Coca-Cola Builds a Monster

Image courtesy of brandchannel.com
Image courtesy of brandchannel.com

Looks like Coca-Cola realizes what it’s good at and what it isn’t good at.  Their increased stake in Monster Beverage proves as much.  With $2.1 billion invested, Coca-Cola now owns 17% equity in the energy drink behemoth, and in turns switches up their product portfolios.  Coke will give Monster their own acquired or homegrown energy drink brands, which includes Nos, Full Throttle, and Burn among many others, while Monster trades them their non-energy drink products, such as Hansen’s Natural Sodas & Juice Products, Peace Tea and Hubert’s Lemonade.  This deal brings together the world’s largest soda manufacturer and the U.S.’s largest energy drink manufacturer.  Although both sides got a great win out of this, but who needed this deal more – Coca-Cola or Monster?  Let’s start by seeing what each side actually gets out of this arrangement.

For Coca-Cola, acquiring a larger stake in Monster and then trading energy drinks for teas & juices serves as a win in itself.  With consumer habits and preferences changing, fortifying their product portfolio to keep pace with these changes was a necessity.  And with key brands generating bad press lately (think Diet Coke slogan fiasco), Coca-Cola could not afford to keep beverage products that carry high negative publicity potential.   Nos, Full Throttle, and the like most certainly qualify given the category requires caffeine content regulation following linkages to caffeine poisoning.

Energy drinks didn’t necessarily fit into the brand image that Coca-Cola wanted to sustain.  Energy drinks focus around an extreme sports lifestyle, with key sponsorships across mountain biking and motor biking.  Distancing the brand from energy drinks better promotes Coke’s image as a family-oriented product manufacturer.  Furthermore, their marketing acumen is better leveraged across Monster’s non-energy products given Coca-Cola’s existing strength across juices and teas.  Coca-Cola has already made a strong name for itself behind Minute Maid, Simply, Odwalla, Nestea, and Honest Tea.  Giving up energy to return focus to juices and teas helps Coca-Cola stay sharp and work on what they’re good at.

Hubert's Lemonade, now part of the Coca-Cola family.  Will this lemonade brand grow exponentially?  Image courtesy of hansens.com
Hubert’s Lemonade, now part of the Coca-Cola family. Will this lemonade brand grow exponentially? Image courtesy of hansens.com

For Monster Beverages, this deal unlocks a stronger global distribution network to grow their product base.  They’ve also added some larger name-brand energy drinks to complement Monster.  A strong competitor like Nos now becomes a fantastic ally.  Full Throttle owns a cult following despite Coca-Cola’s neglect and has a very good chance of being resurrected.  This arrangement gives Monster a wide assortment of products to target energy drink consumers, both locally and internationally.

Monster has also done a better job at marketing energy drinks than Coke because they’ve invested in resources to build out an entire lifestyle.  Energy drinks are more integrated into a consumer’s lifestyle than some other beverages, given their wide target in terms of drinking occasions.  The soda drink manufacturer was not prepared to build out a 24/7 lifestyle like how Monster, Rockstar, and Red Bull have.  Though Monster’s success isn’t a defined blueprint, they already have the infrastructure in place for one energy drink and this could be scaled up for other energy drinks.

It’s really hard to say who needed this more though Coca-Cola benefits more in this new arrangement.  The soda maker had more to lose because they were never going to catch Red Bull, Monster, or even Rockstar with their homegrown products.  Giving up distribution bought them expertise and healthy beverage brands.  Similarly, Monster’s true success existed in the energy drink segment, so much that they even changed their company name to halo off some brand equity.  Their strength in energy drinks would have prevented them from properly developing their nonenergy product portfolio.

Regardless of who benefited more, this only proves that larger companies must take creative approaches to keep growing.  In the past, it was about building strong brands.  Now, it’s about buying a brand that’s already been built, and making it stronger.

POM Wonderful and Coca-Cola sue each other

Courtesy of foodindentityblog.com.  Is the Minute Maid juice label misleading?
Courtesy of foodindentityblog.com. Is the Minute Maid juice label misleading?

The food & beverage landscape may undergo significant changes shortly if a lawsuit between POM Wonderful & Coca-Cola is decided in POM’s favor. POM is suing Coca-Cola for misleading packaging for its Minute Maid Pomegranate Blueberry juice.  The labeling suggests that the beverage is a 100% fruit juice flavored with a combination of five fruit juices.  The beverage contents are primarily apple and grape juice, containing only 0.3% blueberry juice, 0.2%. pomegranate juice, and 0.1% raspberry juice.

The crux is whether one organization can sue another for misleading labeling that was deemed permissible by the Food & Drug Administration.  The FDA has decided that the beverage contents and the name itself satisfies their labeling requirements.  That said, the governing body allows companies to name the product based on the flavor even if trace amounts were used to produce the flavor.  Volume quantification is not necessary for the product contents.  Linda Goldstein, a partner with Manatt, Phelps and Phillips prefaced the following to AdWeek (full article here):

“Depending on how the Supreme Court rules, the ramifications could be broad. This is a huge case for the food and beverage industry.  No one has asserted that Coca-Cola violated FDA rules and law. The issue is whether the FDA regulations are the floor or the ceiling. Pom says it’s the floor and that the label can still be misleading.”

Should this case be decided favoring Coca-Cola, the food & beverage industry’s product labeling practice is kept intact.  POM will have made an even larger name for itself and Coca-Cola will carry on business as usual.  In the end, this could serve as a win for both Coca-Cola and POM Wonderful despite the court ruling in Coca-Cola’s favor and everyone paying exorbitant legal fees (the case has been around since 2008).

If the court ruled in POM’s favor, this sets the stage for increased vigilance toward product package labels.  Beyond the direct impact where Minute Maid must augment the product label, other food & beverage products currently on the market will be availability for scrutiny.  According to Goldstein in the AdWeek article, the fact that it could lead to a class action litigation suggests that many products do not satisfy the labeling requirements.  The precedent would be set that an organization can reduce the competitor’s advantage by scrutinizing their packaging claims.  Will this ultimately lead more companies to sue other companies for the sake of labeling challenges?

The genesis of POM’s lawsuit was Coca-Cola’s introduction of this Minute Maid Pomegranate Juice at a lower price point relative to POM’s products.  Given Coca-Cola’s distribution and marketing muscle, it’s understandable that POM would want to level the playing field as much as possible.  However, be careful what you wish for.  POM is also currently in appeals with the Federal Trade Commission over their own misleading advertising claims (full article here).  Through all of this, both beverage organizations’ focus has been on reducing the competition’s advantage.  Let’s hope that they return to their core business functions sooner rather than later: selling refreshing beverages.

Coca-Cola Expands “Official” Olympic Drink Portfolio

Courtesy of eprize.com

It’s another year for the Olympic games, this time in Sochi.  For Coca-Cola, every Olympic year is a boon based on the event partnership agreement where they hold the distinction of official Olympic non-alcoholic beverage partner.  As one of the Olympics’ global partners, the beverage giant pays about $100M to monopolize non-alcoholic beverage serving rights in all Olympic venues (other global partners hold exclusivity in their respective industries).  In recent years, the definition of “non-alcoholic beverage” has expanded to include more than just carbonated soft drinks.  Coca-Cola has gained exclusivity to serve sports drinks (Powerade), juices (Minute Maid), and waters (Dasani, vitaminwater) over the past few Olympics games.  The “Olympic Wolrdwide Partner” logo has also started appearing on Coca-Cola’s ZICO coconut water brand lately.  So given the substantial cost, how beneficial is it for Coca-Cola to be a worldwide Olympic partner?  And with the expanded definition of “non-alcoholic beverage”, which product categories are next to gain Official Olympic product status?

Despite a cost of $100M each active Olympic year, Coca-Cola has renewed their Olympic partnership until 2020.  It would appear that this agreement delivers substantive returns.  For one, Coca-Cola has blocked out their global competitor in all product categories that the conglomerate participates in.  No Pepsi-branded soft drinks, Aquafina, Gatorade, or Tropicana can be served within all Olympic-event venues.  Brand visibility is another partnership benefit.  Every game or after-party event that becomes broadcasted will feature a Coca-Cola logo or Coca-Cola beverage product.  Live viewers and spectators may only celebrate with Coca-Cola branded products and nothing else.  Positive associations is another partnership benefit.  Spectators seeing their athletes win also see them hydrating themselves with Coca-Cola products.  These same spectators will associate hard work, performance, and winning all being supported by Coca-Cola.  From a qualitative perspective, these are invaluable benefits that Coca-Cola has been able to enjoy – reduced competition, brand visibility, and positive associations.

Courtesy of designyoutrust.com

With changing taste preferences among spectators and athletes alike, incorporating other product categories as “Official Drinks” certainly makes sense.  Some people will choose carbonated soft drinks, some will want flavored water, and still some people prefer juices.  With coconut water emerging as a beverage category, expansion to include this as an Olympic-approved beverage makes sense.  However, increased exposure of Olympic branding potentially cheapens the Olympic brand with broader availability on all products – not just beverages.  Furthermore, not all products will be suitable to display the Olympic logo on its packaging.  For example, energy drinks may be one category that could be denied Official Olympic product status given possible negative associations despite the category growth.  Within Coca-Cola beverage portfolio, it’s likely that liquid enhancers (Dasani Drops, Powerade Drops) and teas (Honest Tea, Fuze) could gain approval should they apply for it.  Both these categories are enjoying growth and have fewer negative associations portrayed by the media.

Coca-Cola has been one of many key sponsors that has supported the Olympic games through the years, and it appears that both parties are satisfied with the results.  2020 is still three more Olympic games away, but given the goodwill both parties have been generated, it’s very possible that this relationship goes well beyond 2020.

Updated Minute Maid Single Serve Packaging

 

New Minute Maid BottlesIt’s long overdue in the implementation process, but the new Minute Maid bottles have phased into the Canadian marketplace.  Originally launched in the U.S. in 2009/2010 for the full Minute Maid assortment, the single serve bottles appear to be the last ones to be change over to the new packaging.  This may be a result of the labeling changes as well, since the adhesive labeling is now replaced with the plastic shrink wrap.  Here in Canada, that change from paper labels to plastic shrink wrap only took place this past June (could be earlier, but that’s when it was noticeable in coolers and store shelves).  Judging that there has been no backlash on Minute Maid like the Tropicana fiasco, it would appear that this change is a success in the Canadian marketplace.

Ultimately it’s a sleeker looking bottle that places more emphasis on the bottle’s images than the bottle’s content.  With more of the content behind this whole bottle plastic wrap, this makes the product more dependent on the imagery and colors – sliced oranges and leafy green colors.  The bottle itself is also streamlined – gone are the wavy grooves from the previous iteration and replaced with a smoother grip-friendly shape.

While it may not change sales all that much, the new bottle certainly makes the juice brand more current by adapting to the stronger emphasis placed on beverage packaging.

Coca-Cola Advertises Minute Maid Again

Minute Maid Plastic Bottle courtesy of adage.com

With all the recent acquisitions and new product focus, Minute Maid promotions seem to have been lost in the fold.  Not anymore, as Coca-Cola says they will start ramping up advertising support their Minute Maid juices again.  And they will be going after a new demographic with their advertising this time around.  Advertising Age has more information on this article, which discusses Minute Maid’s inclusion of another demographic for their advertising (link here).

Ad Age’s article discusses a few points that stand out.  First of all, Minute Maid is branching out by targeting male consumers.  In what the article describes as “going after the consumer versus the purchaser”, Minute Maid is increasing their focus on men since the research shows that men are also drink orange juices.  However, the traditional purchaser is still the older female (ie. your typical mother with younger children), so how would influencing males generate more sales to regain lost market share for Minute Maid?  It just happens that the highest volume growth is seen in a channel where men typically shop – convenience and gas.  Men frequent convenience stores to make the quick and easy purchase for the impulse item, so juices growing in this channel may result more from male purchasers than female purchasers.  It’s also one of the few channels where men make purchases for themselves since as women mainly decide what to buy for family groceries and they buy it from supermarkets.  However, focusing on men to buy orange juice will not help Minute Maid recover lost market share.  Which leads to the second point.

Minute Maid is looking to gain share by increasing consumption occasions.  As the analyst indicated that orange juices have been relegated to the breakfast table, there are more opportunities to grow the brand by increasing its demand at other times of the day.  What should you drink right before going on a flight, how about some Minute Maid orange juice?  How about drinking some Minute Maid orange juice after an intense workout instead of water or sports drinks?

All in all, a good plan for Minute Maid to enlarge their target demographics.  It’s not easy to target two different groups of buyers (older females for one buyer group, and male consumers for the other) without alienating one or the other.  If Minute Maid succeeds in re-gaining lost share, it’s because they have found a way to strike a healthy balance when targeting these two different groups.

Packaging: Glass or Plastic?

Sobe glass bottle

There’s always been the debate about beverages moving away from glass bottles and replacing it with plastic bottles.  It happened to Minute Maid juices, it happened to Sobe, and for a short time it happened to Nestea (during the Vancouver 2010 Olympics all the Nesteas came in plastic bottles within Olympics venues).  Consumers have been divided on this issue because glass bottles preserve the taste better, but plastic bottles are much better for the manufacturer and retailer.  Plastic bottles are cheaper to produce, lighter to transport from the bottling plant to the retailer’s shelf and cooler, and also less likely to break.  Not to mention, profits are also higher with plastic bottles.  So in the end, who wins?

Odwalla PlantBottle

More often than not, it would seem that the manufacturers wins.  When Minute Maid juices changed their packaging, consumers either had to embrace the change, or switch to Tropicana, Dole, Sunkist, or private label juices.  Although some consumers switched to another juice product, all the offerings used plastic bottles.  So in the end, the packaging change still saw consumers embrace this change.

However, as sustainability and recycling has become forefront issues, consumers are seeing the benefits of plastic bottles.  In an article by Beverage World’s Andrew Kaplan, eco-sensitive packaging can be found in almost all beverage categories (link here).  Dr. Benjamin Punchard, Euromonitor International’s head of global packaging research says, “From what we see, the main response to environmental need is still lightweighting.  This is not a new development as producers have long understood the cost savings that lightweighting can deliver, but there is now increased imperative to take lightweighting the extra mile. The knowledge that this can be communicated to the client as an environmental benefit has seen lightweighting move from a covert action to an overt advertising opportunity.”  Lightweighting refers to is the transition from glass to plastic bottles.

What  Dr. Punchard reports about packaging change being an overt advertising opportunity is very true.  Take Coca-Cola for example, where they publicly advertise about the plant bottle used for Coca-Cola Classic, Diet Coke, Coke Zero, Sprite, and Odwalla.  Since consumers are more environmentally conscious, publicizing their eco-friendly packaging serves as a fantastic selling point to recruit and maintain customers.  One has to wonder what the effect this newer sustainable packaging has had on their sales.

It’s not certain whether remaining glass bottle beverages will be making the change to plastic, as each format has it’s own unique benefits.  With the exception of premium waters (San Pellingrino, VOSS, Perrier) and specific beverage lines (Nestea, New Leaf tea, Jones Soda, and Orangina), almost all single serve bottled beverages within a grocery store’s cooler have changed to plastic bottles.  Though taste preferences are strong factors in determining what you drink, if a beverage changed to a plastic bottle, would this alone make you want to purchase the product more than before?  Manufacturers and retailers are betting yes on this.

Odwalla’s New PlantBottle

courtesy of www.bevnet.com

Odwalla, the natural health beverage company announced that starting in March 2011, it will be transitioning their single-serve bottles to PlantBottle packaging.

“Plants do such a good job of making our juice, Odwalla hired them to help make our bottles,” said Alison Lewis, President, Odwalla. “Doing good things for the community and building a business with heart are core guiding principles of Odwalla’s vision. PlantBottle packaging is just the latest step in our continued commitment to the environment.”

PlantBottle packaging consists of material derived from molasses and sugarcane juice. It has the same performance as traditional HDPE and PET bottles: no differences in shelf life, weight, composition or appearance. PlantBottle™ HDPEcan be recycled again and again in today’s recycling facilities. The redesigned plastic represents a significant step in sustainability efforts and in protecting the planet.

This seems like a great move step for a health beverage company – not only is your beverage natural, but your packaging as well.  Another interesting fact is that Odwalla is bottled and distributed by Coca-Cola in Canada.  Some might remember that Coca-Cola also introduced plant-based packaging late last year in prepration for the 2010 Vancouver Olympics.  That said, Coca-Cola is environmentally conscious and supports the PlantBottle as well, so having Odwalla transition to sustainable packaging represents a step in the right direction.  Not sure what the cost is on this type of packaging, but if Coca-Cola can bottle their products using this type of packaging and their competitors stick to the traditional PET bottles, this further reinforces the fact that they are the leading beverage company.  So what else should Coca-Cola try to distribute using the plant bottle?  Nestea?  Minute Maid Juices?  Powerade?  My recommendation is to distribute the Minute Maid Juices in the PlantBottle as well. It seems like the right thing to do since Minute Maid juices are also a healthy beverage offering.

Question is, will Pepsi bottle any of these beverages using this type of packaging?  The Tropicana and Naked Juices product lines, as well as the Lipton tea series seems like suitable candidates to be transitioned to sustainable packaging.  If Pepsi also bottles their products using the PlantBottle packaging it might negate one of Coca-Cola’s selling points to consumers right now.  In a time when it matters to consumers not only what is within their drinks but how it is produced, packaging innovation is a natural progression of their curiosity.  And supporting a company that cares for the environment while providing you with what you need (in this case liquid refreshments) beats one that only cares about making money.

Your move, Pepsi.

Coca-Cola Company to Buy North America Bottlers

This past week Coca-Cola announced they will buy their North American bottling operation.  In exchange for taking control of the North American bottling operation, Coke will relinquish its 34 percent stake in CCE, worth $3.2 billion, and assume $8.88 billion in CCE debt.

This announcement comes on the heel of Pepsi finalizing their bottler acquisition.  Seeing that Pepsi has finalized a deal where $600 million of savings has been produced, Coca-Cola can not sit still and must find a way to reach cost savings themselves.  The deal will help the world’s largest soft drinks maker cut costs and increase flexibility in distributing its beverages, which include Sprite, Minute Maid juices, vitaminwater and Powerade.

With this announcement and major industry change, what are some of the market implications?

Coca-Cola will see cost savings, but not as much as Pepsi’s.  Coca-Cola is only a beverage manufacturer, while Pepsi handles both food and beverages.  Thus Coca-Cola will still have to partner up with another company (ie. Kraft, Con Agra, General Mills) to run a promotion for food and beverage, whereas Pepsi can already run such promotions due to their business units in Frito Lay and Quaker.

Another benefit of the acquisition is that niche beverages take advantage of the distribution network to further their reach.  Both Coca-Cola and Pepsi will see cost savings in this area, as both companies are trying to grow their beverage portfolios and will want to promote new products more.

It’s still too early to tell if Coca-Cola’s acquisition will be approved or not, but if the deal is approved, the beverage industry will see plenty of new products and better food/beverage promotions.  BevWire will try to stay on top of this deal and keep you posted on what happens.

U.S. Juice Market: Coke is No1, Pepsi No2

courtesy of www.adage.comAdvertising Age’s recently published article on the U.S. Juice Market Share now indicates that Coke’s Minute Maid and Simply juices have taken over the first position.  Pepsi’s Tropicana and Dole brands dipped in market share a little bit this past year, and coupled with Coke’s growth in this category the overall net effect was a switch of their positions.

Many insist that Tropicana’s package redesign contribute to the decline in sales, where consumers confuse the No1 brand with a private label.  Company executives indicate otherwise, saying the decline in sales resulted from economic downturn and thus switched consumers to private label brands instead of name brands.  There is truth to this theory as Information Resources Inc., reported that more units sold compared to a lower dollars sales.  However, there is a almost a 4% absolute change here, as Coke’s sales did increase while Pepsi’s sales decreased.  So even though private label products did sell more, even though there was an impact from the economic downtown, the package redesign has damaged Tropicana.

Over at TheDieline.com, their article by Ted Mininni here indicates that Tropicana’s redesign efforts were not very well thought out.  By updating their packaging (or as Pepsi likes to call it, “refresh everything”), Pepsi has essentially taken away the message and recognition that the consumers know so well for something similar to a foreign, control brand orange juice.  And this is important because Coke’s Minute Maid has recently undertaken a redesign of their packaging as well.

courtesy of thedieline.comTheDieline.com quotes Guy Wollaert, general manager for Coca=Cola’s global juice center, as saying, “Based on the research we’ve done, we’re quite confident we’re on target. It’s been amazing, the consistency in the brand equity cues.  The new Minute Maid packaging features fruit fresh from the trees with a sliced piece resting on top of whole fruit. The brand identity is strong and dominant. Beneath that, a vertical swath of color with the fruit variety appears. At the bottom of the front panel, a green vertical bar states: ‘100% Pure Squeezed Orange Juice’.”

Mininni gives it his stamp of approval because it provides a clear message leaving the important factors unchanged for easy consumer interpretation.

The graphics for the old package has a half-sliced orange over numerous whole fruits, in front of a rising (or setting) sun with a sky-blue background in the distance.  The old package conveys fresh orange juices – whole oranges taken from their natural element and then squeezed into juices.  Whereas the new packaging with the white background and green leaves may take some time to get used to.  It does convey fresh orange juice and 100% squeezed, but BevWire still prefers the old packaging, maybe for nostalgia.  With Minute Maid’s sales holding steady so far, it shows the package redesign is a success.

At least this hasn’t brought about the magnitude of attention and press coverage as Tropicana’s redesign.