Getting The Holiday Spirit...

Any excuse to use this picture

The issue of alcohol (and more precisely beer) pricing in take home channels in the UK has been under debate for a while. From a pub culture where most alcohol was consumed away from home, Britain is now buying alcohol cheap at the local supermarket and drinking at home.

While this is good in that it keeps drunk drivers off the narrow and icy streets at this time of year, it has also created a bulge for cheap booze at the bottom end of the market.

The Times has some interesting coverage of this issue, now saying that "Beer is Cheaper than Water", but read a little more closely and you will see that the comparison is between the cheapest beer and "brand name" mineral water. If you went into just about any store in the US and compared PBR to Fiji Water on a $/oz basis you would see the same thing.

From my perspective, it is interesting to see that the government is considering a price floor for alcohol, something Canada already does. Also it may have implications for the future of sugared soft drinks here in the USA. Currently we are seeing an influx of promotional dollars into take home channels that are driving branded soft drinks to almost Private Label levels.

Price floors for our beverages? Due to sugar for CSDs, alcohol for beer and plastic for bottled water? Stranger things have happened...

Pulp Cola... Anti Cliche Beverage?

Enjoyed this piece of advertising humor from Paraguay...

Alcohol/Caffeine Debate Continues...

RIP Sparks...

This morning there is coverage of a study by Dr Thomas Gould of Temple University that discusses a study of mice who are given ethanol or ethanol and caffeine. The result of the study (not surprisingly) is that Caffeine does not sober you up - you remain drunk. The more interesting finding is that caffeine still boosts your alertness but the alcohol reduces your ability to learn and inhibitions.

Dr Gould's inference is that "the co-use of caffeine and alcohol could actually lead to poor decisions with disastrous outcomes", "people who have consumed both alcohol and caffeine may feel awake and competent enough to handle potentially harmful situations, such as driving while intoxicated or placing themselves in dangerous social situations".

The evidence for this was that it appears in the mice who are given both alcohol and caffeine "ethanol blocked caffeine's ability to make the mice more anxious. Conversely, caffeine did not reverse ethanol's negative effect on learning. As a result, alcohol calmed the caffeine jitters, leaving an animal more relaxed but less able to avoid threats."

This is the first time I have seen some real evidence against caffeine + alcohol.

In effect the argument is that if people behave like mice, they will make more poor decisions. They are more likely to drive while drunk, that "sexual misconduct" may a problem (or more likely that the "beer goggles" effect gets worse). And finally - "needing "medical assistance" (maybe because people will drink more because of the caffeine).

So what do we do? Is this enough evidence to restrict caffeine/alcohol products? Should bars stop selling Vodka/Red Bull? Irish Coffee? Rum and Coke? Or just selling coffee, or Coke.

Ultimately, as with any functional product, I think this becomes a personal responsibility issue. I think that there would need to be greater availability of information the combination of caffeine/alcohol, but enforcing the restriction of its use will be almost impossible.

And back to the first question, should the FDA ban caffeine/alcohol products? I am still in the camp of allowing them. Frankly it does not matter since those consumers wanting the combination will create their own.

Retail Storm, Brand Shipwreck?

The average price of food is down, now to pre-2006 levels. And with this decline will come value compression for food retailers, distributors and brand owners. In past posts I have highlighted some of the drivers behind this fall (low commodity prices and retailer competition), but this is beginning to really signal some big challenges for these businesses. Six months ago beverage businesses were celebrating that their price increases had held despite the state of the economy.

In recent calls, executives have expressed concern that retailers just aren't getting the traffic they used to resulting in an ever more aggressive marketplace. In fact the marketplace is -2.8% so far this year, the fastest deflation since 1959 (WSJ).

Now these business have to really figure out how to compete...

A Dose of Reality

The discussion of nutrition and health is impacted by preconceived opinions that manifest themselves as "food politics". From the soda in schools debate to GMO vs organics to HFCS, much is portrayed as a conspiracy rather than looking at facts

A very interesting study from the University of Alabama has brought a new perspective to the debate, identifying that often studies that show "no significant difference" are shelved in favor of those that make headlines - and match their preconceived opinions.

Now, we will probably find out that Coke financed the study, but it is a welcome dose of reality in a field that is often over-simplified and misunderstood.

NPD and the Future of Food

This looks like an interesting read. NPD's Future of Food since it claims to examine the changes likely with an aging population.

Too bad my budget will not stretch to it...

Naya Reborn

Naya has always been a great tasting water. Very clean, very pure with an almost Evian-like smoothness that is rarely found in a North American spring. In the late 90s they spent big on a new manufacturing facility, but lost their Coke distribution - resulting in a swift decline into financial hell.

Now, as bottled water has been hit with the challenges of filters on fawcets, ecological concerns, private label gains and declining growth, Naya is poised to return to the market by using a recycled PET package and focusing on the gay market to rebirth the brand.

Any water proposition faces multiple challenges: Its low margin, highly commoditized and there is a low cost producer (Nestle) that has massive resources. It will be interesting to see if more ecological packaging and a niche marketing campaign will be enough to create a successful venture.

Not Your US Orangina...

In the USA, Orangina is considered a sophisticated, cosmopolitan beverage. Orangina is left bank cafes, it is summer in Cap d'Antibes. A idealized version of the best things about La Belle France.

In Europe they are taking a different approach...

The Retailer Shoe Starts to Drop...

Back in September I posted a comment about how beverage businesses were now as the strongest position that they were likely to be, and a combination of increasing commodity costs and retailer pricing pressure would be headwinds for 2010.

There is increasing evidence of the second part of that statement with the Costco rift with Coke. Ad Age has picked up on this theme in the context of building brands. In reality this is a value fight - and who deserves to make what margin. This will become an even bigger theme into the future, and with DPS and PEP consolidated, it will be more challenging for KO/CCE to come up with the right value division scenario...

Great Idea: Poor Communications

There is a real challenge in creating compelling integrated advertising and entertainment. How do you achieve brand communications objectives without making the viewer's flesh crawl?

Today I watched "The Broadroom" from Maybelline, and the faux music video from Muscle Milk, and was disappointed by both.

The Broadroom has real potential - written by Sex and the City author Candance Bushnell, and has spared no expense to hire real talent. Unfortunately the premise and the script reads like a draft of the brand segmentation study, and cannot figure how to subtly include product ID's.

The Muscle Milk faux music video is used to to promote the sexy pilgrim... a guy with the ripped torso who got ripped because of Muscle Milk. Good idea for a gag, well produced, but just awful.

So here's to a new year with a better idea of how to do product endorsed entertainment. Otherwise the decade of the teens may be more of a throw back to the sponsored content of the 50s, rather than the brave new world of digital marketing.

Sparks - No: But Red Bull/Vodka - yes

So in the infinite wisdom of the FDA, prepackaged Energy/Alcoholic drinks are too dangerous to sell:

But bars are still able to sell Vodka/Red Bull, Irish Coffee, even Rum and Coke. While I will grant that the interactions between alcohol and caffeine are not well understood, but people have been mixing these substances for years without FDA involvement.

I scratch my head...

The End Of Advertising And Bachman Turner Overdrive...

Over the past few weeks, a recurring topic of conversation has been about how the agency and client model of marketing and communications is changing - and there are very few people embracing that change.

Most traditional commercial enterprises have people in outdated roles being serviced by consultants (agencies of every description) that no longer know what their role is.

I came across this interesting White Paper by (of all people) IBM, that really hit home. If you think we have seen change to date, you ain't seen nothin' yet...

The Coca Cola View of the Year 2020

KO just completed a two day analyst presentation in Atlanta to give some insight into its vision for how it will double its consumption globally over the next decade. It is apparent that months were spent by their consultants and strategists to deliver a vision driven laid out in a strategy map format to show the assembled wise people of Wall Street that KO is ready for the challenges of the next decade.

I have uploaded all the presentations to my slideshare account, for those beverage geeks who are interested... but I have not had the time to sit through the webcasts... those are available at the Coke website in their investor relations section.

Overall it is an impressive treatise on the KO objective of global domination, and more precisely on their determination to make brand Coke even more omnipresent ( if that is even possible), through various marketing, sales and supply chain tactics. I particularly liked the insight into Japan and China -probably because I am so US focused.

A couple of things do feel forced into the agenda (sustainability comments, and platitudes on how Coke will get people to exercise more). But the biggest concern I would have for the red machine is that it remains so singularly focused on its core, refreshment-driven CSD products. I saw nothing that made me believe that anything can be done to elevate the business above commodity status.

Also it overshadows some of the good work being done in the Venturing and Emerging Brands area, where real innovation (outside the Atlanta homeland) is being recognized and invested in (Honest Tea, Illy etc). The corporate innovation presentation sounds like the standard approach: KO wants Big Ideas that warrant Big Bets. As ever the "Big Bets" approach flies in the face of how beverage innovation actually creates success. Small incubation has won, big bet innovation has lost.

It is an interesting read for anyone in beverages, but the overall message is really "more of the same". They are lucky that "more of the same" has a large iconic base that will not be eroded easily. However, ignoring the functional future of beverages (eg. Vitamin Water and energy drinks) will be something they will do at their peril.

Mainstream Sex... The wave keeps (ahem) coming

Passionfruit-Viagra is the new desert created by some Colombian Chefs: Apparently the eaters enjoy "delicious tickles". ANyway, a couple of years ago I had heated arguments with some colleagues about a future trend called "mainstream sex". My theory was that in the next few years, "erectile assistants" and other libido enhancers would represent a mainstream opportunity away from the Horny Goat Weed at the checkout counter.

For those who scoffed... I start to claim victory.

Chocolate The Real Superfood

Just to add to the ever growing list of things that Chocolate can do (reduce inflammation, improve heart health, etc etc) now add "reduce stress".

Soon every bar of chocloate will be stamped with an "S" and sold with a cape...

Coca Tea

Last week, a friend (thanks Alex) drew my attention to Kuka. Well... Kuka Tea is coming to the USA, using de-cocanized Coca leaves.

A very interesting proposition.

A good idea from differentiation and innovation: But sailing too close to the wind of America's puritan ethics? Time will tell. In the interim, I am very interested in tasting it!

10% Growth in Tea?

How to win in the tea business...

Nielsen is projecting that Tea is about to surge because "If the recession has proved anything, it’s that American consumers are willing to pay a premium for healthy products."

Really?

I would love to see their data, because from what I have seen, CSDs are leading growth (with a significant contribution from Private Label) and the leading tea brand (AriZona) is often the single cheapest product on the shelf - offering the retailer and distributor less margin that any other beverage product. Their 99c cans have been a success dating from 1992, and have spawned hundreds of imitators (for example Snapple now with 79 cent cans). Indeed both Lipton and Snapple have struggled to respond to AriZona's ownership of the bottom end of the market.

The release continues that "Over the next several years, tea’s health halo will gradually return the market to the double-digit gains it experienced prior to the recession, particularly as additional research solidifies the product’s healthful and functional properties."

Let's be clear. Tea has become a cheap, low margin player in beverages.

The days of success driven by hot filled premiumness have disappeared under 99c cans, $2.50 gallons, and players like Red Diamond who fill their gallons cheap at dairies. Undoubtedly tea can grow, and there is some residual interest in tea's health benefits, but the bulk of growth is driven by value, and not consumers willing to pay a premium for healthy products.

The choice beverage makers have to make is whether they want to disappear down the value tea rabbit hole, or whether they can build propositions that can command a premium price from consumers.

Gatorade Starts to emerge from the 60's

From what Crain's Chicago is reporting, Gatorade has finally recognized that it needs to leverage its primacy in Sports Drinks to prepare formulas specific to sports needs, as opposed to an infinite variety of "replenishment" beverages.

Gatorade will have 3 line extensions: Prime, Perform, and Recover that correspond to the different need states of the sports person. Bravo for figuring it out - but they are probably a decade late compared to many of the leading sports nutrition businesses.

No details on the formulations, but I would guess is that Prime will be a caffeine-added, BCCA product, Perform will be standard replenishment product, and Recover will be Protein based (they have previously had Gatorshake in the works for a while).

Strategically it is a rejection the past "one size fits all approach", but I'm not sure that it does anything for the problem at the core of their business... there are better non-sport products with a similar sweetness and better taste (ie Vitamin Water). It does however position the business to be stronger and more focused in the future.

An Unexpected Protein Use

Did not see this coming...

Well, I have been anticipating greater proliferation of protein enhanced beverages - but this one has me doing a double-take.

Devotion is a Protein-enhanced Vodka. Yes, its a vodka for the fitness fan. The fan that avoids carbs, and wants to keep their protein levels high whether its from Muscle Milk in the morning or from Devotion vodka at the club at night. I guess those pumping iron are not looking to get drunk at the same time.

Vodka is very crowded category, but very profitable. I will be looking forward to tasting the product... protein as an ingredient is a challenge at the best of times, be interesting to see how the challenge is handled in alcohol.

Personally, I am interested and open to it... but whether it can be mainstream enough to get the scale it needs... Well - time will tell.

Food in the age of Energy

Now beef jerky with added energy.

Perky Jerky is certainly an interesting concept, using a higher quality beef and guarana; And it is well within the interest of the male energy consumer. In the linked article the creators talk about a desire to "take jerky upmarket"... And while the package is interesting (it will be tough for Red Bull to stop them from using a bull) the name Perky Jerky belies a pretty serious product.

This may not be THE big idea that will take stimulants into meat snacks, but it is an interesting progression in taking energy functionality to a new market space.

Overnight Sensations

It seems that everyone believes that "next big thing" beverages are created overnight and leap to national prominence after a short gestation period. Lately this has been the vibe behind the Energy Shot business (nice article from Matt Casey at Bevnet here).

But it seems to me that shots are following in the footsteps of Snapple, Hansen's, Vitamin Water etc in taking a long period of time to reach the national consciousness. In past work, the average period of time takes around 5 years, and often includes some kind of "last chance" gut check in the brand's history.

The implication here is that the next big thing (due in 2 years) is already in the market, finding its feet - and hoping that its funding will keep it alive.

Back to the Blog

After a couple of silent months, I thought I would restart my musings with a quick recap of the top three things on my mind...

First, its a project I have been working on - underWAY. I have been banging away in person and on this blog about real, differentiated functionality for a while - and this is something I believe underWAY has in spades. underWAY is the first appetite suppression beverage, using a combination of superfiber technology for "stomach bulk" and low GI sweetening for smoothing body insulin/blood sugar levels. The result is a beverage that can immediately end hunger in a great tasting beverage. We are out starting to introduce this to retailers, targeting the nutrition aisle... Contact me (neilgkimberley@gmail.com) if you want more info.

Second has been the exuberance in beverage stocks. A combination of higher retail pricing, M&A activity and lower input costs has made beverages a flavor of the month with Wall Street, led by the non-M&A bottling-driven stocks (DPS, CCE) and HANS. Will this last? How can these businesses sustain growth in an environment of more promotions and higher input costs?

Third, where are the other hot new ideas? Energy Minus (Purple/Drank)? Coconut Water (Zico, Vita Coco, ONE). Kombucha (look for it in the POM section of the grocery store!)? Can energy evolve one more time?

Here we go 2010!

Here Comes Coconut Water...

Pepsico's Latest Purchase

In a summer when much of the focus of the beverage industry has been on the Pepsico move to buy its distribution systen, PEP showed that it still had its eyes on the future with the acquisition of Amacoco.

While the acquisition is dressed up as a move with international motivations, its is likely that PEP has also got a eye on the US with the move. In recent months media coverage of coconut water has increased, and the three current players in the US market (Zico, Vita Coco and ONE) have been in an distribution expansion for the entire year.

I personally like coconut water: Great original taste, nice unique packaging... Its ready for primetime: Now the question is - who will be the winner??

The Summer of 2009 is Over. Now What?

This has been a good summer for the traditional beverage powerhouses.

While the recession economy has driven consumers to cheaper refreshment alternatives (ie CSDs) to boost consumer demand, everyone has benefited from the price increases of 2008 and the fall in input costs in 2009. As a result volumes may have been soft, but revenues and profits are up. As a bottler friend of mine observed, "This is the best summer for years. pricing is up, costs are down - I am profitable on every case that I sell".

Even the softness in bottled water is a reason for the big guys to celebrate. Bottled water has been a low margin, high volume distraction for a decade... the summer of 2009 has weakened a strong competitor (Nestle) and decreased retailer clout.

So all is well in the beverage world? Well, probably not.

It is now apparent that the traditional consumer marketing of commodity CSDs appears to be failing (see the failings of Pepsi for illustrations).

Underlying consumer interest in more healthful, more functional alternatives is still there: Attractive products in Energy, Sports, Enhanced Waters, and Functional Beverages are still making progress.

So, coming into the planning phase for 2010 what will be on people's minds?

- How quickly will Pepsico close the deal with their bottlers and what will the fallout be?
- Is bottled water at its maximum? Or is there more growth there?
- If input costs go up as the economy reflates, how much margin can the businesses keep?
- Can the businesses continue to cut overhead and marketing with no fallout?
- Coconut water is now front and center in the new beverage agenda (after Pepsi's purchase of Amacoco) - will it grow to scale? Who will the winner be?
- Can Gatorade evolve? Its single use positioning is no longer enough to sustain its 80 share.
- How quickly will energy resume its growth? And will shots continue to complicate the category?

Lots of questions...

Interesting year ahead.

Move Over Acai, Beetroots Are Coming

Now there is scholarship on the humble beetroot, claiming that beetroot juice can increase the drinker's stamina by 16%.

It is fascination how we still are finding new perspectives on the foods we consume.

Soda's Moment in the Sun

It has been a long decade for CSDs. Consumer's increasing interest in "better for you" and "functional" beverages has been arrested by the economy, and CSDs are benefiting.

Results from Coke, Pepsi, DPS, CCE and PBG are all very similar. While CSD volume has declined, its pricing has increased while input costs are down. As a result there have been strong results from the major players and stock prices are up. As a large bottler put it to me recently - this is the best year this century for the bottler: the old price point paradigms for 2 Liters and 12 Packs have gone, replaced by far higher price points based on multi-purchase deals (two 2 liters for $3 etc).

In the past year the cost of gas is 60% of last year, aluminum is 50% of last year and corn (the principal sweetener) is 50% of last year. And all of the major players took out a significant number of heads from their budgets as they expected a similar cost environment in 2009 as they faced in 2008.

But it is unlikely that these results are little more than a short downhill stretch along an uphill road towards the challenges of tomorrow. Health and functionality trends are still there, just covered in the interim by the challenges of the economy.

The large CSD businesses still have to figure out the right portfolio for future success.

A Quick Trip Down Memory Lane

Just found this blog entry about the RC Bottle Guy commercials we worked on back in 2000. Too bad we never got to properly run them - but I did get to wear the RC Bottle suit at a few sales meetings...

Big Press For Little Bottles

Around 4 years ago, I was researching energy drink pricing and first came across a 2.5oz product called (I think) Lift. While doing a sort of highest priced per ounce beverages, it came top.

That was 2005, and now in 2009 Energy shots have made the big time. The New York Times has gee whizz coverage, and ConsumerEdge is reporting a category trending in $1B in retail sales this year.

And to the big boys of energy, this is both a blessing and curse. A blessing because it grows the category: A curse because it makes them compete from a position of weakness Vs 5 Hour Energy - the 400 lb gorilla of the checkout.

But more interesting to me is the expansion of the energy need state. So, now it is shots - next will it be chews? Hydrive is already there.

FRS: Lucky 13??

FRS - out in front of the curve

Today there are news stories on the value of Quercetin as an antioxidant that can improve endurance. Over the past three years FRS has been promoting the compound as an endurance ingredient: well now they have their wish. The data claims that people taking Quercetin could increase their endurance by 13% - not an insignificant number.

FRS has employed some interesting approaches to the market, from free samples to DSD distribution to social networking - but this press may be the most significant. I wish them luck!

Rightsizing HANS...

HANS is a very successful beverage business. It has created a powerhouse energy brand in Monster, and is steadily making strategic changes to maximize that performance over time. Their growth has been strong, their innovation track record has been exemplary, and their profitability reflects Monster's status as a highly functional, well differentiated brand.

As a result, the brand has become a darling of the investment set's chattering classes. Rapid growth, strong profitability and a history of beverage brands being sold at massive premiums to Coke, Pepsi and Cadbury (now DPS) built a high level of expectations around the business.

But all of this was dependent on growth:

• Category growth in high margin energy beverages
• Growth in market share in energy
• Profit growth... scale benefits, Cost of Goods savings etc etc

So far this year Monster has increased share and COGs are lower - but the category is flat. And while their business is strong, CEO Rodney Sacks wanted to be clear that future growth was going to be challenging - even with the assistance of mega-distributors CCE and Inbev/AB.

This has had the result of knocking $14 off their share price, reducing the stock from $43.61/share to around $30/share in six weeks - a fall in market capitalization from around $4B to $2.7B in 6 weeks.

HANS 2008 revenue was around $1B per year, and their operating profit is around $200M before costs related to distribution agreement changes. In the normal world this would put the business value somewhere between $1.5B and $2.5B. Still a very large and successful business with significant upside as consumers continue to seek functional beverages. A position that would allow the business to operate successfully into the future.

However, if their stock price continues to fall, it is likely that the business becomes a more attractive target for the big beverage companies. But right now it seems that the business running well, positioned for the future - but without the irrational valuation that has had many of us pondering their high stock price.

Banging The Social Media Drum...

I came across this presentation at slide share... does a good job of dimensionalizing the impact of how social media and the digital world has changed brand building.

As ever, it strikes me how far behind CPG businesses are behind in leveraging these changes. It will be interesting to see who will get there first.

Ritalin - Not Just For The Unruly Homeroom?

The BBC has an interesting piece on the potential use of Ritalin as a functional aid to healthy people.

The main thrust of the article is that since Ritalin has no negative impact on healthy people, it is unethical to block its use. In the UK use without a prescription could lead to 14 years in jail.

The reality is that we are about to enter an era where new synthetic drugs, with no side effects could become available - effective drugs that do not endanger the user. The history of humanity has been to restrict such use, but we may be facing a new era.

Next stop Ritalin Tea? Its no longer an impossibility...

Rockstar Energy... A New Brand Facing An Old Challenge

Urban Legends 2009

Rockstar is a very successful business. It was at the forefront of the development of the energy drink segment; it good tasting products and a wide variety of flavors, and today Rockstar is the third largest energy brand in the US, and has begun to roll-out worldwide.

The brand is the brainchild of Russ Weiner, a Las Vegas resident he made its image that of a serious "party" product... hence the tag line "Party like a Rockstar", events at stripclubs & the Playboy mansion, and suggestive imagery on its website (www.rockstar69.com). This makes the brand unsavory to some - but edgy and cool to some key energy consumers.

Sampling outfits that probably don't help with the activist community

Weiner is the son of notorious conservative talk show host Michael Savage. And that is where the problems start. Savage is now thought of as Rockstar's owner... leading to boycott calls from the activist community. See this website for an example of the spread of this rumor.

In the tradition of Snapple being owned by the KKK (a rumor driven by the Kosher certification on the bottle - and the rumor that the Boston Tea Party graphic on the label - was actually a slave ship), Rockstar is fighting a PR challenge of its own. An issue that may fatally hit the brand, disrupting its relationship with PBG - and with inherently conservative retailers.

In response, there is now a corporate "Truth about Rockstar" site, that addresses many of these issues and lists the charitable works of the owners. But the site does not link to the main Rockstar site.

The learning is that being edgy comes at a price.

While the rumors have not impeded the brand to date, they may become the story: When these stories get a life of their own the brand may struggle to recover. I wish them luck in shaking off these issues, but I think it will take more than a website and personal indignation.

Consumers are willing to believe the conspiratorial worst of corporations - Rockstar will have to arrest these rumors with actions.

Social Media and Convenience Stores

Become a fan now for a Free Iced Coffee!

A recent project has had me thinking about how to reach C Store visitors. Since their shopper is normally young and male - social media seemed to be appropriate. What did I find? Well, the normal use of the corporate website was to sell franchises, and there was little interaction sought or built by these corporations with their consumers.

Well, it appears that a number of these chains have started to open their minds to these possibilities. For example Quick Chek (a NJ chain) will give a free iced coffee to all their Facebook friends - if they get to 1,500 friends.

Other stores are also getting active, according to this article in C Store news - including Kum and Go, and Sheetz.

Frankly, its an easy fit, and a small investment that could have a big payback for these retailers.

You know bottled water has issues when...

The best ad for tap water I have seen...

In the NYT today there is a really interesting article on water in Venice (Italy not CA).

In short the article talks about how there is a local push to change Italian consumption habits from bottled mineral water to tap water.

From my perspective it is very interesting that they have taken a specific insight and built a brand image around it. Rather that focusing on a traditional taste cue, or a contemporary "green" cue they have focused on the simple dissonance that challenges bottled water... why pay for something that you can almost get for free out of the tap.

Aqua Veritas... True Water. Love it!

A New Challenge For Coke Zero...

A victim of its success?

Apparently there are big issues with Coke Zero. Venezuela has banned its sale "to preserve the health of Venezuelans".

Coke Zero is the artificially sweetened, zero calorie taste-alike of regular Coke... and has apparently hit a nerve with President Chavez. Obviously this is some kind of political play rather than a legitimate health concern.

Perhaps Hugo owns some sugar fields??

Good Data...

I love a good, well sourced report - and the GMA/PWC 2009 Annual Performance Report on the Food, Beverage and Consumer products industry is just that.

So, I posted it to my slideshare account.

The Semantics of Milk...

The protein world is getting litigious. First Cytosport (make of Muscle Milk) has sued VPX over the trade dress of their Muscle Power product, and now Nestle has decided to go after Muscle Milk over "Milk" because its not actually Milk... its a high protein, artificially-created shake.

So, we run to the dictionary for a definition, and we find:

Milk –noun

1.an opaque white or bluish-white liquid secreted by the mammary glands of female mammals, serving for the nourishment of their young.

2.this liquid as secreted by cows, goats, or certain other animals and used by humans for food or as a source of butter, cheeses, yogurt, etc.

3.any liquid resembling this, as the liquid within a coconut, the juice or sap of certain plants, or various pharmaceutical preparations.

I guess we will be seeing the "pharmaceutical preparation" defense...

But those lawyer bills... ouch!

The Myth of Sustainable Competitive Advantage

It may be a bit academic, but this article in the HBS review is very interesting.

The basic premise is that competition is now so aggressive that no advantage is sustainable over a long period, and that a successfull business no requires a process that builds a series of short term advantages.

The implication here is that the pace of innovation and change is only likely to accelerate, and that personal employment stability will be a thing of the past.

An interesting read, but with far reaching implications...

Vive La Fizzy Difference!

Nice interesting perspective on what Americans call their Carbonated Soft Drinks... Soda, Coke, Pop or something else. A blogger has held a vote on Twitter.

I was personally hoping for a resurgence of "tonic" - a traditional favorite in Boston, and pronounced with great New England vowels as in tahnnik.

Innovation Process: More Is Better...

Most large CPG companies are obsessed with an innovation process that will increase, if not guarantee success. They want innovation precisely targeted and accelerated to a massive scale as rapidly as possible. A solution that requires massive launch and investment: The "big bet" solution.

In reality, innovation in CPG is more iterative, and tougher to accelerate. This article from Booz Allen illustrates that a smaller, but more profligate approach looks to be more successful.

The winner therefore appears not to be the "big bet", but the "hedged bet".

This Modern Life...

Not What Charlie expected.

Todays sensationalized over-reaction comes courtesy of the National Sleep Foundation, claiming that "many teens get 3 to 5 hours of sleep" per night - and this is caused by electronics and caffeine.

Within the story, they say that their sample averages 4 electronics items per bedroom (ipod, computer, TV and phone), and that they average 100mgs of caffeine a day required for them to stay up late - and not get the 8+ hours of sleep the NSF recommends.

It does seem to me that they are going after the wrong stuff. Surely it is the demands (and opportunities) of modern life that are the challenge. Combine schoolwork, after school activities and an active social life - and you squeeze the time resources available. Who could fault a teen for not wanting all of those outlets.

Back at Cadbury, we called this a "fully loaded life". The challenge is more about compressing those opportunities rather than holding the enablers responsible?

Evernote

As we all become more digital-reliant, saving interesting stuff has become tougher... Especially if you just print everything - or rely on Google Desktop to do the heavy lifting for you.

A couple of weeks ago I was introduced to Evernote, which can save whatever you want to clip from online - and save it: Once saved the data is searchable (both in graphic and character form), and links back to the original source.

Love it!

The "Whys and Wherefors" of Sugar vs HFCS

There is a substantial interest in traditional sugar-sweetened soft drinks Vs their current HFCS sweetened descendants, driven by Pepsi Throwback.

In some quarters the switch is regarded as a move back to a healthier product... with HFCS being an evil sweetener. This article from Agweek challenges the notion, with a nice analysis on the realities of HFCS vs Sugar as an ingredient.

To my mind the only real difference is in taste. Sugar (or medium invert as it often gets called), just tastes better - more pleasant mouth feel, less coating, and it helps fruit flavors blend. The products I have had the chance to work on always benefited from the intense and rounded sweet taste that real sugar provides.

So enjoy the real sugar alternatives while they are around. And use them as mixers for alcohol (a really good application)... But don't kid yourself that they are better for you.

Cola Sensationalism

Coke's Cool Summer 2009 Look

So it turns out that drinking between 3 and 10 liters of cola per day could be bad for you. Anyone surprised? Thought not.

But this comment was most interesting: "In a commentary, Dr Clifford Packer from the Louis Stokes Cleveland VA Medical Centre in Ohio said... "With aggressive mass marketing, super-sizing of soft drinks, and the effects of caffeine tolerance and dependence, there is very little doubt that tens of millions of people in industrialised countries drink at least 2-3 l of cola per day."

Tens of millions of people drinking 5 - 9 cans per day, or 4 - 6 single serve 20z bottles. Must admit that seems high. Yes, I have seen and met the biggest consumers who love their chosen beverage to the tune of a 12 pack-a-day... but they are the exception rather than the rule.

Again sensationalism mixed with guestimation leads nowhere.

NY's Bigger Better Bottle Bill - What a Disaster!

The politicians at NY state government want state specific UPC's for deposit required containers... And by June 1st!

Just insane!

• It will increase consumer prices through increased complexity

• It will be almost impossible for small beverage businesses to manage. It would build an almost insurmountable competitive advantage for the most sophisticated systems - Coke, Pepsi, AB.

• Its a trend could grind the US food system to a halt. Imagine each of the 50 states decides its own UPC, for each beverage in its grocery stores...

I am all for a greener supply chain approach, but adding a NY specific UPC code is no solution.

Stop the insanity.

Innovation on the Ropes...

Mintel is reporting that new product launches have declined by 51% in 1Q 2009 vs 1Q 2008. Looks like the constriction of capital, allied with changing consumer needs is finally arresting a decade of innovation.

Of specific interest to me is the data that the non-alcoholic beverage segment has declined by 56%. Its interesting that the new product with most interest within the investment community is Orange Crush through the Pepsi system, while the energy segment consolidates, the water segment declines and sports drinks enter a phase of price promotion.

Now is the time for a new idea to kick start the cycle again.

A new era for Coke and its Communications Agencies

Ad Age today discussed Coke's move towards a "Pay for Performance" approach to marketing services, signaling continued pressure on the old agency/client marketing model.

The agency model of creating a defendable brand position, then guarding that position has been under threat for many years. Consumers are increasingly moving past the ephemera of "branding", and into a place where News, Innovation, Creativity and Excitement are far more important.

With the communications-driven era of branding disappearing, Agencies are looking for new ways to insert themselves into the model. A model where the Brand Manager and product strategy is important than its communications tactics.

Coke has a solution. They are asking their agencies to participate in the total marketing process... And assume some of the business risk. No more guaranteed margins for an "Agency of Record", but costs covered and a success fee if the business makes its numbers.

In theory this is an equitable solution for both client and agency, but it is rare that the marketing has control over the success. In reality strategic planning, portfolio strategy, sales focus, customer marketing, R&D, all have to be aligned before consumer interaction. Agencies will lose more of their leverage as creative is sidelined further.

There is no doubt that a creative resource is required to assist lead marketers on project, but with the success depending on so many disciplines beyond the agency's control, it will be interesting to see who will want to take that risk.

The Pepsi Re-Alignment And Small Brand Innovation

What's on the truck?

There has been lots of coverage of Pepsico's (PEP) move to purchase its two largest bottlers - Pepsi Bottling Group (PBG) and Pepsi Americas (PAS). In short Pepsico, which owns a significant, but not controlling interest in these businesses, has decided that now is the time to fully align their system.

While this is not a revolutionary idea - Dr Pepper Snapple Group executed a similar plan in 2006 - it is likely have big ramifications for the beverage industry, and specifically for emerging beverage brands .

With the bottling systems separate to the parent companies, small emerging businesses still had a chance at gaining distribution through big beverage systems... and indeed Muscle Milk and Rockstar have recently taken advantage of the PBG/PAS system. It is likely that Pepsico will not be as tolerant to those incubation businesses - and block small competitor access to this resource.

Indeed, it is now possible to see an industry with four large centralized systems. Coke, Pepsi, Dr Pepper Snapple and InBev/AB could carve up the marketplace, and restricting small brand access to growth.

As a "glass half full" person, I would also believe that there will become an even greater opportunity for smaller, non-aligned distribution systems across the USA. But, importantly, these systems will need a new, high margin, breakout product to again disrupt the consolidation, much as Snapple did in the 90s and Vitamin Water did in the past decade.

The lessons of the past 30 years that every consolidation tends to create an equal fragmentation as long as there is high margin innovation to support the change. As ever beverages are a world of constant change.

Did You Know?

Everything for your funeral can be purchased at Costco...

Grass Roots Demand for Surge? (..Really? ...Surge?)

Ah nostalgia, for a time before real energy drinks...

C Store news ran this story about Surge today. Surge was Coke's updated answer to Mountain Dew (because Mello Yello was never going to cut it). Plus it was the brainchild of Coke marketing guru Sergio Zyman (hence the Surge - geddit?).

While it has been a decade since I tasted the product, it was only ever a me-too for the Coke system - with an inferior taste to Mountain Dew, and eventually a lower caffeine level than Red Bull.

The lesson here is a few Facebook groups does not a re-surge-ence make.

(Ugh, Sorry)

Gatorade Vs Powerade

What's all the "flap" about?

Its always interesting when the big boys go head to head. Now PEP has brought out the big legal gun in the contest between Powerade and Gatorade.

From Ad Age - NEW YORK (AdAge.com) -- PepsiCo's Gatorade brand today filed a lawsuit against Coca-Cola's Powerade, alleging false advertising, trademark dilution, deceptive acts and practices, injury to business reputation, and unfair competition. The suit, filed in U.S. District Court in New York, takes Powerade to task for its new advertising campaign, first reported by Advertising Age.

Gatorade has dominated sports drinks with a combination of positioning, advertising and functionality since the 60's. But recently the brand has proved to be vulnerable, first to Vitamin Water's incremental functionality appealing to non-sports use occasions. And now second to a direct sports competitor.

As the second punch, KO has gone after Gatorade's core sports occasion with a "better" sports drink: Powerade Ion 4, that has 4 electrolytes, over Gatorade's 2.

To publicize this product advantage Powerade has run some partial flap covers on Magazines (like ESPN Magazine) claiming that Gatorade is "incomplete". Hence the lawsuit.

However, (while I am no lawyer) since there are no real definitions anywhere in beverages, and, as long as there is no disparagement to the trade dress, or mis-representation of Gatorade's formula, its tough to see how this lawsuit will work. In fact it may be that just bringing the lawsuit plays into KO's hands: It puts Powerade on the same plane as Gatorade.

The battle reflects the contest for the high ground in one of the key market segments in functional drinks. Gatorade may currently be the 400 pound gorilla of sports drinks, but that position is starting to slip as other brands are using new claims to challenge Gatorade's almost 50 year old formula, and positioning that it is the ultimate sports drink.

But both KO and PEP don't let reality get in the way of good marketing. There are 7 electrolytes that can be lost in exercise; protein is important for endurance; and caffeine can improves athletic performance: Neither of these beverages are complete functional sports drinks.

Interesting though, eh?

Grocery Prices, Walmart and Kroger

In an interesting article in Supermarket News, the CEO of Kroger said that he is happy with the way that CPG companies are dealing with their lower cost environment... more promotions, and no list price reductions.

This situation is the path of least resistance for Groceries and CPGs, big promos make for good supermarket ads, driving traffic into their stores. But in reality as consumers squeeze tighter on every dollar they have, they will be less impressed by occasional promotions, and more influenced by Walmart's best price everyday philosophy.

I saw the included ad on USA network this weekend... makes a compelling case that Groceries and CPGs will have to stop playing games and change their approach, or Walmart will be unstoppable.

Now Caffeine As Pain Killer...

Is there anything caffeine can't do? According to Australia researchers its a good tonic for the day after a big workout.

Kanye West's Energy Drink with Guru

Snore...

Hood Invests, PBG Dreams, The Milk Business Struggles

Two related areas are protein-based drinks and milk-based beverages... related through the whey protein that can be derived from dairy.

I have covered in previous posts how protein beverages are expanding. Add to this the comments made by PBG's CEO that Muscle Milk will add an additional 2 points of growth to their business (PBG now distributes Muscle Milk) and that Hood Dairy is looking to add a second aseptic filler to their manufacturing capability in Northern CA, protein beverages are on the march.

For the uninitiated, creating shelf stable milk products is a challenge. They either have to retorted (ie super heated), or made aseptically (at lower temperatures, in clean room). Make a mistake, and the products can grow E Coli.

While the PBG comments are a few weeks old (he made the statement at CAGNY), the Hood news is big. The aseptic Shibuya machine is multi-million dollar investment in a piece of kit that will take around 12 months to buy, install and commission. But continues to reflect Hood's commitment to finding value-added products in the dairy field.

There are however, plenty of down notes in Dairy World. Canadean has identified that the dairy business is experiencing pressure in the downturn - despite more competitive prices.

Blackcurrant - A Divisive Berry?

G crossing borders, reconciling differences...

Yesterday Gatorade announced that it would launch a Blackcurrant flavor in the UK. An interesting move t0 localize the flavor profile in the UK (and probably subsequently in other English influenced countries... Australia, New Zealand etc). It's not the first time a US brand has attempted to appeal to local tastes (we launched a Snapple Blackcurrant Tea once upon a time), but Gatorade has been a one-size fits all brand for so long, taste localization for the brand is interesting by itself.

But the real interest for me is in Blackcurrant itself - and its application in the US market. When I moved to the US back in the 80's, I figured that Blueberries and Blackcurrants were the same thing (a "tomato, tomatoe" kind of thing), until I tasted Blueberries.

But having grown up on Ribena (the English cordial derived from Blackcurrants) and its restorative properies for a hangover, I often thought there was an opportunity for the berry in the USA.

Blackcurrant regularly gets onto a Juice Brand Manager's radar because it is a high antioxidant berry with a distinctive flavor. The issue is that Blackcurrant (at least to American consumers) has an aroma and flavor similar to Body Odor... Sit through enough focus groups and even the most evangelical English marketer has to accept that making Blackcurrant a mainstream flavor in the USA is an uphill task.

So, it is always with interest that I look at the different products that enter the market seeking to use the flavor. For example, the recently deceased Bombilla Gourd attempted an energy drink using Blackcurrant.

But the most interesting product in this area is Currant C.


Currant C is a Hudson Valley-based, health food store focused brand in a variety of Black Currant plus other fruit flavors. I sampled them at Expo East last summer and enjoyed them - they masked the BO taste well, and have created an interesting product line.

Is this a revolution that will take the beverage industry by storm - probably not: But will Blackcurrant gradually become part of the US mainstream? After the recent success of high antioxidant fruits like Pomegranate and Acai, Blackcurrant has an interesting niche it could fill.

Shock Horror... Carbonated Soft Drinks In Decline

No longer the main event?

Beverage Digest released its topline volume numbers for 2008... and CSD volume at the big beverage companies is declining.

Frankly this is not really news, its been a trend for a number of years but the news media has been all over this today (Atlanta Journal quoted above). The 2008 number is -3%, in line with most analyst expectations, driven by cola declines (again in line). Gainers are Red Bull, Hansen's and my old company - Dr Pepper Snapple.

It will be interesting to watch 2009 as prices of non-carbonated beverage become comparatively higher priced and CSDs become a better value. As Brand Manager of RC it used to be that a 3 Liter of RC had greater interaction with the price of milk in some markets... families are often just trying to put the best priced beverage on the table. This dynamic will also drive the growth of Private Label, which is now at a significant savings against branded CSDs.

Is this the death spiral for CSDs? Unlikely, but it does seem to confirm that a different era for the big beverage companies is here, where volume is no longer the main objective. Note that revenue for beverages increased 1% to almost $72B. A nice market if you can tap it...

Some Energy Drink Thoughts...

I often get questions about energy drinks, their future and who is winning. So here are some thoughts.

Red Bull - Its very interesting that they have moved away from their cartoon-based international campaign and into a US market, local personality campaign. Red Bull is a massive TV advertiser (over $50M a year) and this is a big departure for them. It signals that they believe the US market is different, and that they need to better market to their consumers here. The commercial above is both spectacular and personal, dimensionalizing "gives you wings" in a very aspirational way.



Monster - The cut over of distribution from the independent networks to CCE is still in progress, but it is interesting that there has been little innovation from the folks in Corona this year - save for their own entry into the energy shots - a segment in overkill already.

Rockstar - Another business in transition as it moves into PBG for distribution. Aside for some new sponsorships, again there has been little in the way of energy innovation. They will be hoping that a better aligned distribution system will help grow their business.

Overall the 10% growth that the category enjoyed in 2008 was higher than many expected. My feeling is that these products have become more mainstream, and will continue their growth as long as energy from communications and excitement from new ideas fuels the category. The issue may be that the momentum enjoyed by the Monster and Rockstar businesses may be mitigated within the portfolio selling selling constructs of CCE and PBG.

Maybe this is a year for Red Bull after losing share for 4 straight years. Time will tell!

A Rational Discussion Of Energy Drinks

Are energy drinks that bad for teens?

Big Red Boots is one of the many interesting bloggers on energy drinks in the interweb (also check out taurinerules.com and energyfiend.com) . He does unbiased reviews of the various alternatives out there, and published an interesting article on the subject today.

In the article he attempts to lay out the real risks associated with teens consuming energy drinks in an attempt to offset the normal press sensationalism that is associated with coverage of the category. Indeed google "energy drinks teens" and a succession of demonizing articles appear from all kinds of websites.

His net that the sugar in energy drinks is a bigger risk than the caffeine is absolutely correct: I hope that the article gets the coverage it deserves.

Tea is Now Bad For You... Or Not

Having worked for over a decade for Snapple as the benefits of tea as a potent source of anti-oxidants that may fight cancer and slow the aging process became broadly known (not that we could ever legally make those claims), it is with interest that I came across this story on tea from the BBC.

Apparently consuming hot tea (above 70 Centigrade - really hot) can increase the likelihood of throat cancer according to a study in Iran. But - read deeper in the article and you discover that these scientists believe that it is really the chugging of very hot drinks that distresses the lining of the throat, and increases the chance of carcinoma.

So... this is more about drinking scalding beverages rather than tea being bad for you, and begs the question whether the sensational headline about tea has any real relevance to the story.

But I guess this makes Iced Tea a more attractive option (cue cheering from Lipton, Snapple, AriZona, Nestea, Sweet Leaf, New Leaf etc etc).

Caffeine and Sports Performance

Kevin Pietersen, England cricketer obviously believes that caffeine helps.

There is a constant debate in the sports nutrition community: Does the stimulant effect of caffeine outweigh its diuretic effects?

Today's New York Times carries an article that says that caffeine can improve performance. Frankly that is not really news, but it does represent a change in approach from the normal "caffeine is bad" coverage that normally occurs.

It also has commentary from a specialist sports nutritionist saying that with the right amount of caffeine with regular use, the diuretic effect is diminished.



Take a walk through your local health club or GNC and you will discover any number of caffeine-based sports stimulants: Products like Redline, Spikeshooter and Endorush all seek to maximize performance through caffeine. For me, I cannot take too much caffeine before a game - I lose concentration: So it ends up being a personal preference.

Of my own sporting heros, Kevin Pietersen, England cricketer consumes vast amounts of Red Bull while on the field, his flapping arms signal to the dressing room that he needs another drink (gives you wings... geddit?). And the impact on him... well there is the natural talent but that also probably helps. (See KP wack a cricket ball here).

Its good to see a more reasonable approach to caffeine in the mainstream media. But it is interesting that the whole article ignores energy drinks, focusing on coffee and coca cola. Was that done intentionally? May be the food police can only be pushed so much...

Colonel Sanders + Pot Holes = Marketing Gold

The Colonel fills another pot hole in Louisville...

KFC has come up with a great way to make a difference in their local community; by sponsoring pot hole repairs, then stenciling a brand message on top (a message that will wash away with the rain).

Its a brilliant move - it helps their community with a service that benefits just about everyone. And turns a mundane inconvenience into a significant way to boost consumer goodwill.

My hope is that the road crews have their own colonel dressed up and working on the team. (Note that in the photo above, the colonel has been in charge of the stenciling - see the white chalk on his right boot.) That would really "commit to the bit" and push the envelope. Making pot hole repair event marketing. And imagine the merchanidisng opportunity on the traffic report - the KFC pot hole filling becomes an event!

I just hope other brands take the lead of KFC. Imagine a world where Ronald McDonald and the Hamburgler are sweeping streets, Mr Clean is scrubbing public restrooms, or Snuggle is helping people fold their smalls at laundrettes... Brilliant!

Recession Trends And Their Implications

Nielsen made a great presentation at the National Candy Association on March 5th, giving marketers an interesting view of the behavioral impact on consumers. If you can't be bothered to go through the presentation, here are a few cocktail party highlights...

• At home food and beverage consumption is increasing with non-grocery retailers driving at home food growth (Drug Stores, Dollar Stores, Mass retailers)
  
• Retail trips by consumers are down, but basket ring per trip is up.
• Coupon use is increasing as are private label offerings
• Discretionary retailers and categories are declining
  

My inference, consumers are becoming less impulsive and more calculated in how they are spending their cash. In effect they are shopping bargains, items that provide a bang for the buck and items that they perceive to generally improve their lives.

At the end of the article they highlight that investment during a recession often leads to an improved postion during the next growth phase.

Of course the only issue is having the confidence to get from here to there.

If Not Now, Then When?

So where are we on the curve??

Today's New York Times had a very interesting piece on the impact of recession changing the competitive dynamics of industry: It started me thinking about the implications for the millions of us out here trying to find our own way out of the situation.

In short the NYT's thesis is that recessions change the status quo: And these changes result in opportunity.

The opportunities can manifest in any number of ways - from creating new low cost producers to businesses that lead consumer needs and get to the marketplace before competitors. But for me, the most interesting comments are that recession creates ideators who do not have existing job stability at risk, they have a low input cost environment, and a low cost/high quality labor pool available to help execute their plans.

As someone who is considering all opportunities that this downturn offers, I think it is interesting to consider just which consumer trends will be those that big manufacturers will miss: Which opportunities do they pass up because their believe:

1) The opportunity is too small to expend resources on.
2) The opportunity is not congruent with the conventional wisdom of their business strategy.
3) Pursuing the opportunity creates internal political divisions that cannot be easily resolved.

As a result the opportunity to win is in not only building on an unmet consumer need, but also using the leverage of small, un-encumbered businesses to build strategies that big competitors cannot easily match.

POM has been a recent exponent of this, building a super-premium priced offering, and taking the product to consumers through the produce section of grocery stores.

Now to figure out where that next opportunity is...