Most readers that also follow the beverage industry or the BevWire twitter feed know that Coca-Cola and Nestle Waters have altered their distribution agreement, with Nestea to be distributed by Nestle Waters after the end of 2012 (source article here).  The article goes on to state that Coca-Cola will focus on increasing the visibility for their own line of teas, such as FUZE, Honest Tea, Gold Peak, and Peace Tea.  How will this play out for the two beverage giants, Coca-Cola and Nestle?

Nestle Waters – a spinoff from the Nestle S.A. – originally bottled and distributed water exclusively, but has recently began to extend their offerings with a tea acquisition.  Bringing Nestea back into the fold for them now gives them a much stronger and balance tea portfolio.  Nestea will serve the value and price-conscious end of the tea spectrum, while Sweet Leaf Tea and Tradewinds cater to consumers at the organic and premium end of the spectrum.  Nestea itself is also popular and likely ranks as one of the larger tea brands in North America (other major players in a oligopolis category being Lipton, AriZona, Snapple).  Nestea may very perform better under new ownership, since its exclusive business operations are waters and teas. It may likely benefit with higher marketing budgets as they now become a key brand among some lesser known brands, and competes with fewer brands for funding.  Business customers like Wal-Mart, CVS, and other supermarkets are not likely to be too affected since they already stock Nestle Waters products, so Nestea will now be brought to them by the same trucks that the Nestle Waters products come off of.  Consumers may not even notice any difference, because the product is essentially the same as taste and packaging stay the same.

How about for Coca-Cola, how does this distribution partnership affect them?  With Nestea no longer coming off their delivery trucks, the company’s focus is to grow FUZE first and foremost.  Honest Tea, Gold Peak, and Peace Tea will also benefit from increased attention.  However, although FUZE stands to have the most opportunity to make a name for itself in the tea category, the brand is somewhat struggling currently.  FUZE is currently known for its juice offerings (except for Subway where it is already available as a fountain tea beverage) but struggling to fully differentiate itself among other competitors.  With the exception of FUZE’s Slenderize juice line (low-calorie benefit), FUZE’s other offerings are not easily connecting with consumers as a vitamin-enhanced juice.  Consumers currently see the FUZE line as just another emerging juice product that blends together unique fruits (peaches with mangos, bananas with coconuts, etc).

Coca-Cola’s first order of business is to ensure that consumers understand the value proposition and benefits of the FUZE.  And because the company now understands that FUZE will represent both juices and teas, their positioning and c0mmunication will be markedly different from what it was before – simply raising the profile will not be enough.  The key message can no longer be about vitamin-enhanced juices, but either vitamin-enhanced juices and teas  or simply vitamin-enhanced products.  In that vein, it will be interesting to see what type of advertising message FUZE will come up with.

Another key area of concern may be the pricing strategy for FUZE.  Nestea exists as a value player in tea, while FUZE is a premium-priced juice offering.  If FUZE were to replace Nestea as Coca-Cola’s value tea offering, FUZE will have to adjust its pricing strategy to enter as a value competitor.  Is that in itself a good strategy?  As a company, do you want to trade down from a premium offering (higher margin product) to sell incremental bottles but make significantly lower margins?

Although Nestea will not be officially transitioned to Nestle Waters until 2013, there is a lot of preparation for both companies to do.  Coca-Cola will have to maintain its efforts on Nestea in North America, but be mindful that by 2013 Nestea will be a product that competes against their own tea offerings.  They also cannot legitimately stop their efforts on promoting Nestea since Coca-Cola still holds distribution rights for Nestea elsewhere in the world (Europe, Asia, etc).  At the same time, Coca-Cola must be working hard to raise FUZE’s profile as well as their other offerings to cover for the loss of Nestea.  On Nestle’s part, they must prepare for taking on a large tea brand and look for opportunities to increase Nestea’s market position.

There’s no word on whether how much of this will affect Canada, but since Canada’s market is closely affiliated to the American market, there is likely to be some impact.  Keep an eye out for these changes when Nestea changes hands.

Industry sources reveal that PepsiCo is undergoing a business review that will end with marketing budgets increasing up to 20% for their core beverages: carbonated soft drinks (source article here).  The article further details that the reason of the CSD re-focus is a direct result of shareholders wanting PepsiCo to split up its food and beverage offerings – similar to how Kraft separated their food and confectionery business.  By increasing their marketing budgets for the core beverage offerings, PepsiCo is reported to be cutting employees to balance out the spending.  If PepsiCo were to split up its food and beverage business, would it really be better for the company?  As the focus of my blog is beverages, would splitting up be beneficial for the company’s beverage unit?  Will more marketing funds to help promote their beverages work to revive their soda business?  How should these marketing funds be used to reinvigorate the refreshments portfolio, particularly carbonated soft drinks?

Although the split may be better for the company as a whole and for the snacks portfolio, this split would not really help the beverage unit.  It may make business sense to separate the two units since  it would allow the snack unit to realize its full value, but it would ultimately depreciate the beverage unit’s total value.  The beverage unit is underperforming at the moment, after losing the second place soda position to Diet Coke, while general health trends have most consumers choosing waters, teas and juices over soft drinks.   However, a split to separate the beverage division does not help their CSDs’ revival.  PepsiCo strongly believes in  ”Power of One”, which translate value to both divisions by providing a total snacking solution.  Separating the two companies will not allow them to realize full benefit of their unique market position – a hand in both food and drinks. When a shopper reaches for a soft drink, they also likely reach for some chips or granola bars as well – both products that PepsiCo offers.  Other companies like Coca-Cola and Dr Pepper would need look outside their own companies to find a willing partner to co-promote.  Keeping the two distinct divisions in one company provides a stronger support system and more opportunities to revive the underperforming beverage business.

With regard to the second part of the post, more marketing support certainly helps with the soft drinks department’s revival.  Relating to execution, Pepsi may be advertised more frequently and more ubiquitously, exploring other areas to prominently feature their products in addition to TV, online and mobile devices.  The additional funding may also be used to support trade activity to make it an even more convincing option for shoppers in the beverage and snack aisles to pick Pepsi over Coca-Cola.  So many more opportunities when people say, “If only I had more money, or had a bigger budget!” that were previously limited can now be explored.  While larger marketing budgets may also mean more market research to understand consumers, it’s very likely that some of the dollars will translate to what consumers can see at the end of day.  Keep an eye out for more soft drink advertisements following their Superbowl spots.  Pepsi may have previously been constrained to display more ads following a large campaign, but now they may be able to consistently advertise their products everywhere.

Here’s an excerpt:

The Louvre Museum has 8.5 million visitors per year. This blog was viewed about 82,000 times in 2011. If it were an exhibit at the Louvre Museum, it would take about 4 days for that many people to see it.

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Xyience has increased their presence in the U.S. energy drink market by gaining distribution to GNC stores across the nation.  In a recent press release, Xyience announces that four flavors will be available at nearly 2,000 GNC retailers - Xenergy Premium Mango Guava, Cherry Lime, Cran Razz and Xenergy Xtreme Fruit Punch (press release link here).

This is a huge win for both companies.  GNC has been exploring options to increase their revenues from existing customers; and stocking energy offerings like Xyience’s energy drinks may allow them round out a shopper’s spend in their nutrition stores.  For Xyience, this gives the company expanded footprint by penetrating an unconventional and alternative distribution channel.  In a stabilizing energy drink market (where sales are no longer double digit and growth is trending higher on recovery-related functional beverages), increasing distribution is paramount to acquiring new customers for sustained growth.  Xyience will be available in both refrigerated space and warm shelf space in GNC locations, meaning that the product will have more than a single point of interruption for shoppers and increasing their chances of acquiring new customers.  Xyience also current sells mass gainers and workout recovery products in some GNC outlets, making the connection to other Xyience products easier for existing GNC customers while leveraging on the success of the brand’s reputation.

Xyience also fortifies the beverage’s product position as an all-natural, sugar-free and calorie-free energy offering.  By placing the product in a health-focused setting allows shoppers to immediately make the connection that the product is healthy regardless of whether it actually is healthy (or at the very least, not detrimental to your health).  After all, would you expect to find unhealthy products in a health-focused retailer (ie. finding non-organic brownies or regular donuts in calorie-conscious nutritional setting)?  And because other Xyience products are healthy and available in GNC already, it is easier for the customer to make the connection that Xyience energy drink is also a healthy product.

The marketing and strategic moves made by this energy drink manufacturer are definitely paying off and helping them expand their network and overall growth.   From the partnership with  Ultimate Fighting Championship and its fighters, that includes product placement shots in the octagon and autograph signing events, to the female consumer secondary target consumer, to the increasing availability of Xyience products everywhere.  While all these things are different aspects of sales and marketing, they are all tied back to the overarching objective and present to the consumer a single, unified message.

Xyience is an energy drink brand that had successfully carved out a niche market, and its recent initiatives to penetration mainstream energy shows that it will be a company that other energy drink manufacturers should pay strong attention to.

- Jason

Packaged Facts published a research paper in early October stating that Ready-To-Drink (abbreviated RTD,  sometimes referred to refrigerated tea or bottled tea) is showing growth and resilience despite an economic downtown in the United States (link to the abstract here, but unless you want to buy the report you won’t know the full details of the research).  I’ve also wrote about the tea category’s growth in convenience stores earlier in the year (link here).

While the focus is entirely on the United States, there are some similarities between the two markets of U.S. and Canada, so the category’s growth is relevant to consumers here.  Packaged Fact’s research abstract points to the growth being driven by convenience stores and natural  food stores, although grocery stores remain the top channel that shoppers choose to purchase tea from.  In Canada, I would suggest that specific tea shops and also coffee shops (think Starbucks, Tim Horton’s, Second Cup, and Blenz, etc) also contributed to the tea’s growth.

Consumers already have a belief that tea is a healthier option relative to coffee, and many are sacrificing coffee beverages for tea or other caffeinated beverages.  Therefore the coffee shop’s survival depends on their ability to expand their beverage offerings beyond what they are experts at.  Walk into a Starbucks and you will see Tazo tea, Naked Juice, and Ethos water,  while Tim Horton’s will have a refrigerated section that includes Lipton bottled tea.  While these coffee shops’ main purpose is to serve coffee, having tea and other category options allows them to keep the customer happy and retain them, rather than losing them to a competitor.  After all, would you still go into a coffee shop with a friend if neither of you wanted coffee and they only served coffee, why not go into a tea shop?

Focusing back on the growth of RTD tea, the report mentions that natural food stores drove double digit growth.  This point is intriguing because natural food stores are seen as niche and somewhat unconventional in their grocery offerings.  However, the growth of tea products in this channel may indicate that consumers are receptive to healthier alternatives, and bottled tea products that are stocked in these natural food stores may soon see wider distribution because of this healthy trend.  Another insight may be beverage manufacturers anticipating this trend and have looked to get their tea products listed and distributed in natural food stores to reach a wider audience.

In any case, it looks as if the tea category’s growth has very strong potential in the upcoming years.  As a healthy alternative to carbonated beverages and coffee, tea may be growing at these beverage category’s expense.  And it may provide competition in more than the traditional setting of your grocery store’s beverage aisle, as coffee shops and natural food stores are increasingly stocking tea options.

Taking this one step further, how can beverage manufacturers like Coca-Cola and Pepsi protect their carbonated offerings?  Since the beverage conglomerates also have tea offerings in their beverage portfolios (Coca-Cola with Nestea and Honest Tea, Pepsi with Lipton and SoBe), a solution may be a two step process.  First, gain distribution within these natural food stores (and other alternative channels like tea shops and pharmacies) for their respective tea beverages.  Next, understanding that there may be space and refrigeration limitations within the store, provide a health-branded cooler (of course, also include the manufacturer’s logo somewhere) to resolve these limitations, and bring in quick-moving and higher margin carbonated soft drinks.  These carbonated products can offset the cooler’s cost and provide these alternative channel retailers with a wider beverage selection to grow their customer base.

So the next time you step into a natural food store, keep a look out for the tea offerings they have available.  Are the tea offerings all-natural and names that you have rarely heard of?  If so, look out for these beverages in your traditional grocery store aisle in the near future, as they may be gaining wider acceptance in the market.  Or are they the Honest Teas and Liptons that you are familiar with?  If so, then the beverage manufacturer has successfully entered the alternative channel to expand their tea’s growth.

Some months back I wrote about how Dr Pepper was releasing a 10 calorie version of their popular soft drink in select markets, trying to create their own niche market by targeting men specifically (link here).  It looks like the launch was successful, as they are now planning on expanding their 10 calorie portfolio to include five other beverages: A&W, Canada Dry, Sunkist, 7up, and RC Cola.

Larry Young, the beverage manufacturer’s chief executive was quoted,

Chief Executive Larry Young who said, “Now they [consumers] can come back, drink our ‘Ten’ products and enjoy the full flavor of our brands and not worry about the caloric intake. You have to keep the doctor happy.

While Dr Pepper 10 successfully targeted men and gained significant media exposure with their recent campaign, will these five other sodas have the same positioning?  Should the 7up 10 calorie offering or the A&W 10 calorie offering target men specifically?  Or would the company exclusively target women with these 10 calorie products?  Dr Pepper came under fire for making fun of female consumers when they released Dr Pepper 10 nationally, so having history repeat itself in such a short time – even all in over-the-top good humor – may not be a good idea.  However, the free media and the conversation starter of whether the drink was for men only cannot be under estimated.  At the very least, Dr Pepper 10 may have gained trial when shoppers bought the beverage to see if it was really anything special, so it can be considered successful in that regard.  If given the chance to repeat the same marketing strategy, Dr Pepper may have chosen differently so female consumers are not alienated.

That said, it’s also unlikely that the company will be targeting men specifically for the five other 10 calorie beverages.  The more 10 calorie offerings that are specifically targeted at men, the more probable that Dr Pepper earns a reputation as a men’s only beverage organization and cutting off the company from half of the potential customers.  Something else to keep in mind would be that females are the shoppers for the family unit and if the beverages does not appeal to the female shopper, the end consumer (the husband or son) will likely be drinking something else that she approves of, and the 10 calorie beverage will remain on store shelves.   So while the research indicates that men do not want to be associated with the word “diet”,  keying in on males when females are the main shoppers are not likely to help them move product unless the shopping list has “Dr Pepper 10″ written on it.

How should Dr Pepper target and position these upcoming products?  Is there a specific age group or ethnographic that they should go after?  Or should it be aimed toward the general calorie-conscious consumer, regardless of age, gender, or ethnicity?  Since Dr Pepper’s initial advertising platform for the Dr Pepper 10 raised the profile for their 10 calorie offerings, there is no need to continue on this line of positioning if it alienates shoppers from them.  Their upcoming focus should be on the product’s benefits.  The 10 calorie sodas should focus on the sweeteners that give them the 10 calories and the closest taste profile to the full calorie versions.

Since the news of the line-up expansion broke not too long ago, Dr Pepper may be in the infancy stages of releasing these other products.  Let’s hope that they gain media exposure for the right reasons this time.

My interpretation is that consumers are overreacting to the seasonal packaging.  Although this is the first time that the can packaging have changed to a different color, there has been numerous communications outlining that it is the same product inside the can, no matter the color.  Also, the 12- and 24-pack cans still come in the red cardboard packaging, and the boxes also communicate that the red cans are now white to support the World Wildlife Foundation.  It may be an issue of the shopper buying the product not paying attention to the messaging, and confuse  the fact that they may have bought Diet Coke when they got home.  They may even have gone back to the supermarket asking for an exchange before being told by that it is the regular Coke beverage and not Diet Coke.

For some shoppers that are fanatical about their beverages enough to call the company, not recognizing the packaging differences and the color differences may be testament of the brand’s strength.  Shoppers that routinely purchase Coca-Cola may no longer be purchasing the product based on price or the packaging communication.  Instead, they may be looking to make sure the price hasn’t changed dramatically (ie paying $3.99 and suddenly paying $5.99), and as long as the packaging is in the Coca-Cola red they will be picking it up.

Whether the packaging is in red or white, this helped generate numerous of media impressions for the company and the World Wildlife Foundation.  The unfortunate aspect is that the media took away the true focus on this seasonal packaging, which is to raise the WWF’s profile and the company’s monetary donation to protect the polar bear’s habitat.  When the red cans return, hopefully the message will go back to focusing on this aspect and not of consumers overreacting to red and white soda cans.

The red packaging will be slowly phased back into the supermarkets by mid-December and the white cans will be slowly phased out at the same time.  If you’re a collector, make sure to pick up the white cans before they’re all phased out.

Jones Soda regularly releases limited edition beverage flavors (ie. Christmas flavors, Thanksgiving flavors, etc) and this year is no exception.  The flavors for this year’s Christmas season are: Gingerbread, Pear Tree, Candy Cane and Sugar Plum.  More information can be found from marketwatch here, and BevReview.com has a photo here.  Since these links can give you more information on the product pricing and look, BevWire won’t repeat that information.  What is interesting to me is Jones Soda’s marketing aspect for the seasonal flavors.

Marketwatch explains that the company decided on the flavors through the use of social media, by having their fans and loyalists vote on some flavors and then manufactured the flavors that were the most popular.  The voting results can be see here on their website, where over 4000 votes were placed to determine the top 4 flavors for the 2011 Christmas holidays.  While I’m not too familiar with the annual custom flavors that Jones produces for Christmas, some of these flavors appear to have appeared in previous years.  Therefore the voters would likely vote for the flavors that they preferred the most from past years and re-live the glory of the Gingerbread, Pear Tree, Candy Cane and Sugar Plum flavors.  From the company’s perspective, a great low-cost way to generate excitement and buzz about the flavors, and also to ensure that its flavors that will sell out among the constituents since they voted for these flavors.  While some of these flavors are novelty flavors, others actually sound like they would taste good.  Some of these flavors may one day be added to their regular product line-up.

With the ability to vote and have their voices heard by Jones Soda, consumers may have the power to dictate whether some of these flavors will one day sit alongside the company’s most popular flavors of Green Apple, Cream Soda and Root Beer.  Not unlike any other business, Jones Soda is constantly looking for low cost opportunities to tap into what their customers like best about them and how they can better satisfy their needs.  By using social media to connect with their core audience and giving them a voice on which flavors they would most prefer to drink this winter, Jones minimizes the risk of having these flavors fail or sit in the storage room of some grocery store.  The ultimate dream may be to have a determined shopper going into a grocery store, not finding the product on the shelf and asking the store manager to bring the product into the store.  This ultimately helps the soda manufacturer get into more outlets and ensures that there is existing demand when they bring the product reaches the retail level.

All in all, a great way to first create excitement for the product before its even available.  Have the loyalists decide what will work best, then produce and sell the winning flavors for a limited time as a test run, and make them permanent if the sales surpass targets and can remain on store shelves without losing any other better selling Jones Soda flavors.  Normally an option to purchase Jones soda online for Canada, Jones Soda alerts shoppers that they will suspend customer-direct shipping since our winters may cause product freezing.  If these limited edition flavors were to be purchased, the shopper must go to an authorized retailer or will likely have to head south of the border.

While BevWire doesn’t have any plans to head down to the United States this winter, I’m hoping to find some of these limited edition flavors at my local grocery store, so keep an eye out on the twitter feed for some Jones Soda Gingerbread or Pear Tree pictures!

A few posts ago I talked about 5-Hour Energy targeting the older demographics to expand their reach outside of the typical energy drink user (link here), and it appears that Xyience is trying a similar strategy.  To be concise, Xyience has always been an all-natural calorie-free energy drink, but now has the opportunity to capitalize on their positioning.

Xyience became a major player through their partnership with the UFC, where the energy was originally featured within the Octagon as well as other UFC apparel such as round cards, towels and t-shirts.  The partnership has since expanded to cover UFC fighters, which appear at autograph signing events when Xyience launches into convenience stores and grocery stores (more info from a beverage industry article here).  With their calorie-free energy drink, female consumers are a prime target since they are the ones that really look at the ingredient table to check on the beverage’s contents.

As energy drinks transitioned from an emerging beverage category to one that is stabilizing, manufacturers must be innovative and look for new growth opportunities or risk becoming irrelevant.  We saw Red Bull try energy shots briefly before discontinuing them, and also saw 5-Hour Energy targeting senior consumers groups with their energy shot.  Now we see Xyience targeting female consumers.  The main difference between Xyience’s target and that of Red Bull’s is that there should be little to no cannibalization for Xyience.  Someone that buys an energy shot may not buy an energy drink since both products perform the same function.  And Xyience is not necessarily penetrating a category that has numerous competitors (there are some energy drinks that target female consumers – Rockstar Pink, Pink Energy, Tab Energy, etc – but not many manufacturers are targeting the female consumer).  And the difference between Xyience’s target from that of 5-Hour Energy is that they do not have to educate the audience on the product’s benefits since the female consumer is already knowledgeable about energy drinks.

After all is said and done, Xyience stands a stronger chance to reach the female consumer than other energy drinks.  However, simply relying on the product’s ingredients to appeal to the target is not enough, so Xyience may need to adjust some of their packaging to better communicate with females.  For example, Rockstar Pink comes in a 12oz/355ml pink can (stereotypically female targeting, as no males would want to be seen drinking from a pink can) with a straw.  The insight may be that females would prefer to drink out of a straw than directly from the can, so the straw’s addition may help with reaching females.  Xyience may consider adding a straw in addition to changing some of the Venn circles to white or pink (again, stereotypical female colors).  This will allow them to keep the core colors of  black and silver constant, while making slight alterations to appeal to the opposite sex.

The female energy drinker is both elusive and profitable, and if Xyience effectively reaches them and can translate sales from this group, then we may see this mid-size energy drink player rising to the same status as Red Bull, Monster and Rockstar.