the idea that they are underperforming, but we think they should be making margin returns and growth rates like the best of our bottlers,” in describing his intent of improving performance of BIG, whose revenues rose 8% in latest period, +4% for 9 mos.
For Holidays, LTOs Continue Experimentation with Core Brands Separately, KO disclosed limited-time entries for the holidays for pair of core CSDs. Coca-Cola trademark will release Coca-Cola Cinnamon, while Sprite runs with Sprite Winter Spiced Cranberry.
A pair of LA-based brothers of South Korean descent are wading into the challenging hangover-cure segment with a shot line called The Plug that draws upon thriving genre of natural elixirs back in home country. The brothers, Ray and Justin Kim, just concluded Indiegogo campaign in which they exceeded goal of $10K in less than 24 hrs and, with close to $500K in till from friends & family, are launching as DTC play while mapping out program to get into c-stores, liquor stores and nightclubs, including via distributor who can crack LiveNation events. They plan to pursue first institutional seed round early next year.
The Plug attempts to succeed where countless other brands have failed by capturing taste advantages of all-natural recipe that employs 13 natural plants and flowers but avoids relying heavily on vitamins, whose flavor challenges tempt other marketers to use artificial flavors as masking agent. Item packed in 3.4-oz fireplug-shaped bottles contains neither added sugar nor caffeine and comes in at 40 calories. It’s identified on pack as dietary supplement (tho sample we were sent also carried Nutrition Facts panel). The brothers use proprietary distillation process to protect both flavor and efficacy. That flavor, developed thru 30+ iterations over course of nearly a year, might be described as Red Bull with a hint of pineapple, they say. The herbs include oriental raisin tree, pine needles, chrysanthemum, dandelion and honeysuckle flower that combine to “restore, recover, recharge,” as marketing mantra puts it. It will go out at $4.99 at retail but can go below $3 via subscription plan online.
In phone discussion yesterday, the pair described their upbringing in LA suburb of Calabasas, college in Chicago and careers in tech consulting (Justin) and venture capital (Ray), all the while constantly pitching their entrepreneur father on ideas that might support a startup. None passed muster until The Plug. “This was the one without a fatal flaw,” Ray reported. They started working with copacker friend of their dad in Korea who proved, even after broader search, to be best partner, thanks in part to location in Unak Mountain in Pocheon, designated ecological area whose bedrock water has great purity. Info at ThePlugDrink.com.
Boom, Splat: New Age Bev Shares Soar on Nestle Tweet; Promptly Subside on Nestea Powder Deal
New Age Beverage shares soared more than 15% yesterday on tweet from co about “Big news coming from #Nestea” – then promptly subsided today after news turned out to be merely an expansion of existing Nestea deal on RTDs to include powdered format. (In fact, it wasn’t entirely news – BBI had reported several months ago that powders were to be included in alliance, BBI, Jul 12.) Still, powdered line that once generated $30 mil in US sales went live online this week, targeting database that NBEV says encompasses 1 mil consumers, and is also heading to retail. Offered Olivier Sonnois, New Age’s prexy for N America: “We have already received thousands of consumer inquiries about Nestea powders from loyal consumers, and look forward to expanding this legendary brand across the US.” NBEV cites Nielsen data indicating that powdered tea is $259 mil segment, making for ripe opportunity for New Age, which already has restaged RTDs as natural, premium line. Recall that brand had long partnered with Coca-Cola, which now plays in category via Gold Peak, Fuze and Honest brands.
As it prepares to intensify its marketing activities in 2020, Icelandic Glacial has recruited Neuro and KeVita vet Michelle Grieco as marketing dir, reporting to ceo Reza Mirza. Michelle brings diverse marketing background via stints at ProPhase Labs, Mars, Neuro Brands, KeVita and Coolhaus. Confirming new hire today, Reza said next step was to build out her marketing team in preparation for broad activation behind brand next year. Icelandic, recall, moves thru wholesaler network of Anheuser-Busch, which holds small stake in co. Co recently pulled in $31 mil in equity and $35 mil in debt, enough to support broad-based marketing effort for first time (BBI, Aug 23).
In move that should dispel speculation that its sluggish packaged water unit is candidate for sale or spinoff, Nestle has decided to fold the biz into its 3 global geographical divisions effective Jan 1, move that spells departure of Nestle Waters chief Maurizio Patarnello. The Swiss food/bev giant said the move will “help utilize Nestlé’s strong local expertise, better respond to rapidly changing consumer preferences, accelerate profitable growth and create synergies.” As part of reorg, a dedicated Strategic Business Unit will be created that reports to executive board member Patrice Bula, who heads strategic business units, marketing & sales, in an effort to keep the now more fragmented water biz strategically aligned globally. The move is bound to prompt renewed speculation as to whether Nestle Waters’ global hq, in France, will be relocated to its parent’s corporate hq in Vevey, Switzerland, and whether Nestle Waters North America, operating out of Stamford, Conn, may be united with food side of biz, which relocated from Glendale, Calif, to DC area a few years ago and has increasingly operated in concert with NWNA. The water biz was built on acquisition of Perrier in 1992 and has continued over the decades to operate from France even as the unit has grown to encompass 50 brands globally.
Nestle’s water biz has been a drag on co lately, at time it’s been hiving off operations deemed non-essential like its skin care unit, and that’s prompted speculation that the water biz may be candidate for sale or spinoff. But this week the company emphasized that it’s “an integral part of Nestlé’s nutrition, health and wellness strategy” and “one of the company’s high-growth product categories.” The move to integrate it more fully into the other operating units would seem to definitively signal that the co has moved beyond any thought of divestment. The current head of Nestle Waters, Patarnello, who serves as deputy evp at parent co, will leave the executive board on Dec 31 but continue to advise Nestle Waters during transition period. Co had nothing but praise for exec, saying, “Maurizio has a genuine passion for Nestle Waters’ iconic brands and has overseen the launch of innovative products that meet new consumer trends.”
Word of reorg came as Nestle disclosed 9-month results that showed the water biz to continue to drag growth. Overall growth of 3% to 68.37 bil Swiss francs placed co at high end of comparable food cos, as it noted, with the growth distributed among all 3 geographic units. But Nestle Waters faded a bit, -2.5%, to 6.01 bil francs, “reflecting high pricing comparables and a disappointing summer season in Europe,” as co explained. In N Amer, bevs comprised of Coffee Mate creamers, Nescafe coffee and Starbucks packaged items enjoyed mid-single-digit growth, with Starbucks creamers launch generating strong demand as co continues to build out that alliance, by now expanded to 34 countries. Nespresso, grouped in “other businesses” unit, grew by mid-single-digits, with newer Vertuo system garnering solid response in 21 markets so far. At NWNA, double-digit growth in Pellegrino, Perrier and Acqua Panna premium brands, driven in part by flavored and functional extensions, was offset by case-pack regional brands and Nestle Pure Life, lapping year-earlier price hikes. ReadyRefresh DTC biz grew at mid-single-digits.
Bahadur, Point Man on M&A, to Run Strategy, Biz Development In another move, Nestle board appointed its point man on M&A, Sanjay Bahadur, to exec board as deputy evp, effective Jan 1. In that role, he’ll head newly created Group Strategy and Business Development function tasked with identifying internal and external strategic growth opportunities, as well as managing external partnerships and licensing agreements, such as Starbucks, and overseeing co’s corporate venture capital activities. A 37-year vet of co, Sanjay’s current title is head of acquisitions and biz development. As noted here, NWNA has been among strategics who routinely turn up in speculation about bidding for high-end, high-growth Essentia water brand, tho those close to co say above-$1 bil asking price puts it in range that NWNA typically won’t pursue. However, as co narrows its priority businesses and tightens operations – say via ongoing transition from DSD to warehouse distribution system for its ice cream and pizza businesses – some wonder whether that may be about to change.
PACKAGING: Fiji Augments Sustainability Commitments with Plan for Full Cutover to rPET by ’25
Fiji Water is taking further step beyond ongoing lightweighting efforts to up its sustainability cred with plans to cut over all its plastic bottles to 100% recycle plastic (rPET) by 2025, hitting 20% milestone along the way next year. It’s also bulking up its bulk options with intro of 2.5-gal fridge or countertop packaging option and 5-gal option that nests in hot and cold water dispenser. Both options cut plastic use by 76% vs comparable amount of liquid in bottles, LA-based brand indicated.
After runs at Red Bull and Bang Energy, Sam Wilson is heading to clean side of energy biz via move to Austin-based Clean Cause sparkling yerba mate brand as vp sales & distribution, per his LinkedIn profile. After 5-year run at Boston Beer, Wilson had segued to Red Bull for decade-long run before heading to VPX for what proved year-and-a-half-long run building out distribution. Founded by Wes Hurt, organically certified Clean Cause offers sparkling yerba mate with 160 mg of caffeine in 16-oz can with just 30 calories, in Blackberry, Lemon Lime, Raspberry and Peach flavors. The cause in question is addiction recovery, to which co claims so far to have contributed 828 “sober living scholarships” in “high-accountability homes” valued at $414K . . . The marketing exec who masterminded Dunkin’s $100 mil redo of its espresso offerings and rebranding that dropped Donuts from the brand name has decided to move on. Dunkin’ Brands said Tony Weisman, cmo of Dunkin’ US, will step down Dec 1, succeeded on interim basis by Dunkin’ Brands ceo and Dunkin’ US prexy Dave Hoffman. He’ll assist in the search for his successor, the Canton, Mass, co said. No reason was offered for his decision to leave. He joined just 2 years ago after career spent on agency side including 19 years at Leo Burnett and 10 years at Digitas.