Starbucks Fixes Segment Blurring Problem

The three flavors of Starbucks Refreshers: Raspberry Pomegranate, Strawberry Lemonade, and Orange Melon. From blogs.starbucks.com.

Last July, Starbucks had a big media push when they launched their handcrafted Refreshers in their coffee locations with two flavors – Very Berry Hibiscus and Cool Lime.  These two flavors were also made available through their VIA line of at-home self-serve packages.  Most recently, they have followed up the handcrafted beverage offering launch by introducing three packaged sparkling beverages launch.  Joining the handcrafted and VIA Refreshers are: Raspberry Pomegranate, Strawberry Lemonade, and Orange Melon.  From their U.S. website, here is the product page for the Refreshers.  The launch of these packaged offerings created a problem for Starbucks and retailers alike: segment blurring.  Segment Blurring occurs when products within one segment encroaches on products from another segment.  Since the Refreshers are made with green coffee bean extract, should they belong in the coffee section?  Or does it belong in the energy drink section?

According to Kevin Reid – Director of Beverages – in an interview with Canadian Grocer these new beverages belong in its own section.  It appears that Starbucks anticipated the problem as a result of this beverage innovation.  By extracting the caffeinated energy content from coffee beans to make energy drinks, they understood that retailers would have difficulty fitting it into one section.  As such, the interview suggests that retailers create a specific area to group all the Starbucks products together in order to make it easier for the shopper to locate any Starbucks products.

A Starbucks branded supermarket endcap with the dark wood trim and faux-tile backsplash. From online.wsj.com.

Why should a retailer agree to a dedicated Starbucks section?  It turns out this makes sense in more ways than one.  Starbucks products are “destination” drivers in their own right given the coffee giant’s standalone retail locations.  Customers consciously choose to go to Starbucks coffee locations to purchase their Starbucks coffee.  Lending support to re-create this destination experience in grocery retailers is that customers expect to find all Starbucks products when they visit a Starbucks outlet.  Over the years, Starbucks has complimented their handcrafted beverages by stocking packaged coffee beans, beverage holders, and CDs in their branded stores.  Finally, Starbucks’ willingness to invest in décor for the grocer’s coffee aisle demonstrates their dedication to replicate the signature experience everywhere.  Starbucks understands that developing the Starbucks cafe experience requires a collaborative effort and has indicated they are willing to give the retailer Starbucks-type shelving.

Would the retailer be open to more Starbucks innovations in the future?  The Canadian Grocer interview reveals that retailers have been pleased with Starbucks sales.  And as long as Starbucks maintains its demonstrated collaborative efforts, retailers would certainly welcome more Starbucks products to help build grocery trips and baskets.

Kraft’s Dual Brand Strategy – Crystal Light Liquid

Courtesy of harpersbazaar.com

Most people by now have heard of Kraft launching Crystal Light Liquid to grow (or compete) in the liquid flavor enhancers marketplace.  Similar to some MiO offerings, Crystal Light Liquid is calorie free and sugar free.  It currently available the United States in 6 flavors: Strawberry Lemonade, Blueberry Raspberry, Iced Tea, Mango Passionfruit, Peach Bellini and Pomtini.  Their facebook page mentions that it may arrive in Canada sometime in March, but there is no guarantee all 6 flavors will make its way north.  It comes in a squeeze bottle that should satisfy 24 servings (of 250ml liquid), similar to the Kraft MiO squeeze bottles.  Although the product is predominantly targeted toward women – the packaging, colors, and communication portray as much – will this not end up cannibalizing their MiO product?  Or will this launch not cannibalize Crystal Light’s powder-based products?  Why introduce such a product when all signs point toward it being harmful to Crystal Light, and possibly Kraft overall?

Contrary to the traditional thinking of market cannibalization, launching Crystal Light Liquid  is beneficial for everyone – especially Kraft.  Back in September, BevWire wrote about Dasani Drops’ entry into this segment and how its presence helps in growing liquid flavor enhancers.  The Crystal Light Liquid will further bolster this growth and solidify the promise that exists for these products.  And since not all consumers are aware that MiO and Crystal Light are under the same parent company, this will help increase both product’s market penetration.  What appears to be three separate branded players in this space, is actually two manufacturers.  And as the market potential grows from $100 million, Kraft’s size of this market potential will grow as well behind the support of these two branded players.  This dual brand strategy of Kraft may be their response toward Dasani’s entry and a signal to others interested in saturating the segment.  It shows that Kraft is committed to defending their product and shelf space, and maintaining healthy margins for the retailer and themselves.  Crystal Light Liquid’s entry will also make it easier to get the retailer’s attention and gain shelf space, since it signals the manufacturer’s seriousness in supporting this segment and legitimizes it as an important focus.

This gain in shelf space may appear to be detrimental for Crystal Light since it could come at the expense of their powder-based offerings.  After all, both powder and liquid form products fall under the same category of “flavor enhancers” and are shelved in the aisle of grocery or mass supermarkets.  However, one must also consider that the Crystal Light Liquid offerings are potentially more profitable for both the retailer and Kraft.  While they may be trading shelf space away from powder-based products, the trade-off could potentially increase both parties’ “profit-per-square-feet”.  That is, consumers may ultimately be paying more for Kraft MiO and Crystal Light Liquid than Crystal Light powder.  Think of how the MiO Energy is priced identical to the MiO flavors but comes in a “down-counted” 18 servings instead of the 24 serving sizes.  The cost-per-serving indicates that the MiO Energy is actually a more expensive product than the regular MiO.  So while the drinking occasions have not increased with Crystal Light Liquid, the limited serving sizes increases the need to re-purchase the flavor enhancers.  This ultimately translates into wins for Crystal Light, Kraft, and the grocery store.

On the issue of cannibalization, Crystal Light Liquid is ultimately targeting a different consumer.  The company’s views may be that the two products are not cannibalistic but complimentary instead.   Crystal Light Liquid messaging and imagery concentrates on women’s lifestyle and social circles, while Kraft MiO’s messaging highlights individuality and customization.  MiO’s messaging is “Your Drink. Your Way” while Crystal Light Liquid centers around “For Every Shade of You”.  The female shopper that buys MiO may also buy Crystal Light Liquid, but for someone else (ie her friend, mom, etc).

From the Crystal Light facebook page
L: Crystal Light Liquid Peach Bellini highlighting a lifestyle.
R: The subtle hint toward customization with the different colored glasses, but the more apparent communication at the bottle “For Every Share of You” to again emphasize lifestyle and sociality.

The Crystal Light Liquid launch is certainly a positive news as it shows everyone’s commitment to supporting liquid flavor enhancers.  While Kraft wins with two brands and Dasani competes with Dasani Drops, both the retailer and consumer will benefit from aggressive promotions.  A win-win-win situation.

The Fall of Cheetah Power Surge

Has anyone heard of the Canadian energy drink Cheetah Power Surge?  This energy drink uses all natural ingredients and no caffeine.  It had success getting product availability into grocery & drug stores like No Frills, Shoppers Drug Mart, and Sobeys.  It also secured a TV spot during CBC Hockey Night in Canada.  TV commercials during this time reach penetrate many Canadian households but certainly don’t come cheap.  See their TV spot below:

However, on recent trips to the grocery store I noticed that the product was being heavily discounted.  Feature pricing have dropped as low as $0.25 a can (tweet and image here), and the discount  level indicates that the regular retail was $1.49.  With most energy drinks like Red Bull, Monster, and Rockstar being at $2.99, this would appear to be a great deal and tons of product should be sold.  Still, as evidenced by the unopened trays and the amount of cases seen in the picture, the $0.25 rock bottom pricing didn’t really help move product either.  What went wrong with Cheetah Power Surge, and where are they now?

The second question is easier to answer than the first.  Cheetah Power Surge energy drinks are still available at their listed locations (I went into a Shoppers Drug Mart earlier in the week to check), but my guess is those cans are from the original shipment.  And once it is gone it will not return to store shelves.

Cheetah Power Surge in No Frills for $0.50

In terms of what went wrong, a google search reveals some level of insight.  This review site mentions that the energy drink contains high sodium content and leaves a bad aftertaste.  This  review site states that they do not feel any extra energy after consumption.  It appears that consumers were willing to try the product but it never met their expectations.  Based on these unpopular product reviews, Cheetah Power Surge had to rely more on it’s marketing and advertising to sell product.  When lowering the standard pricing from $2.99 to $1.99 didn’t work, it kept on cutting the price to stimulate sales.  Retailers also noticed its slow velocity and took the initiative to cut the pricing themselves, which is why you see the $0.25/can pricing.  Pricing anything at such marginal levels lends to the belief that there is something wrong with the product.  Even if these is nothing wrong with it, it conditions purchasers to expect low pricing and will only purchase your product again in the future if it’s priced just as low.

Cheetah Power Surge seems to have done it all wrong.  When consumer reviews and users sentenced the energy drink as subpar, the company launched additional flavors rather than re-formulate the product.  Aside from the regular (High Octane), Blueberry and Diet flavors, they expanded to include Green Apple and Mango flavors.  They continued advertising on a premium cost through Hockey Night in Canada to generate trial users.  They continued signing distribution agreements to gain availability in Canadian grocers.  All this has accelerated their demise because consumers do not like to feel tricked.  Increased availability meant more consumers bought it once to try the product, but they never returned because of the reasons listed above and from the review sites.

Cheetah Power Surge tried to outrun the problem of their product formulation by turning its attention to external factors.  In the end, this has led to $0.25 pricing and cases of product that has not left the grocery sales floor.  Unlike Full Throttle, consumers will not miss this energy drink when it disappears.

Kraft Launches Line Extension For MiO

From its March 2011 introduction, Kraft MiO has expanded beyond the traditional sweetener of adding flavors to plain water.  They bulked up the product line-up in 2012 with MiO Energy,  characterized by two new flavors (Green Thunder and Black Cherry) containing 60mg of caffeine per serving.  At the end of 2012, Kraft MiO revealed that they will be announcing something to supplement their product line-up of liquid flavor enhancers.  Turns out that announcement was for Kraft’s MiO Fit,  a line extension with electrolytes and B vitamins, and 18 servings in each bottle.  The MiO Fit will come in two flavors: Berry Blast and Arctic Grape.

When the MiO Energy launched, it extended the product line-up into the energy drinks spectrum to compete against Red Bull, Monster Energy and the likes.  With the MiO Fit, Kraft is serving notice to that they will be going up against Gatorade and Powerade in the sports drinks beverage segment.  How will the MiO Fit do relative to its direct and indirect competition?  Will its success come at the expense of other MiO products, competitive beverages, or from consumers that do not typically drink these types of beverages?

For the MiO Fit to succeed in the sports drink segment, another beverage manufacturer will be losing, though not necessarily in the same segment.  The MiO Fit does not grow the beverage industry, rather it transfers a shopper’s purchase dollars from another segment and/or another beverage manufacturer.  Beverages as a category include soft drinks, sports drinks, energy drinks, juices and so much more.  Therefore, people that end up buying the MiO Fit could be purchasing it instead of another sports drink, energy drink, or some other liquid refreshment.  The only beverage segment that wins will be bottled water, since the MiO Fit must be squeezed into water to take full effect.

In the short term, this certainly will lend extra attention to the sport drinks beverage segment.  There may be more discount activity or media promotions from Gatorade and Powerade to deter consumers from buying the MiO Fit.  Kraft will also be putting media support behind the MiO Fit to ensure consumers know there is a legitimate third sports drink option out there on the market.  For example, Kraft has invested significant funding to feature the MiO during this year’s Superbowl (read more here).  This has all the signs that some level of price or promotional activity may occur very soon to fight for your attention and your wallet dollars.  Certainly the winners here will be the consumers that drink sports drinks.

It is also important to note that the MiO Fit gives sports drinks another location in the grocery store to connect with consumers.  In addition to being stocked in the beverage aisles like Gatorade and Powerade, the MiO may be a product that can make it to the checkout counter.  With its small size and no need to be kept cold, it can very well make it closer to the last point of purchase and gain some impulse purchase dollars.  Meanwhile, the closest Gatorade or Powerade will get is the end of the checkout line beside candy, gum, and magazines since it has a dedicated cooler space.

Kraft’s deeper drive into beverages has certainly added many options to the marketplace.  Consumers that find plain water boring can now squeeze in some flavoring.  And when they find this flavoring boring, they can change it up for some MiO Energy or MiO Fit.  It’s very clear Kraft MiO is still very new to the market, and that there are many more extension opportunities.  They have not even expanded to offer their existing flavors in larger or smaller serving sizes.  And there are still other beverage segments where a MiO may change the landscape (ie tea or juices). So while Kraft introduced the MiO in 2011, there has already been extensions in 2012 and 2013.  Let’s keep an eye on what they may do during the year, and what they plan on launching come 2014.

7-Eleven and Red Bull’s Christmas Partnership

Earlier in 2012, Red Bull revealed that they would be launching three new energy drink flavors in March 2013: Cranberry, Lime and Blueberry (BevW’ire’s analysis on why these new flavors will be successful can be found here).  While those attending the NACS show in October were able to sample the  new flavors during the announcement, others have not been so lucky and would have to wait until March.  Fortunately, 7-Eleven and the energy drink manufacturer partnered to participate in an exclusive holiday program where the three new flavors (named the “Editions”) would be available nationwide in the U.S. convenience chain during Christmas.  Will this action set a precedent  where Red Bull launches their beverages in certain retailers exclusively for a short time period before releasing it to all grocery, convenience and merchandising retailers?

Based on 7-Eleven’s execution to support this exclusive arrangement  it looks like the collaborative effort has been beneficial for both partners.  7-Eleven not only provided the typical cooler barrel, cooler clings, shelf danglers, but also supported the launch with outdoor banners, social media activity, and free coffee promo offers.  With the strong support levels 7-Eleven provided, it would not be surprising to see Red Bull take part in exclusive arrangements again with 7-Eleven.  After all, 7-Eleven is the largest U.S. distributor for the energy drink, and the caffeinated beverage is one of the retailer’s top moving products.  This arrangement may not happen as easily with other retailers, since they would not have the same reach despite it being a fast moving product.  However, the answer may ultimately depend on whether both parties can benefit from this exclusive arrangement, and whether the energy drink was supported to the same extent.  It may stand a stronger chance being a convenience or petroleum-bar retailer than grocery customers since beverages are a larger part of their daily business.

Can this type of exclusive partnership happen in Canada?  While exclusive beverages are not uncommon, the number of retailers in Canada are much smaller than in the U.S.  The American retail system is much more fragmented than the Canadian retail landscape.  This means that foregoing business with one retailer would be more detrimental to the manufacturer in Canada than in the U.S.

As retailers and manufacturers continue to partner up in efforts to attract consumers to their locations, the probability of finding products offered exclusively can be quite high in the U.S., but not just yet in Canada.  Of course, if the same level of support was provided, there can be exceptions in the U.S. as well as Canada.

Canadian Grocery Re-post: Gas Pump Vending Machines Coming Soon?

Recently, the American publication Vending Times reported on some interesting news that may increase sales for beverages and other food items as well (link here).  Vendgogh, a company that provides “gas island solutions” have come up with a concept where gas consumers can integrate their beverage and snacks purchases with their fuel purchase.  The gas pump machine that normally asks the customer which grade of gas they want to fill up and if they want a car wash, can now also be programmed to prompt about purchasing drinks and snacks.  As more and more fuel stations are fitted with technology to allow for payment at the pump, these same stations are seeing their basket size decrease with less opportunities to influence the fuel customer.  The National Association of Convenience Stores (NACS) indicates that about half of all gas customers do not go inside the store, and therefore gas stations have half as many opportunities to drive incremental sales.  The premise of this concept gives petroleum stations increased opportunities to convert pay-at-the-pump consumers without them ever having to enter the fuel station kiosk or store.

While fuel is the core of this channel’s business, growing the basket size is just as important here as in other channels.  Customers may prefer paying at the pump since it’s convenient and quick, but gas owners prefer the customer come inside since there’s many more opportunities to up-sell the customer.  Have you bought a beverage or lottery ticket as part of your fuel-up?  That likely is a result of suggestive selling by the store clerk.  Without the ability to add on beverages, snacks, lottery tickets, or cigarettes, the gas station is only getting base business.  And with so many gas stations around, the competition is fierce for the customer’s dollar.  Even the same chain will be competing with the next closest gas station in the chain for the same dollars.

Vendgogh’s beverage gas pump unit re-establishes the suggestive selling opportunity for the gas station.  By maintaining the customer’s convenience to pay at the pump, the fuel station also has the ability to up-sell beverages and snacks, which drive over 40% of a gas station’s in-store sales.  Beverage purchases drive about 25% of the in-store sales, so popular beverage options such as energy drinks, carbonated soft drinks, and bottled water can be expected to be filled in the vending unit.

Gas stations can always rely on one thing: customer trips.  There will always be motorists that need to refuel, and therefore provide gas stations with opportunities to influence their refuel purchase.  Having a machine to assist in growing the customer’s basket should be a welcome tool across the overall petroleum convenience channel.