At-Home Carbonation Reaching Critical Mass

It wasn’t that long ago that all we knew about at-home carbonation soda was Sodastream following their banned SuperBowl ad in 2013.  In the years since, Coca-Cola has joined up with Keurig and Pepsi has partnered with Bevyz to develop home brewing units and syrups.  We can now add another known competitor to the mix.  Sparking Drink Systems (SDS) International has a product called Viberation that produced carbonated soda all within one beverage pod.  It’s entirely possible that other companies are developing at-home carbonation units with its growing appeal.  Consuming carbonated beverages in an environmental-friendly way helps remove some guilt by reducing the plastic waste.  Sugar intake is another problem, but that’s a focus for another day.  As more competitors enter this expansive home-brewed beverage space, what will define their success?

The SDS Viberator, carbonating beverages within a single beverage pod.
The SDS Viberator, carbonating beverages within a single beverage pod.  Modified image via sparklingds.com.

One of the stronger products in the marketplace would be the SDS Viberation.  This Viberation has the capability to produce sparkling and enhanced waters, carbonate sodas, and even carbonate alcoholic beer without a CO2 cylinder.  The elimination of a CO2 cylinder increases the usability of the device, and possibly increase its adoption rate.  At this time, the Viberation is distributed across a variety of regional US-based distributors.  In order for this device to succeed, it must gain more exposure through securing distribution, marketing, and innovation.  Gaining distribution brings the Viberation to consumers that shop in bricks and mortar stores, or online.  Marketing efforts educate the consumer on the product benefits and its unique selling proposition (great-tasting carbonated beverages without a separate CO2 device).  Innovation makes meeting the consumer needs paramount with more flavors and assortment.  All three could end up being done through collaboration.  With a branded player (ie Starbucks? Dr Pepper Snapple Group) helps increase its reach, awareness, and appeal.

SodaStream’s main challenge appears to be part of its business model: carbonation cylinders.  With the competition’s ability to carbonate a beverage without any CO2 tanks, the Israeli-based company is facing an uphill battle to innovate.  Despite their recent marketing efforts at the SuperBowl to gain worldwide exposure, their growing stable of branded syrups, and their international distribution, the product still requires customers to invest in purchasing a CO2 device.  As the market shifts toward “all-in-one” devices, SodaStream’s may need to develop an at-home carbonation unit that can brew soda without a CO2 cylinder.  One of the core challenges SodaStream now faces is understanding whether their business model is still viable given the competitive landscape.  The C2 cylinders is a lucrative revenue stream, but it is also the barrier toward their adoption with more home-brewing appliances available.

The CO2 cylinder presents a great revenue source for SodaStream, but is also prevent fast product adoption. Sourced from coolest-gadgets.com.

Coca-Cola’s partnership with Keurig brought greater attention to this product segment.  Distribution and innovation likely are not challenges for the world’s largest beverage manufacturer.  In fact, these areas exist as its core strengths.  Keurig Cold will have the ability to not only brew Coca-Cola carbonated drinks, but also produce teas, sports drinks, juices, and a host of other Coca-Cola-manufactured beverages.  Marketing may actually be where Coca-Cola’s Keurig Cold device sees the biggest challenge.  The majority of their marketing dollars still reside with bottled beverages, and intensely promoting Keurig Cold will cannibalize their sales.  Another marketing challenge would be Coca-Cola’s ability to create the demand for beverage format when their bottled format is so successful and widely available.  Similar to Kraft MiO entering the liquid enhancers space first and Coca-Cola following, SodaStream pioneered the at-home carbonation space.  The challenge for Coca-Cola within liquid enhancers is not their product assortment, but their marketing efforts to create the demand for the liquid enhancer form of their beverages.  Coca-Cola beverage pods may endure the same fate as their liquid enhancers: broad assortment and distribution but limited marketing funds preventing the product line from reaching its full potential.

Pepsi’s Bevyz partnership will release an at-home carbonation unit to the market sooner than Coca-Cola.  The Pepsi Bevyz Fresh Machine was launched in the U.S. this past May.  Despite first-mover advantage, one of their core challenges appears to be marketing.  The market has not heard of Bevyz, and the majority still do not know Pepsi has developed an at-home carbonation unit.  While the product’s distribution and innovation are strengths, the marketing aspect seems to be the most significant barrier to overcome.  Despite the product’s versatility to carbonate beverages, produce teas, juices, and waters, and even serve as a water cooler, consumers are simply unaware of this machine.  Check out their 2011 Bevyz in Action video below.  Pepsi has been slow to react when Coca-Cola moved first in other spaces, such as in liquid enhancers and intelligent fountain units.  If Pepsi continues to think methodically before acting, they may stand to lose more ground to Coca-Cola and other competitors.

Each competitor faces their own challenge within this home-brewing beverage space.  Roadblocks toward growth include marketing, distribution, and innovation – it just depends on your business stage.  What is certain is more organizations are dedicating resources to small home appliances to help consumers make their own beverages.  This in turn helps the segment approach critical mass toward being available in every consumer’s kitchen counter space.

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Starbucks Brings Teavana Into Coffee Shops

Starbucks baristas now brew Teavana ice teas for Starbucks locations. This is the start of a
Starbucks baristas now brew Teavana ice teas for Starbucks locations. This is the start of a “shake up”. Image courtesy of http://www.ispot.tv.

Not sure if anyone has noticed the latest Starbucks commercial.  The coffee giant is now featuring their Teavana shaken iced tea as a summer drink.  Why is this important?  This TV commercial shows Starbucks baristas making the beverage, and showing the ice teas as available within Starbucks locations.  This is different from their initial strategy for Teavana.  The Seattle-based coffee company stated that Teavana operations would be completely separate from Starbucks, and increase the Teavana standalone locations.  While they continue to open Starbucks and Teavana locations, is bringing Teavana-branded offerings under the Starbucks locations the right thing to do?

Starting with the recent Oprah collaboration, Teavana products have increased exposure within Starbucks locations.  Beyond the handcrafted Oprah products, Starbucks customers would start seeing Teavana tea packages and mugs available for sale.  It certainly looks like the bringing Teavana-branded beverages into Starbucks locations will help increase Teavana’s exposure.  This cross-branding effort strengthens the Teavana brand and opens up more possibilities for Starbucks.  While Starbucks had always served iced teas within the retail establishments, they were never branded.  This changes as they now brand them under Teavana.  The coffee giant has the platform to brand a variety of beverages within their retail locations.  Starbucks has built up Teavana and Tazo for tea, Evolution Fresh for juices, Ethos for bottled water, and Clover for premium coffee.

With more Teavana locations opening up, this provides Starbucks with greater opportunities.  Though the strong smell of coffee may prevent it from being brewed inside a tea establishment (likely the same reason that Starbucks locations only serves Teavana iced teas), water and juices could be strong candidates for increased distribution.  Ethos and Evolution Fresh may only require a cooler for refrigeration and do not emit strong aromas like coffee or tea.

Starbucks’ acquisition of Teavana came with retail locations that created potential scale for the beverage organization.  Now we can clearly see how cross-promotional opportunities exist between Teavana and Starbucks.  As Starbucks has also supported Evolution Fresh in standalone locations, it is highly likely that the organization’s continued expansion will involve Starbucks or Teavana products within Evolution Fresh juice stations as well.

Here’s the Starbucks Teavana ice tea commercial called “Shake Up”.  Though the commercial itself is simple and showing baristas creating Teavana iced teas, the name could be symbolic.  Starbucks continue to position itself to “shake up” the beverage landscape.

Rockstar Quietly Introduced Energy Waters

The three flavors of Rockstar Energy's new Energy Waters: Citrus, Orange Tangerine, Blueberry Pomegranate Acai.
The three flavors of Rockstar Energy’s new Energy Waters: Citrus, Orange Tangerine, Blueberry Pomegranate Acai.

Rockstar Energy showcased their Rockstar Energy Water over 18 months ago at the 2012 NACS Show, but never divulged the launch date.  The energy drink manufacturer’s enhanced water offerings were quietly introduced in September 2013, and has recently launched into Canada.  Via Rockstar Energy Canada’s Facebook page – the three flavors of Citrus, Orange Tangerine, and Blueberry Pomegranate Acai – launched February 24.

Beyond their energy drink’s portfolio breadth, Rockstar has been traditionally known for their innovative and attention-grabbing packaging.  Their energy drinks come in aluminum cans that have matte finishes (Rockstar Recovery series) and slim cans with straws (Rockstar Pink).  However, their foray into enhanced waters have stayed with safer packaging resembling other products that define the segment landscape.  Even as packaging can help demonstrate a product’s unique features, Rockstar has chosen to play it safe since they do not have a strong brand name.  Their packaging resembles that the glaceau’s vitaminwater packaging, the clear market leader.  Perhaps Rockstar is looking to enter this segment as a follower and build up credibility as a key competitor in this segment before experimenting with its packaging.

The launch of Rockstar Energy Water is also an indication of the energy drink manufacturer’s goals to diversify beyond energy drinks.  Similar to Starbucks’ aim to expand outside coffee and Monster Energy’s expansion into teas, Rockstar is leveraging their expertise in energy drinks to introduce other caffeinated beverage products.  These new products are targeted toward a different consumer, and will be placed in other beverage sections within convenience and grocery stores.  With more touch points in the grocery aisles, Rockstar now has more opportunities to connect with the shopper: both the energy drink shopper and the enhanced water shopper.

As Rockstar targets a new consumer demographic, their marketing message and vehicles should also change.  Energy drink companies have forged strong ties with extreme sports athletes since their products fit that particular demographic and lifestyle.  Their new beverages may need to start communicating on other media channels (ie TV, print, digital) and communicating differently to identify more closely with this demographic’s behaviors and needs.  While some analysts expect Rockstar Energy Waters to go after the same “energy” consumer, there are bound to be new interest.  At the same time, communicating similar messages within identical media platforms dilutes the overall product awareness.

Rockstar Energy Water Shelf

Even as Rockstar Energy Drink continues to increase its availability, two key challenges they must address are awareness and consideration. Their February launch showed that they have only communicated to the public through sporting events and social media.  How will they improve their awareness?  And with their competition firmly entrenched in shopper’s minds when they are looking to buy enhanced waters, what will Rockstar Energy Water do to have the shopper consider trying Rockstar Energy Water?

Seeing that expansion is a key growth opportunity, Rockstar’s broader portfolio is a good first start.  If they continue supporting these new drinks and work to build both awareness and consideration, Rockstar can become a strong player across both the energy drink and enhanced waters segments.

Starbucks Refreshers Get “Refreshed”

Courtesy of starbucks.com.  The new flavors and updated packaging.
Courtesy of starbucks.com

The Starbucks Ready-t0-Drink Refreshers hasn’t been on the market for a very long time, but are already undergoing a packaging update and product rationalization.  In addition to updating their packaging graphics, Blueberry Acai is replacing the Orange Melon variety.  It’s curious to see changes so quickly to both the product line-up and packaging.  Does this imply that the Orange Melon flavor was unpopular with consumers on both sides of the border?  Was the previous packaging not resonating with Starbucks consumers?  Both old packaging and flavors are still available in grocery channels, which may add to the confusion that shoppers see at the shelf.

The packaging refresh changes the upper body of the aluminum cans.  With the update happening so soon after international launch, Starbucks must have monitored the progress of these new products closely.  The results may have indicated lackluster sales and an inability to connect with the consumer.  The logo and “Starbucks Refreshers” name now sit in front of a silver background, with the name appearing on black font. The subsequent communication of product benefits also changes, now highlighting its real fruit juice and vitamins.  It appears that the main changes are the font color and the benefit callouts.  As such, it leads me to believe their consumer research may have indicated product confusion around what the can contained.  Were the contents coffee, given it’s green coffee extra callout?  Did consumers clearly see the Starbucks logo in front of color clashes of purple, orange, and pink?

From a cosmetic perspective, the new packaging certainly looks more appealing and communicates the product benefits more clearly.  Product confusion is reduced with the “green coffee extract” wording removed, replaced with “real fruit juice” and the vitamin callout.  The green Starbucks logo in front of a silver background also showcases the brand identity better, and ultimately better for brand equity and visibility.

What about the Orange Melon flavor?  Were sales of this item so poor that it merited rationalization just one year after its launch?  Could the Blueberry Acai flavor not have been an incremental product to their Refreshers portfolio?  BevWire had tried both the Strawberry Lemonade and Raspberry Pomegranate, but not the Orange Melon.  Are other beverage consumers’ taste preferences similar to mine?  If this was the case, it certainly would indicate that the Orange Melon flavor was the least considered option among the Starbucks ready-to-drink energy drink line-up.  It would merit rationalization quicker in order to preserve retailer confidence in the burgeoning food and beverage company.

While changes within the Refreshers line-up is surprising, it certainly shows that the company is investing support behind these new products.  Making product and packaging changes requires financial investment – especially when done so quickly.  Hopefully this is an indication that Starbucks plans to commit on making these products a market success over the long term.  As the organization continues to expand outside of coffee, it is imperative that their track record of success stays intact.

Courtesy of usatoday.com. The old Starbucks Refreshers packaging and flavors.

Beverage Pods Need Their Own Section

Courtesy of retailwire.com
Courtesy of retailwire.com

The growth of small home appliances like coffee makers, mixers, and juicers has led to new business opportunities between Coca-Cola and Green Mountain Coffee Roasters (GMCR).  Through their 10-year agreement, GMCR and Coca-Cola will develop a Keurig Cold beverage machine that serves cold beverages and provide GMCR the exclusive licensing rights to single-cup beverage pods for Coca-Cola products.  While many analysts have detailed how this deal affects manufacturers like Coca-Cola, Starbucks, and SodaStream (my article on manufacturer impact here), the retail impact is similarly significant.  With grocer’s help, this partnership will increase Coca-Cola’s consumer reach across more grocery aisles and in the consumer’s home.  For retailers where soft drinks is a trip driver, supporting this innovation stands to benefit them just as much.

Given the changing beverage market, the consolidated retail landscape, and the consumer’s taste preferences, the challenges are much greater toward winning in the competitive environment. For retailers, getting the grocery shopper to choose one retailer over another retailer has never been greater, which pressures the retailer to be more creative when communicating out.  For manufacturers, the rise of beverage categories like liquid flavor drops, energy drinks, and coconut water gives the grocery shopper more options than ever before.  The choice to try alternative and healthier beverages are positively reinforced as soft drinks come under scrutiny for containing unwanted sugars and calories.  With Coca-Cola bringing new news to a retailer’s trip-driving category, in-store support and product placement helps ensure full potential is realized.  Winning the grocery trip is the first step, but winning at the shelf requires proper retail support.

Grocery retailers have already started building single-cup pod sales by offering these single-cup pods next to tea bags and ground coffee.  However, a dedicated section for pods itself will soon be warranted.  As the selection variety expands beyond tea and coffee, these single-serve cups can no longer be confined to the tea and coffee aisle.  Rather, they deserve their own section where a consumer can find pods for teas, coffees, and soda.  

While the Keurig Cold isn’t expected to reach the market until 2015, grocery retailers should continue monitoring the selection and sales of their beverage pods.  Beverage pods may become a trip driver in and of itself for some retailers.

Coca-Cola’s Reply to SodaStream: Keurig Cold

Courtesy of nytimes.com

Most people by now may have heard of Coca-Cola purchasing an investment stake with the makers of the Keurig machines – Green Mountain Coffee Roasters (GMCR).  For those that haven’t, there’s some quick information from the New York Times here.  As a result of this deal, Coca-Cola appears to be making its first foray into small home appliances and endear itself more closely with consumers.  Experts have called this a great deal for both companies, providing each with mutual benefits.  But is this really the case where both companies benefit?  And what about other companies, should companies like Pepsi, SodaStream, or Starbucks be concerned?  Let’s take a quick look, first at the participating companies and then toward the others that are potentially affected.

For GMCR, this is partnership born out of necessity that will secure their footing in the single-serve beverage marketplace.  Following 2012, Green Mountain’ single-pod (K-Cup) cup patent expired and paved the way for other manufacturers (namely store brands) that could make these beverage pods cheaper.  To ensure survival of this increasingly rich revenue stream (more than two-thirds of the company’s revenues come from these pods), GMCR took to forming licensing agreements.  Coca-Cola was added to a licensing roster that already includes Starbucks, Lipton, Snapple, Timothy’s, Kahlua, and many more.  With a Keurig machine that produces single-serve hot beverages and now one that can product single-serve cold beverages, Green Mountain has certainly done well to ensure its survival.  With Coca- Cola’s reach across the consumer distribution channels, the Keurig machine will see dramatic business growth over the course of their 10-year pact.  Think of what Coca-Cola has done for beverage brands like evian, Monster, and vitaminwater.  An even better scenario would be signing Pepsi to a licensing agreement as well, which will further increase the Keurig’s machine placement among households and strengthen their dominance in making branded single-serve pods.

With Coca-Cola, this is a partnership that further segments the beverage landscape, and answers competitive pressure from new entrants to the ever-changing beverage market.  Coca-Cola is undoubtedly answering SodaStream’s “Sorry Coke and Pepsi” campaign about how the global beverage manufacturer is creating waste through its plastic bottles.  With single-serve pods and small home appliances, Coca-Cola is able to compete in a position similar to SodaStream – providing carbonated beverages at home without the need for plastic bottles.  And Coca-Cola now has an opportunity to exist on the counter shelf within the household, in addition to the refrigerator, pantry and garage.  Think about the ability to remind the consumer to consumer or purchase your product when your products are so pervasive within their household.  The next step to success for Coca-Cola may be investigating opportunities to leverage Coca-Cola Freestyle (create your own beverage mix) with the Keurig Cold, building on consumer insights to provide custom combinations and offer exclusive flavors “voted” by consumers.

Courtesy of belloblog.com. Scarlett Johansson stars for SodaStream’s 2014 SuperBowl spot – “Sorry Coke and Pepsi”.

For SodaStream, this marks their inclusion into the Soda Wars that has primarily existed between Coca-Cola and Pepsi over the past few decades.  If you keep on making eye-catching commercials targeted against the beverage conglomerates, they are certain to pay attention and respond.  This may be detrimental to SodaStream given the extra competition toward securing household counter space, but it also calls for innovation and a return to focus on the product benefits.  SodaStream’s foundation is still their ability to make soda at home, less expensive and without the use of plastic bottles.  Similar to GMCR, SodaStream must innovate and work to secure more licensing agreements.  Beyond Kraft and Ocean Spray, SodaStream may also work to sign on other brands such as Pepsi, Dr Pepper, and many more.

Now that Coca-Cola has invested into single-serve pods, it’s almost certain that Pepsi will respond in some way with their own pod offerings.  They responded in the past to Coke Zero with Pepsi Max and Dasani Drops with Aquafina FlavorSplash, amidst a host of other gap-filling products.  Pepsi surely won’t allow Coca-Cola to dominate the consumer’s counter space when their own offerings are just as robust, so it will only be a matter of time before Pepsi take the Soda War to the small home appliance.  The question is when and with whom.

The dark horse in all this may actually be Starbucks.  Starbucks had trademarked the name “Fizzio” with the intent to produce their own carbonated beverages.  To expand on their own burgeoning beverage empire, Starbucks may need to move up the deadline for when the Fizzio will be launched, or partner more closely with GMCR to serve both hot and cold single-serve beverage pods.

This news of Coca-Cola and Green Mountain Coffee Roasters signing a 10-year agreement has certainly created ripples across the industry.  The impact that has yet to be fully fleshed out with retailers as well, and that itself will be another article in the coming weeks.

Three More Canadian Beverage Trends For 2014

Many experts had created their own lists for food & beverage trends for 2014, how do you make sense of all of these?  Some are more macro-level and includes a generic view toward food & beverage (like this Innova report) while another taps into consumer needs that drive changing beverage preferences (like this CSP publication).  Euromonitor International’s white paper has also listed five beverage trends pertinent to the Canadian landscape (link here, must process credentials before report can be accessed).  These five trends are fairly on point, but may have missed out on some other additional activity that will change the beverage landscape this year.  Here’s some additional points BevWire has noticed and would like you to consider:

Improved Natural Sweeteners To Grow Zero/Low/Mid-Calorie Sodas

Pepsi Next - courtesy of rft3.wordpress.comDr Pepper & Pepsi had both launched mid-calorie sodas with combination sweeteners in the past two years, while Coca-Cola finally took the plunge last year with Coca-Cola Life.  Although Coca-Cola Life has yet to make its entry into the North America, this is a strong sign that everyone believes calorie segmentation for sodas is a step in the right direction.  Coca-Cola also has received FDA approval for Reb-X – their stevia sweetener developed in conjunction with Pure Circle.  In addition, Zevia & Steaz are also among a host of naturally-sweetened soda manufacturers that are gaining broader exposure and shelf space within grocery retailers.

These factors indicate that natural sweeteners are receiving just as much as attention as their regular calorie counterparts – if not more.  Optimizing a soda formula that removes the bitter aftertaste will go a long way toward restoring sales to this segment.

Aspartame Fears Continue to Depress Diet Sodas

The fear over safety of consuming aspartame came to a climax in mid-2013 as Coca-Cola ran an advertisement to dispel fears over this ingredient (link here).  With a greater focus toward ingredient consumption, consumers are leaving diet sodas for other beverage products.  The soda segment as a whole is facing scrutiny for contributing to obesity, but having extra attention on ingredients within diet soda has led to more consumers choosing alternative beverages such as juice, tea, and water.

With a continued rise in competition from adjacent segments and beverage categories, diet sodas will continue their rapid decline relative to the other soda segments.

Small Home Appliances Crowd the Consumer’s Kitchen Counter Space

Courtesy of sodastream.ca

SodaStream’s controversial in the 2013 Super Bowl ad really put them on the map, as well as put other carbonated soft drink manufacturers on notice.  Consumers also noticed this and SodaStream was rewarded with sales as well as increased availability across Canadian retailers.  SodaStream has also benefited with licensing agreements and partnerships to carry branded syrups like Kraft’s Kool-Aid and Country Time.  Starbucks is making inroads to get on your kitchen counter as well, trademarking “Fizzio” in 2013.  From trademark documents, Fizzio is their at-home carbonation unit that will carbonate water into soda flavors.

Outside of at-home carbonation units, coffee & espresso makers are also seeing a bump in sales.  Keurig, Nespresso, Tassimo and other coffee pod makers offering deep discounts on the coffee machine, attracting your initial purchase in order to have you buy exclusive coffee or tea pods from them in the future.

While BevWire doesn’t have an official list where these trends are being ranked, the rise of natural sweeteners certainly seems to be the most likely to take place in early 2014.  That said, we are only 13 days into 2014 and many things can still happen to change up the trends.  Let’s see how this plays out over the next 352 days.

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.

 

what happened to vitaminwater?

vw+vw0 canada line-up courtesy of @vitaminwater_bc

Since the explosion of vitaminwater on to the beverage scene years ago, momentum appears to have subsided for the brand and enhanced waters.  It seems that a variety of market conditions has reduced excitement for vitaminwater to just another product on the shelf.  There are certainly more reasons behind the brand’s continued decline, but BevWire will detail three major contributing market conditions.  

Market Condition #1 – vitaminwater has benefited and been obstructed by being a part of Coca-Cola’s beverage family.  As highlighted briefly in an earlier post about Zevia, vitaminwater saw immense benefits from the Coca-Cola acquisition.  The enhanced water brand entered a broader distribution network that vastly improved the brand’s availability.  At the same time, their initial marketing strategy was to be driven by “consumer demand”, relying on key influencers to spread word for the product.  This type of demand ensured that consumers and retailers were willing to pay a premium, and made discounting less unnecessary.  However, as Pepsi’s Aquafina Plus (in Canada) and SoBe Lifewater (in the U.S.) kept on promoting at enormous discounts, vitaminwater was compelled to react.  Without their premium positioning, vitaminwater became just another brand in Coca-Cola’s portfolio that had to fight for promotional dollars.  And with Coca-Cola focused on growing its sparkling business of Red (Coca-Cola),  Silver (Diet Coke), and Black (Coke Zero), a host of beverage brands lost promotional funding.  After initial success in the Canadian market from 2007 to roughly 2010, the vitaminwater has slowly lost market visibility as advertising support shifted more to other Coca-Cola properties.

Evolution Fresh - courtesy of drinks-business-review.comMarket Condition #2 – shifting consumer trends and preferences, highlighted by more juice, tea and energy drink entrants.  Since 2010, we have seen more product releases coming out from the juice, energy drink and ready-to-drink tea segments.  Starbucks was a strong force that expedited this trend.  Their acquisitions of Evolution Fresh and Teavana, along with their Starbucks Refreshers product launch gave them greater market coverage and allowed them to capitalize on the consumer trends.  In energy, the big three of Red Bull, Rockstar, and Monster all had product innovations enter the marketplace.  And also some negative media attention that led to consumers increasingly purchase these products to find out what whether all the extra attention was merited.  With consumers increasingly empahsizing health benefits – and vitaminwater also paying attention to this with their vitaminwater zero production introduction – the natural benefits of juice and tea became top of mind.  Because vitaminwater was relatively less healthy than these other products in the emerging segments, consumers shifted their purchase dollars from enhanced waters to juices, teas, and energy drinks.

 

via forum.smartcanucks.ca – just one of many Aquafina Plus coupons. This one is a fairly reasonable 33% discount.

Market Condition #3 – retailers react to new reality of people’s purchase habits.  Following the economic recession (that some still think we’re in), many Canadians buying behavior has focused more intensively on price.  That is not to say that they are not willing to pay more, but the value-benefit equation is more influential of their purchase decision.  Retailers have long pressured manufacturers for price concessions and finally Coca-Cola gave in to price promotions on vitaminwater in 2010 – around the time its descent began.  What happened next was more price cutting by its competitors to maintain their own sales – Aquafina Plus discounts became much deeper than before.  Ultimately this leads to the current situation, which is reduced segment value.  Since vitaminwater is no longer the premium brand that it once was, retail support started to transfer to other segments.  Shelf space for vitaminwater was compromised, and sku rationalization also start to slowly creep in.

While these three conditions do not represent the entirety of why vitaminwater is losing steam, it summarizes what is happening.  There are both internal and external contributors.  However, all hope shouldn’t be lost on the segment itself.  More competitors will look to redefine the value equation because the market leader is down.  Bottled water sales itself is on the incline.  And other vitamin beverages like Karma, Activate, and even Rockstar Energy Waters look to carve out their own niche in the marketplace.  Liquid enhancers such as Dasani Drops, Kraft MiO, Crystal Light Liquid are also seeing sales gains too.

Just wait to see how vitaminwater will react to the competitive pressure and what they might do to revive the one-time darling of the beverage industry.

Starbucks Fixes Segment Blurring Problem

The three flavors of Starbucks Refreshers: Raspberry Pomegranate, Strawberry Lemonade, and Orange Melon. From blogs.starbucks.com.

Last July, Starbucks had a big media push when they launched their handcrafted Refreshers in their coffee locations with two flavors – Very Berry Hibiscus and Cool Lime.  These two flavors were also made available through their VIA line of at-home self-serve packages.  Most recently, they have followed up the handcrafted beverage offering launch by introducing three packaged sparkling beverages launch.  Joining the handcrafted and VIA Refreshers are: Raspberry Pomegranate, Strawberry Lemonade, and Orange Melon.  From their U.S. website, here is the product page for the Refreshers.  The launch of these packaged offerings created a problem for Starbucks and retailers alike: segment blurring.  Segment Blurring occurs when products within one segment encroaches on products from another segment.  Since the Refreshers are made with green coffee bean extract, should they belong in the coffee section?  Or does it belong in the energy drink section?

According to Kevin Reid – Director of Beverages – in an interview with Canadian Grocer these new beverages belong in its own section.  It appears that Starbucks anticipated the problem as a result of this beverage innovation.  By extracting the caffeinated energy content from coffee beans to make energy drinks, they understood that retailers would have difficulty fitting it into one section.  As such, the interview suggests that retailers create a specific area to group all the Starbucks products together in order to make it easier for the shopper to locate any Starbucks products.

A Starbucks branded supermarket endcap with the dark wood trim and faux-tile backsplash. From online.wsj.com.

Why should a retailer agree to a dedicated Starbucks section?  It turns out this makes sense in more ways than one.  Starbucks products are “destination” drivers in their own right given the coffee giant’s standalone retail locations.  Customers consciously choose to go to Starbucks coffee locations to purchase their Starbucks coffee.  Lending support to re-create this destination experience in grocery retailers is that customers expect to find all Starbucks products when they visit a Starbucks outlet.  Over the years, Starbucks has complimented their handcrafted beverages by stocking packaged coffee beans, beverage holders, and CDs in their branded stores.  Finally, Starbucks’ willingness to invest in décor for the grocer’s coffee aisle demonstrates their dedication to replicate the signature experience everywhere.  Starbucks understands that developing the Starbucks cafe experience requires a collaborative effort and has indicated they are willing to give the retailer Starbucks-type shelving.

Would the retailer be open to more Starbucks innovations in the future?  The Canadian Grocer interview reveals that retailers have been pleased with Starbucks sales.  And as long as Starbucks maintains its demonstrated collaborative efforts, retailers would certainly welcome more Starbucks products to help build grocery trips and baskets.