Blog Entries

Worry over water

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Category: General Blogs  |  Tags: water, drought

As California craft beer makers convened for their annual convention in Mission Valley last month, they tipped a glass or two to the frenetic growth of their industry—3.4 million barrels produced, contributing $6.5 billion to the local economy in 2014, the California Craft Brewers Association reported. 

Then talk turned to water. Not the quality of the water, but rather the lack thereof. California craft brewers sit at the epicenter of a historic drought that is deepening past four years now. As one report put it, the good news is that despite the drought no brewery has been forced to cut back on production.

But the bad news can be right around the corner, the San Diego Times Union reported: “Do I believe that is going to happen? Absolutely,” said John Stier, a water management consultant with the Antea Group. “It’s just a matter of time.”

MillerCoors operates a brewery in the San Gabriel Valley. It’s operated there for 50 years, 35 years at the current location. Operations people there have seen droughts before, but none like the current one. MillerCoors produces about 6 million barrels of beer from that brewery, and so an historic drought carries its share of risk.

The thing is, MillerCoors has long considered how it uses water and how much it uses. MillerCoors water-to-beer ratio is among the best in the business: the company uses 3.36 barrels of water to make one barrel of beer, reported Jonah Smith, MillerCoors’ sustainability policy and reporting manager, at Beverage World’s BevOps conference in Las Vegas last month. The industry average is about 6 to 8 barrels of water per one barrel of beer.

Water usage amongst craft brewers may be much higher than the industry average. Antea’s Stier said at the California craft brewer meeting that amongst smaller brewers the median operation requires 26.2 barrels of water to make one barrel of beer.

The irony, as MillerCoors’ Smith pointed out at BevOps [page 54], is that because craft brewers are “local” the perception is they’re more environmentally friendly than the big brewers.

But the worries over water amongst beverage makers big and small go way beyond perception, as Managing Editor Andrew Kaplan uncovered for this month’s cover story [page 32]. In California alone, Governor Jerry Brown on April 1 directed the State Water Resources Control Board to implement mandatory water reductions by 25 percent, the first time such an action was taken in the state’s history.

How will the directive affect beverage operations in the state? It’s too soon to tell since local governments and water boards are determining how they will enact the mandate.

The bigger beverage companies like MillerCoors may be well-positioned to manage the worst of what may be to come. As for the smaller producers, Stier advises companies to seek out secondary sources in case primary sources run dry; to take steps to limit water use through better production practices and equipment; and to recycle or reuse wastewater.

One other thing, he offered: “Get used to more expensive water. Cheap water may be going away.”  

A source of happiness

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Category: General Blogs  |  Tags: mood-lifting drinks

By now many consumers the world over have been energized by their beverages, or been vitamin-fortified by them, or maybe even lost some weight. But what about drinks that make you feel, well, happier? As it turns out, happiness beverages just might be the next big thing for the beverage industry. And I’m not referring to a jingle telling us to “Have a Coke and a smile,” either.

When a new beverage called HappyWater recently contacted me, I admit I was rather skeptical at first. “Frankly right now if I was to tell you with no back up what this product would do, you wouldn’t believe me,” said Ralph McRae, chairman and CEO of the brand’s owner, Leading Brands. And he was quite right. But then he started delving into the story behind the brand, and I soon learned that mood-lifting drinks actually have a rich history in the beverage industry that stretches back a hundred years or longer. And, what’s more, some medical experts today have gone on record saying that everyone can benefit from them. 

HappyWater, launched in 2013, is sourced from two ancient Canadian mountain springs. Its blend of spring and mineral water contains naturally occurring lithia—that’s right, the same mineral the antidepressant lithium is made from—along with calcium, magnesium, potassium and fluoride. But it is by no means the first drink to ever contain lithia. In fact, one we’re all quite familiar with, 7 Up, was actually originally a drink named Bib-Label Lithiated Lemon-Lime Soda. It touted the benefits of its lithia ingredient to consumers (some think that’s what the ‘Up’ in the name is all about). In fact, back in those years, even beer with lithia was available.

Research has shown that lithia, given in very small doses, has a number of properties that could be enormously beneficial for the general population. A New York Times article in 2014 by Anna Fels, a psychiatrist and faculty member at Weill Cornell Medical College, details this and other facts about lithia. She explains how it has been shown to reduce suicide rates in the general population, also writing that in tiny amounts, it “might actually be neuroprotective or even enhance the growth of neurons” in the brain. In other words, it has been shown to stimulate the production of brain cells to counteract the affects of Alzheimer’s, alcoholism and aging. “Lithium has been known for its curative powers for centuries, if not millenniua,” Fels writes. “Lithia Springs, Ga., for example, with its natural lithium-enriched water, appears to have been an ancient Native American sacred site. By the late 19th century Lithia Springs was a famous health destination visited by Mark Twain and Presidents Grover Cleveland, William Howard Taft, William McKinley and Theodore Roosevelt.”

For those reading this who are still turned off by the idea of consuming lithia in any form, McRae explains that the amount in HappyWater is minute compared to what a dose of medical Lithium would contain. The actual amount of lithia in HappyWater is 0.1 part per million, McRae says. “And you might think that’s infinitesimal, and you’re right. But apparently all the studies have shown that as being an effective amount if consumed regularly. And that’s what was so amazing about it. It’s really one of the wonderful things that people have kind of forgotten about,” he says. “It improves mood, increases the sense of well-being and those sorts of things.”

And, he adds, “you don’t have to binge on the water,” to experience HappyWater’s effects. “Just go and drink it the same way you’d consume any other water.”  

Over a barrel

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Category: General Blogs

As we were putting the finishing touches on this year’s Beverage Almanac, it became clear that whiskey was, once again, the big story in alcohol. However, to say that whiskey is doing well across the board would be a bit of an overstatement. In fact, there’s one major segment that didn’t have a good year at all. 

The Scotch Whisky Association reported that exports—the part of the business it relies on for most of its growth—fell 7 percent in 2014. And, can you guess which market was mostly to blame? That’s right, exports to the U.S. fell a full 9 percent. 

And remember, this is all happening when bourbon, Tennessee and Irish whiskey are enjoying high single-digit/low double-digit volume and revenue growth. 

So why is Scotch, which long has been seen as the whiskey drinker’s whiskey, struggling to hold on to its consumers? There’s no easy answer. One could argue that all of the new Irish whiskey drinkers are pulling from Scotch, but Irish tends to be the spirit that introduces consumers to whiskey and is more likely to be attracting drinkers away from vodka and other white spirits. 

Another argument is that drinkers are gravitating away from Scotch toward bourbon and other American whiskeys, but that’s probably not the case either. Though the bourbon boom can be attributed to growth across most demographic segments, millennials are responsible for an outsized portion of the volume. And before they were drinking bourbon, most millennials weren’t really drinking whiskey. 

However, some insight might be gleaned from the bourbon/millennial connection. Bourbon makers have been able to connect with and become relevant among those of the younger LDA demographic. The authenticity component, which is at the very core of bourbon’s value proposition, has been particularly attractive to millennial drinkers. There’s also been a very obvious kinship that bourbon and other American artisanal whiskeys share with craft beer and marketers in both categories have been able to promote that link through efforts like beer/bourbon pairing events, barrel aged beers and hop-infused whiskeys. And those marketers have been quite adept at telling consumers about those activities through social media—the direct hotline to the millennial generation. 

What’s really pulling Scotch down is the fact that the vast majority of volume is blended versus single malt, by a more than four to one margin. Single malt volume, for the most part, is doing well. There’s just not enough of it to keep the category in the black. There’s a lingering perception that Scotch is grandpa’s drink because its most visible brands are the blends widely consumed by earlier generations before single malt was even a viable segment. 

But things are changing, albeit slowly. My recent tour of Scottish distilleries revealed that many have been working around the clock to ramp up the innovation with new single malt expressions and new barrel finishes. Some potentially game-changing products are still sitting in barrels. 

Hopefully, Scotch marketers will be able to turn the tide before the whiskey wave subsides. Their segment could be the next stage in the renaissance that has brought bourbon, rye, Tennessee and Irish whiskey to a new generation. However, first they’ve got to figure out how to connect with that generation—and fast. 

News by-the-numbers

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Category: General Blogs  |  Tags: soft drink, CSD

Days before our May issue went to press, Pepsi announced, rather unexpectedly, that it was reformulating Diet Pepsi, substituting one sweetener, aspartame, with another, sucralose. Reams of copy and commentary followed the announcement, mostly about the controversy—real and perceived—around artificial sweeteners.

Some of it debated the risk Pepsi was taking in making such a move, harking back to when Coke decided it was reformulating its flagship brand and the resulting marketing disaster (eerily, Pepsi’s announcement last month was within days of the 30th anniversary of the New Coke debacle).

Is the Pepsi move a case of unneeded risk-taking? Pepsi explained it was making the move because consumer research indicated it should. “Diet cola drinkers in the U.S. told us they wanted aspartame-free Diet Pepsi and we’re delivering,” a Pepsi statement declared.

Within days of that announcement, PepsiCo chief executive Indra Nooyi was in a conference call with analysts discussing first quarter financial results. Responding to a question, Nooyi made an interesting statement: “We have never seen the consumer as confused as they are today. And I use the word ‘confused’ in a neutral way, not a negative way. If you had asked me a few years ago, people were moving to diet sodas. Now, they view real sugar as good-for-you. They are willing to go to organic non-GMO products even it has high salt, high sugar or high fat.”

All of this provided a great contextual point for our Beverage Almanac, our annual “beverage-world-by-the-numbers” feature in this issue. Volumes of traditional carbonated soft drinks, especially colas, have been falling for years, and the decline has been accelerating over the past few. Dramatic volume declines of diet soft drinks, for Coke as well as Pepsi, are a relatively new phenomenon.

But even 10 years ago, in this same data-based feature, we reported on indications that diet soft drinks were about to go soft. In the April 2006 issue we wrote: “For the past several years diet has been the one thing marketers have been able to consistently count on to keep the CSD market in positive territory, but the low-cal CSD segment proved to be much less of a tent-pole than in previous years.” We reported that diet soft drinks grew by just 2.2 percent in 2015, a sluggish performance following years of solid growth.

This is not to pick on Pepsi, or Coke, or even the fate of the soft drink market. After all, 10 years ago we reported that the beer market had slipped into decline, too. Most big beverage marketers, exemplified by Indra Nooyi’s recent comments, have that disorienting feeling over what to market and to whom.

In a broader context, the Beverage Almanac in this issue shows, sometimes in stark relief, just how a wide range of beverage categories and brands—some established and some still emerging—are moving. It’s the “by-the-numbers” context for the analysis we deliver regularly. And it happens to provide the numbers behind one of the most recent beverage news items of the day.