POM Wonderful In the Headlines For Good & Bad Reasons

Pomegranate juice manufacturer POM Wonderful has frequently been in the headlines these past few weeks, and not all are positive headlines.  Earlier this month the juice company extended their product line to include a smaller single serving bottle: the 236ml (8oz) bottle (one of many new articles link here).  Just last week they were involved in headlines for supposedly losing a Federal Trade Commission (FTC) ruling on deceptive advertising; it’s really about perspective as POM Wonderful believes they have won a considerable measure from the ruling (link here).  What does the FTC ruling mean for POM Wonderful now?  Will consumers still see the same advertising health claims from?  And is the 8oz bottle extension good for business, given that size proliferation eventually leads to product rationalization?

On the issue of the FTC ruling, POM Wonderful’s first reaction was to roll out some advertisements celebrating the judge’s ruling.  While they can no longer claim to prevent heart disease or prostate cancer without scientific research, the ruling agreed that there are indeed significant health benefits.  Beyond the first wave of advertising response, POM Wonderful may likely ramp up their health claims to test the limitations of the FTC ruling.  However, there will be a paragraph about how there was scientific research conducted to prove the particular health claim. The real question then becomes whether it will affect how other beverage products are advertised in the media (ie energy drinks with their claims of alertness, or energy shots claiming no crash, etc).

Relating to the introduction of the 8oz bottle, this line extension should fit well with the rest of the line-up.  One might argue for cannibalization, but the 8oz is going after a different consumer segment and a different consumption occasion.  Unlike soft drinks which has sizes like 8oz, 10oz, 12oz, 14oz, etc, the next largest size from the 8oz bottle is twice as large (16oz).  There stands to be more cannibalization between the 16oz and the 24oz bottle than the 8oz and 16oz formats.  Also, POM Wonderful appears to be targeting the health-conscious parent that wants their kids to think and drink healthy.  The 8oz bottle is perfect for kids, where parents can pack the beverage into lunchboxes or even be sold in school vending machines.   Even at such a small serving size, the bottles are resealable so the actual consumer (children) can use the bottle throughout the day.  In terms of grocery location, the 8oz bottle may not lead to product rationalization just yet; it may not even appear in the same location as the other POM products.  At such a small size, the 8oz bottle may appear in impulse coolers or ice barrels near the checkout where thirsty shoppers may want something tasty, small, and inexpensive to quench their immediate thirst.  The added benefit is then that POM Wonderful now has a secondary location to attract the shopper’s purchases.

In all likelihood, the 8oz bottle should sell well individually and not hurt the sales of other products in line-up.  Given that it is a single serve bottle that is targeted at youth, the natural line extension beyond the single bottle would be a multi-pack like 6x8oz bottles or 12x8oz bottles.  We’ll have to wait and see when that time comes, and what type of advertising health claims the communication shows.

Coke Follows Pepsi, Entering Mid-Calorie Soda Segment

With the recent success of Dr Pepper Ten and Pepsi Next, there’s been some renewed buzz in the carbonated soft drinks category recently.  Now Coca-Cola wants to get into the mid-calorie segment.  BevReview.com has a few links to other articles where sources have confirmed that Coca-Cola will be launching Sprite Select and Fanta Select in five U.S. test markets (link here).

As the linked article notes, both Coca-Cola and Pepsi have tried mid-calorie products before.  Both companies’ products failed to gain traction in the marketplace and were discreetly phased out from store shelves.  Given the technological advances and the successful-so-far products of Dr Pepper and Pepsi, is it time for Coca-Cola to come in with another mid-calorie product?  Will they succeed this time around?  And why try this with Sprite and Fanta, not with the trademark Coca-Cola product itself?

One issue would be to first determine what is “mid-calorie” and how this type of product is unique from the consumer’s perspective.  Arbitrarily, I’m defining this soda segment as with a limit of 70 calories per 12oz (355ml) serving, given Pepsi Next has 60 calories, and Sprite Select and Fanta Select will have 70 calories.  Dr Pepper Ten only has 10 calories per 12oz serving, so they fit the mold (Note: Dr Pepper Ten has 10 calories in both a 12oz serving, as well as 10 calories per 8oz serving, click through link to understand how).  Mid-calorie products are also categorized as those using natural sweeteners to bring the calorie count down below 70, featuring a combination of sugars, high fructose corn syrup, or some other form of sweetener in tandem with the natural sweeteners.  The purpose is to balance out the taste curve: from the moment the liquid hits the palette, all the way to the after taste.

Given that mid-calorie soft drinks like Coc-Cola C2 and Pepsi Edge of the early 2000s did not have the technology or cost-efficiencies before to insert natural sweeteners, they failed to catch on in the marketplace.  One decade later, the technology is in place , which makes it possible to give consumers a better-tasting (and better named) product.  The generally positive feedback toward Dr Pepper Ten and Pepsi Next would seem like an opportune time for Coca-Cola to enter the mid-calorie soft drink segment.  Similar to how Coca-Cola’s Dasani Drops may be entering the liquid flavor enhancers after Kraft’s MiO has tested the waters, Coca-Cola may have monitored the consumer reaction to mid-calorie products  (BevWire’s article on the Dasani Drops piece can be found here).  This lets Coca-Cola sit on the sideline to see what would happen without bearing the developmental costs until it’s been a proven success.

While it appears that these products have received positive reviews, it appears that Coca-Cola is still hesitant with this segment.  These reservations makes the pilot testing with Sprite and Fanta that much more important.  Coca-Cola would not want to put the trademark name on something that they don’t fully believe in, only to see it fail like last time.  A second failure with this segment would have implications such as losing brand equity or showing that the soft drink manufacturer does not understand its consumers.

A factor that would aid in their success, as well as supporting the successes of Dr Pepper Ten and Pepsi Next are consumer trends.  Consumer trends have shifted toward a stronger focus on health consciousness.  No longer are consumers willing to sacrifice calories for taste.  However, not all consumers are  prepared to sacrifice taste for zero calories either, which provides the opportunity for the Pepsi Next, Dr Pepper Ten, and the impending launches of Sprite Select and Fanta Select.

In this regard, there would appear to be a market for mid-calorie soft drinks, albeit a small market for now.  The consumer trends and the technological advances will help to make this a success this time around.   If history does end up repeating itself, it would certainly guarantee that Coca-Cola will not be testing any more mid-calorie soft drinks.

Bolthouse Farms For Sale, Campbell Soup Company Interested

Bloomberg – a business news source – recently cited that baby carrot and juice manufacturer Bolthouse Farms is on the market (link here).  Private-equity firm Madison Dearborn Partners LLC (Bolthouse Farms’ parent company), has received an initial offer from Campbell Soup Company among other bids.  While Madison Dearborn analyzes the different offers, I will assess the Campbell Soup bid to see if it makes any sense.

For a company that is famous for  canned soups, this may seem like a strange portfolio diversification to get into carrots and juices.  However, is it really that strange for a soup company to acquire Bolthouse Farms?   Aside from canned soup, the Campbell Soup Company manufacturers a variety of sauces, crackers and beverages (see their worldwide produce portfolio here).  Campbell Soup Company already has expertise in beverage manufacturing and marketing from its V8 line of juice products.  And Bloomberg’s article hints that V8 will be afforded more resources and receive a stronger focus, given their rising sales while the soup business’s performance is softening.  And it appears that if the deal was approved/concluded, Bolthouse Farms’ juice products would fall under the beverage division while the carrot farms and food processing would be integrated into a vertical supply chain for Campbell Soup Company.

Adding Bolthouse Farms beverages to the company’s beverage portfolio will improve scalability and distribution for both.   There will definitely be opportunities to optimize the two distribution networks since Bolthouse Farms products may be listed in retailers where canned soups may not be available (ie convenience/petroleum stores, organic/natural food grocery stores, etc).  Even if both Bolthouse Farms and Campbell Soup products are listed at the same grocery story, Campbell Soup still gains an incremental area of influence within the store.  Bolthouse Farms refreshments anchors the fresh produce aisle in grocery stores while Campbell Soup products typically resides within the non-perishable shelf stable aisles; and penetrating the fresh produce aisle will pay dividends based on the grocery consumer’s shopping habits.  Fresh produce are located near the entrance so there is an opportunity to influence the consumer immediately when she comes in.  And Campbell Soup can leverage Bolthouse Farms juices to scale up promotions by attaching a coupon to offer a different Campbell Soup product (ie V8 juices, Campbell’s Soup, Pepperidge Farm Goldfish crackers, etc), which are located in an alternate section.  When the shopper wheels the shopping cart down the various aisles, they may be more likely to purchase the Campbell Soup product since there’s a coupon offer.

Campbell Soup Company will further solidify the company’s positioning as a manufacturer of healthy and family-friendly products.  The company’s current portfolio of products are already healthy, while adding Bolthouse Farms juices and smoothies further cements their reputation as a company that provides nutritious products.

Campbell Soup Company has been seeking to broaden its consumer appeal beyond canned soup.  While the company is called Campbell Soup Company, the company portfolio extends well beyond soups.  Their soup portfolio alone has come up with some new innovations, such as the microwaveable soup cups and soup pouches.    This is an indication of a company that recognizes where it needs to innovate and where it needs to acquire; internal growth can only add so much value before the organization must look for outside options.  Given its strong positioning on healthy and family-friendly products, bringing Bolthouse Farms into the mix makes great sense.

All that matters now is to how Bolthouse Farms’ parent company assesses the bids from interested companies.  While combining the two companies’ businesses makes sense from my analytic perspective, there are obviously other business and financial considerations.  However, if Campbell Soup does end up acquiring Bolthouse Farms, I can see many positives from this acquisition.

Energy Drink Wars – Coke Learns a Lesson That Pepsi Has Not Learned

In light of recent news about Coca-Cola’s interest to buy Monster Energy and then later refuting their interest (link here), the energy drink category has continued to cause headlines in the beverage industry.  However, most of the noise is generated from the leaders like Red Bull, 5-Hr Energy, Monster, Rockstar, and Xyience.  Amp Energy is Pepsi’s own energy brand, while Full Throttle Energy is Coca-Cola’s home grown energy brand.  Both have languished in the category as the two refreshment manufacturers focused on other beverage categories (carbonated soft drinks, sports drinks, and coconut water to name a few).   Given Coca-Cola and Pepsi’s distribution contracts with Monster and Rockstar Energy respectively, and their focus on growing other beverage categories, will Amp and Full Throttle Energy survive?

BevReview.com has a great piece on what Amp has been up to recently (link here).  Pepsi’s own energy drink product has gone through packaging redesigns, name changes, and a re-focus on functionality.  What remains constant is the brand’s partnership with NASCAR racing.  Amp has re-positioned itself and it’s product offerings, but has not simplified its offerings – there are still seven flavors.  Given it’s varied product portfolio, Pepsi will be hard pressed to find a retailer agreeing to take in all seven flavors of its energy drink, unless Pepsi provides the retailer great profit margins.  Retailers have product buyers that determine what products are brought into the outlet, and are mandated to grow the retailer’s beverage portfolio with products that provide strong sales and high profits.  Having a product that isn’t within the top 5 selling energy drink brands, with seven flavors, poses a challenge at getting listed.  It will be tough to convince the retailer to give Amp a chance unless there are less flavors to choose from or very high margins to compensate for their lower sales velocity.  Ultimately, the buyer may tell Pepsi to pick and choose two flavors to get listed – and Pepsi would be better off having a less complicated Amp portfolio.

What about Full Throttle Energy?  BevWire previously detailed that Full Throttle was also undergoing packaging redesigns (link here).  Since that time, advertising and marketing support for Coca-Cola’s in-house energy product has diminished even more.  A quick look at their website drinkfullthrottle.com reveals a splash page with two links at the bottom, and a general link to the NHRA (National Hot Rod Association).  Visiting various Canadian grocery stores reveal that there is only one remaining flavor that is stocked regularly and that is the original Full Throttle Citrus flavor.  Gone are the Berry and Agave flavors.  Despite the change in artwork, it appears that there still has not been any support behind Full Throttle Energy; Coca-Cola instead focused on growing Nos Energy.  In this case, it would appear that Nos Energy will be replacing Full Throttle in no time.  Both Nos and Full Throttle have auto racing sponsorships like Amp, but having your brands occupy the same space and also compete against products in the exact same space is redundant.

If there was a lesson to be learned here on supporting your beverage brands, it appears as if Coca-Cola has learned that lesson.  Full Throttle has gradually reduced their flavors voluntarily and focused on the core product: Full Throttle Citrus.  Even in that regard, it certainly appears that Coca-Cola will be phasing out Full Throttle completely and gradually replace it with Nos Energy.  Nos Energy was previously only available in 650ml (22oz) cannisters but has expanded its 473ml (16oz) offerings in addition to expanding its flavors.  Pepsi does not appeared to have learned the same lesson as their main competitor.  Should Amp Energy remain competitive, Pepsi must support the beverage more than just re-skinning and renaming the products.