No posts until 2014

Hi Everyone,

No more elaborate posts until the new year.  I’m still around on Twitter so keep updated with me there!

Merry Christmas and Happy New Year

Advertisements

Revisiting the Mid-Calorie Soda Segment

Courtesy of adage.com

Does anyone still remember Pepsi Next or Dr Pepper 10?  Anyone know how well these drinks are performing?  It seems that since their launch last year, not much has been said about these hybrid-sweetener sodas.  Pepsi has been focusing on their core offerings of Pepsi, Diet Pepsi, and Pepsi Max, while Dr Pepper has been left with the task of bringing news and excitement to the entire mid-calorie segment.  So far, it seems that mid-calorie sodas have taken a backseat to regular and diet cola products.  In the past two weeks, there has been some major stories from Advertising Age (link here), brandchannel (link here), and even myself at Canadian Grocer (link here) on how mid-calorie soda is doing.  While manufacturers recognizes the importance of this segment, it’s just not gaining momentum within the consumer market.  So what is wrong with mid-calorie sodas?  What will it take to make these drinks a success?

The jury is still out on whether mid-calorie soda is a success or a failure, but it’s certain that the beverage companies have not been supporting it at the levels necessary for long term success.  It seems that marketing efforts were most prolific during the launch period to gain awareness, but has not kept pace over time when it was most critical to win consumers over: the repeat purchase.  At release, news reports indicated that these drinks endured high rates of consumer sampling.  Pepsi and Dr Pepper gave away these carbonated drinks for free to stimulate trial.  However, the repeat rate has not been mentioned as much.  That is, how many consumers given a free can of mid-calorie soda ended up purchasing these particular drinks later?  Not much apparently.  Reports have indicated that the mid-calorie drinks’ sweetener leaves a bitter aftertaste and has led drinkers to stay away from it.  Therefore, people that were given that free can may have liked it because it was free, but would choose to drink another soda (or an alternate beverage) when they have to pay for it.

Courtesy of Forbes.com

Both sodas companies should have maintained marketing support to focus on championing the benefits of these new products.  Despite the bitter aftertaste, the fact remains that fewer calories are consumed per serving.  Pepsi Next and Dr Pepper 10 should have talked up these benefits relative to other sodas in order to win over consumer perception of a bitter aftertaste.  Instead, they continued on leveraging against the humor (Pepsi Next with their Baby commercials) and gender exclusivity (Dr Pepper 10 with their Manliest Man commercials).  It would have been better to educate the consumer as an alternative to other beverage segments with an identical amount of calories, or other sodas that were sweeter but contained the most calories.

So how can they make these beverages and the overall mid-calorie segment a success?  Or are these drinks primed to quietly disappear like so many other beverages before their time?  Does anyone still remember Coca-Cola Blak?  Or Pepsi XL? Or Orbitz?

Advertising and promotions.  Both Pepsi and Dr Pepper should keep up their mid-calorie advertising efforts to maintain brand awareness.  It seems like an obvious solution to ensure mid-calorie sodas stay alive long enough to see their potential through.  However, in organizations where performance is judged by quarterly performance and not much else, there is no room for tweaking unless it’s on-the-fly.  The interim period from when a new mid-calorie sweetener will be introduced is very crucial for manufacturers to preserve their shelf space.  These beverages must be afforded marketing support and in-store promotions to drive repeat purchases.  Without consumer incentives to stimulate purchases, retailers will have no choice but to remove slow sellers from the aisle.

The fact remains that health groups have picked out carbonated soft drinks as a strong contributor to obesity.  Consumers are also more focused on the sugars and calories they put in their bodies.  Mid-calorie sodas taps into these trends very well.  These soda innovations contribute less to obesity (relative to their full calorie counterparts).  It will also meet the needs of calorie-conscious individuals that want less sugars.  Whatever the case, mid-calorie sodas are here to stay and are crucial for the survival of the soda segment.  If not Pepsi Next and Dr Pepper 10 this time, it will be something else in the near future.

Coffee War: Kraft & McDonald’s vs Starbucks

McDonald's McCafe coffee, now sold in grocery retailers by Kraft.  Courtesy of mcdonalds.ca

Ever since the 2011 break-up with Starbucks, Kraft had been looking for a beverage partner to package and distribute premium coffee.  Enter McDonald’s McCafe.  The quick service restaurant has been looking for growth opportunities outside of burgers & fries, recently turning their attention to premium coffee.  They have even started selling bagged ground coffee within the restaurant.  However, most coffee drinkers still enjoy their first cup of coffee at home, and gaining distribution to the traditional grocery channel is critical to McDonald’s expansion efforts.  While this partnership benefits to McDonald’s, how will it benefit Kraft?  How will it affect their current coffee brands: Gevalia, Maxwell, and Tassimo?  And what about Starbucks – how will this impact their grocery coffee business?

Kraft Benefits Greatly With a Strong, Already-Built Beverage Brand

It is much easier to leverage a well-known brand rather than build your own.  This is what Kraft is doing.  Even without specifically knowing about McCafe premium coffee, McDonald’s itself is a well-known household name.  McDonald’s has also worked hard to change its image as a destination with unhealthy food options.  This has culminated into their successful, award-winning “Our Food.  Your Questions” campaign (read about it here).  As such, consumers are more open and knowledgeable about McDonald’s healthier options like snack wraps or fruit smoothies.  Kraft is able to leverage on McDonald’s name to help them gain some shelf space in grocery retailers.

Gevalia coffee - courtesy of commonsensewithmoney.com

Before ending their partnership, Kraft had helped transform Starbucks’ grocery business from an initial $50 million to nearly $500 million in annual sales.  With Starbucks wresting full control of their coffee business from Kraft, they were forced to refocus on Maxwell House, Gevalia, and Tassimo.  Maxwell House was a value offering, and competed against store-brand coffee.  Growing this brand would only serve to devalue the category.  Tassimo single-serve at-home units were expensive (and still is), not to mention ahead of market trends and did not have a strong market presence.  Growing this would take a considerable amount of investment and still not fill the void left by Starbucks’ premium coffee.  Gevalia was Kraft’s best bet, and still they had to build this premium coffee brand.  You can see from the clip below that they fully intend on competing against Starbucks head-to-head.  And if you haven’t heard about Gevalia, then you’re not alone. It still has work to do before achieving high enough awareness levels to penetrate the shopper’s consideration set when it comes to buying ground coffee in the grocery aisle.

With McDonald’s McCafe coffee part of their portfolio, Kraft now brings another strong and well-known coffee brand to retailers.  However, it only partially fills the void created by Starbucks.  Tony Vernon – Kraft’s Chief Executive – says McCafe is considered a step above Maxwell House, but still below their premium coffee Gevalia (story link here).  That said, Kraft expects McDonald’s McCafe to fill a mid-tier coffee segment and regain lost shelf space, but they still expect Gevalia to be their premium brand to compete against Starbucks.

How Will This Affect Starbucks?

At this point, this partnership is something to monitor but not react.  Within the coffee segment, Starbucks consumers are highly loyal and may not interact much with McCafe coffee.  Considering where McDonald’s McCafe coffee are priced, Starbucks’ similar offerings figures to be priced at a 20% premium – at least.  Consumers also buy Starbucks because it is considered an “affordable luxury” item while McCafe is considered a broader appeal item.  Unless coffee drinkers suddenly change their taste preferences, McCafe will not steal away many Starbucks coffee drinkers.  Within Kraft’s portfolio, Gevalia still remains Starbucks’ top threat yet the brand itself has some work to do.  Gevalia still has to gain awareness and cultivate a rich premium coffee history.

The evolution of Starbucks.  Coffee has not been their core focus since 2011.  Courtesy of  brandautopsy.com

And while coffee still remains the core component of Starbucks’ business, they have been moving to expand their own portfolio.  They have smoothies.  They have tea.  They even have yogurt and baked goods.  They plan on having their own soda line at some point in the future.  What was a company that  only attracted coffee drinkers has morphed into one that attracts any thirsty (or hungry) consumer.

So as Kraft finds a partner to fill a gap in their coffee business, Starbucks has branched out to other beverage segments.  Coffee is a large part of the beverage market and one where a few manufacturers compete in.  It’s a good thing that despite the size of this segment, all three companies – Kraft, McDonald’s, and Starbucks – are diversified and have other focal points to turn their attention to.