There’s some quite some work piling on the past few weeks so I haven’t had a chance to get to a beverage post this week, I hope to resume again next week. In the meantime, feel free to browse through some of my older articles. 🙂
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.
Thanks for a great year, loyal readers. WordPress.com compiles annual statistics and I make my statistics public whenever they are available. After all, where would my blog be if you did not read my it? So below is the WordPress.com 2011 annual report for BevWire.com. Read on!
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.
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.