How Fuze Became a Billion Dollar Brand

Coca-Cola's Fuze tea joins the company's growing roster of billion dollar brands.  Fuze surpassed a billion dollar in annual sales in 2014.  Image courtesy of coca-colacompany.com.
Coca-Cola’s Fuze tea joins the company’s growing roster of billion dollar brands. Fuze surpassed a billion dollar in annual sales in 2014. Image courtesy of coca-colacompany.com.

Per Coca-Cola’s news release a couple weeks back, the soda giant’s Fuze brand has joined the company’s billion dollar club this year (story here).  Fuze expanded into teas back in 2012 and surpassed one billion dollars in annual sales just two years later, which may make it one of the fastest brands under Coca-Cola’s stewardship to achieve this milestone. Regardless of their geographical footprint (40 markets and growing) or product assortment (30+ Fuze skus between juice, tea, and liquid enhancer flavors), reaching one billion dollars this quickly is surprising.  A key question to answer may be what happened in the past two years to help Fuze become one Coca-Cola’s roster of 20 billion dollar brands.

In 2007, Coca-Cola bought Fuze and promptly brought the juice brand into their beverage roster.  At that time, Fuze existed as a primary competitor to SoBe’s line of fruit juices owned by Pepsi.  The importance of tea in the brand’s portfolio emerged in 2009 when Fuze tea was part of the fountain drink options in Subway’s sandwich franchise restaurants.  Since then, the hydration brand has emphasized tea more than juices.  Securing distribution in Subway was a critical step toward Fuze’s current status.  Not only were they earning sales across Subway locations, their availability increased consumer exposure to Fuze as a ready-to-drink tea and a viable alternative to Coca-Cola’s soda offerings.  Even Samir Bhutada, Coke’s global director of tea and ready-to-drink coffee, mentioned that part of Fuze’s popularity was related to beverage trends around the ready-to-drink tea category because it delivers on great testing refreshment and natural goodness.

Another important step in Fuze’s history came in 2012, when Coca-Cola and Nestle Waters amended their Beverage Partners Worldwide distribution arrangement.  Save for Canada and a few other geographies, Nestle Waters would retain distribution rights for Nestea.  This in turn allowed Coca-Cola to redeploy efforts to their own stable of healthy refreshments.  Gold Peak and Fuze became the main benefactors of the company’s increased support.  This support materialized in both marketing and trade support.  With Nestea returning to Nestle Waters’ distribution network, this opened up more space for other beverages to grow their footprint within Coca-Cola’s distribution network.  As a result of this, Fuze cultivated a stronger international presence.

Coca-Cola Canada's Fuze Tea Drops: Green Tea Mango, Peach, and Raspberry.
Coca-Cola Canada’s Fuze Tea Drops: Green Tea Mango, Peach, and Raspberry.

The Coca-Cola system also support the brand by cranking out drink flavors built on its foundation of green tea and black tea.  With over 30 Fuze tea variants, consumers looking for tea options would not have any trouble picking a tea under the Fuze portfolio.  Most recently, Coca-Cola has extended the Fuze brand beyond bottled juices and teas.  Coca-Cola launched Fuze Tea Drops in the Canadian marketplace, building more momentum behind this brand with three flavors of liquid enhancers.  To support this rollout, the company activated Fuze Tea Drops with in-store signage and branded merchandising racks across participating Canadian retailers.  It’s also telling that Fuze was one of the select brands among Coca-Cola’s liquid enhancer portfolio, joining Dasani, Powerade, and Minute Maid as beverages available in this format.

In Canada, Nestea is still being distributed by Coca-Cola so Fuze tea may be limited in its availability.  Most Canadians only experience Fuze as a bottled juice unless they choose the brand where Coca-Cola Freestyle machines are available or purchase Subway sandwiches.  With Fuze tea drops, Canadians are one step closer toward experiencing Fuze the way other consumers get to enjoy it.  If Fuze tea drops sell well and Freestyle machines back up the brand’s popularity, there may be finally be Fuze tea coming to Canada.  At that time, Canadians will join other countries that further contribute to Fuze’s annual sales of a billion dollars.

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Dr Pepper Highlights Individuality in “/1” Campaign

Starting today, Dr Pepper will be launching an extension to their previous T-shirt “I’m a Pepper” campaign.  The new campaign titled “/1” highlights the character’s uniqueness and that they are indeed one of a kind – 1/1 – truly unrivaled in what they do.  Dr Pepper’s advertising agency conducted research to ensure that those numbers represented in the video are statistically accurate, and that these people are peerless in what they do (how many models-turned-boxers do you really know out there?).  Dr Pepper says that the characters featured are real-life people and while they may not be world famous, these individuals are renowned within their respective fields (boxing, roller derby, and air guitar).

It’s worthy to note that this campaign extends to focus on Diet Dr Pepper as well.  Traditionally their commercials and features have been separate, but they have chosen to include Diet Dr Pepper as well in this campaign.  Dr Pepper TEN likely was left off because the messaging of “Not For Women” is on solid footing right now.  As seen from the commercial below, Dr Pepper wants to highlight your individuality in choosing not just Dr Pepper, but also Diet Dr Pepper

So would you rate these commercials as successful?  Do they get your attention? Does it make you pick up a Dr Pepper when you are at the supermarket or convenience store, especially when Coke or Pepsi also also available for your purchase?

I think it does…with some caveats.  While the messaging is solid and connects with the viewer, it still has a strong chance to get lost among all the other commercials that are playing.  Not to mention that Coca-Cola and Pepsi have more money to spend on advertising;  the chances of you being bombarded with soda commercials are quite high and remembering Dr Pepper over a longer time period are quite low.

Dr Pepper’s series of commercial stands apart from how other soda companies have advertised their trademark beverages.  Coca-Cola talks about happiness when you drink their carbonated soft drinks (Open Happiness) and Pepsi advertises on living in the moment (Live For Now).  Dr Pepper turns the focus to you, on how you are special and different from everyone else out there.  In today’s society, everyone wants to be known for being themselves, so Dr Pepper has tapped into how individuals want to think which makes it easier for them to identify themselves with Dr Pepper.  In my opinion, this is a stronger message than being happy or living in the moment.

Still, it is a matter of whether this will translate to any form of wins for Dr Pepper.  Are consumers more likely to buy more Dr Pepper because of this commercial?  Will these purchases come at the expense of Coke, Pepsi, or some other non-Dr Pepper-owned beverage brand?  Keep in mind that Dr Pepper also has to compete with other beverage products, like Red Bull, Gatorade, Nestle Water and the like.  At the supermarket or convenience store’s point of purchase, some of these products will undoubtedly be on sale and make that decision to choose Dr Pepper even harder.  It may come down to whether you are willing to pay more to be unique.

So the next time you are purchasing a soft drink – any drink actually – will you choose Dr Pepper because it reminds you of your individuality?

Kraft MiO: Dasani Drops and Other Copycats

Kraft MiO

This week’s post focuses on the growing trend of liquid water enhancers.  Earlier this week, the Wall Street Journal, Bevnet.com, and BevReview.com all broke news that Kraft MiO will be expecting some branded competition fairly soon (BevReview’s article has some more information, and links to the other two articles here).  While the current market in the United States for liquid enhancers includes MiO and some smaller players, the entry of Coca-Cola’s Dasani Drops signals that the category is viable and ready for more competition.  After all, MiO has been in the market for just over a year and has extended their product line to include caffeine content to reach out to users that want an energy boost in their beverage options as well (MiO Energy).

As the leader and only well-known branded player, Kraft had to invest significant dollars into educating users and bringing attention to the category.  Their product can only be successful with more awareness about the product and liquid water enhancers market.  As a result of increased awareness, private label manufacturers have benefited greatly from MiO’s innovations by driving shoppers into grocery supermarkets and the beverage aisle.  Grocery stores have introduced their own version of the product and placed them side-by-side with MiO but at lower prices.  Shoppers originally came in-store to buy a MiO liquid water pack, but switch to a less expensive option at the shelf because they do not want to sink in so much money into an unknown product.  And now Kraft MiO’s growth and category promotion has attracted Coca-Cola’s Dasani to enter the market.

Wal-Mart's store brand of liquid water enhancers - courtesy of bevreview.com

Smart move by Coca-Cola to wait a year and then enter the market.  Let Kraft do all the work to bring attention to the category and products, monitor their sales and consumer reaction, then enter the category since it merits investment from the beverage giant.  Now they only have to focus on featuring their own product, while promoting the category becomes secondary since all the education costs were bore by Kraft in the previous year.  Kraft MiO will also benefit from the competition that Dasani Drops creates, since that will lead to more dollars spent on promoting products in the category overall.  The stronger category awareness is, the more chances that Kraft can sell their product without promotional dependence.

It’s likely that Coca-Cola’s entry will spark an entry from Pepsi and Nestle Waters in the near future.  When that happens, Kraft MiO will likely see diminishing returns since the category will have grown so much that now their focus will be product differentiation so shoppers are choosing their brand versus that of Dasani, Aquafina, Nestle Waters or some other product (note: there is no confirmation that Pepsi will be launching a liquid flavor enhancer, let alone extend the Aquafina name to the category – this is just a thought).

In Canada, the only liquid water enhancer that I’ve heard of comes from a company called Drink Intuition, which positions their product along the health and wellness trends of stress relief and detoxification.  The liquid water enhancer market would benefit greatly with more category promotion, but Intuition really is a niche player and does not appeal to everyone.  Canada could benefit greatly as MiO and Dasani potentially compete to see who can bring their product into the Canadian marketplace first.  With distribution all set up, it may only be a matter of adjusting their packaging and messaging to meet Canadian guidelines: including French copy and a nutrition table.

Until the product enters Canada, it looks like BevWire will still have to head south of the border to try and find some Kraft MiO and MiO Energy. Soon enough, I will also be looking for Dasani Drops.

Honest Tea Modifies Packaging To Benefit Consumers

Honest Tea's new bottom - courtesy of mnn.com

Honest Tea typically produces their beverages in plastic bottles that have a dome-shape at the bottom of it, but this dome-shaped bottom has caused some consumers that Honest Tea is tricking them in relation to the actual amount of liquid inside each bottle.  While the bottom says 16.9oz (473ml) liquid is inside each bottom, some are wondering if there’s actually less.  As a result, they’ve issued a statement on their website to clarify this:

We recently switched to a thinner bottle, one which is 22% lighter. This saves us money and saves the world resources. The only problem is that the thinner bottle had the risk of getting dented. In fact, this was a real problem that forced us to redesign the bottle. To help keep its shape, the inside must be under pressure. When the bottle is filled with hot tea, the liquid expands and the plug on the bottom pops out. (If you squeeze real hard, you can make this happen.) Then as the tea cools, the plug pops back in and creates the pressure on the inside that prevents the bottles from being damaged. The thinner plastic means we needed more pressure and hence the bigger plug. There really is 16.9 oz. inside and we aren’t trying to pull a fast one. But we can see how you could get confused or could think that we are trying to be deceptive. We clearly need to do a better job explaining why the bottle has this design. In the next label run we plan to say something to explain this to our customers. We hope that makes you feel that you can still trust us and will stick with us.

Honest Tea has since switched to new, flatter bottom bottles to make it less confusing for their consumers.  This packaging adjustment is great timing as their parent company, Coca-Cola Refreshments, is exploring growth opportunities to increase Honest Tea’s visibility and awareness. Nestea will be distributed by Nestle Waters (Nestea’s original parent) starting sometime in 2013.  This means that the tea category is poised to be shaken up slightly with more competition as Nestle Waters will undoubtedly be promoting Nestea vigorously to gain sales (bevwire article link here).

Honest Tea flat bottom

For Honest Tea, paying attention to what their users are saying is just the entrance fee into the growing tea category.  The packaging change-up shows their current users that the company has heard what they are saying, but it does not bring in any new users.  What Honest Tea does in addition to this adjustment is what may help them gain more space in the category.  As they look for growth opportunities and try to gain more space at the retailers, their conversations and results with the retailer’s buyer are paramount.  They must show the retailer that they have a better product, a more profitable product, or both (which would be the best scenario).  In which case, showing them consumer demand is up for tea products and how Honest Tea best satisfies the most is what determines whether they will win or lose.

 For Honest Tea to have success, switching to flatter bottoms is just the first of many steps.  Most retailers may already have their 2012 summer shelf and cooler spacing planned, but if a product not in the planning set shows potential, it can merit a replacement of a slow selling product.  If Honest Tea can convince that they deserve more shelf space at retailers this summer, that would go a long way to helping them out gain space when Nestea comes of a competitor’s delivery truck.

The Fate of Nestea and FUZE in the Tea Category

Nestea

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).

Fuze lineup - courtesy of foodbizdaily.com

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.

Canada’s Enhanced Water Category in 2010

As of November 2009, the Canadian enhanced water beverage market was around $50 million dollars, and nearly half of that was Glaceau Vitaminwater sales.  Aquafina Plus controlled about 35%, and the remaining percentages was divided between Aquafina Flavor Splash, Dasani Essentials, Nestle Pure Life flavors, and the private label brands.

Some notable brand’s disappearing in 2010 include Dasani Flavors and Propel, with Dasani Essentials possibly being discontinued as well.  Not that it’s a surprise, but the overall number of players in this category are mainly Glaceau Vitaminwater and Aquafina Plus.  And Glaceau Vitaminwater has been gaining market share consistently since their release – while the enhanced water category itself grew nearly $20 million dollars, Glaceau Vitaminwater increased by close to $25 million dollars.  Not only is Glaceau Vitaminwater growing this category, they are taking it away from its competitors.  As a result, both Aquafina and Nestle have resorted to compete through pricing promotions, trying to limit their losses and temporary maintain their market share.  In the end however, both Aquafina and Nestle may be perceived as inferior brands because  of this.  They will be selling more product but still make less money, and consumers will still choose Glaceau Vitaminwater because it’s the “premier” brand of enhanced water.

So as we go forward into 2010 (actually when BevWire posts this it will already be 2010), what will happen to the enhanced water category?  BevWire sees the market stabilizing and continued growth, albeit at a slower rate.  Barring any major player coming in the landscape won’t change too much.  Sobe Lifewater does not have an expansion plans into Canada yet (maybe PepsiCo will run Sobe Lifewater and Aquafina Plus in the US, and just Aquafina Plus in Canada) so they aren’t a major factor.  Smartwater is still slowly being launched and promoted across Canada, and they are still not listed at a majority of retail chains which limits their market impact.

Any one want to venture a guess of what might happen to this category in 2010?

The Bottled Water Industry

Canadean recently published a report claiming that the global bottled water market’s growth has slowed down.  The majority of the affect will be experienced in USA, where Canadean estimates only a 1% growth over the new five years (after seeing double digit growth rates since 2008).  This decline in growth cites environmental concerns and the current economic conditions, leading consumers to switch over to tap water instead.  The report’s summary and highlights can be found here.

Bottled water

While this report may be correct in its claim about decelerated growth of the bottled water market,  their metric is PET bottles.  Does the report base the bottled water’s growth on the growth of PET bottles then?  Using this metric may require some more explaining, because carbonated soft drinks (CSDs) are also produced in PET bottles.

After scouring the internet for more research, a 2008 Datamonitor industry profile report offers these facts about the bottled water industry:

  • Global bottled water market size –  The current market size is roughly $66 billion in 2007, with expectations of $94 billion by 2012.  Global market volume (in litres) is about 120 billion litres in 2007, with expectations of 160 billion litres by 2012.
  • Market segmentation – The majority of sales (67%) is generated by regular, unflavored water, while sparkling unflavored (28%), sparkling flavored (3%), and still unflavored (2%) make up the remaining 33%.  European consumers account for 50% of the global market value, while North/South America represent 32.5%, and the remaining parts of the world account for 17.5% (namely Asia).
  • Major market share leaders: Nestle (21%), Danone (12%), Store brands or private labels (8%), and Coca-Cola (7%).  Nestle’s water portfolio is represented by over 72 brands, mainly Nestle Pure Life, San Pellegreno, Perrier, Montclair, and Vittel.  Danone’s water portfolio is mainly represented by Evian and Volvic.  Coca-Cola’s water portfolio is mainly represented by Dasani, BonAqua, and Glaceau.

It’s interesting that Nestle – known more for their confectionary items – is the market leader in the bottled water market.  However, researching this further, it comes as no surprise.  Nestle has a separate business unit that handles the bottled water operations.  This business unit invests significant resources on research and development to find a long term solution to lower their material costs.  Their most recent innovation saw the development of sustainable packaging that uses 40% less plastic but still retains the bottle’s strength and sturdiness.  Nestle’s bottled waters are inexpensive compared to other brands.  Add in the fact that you can buy store brand bottled waters even cheaper than Nestle,  people may just buy bottled water instead of drinking tap water.

Your choice: tap water or bottled water.  Almost the same price.