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September 11-15, 2017

Blog Entries

Three that stand out

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Category: General Blogs  |  Tags: HIT List

For the past 10 years we’ve turned over our December issue to a review of the products and concepts across the beverage world that have been hot, innovative and trendsetting during the year, and with this issue we present our 11th Annual HIT List.
 
As 2015 winds down, we’re also reminded of the bigger themes that dominated the attention of the beverage world. The year was dominated by big stories, and here I offer three that to me stand above the rest:
 
Beverage world grows less sweet. We’ve chronicled at least for the last 10 years the volume declines of traditional (read “sweetened”) carbonated soft drinks. Diet soft drinks, especially colas, have been declining rapidly too, which prompted Pepsi this summer to take a rather radical step: it reformulated Diet Pepsi, substituting one non-sugar sweetener for another. PepsiCo chief Indra Nooyi explained it was making the move because consumer research said it should.
 
The steep decline in traditional carbonated soft drinks corresponds with an equally dramatic increase in bottled waters, which we chronicled in our May issue, which explained that it had become crystal clear that consumers are reaching for flavored sparkling waters in growing numbers, eschewing sweetened drinks both sugared and otherwise.
 
The sweetness issue has also affected the sales of traditional juices in a negative way, as Managing Editor Andrew Kaplan explains in our cover feature this month that opens our HIT List coverage. The juice category has been among the most innovative in developing products with less sugar that consumers will accept and actually pay premium prices to get.
 
Craft beer at a crossroads. Our April cover feature this year described a craft beer industry facing succession issues among some of the early founding companies and aggressive courtship from both private equity firms and big brewers. At the time we were hearing the first rumblings of craft brewers “selling out,” that is making the move off the stage of independent entrepreneur.
 
What followed was a succession of deals of all types, with money flowing, well, like water. All of which will serve to shape the future of beer’s most successful segment in 2016, not the least of which is the definition of craft beer itself.
 
Mega beer deal reshuffles the deck. Perhaps no single event this year had as much import on the beverage world than the AB InBev deal to takeover SAB Miller, creating the largest beer company on the planet.
 
Viewed in a narrow sense, the $107 billion deal, facing regulatory review in the U.S., Europe and China, was an inevitable business event to consolidate an industry with stagnating sales across the globe. In a broader sense, the deal will reshuffle the deck so to speak in so many ways in the coming months and years—from brands changing ownership, to beverage companies both alcohol and non-alcohol assessing in fundamental ways how their businesses will be structured and how they will compete. The beverage world is just beginning to come to grips with the real and imagined ripple effects.  
 

The ‘good for you’ debate

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Category: General Blogs  |  Tags: juice, coffee

Coffee’s path has been a rather torturous one when it comes to a question that has been stalking it for years—is it good for us to drink it?

The latest verdict, according to a massive new study in Circulation, a scientific journal published by the American Heart Association, is not only is coffee is good for you, it’s really good for you.

This study, whose results were released in November, followed 200,000 doctors and nurses for up to 30 years and found a six percent reduced risk of death overall from one cup a day, an eight percent reduced risk of death from one to three cups, a 15 percent reduced risk from three to five cups, and a 12 percent reduction in risk of death from more than five cups. And, what’s more, there was little difference whether it was caffeinated or decaffeinated, proving that it is the nutrients in coffee, not the caffeine, which is having this healthful effect.

This massive study confirms in a big way numerous other studies over the past several years that have hinted that coffee is not the unhealthy drink some once thought it was. 

Those who are old enough may recall the first warnings about coffee, way back in 1981. A Harvard study at the time tied the drink to a higher risk of pancreatic cancer. Further investigation eventually showed a tie-in between smoking and the cancers. Nevertheless, the damage was done. A stigma always hung over coffee until the publication of more recent studies, beginning around 2008, started hinting that it was actually good for us.

At this point in time, I think it’s no exaggeration to conclude that coffee is now firmly in the healthy camp. Imagine that—a drink many of us love that is also good for us!  Who woulda thought?

I’m writing this column having just written the cover story for this issue of Beverage World about the juice category, which seems to be undergoing a similar trajectory to coffee when it comes to that question—is juice good for us to drink? The big issue about juice, especially what have traditionally been its most popular types, like orange, grapefruit and apple, revolves around their high sugar content. These juices can contain a lot of natural sugar, leading some in the medical community to advise against consuming too much of them. James Tonkin, president of the consultancy firm Healthy Brand Builders spoke with me at length while I was researching my cover story. He pointed out that some experts believe sugar is sugar, and it doesn’t matter what form it takes—be wary of consuming too much of it. Others see the nutritive value of juice, and the fact that its sugar is natural, outweighing any negative effects. “Is it a good thing?” Tonkin asks. “I think that’s really the discussion right now.”

So, with the debate about coffee now receding into the past, expect the debate about the healthfulness of juice to now take center stage.  

Rush to maturity

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Category: General Blogs  |  Tags: Starbucks, China, Russia

Starbucks is among the latest of the beverage multinationals to pin its growth hopes in the Asia-Pacific region, generally, and in China, specifically. The Seattle-based coffee giant is growing by leaps and bounds, by as much as 18 percent for the full year, according to analysts, who also say, however, that Asia, and China specifically, are a concern.

“Starbucks is opening more stores in this key market than any other and is counting on having a majority of its growth over the next decade come from this part of the world. But with big signs that Chinese growth is stalling, is there reason to worry about Starbucks prospects,” wrote analyst Jason Hall of website Motley Fool on the eve of Starbucks releasing its Q4 results last month.

When Starbucks released its quarterly results a day later, it said same store sales in the China and Asia Pacific segment increased 6 percent, but that it had fallen short of the projected 9.6 percent growth for the region. The growth in China also fell short of the same-store sales in Americas, which increased 8 percent during the quarter.

No one at Starbucks and few of the financial observers are pushing the panic button over this. But it is the latest illustration of how beverage companies have needed to revise their expectations about China. After all, the Chinese economy has gone from boom to bust (relatively speaking) in seemingly the blink of an eye, right?

It’s not that simple. Macroeconomic forces are at work against companies doing business in China, but for beverage companies, in particular, cultural and political factors also are in play in very significant ways. The current situation for beverage companies is in stark contrast to just a few years ago, when the growth expectations for many in China were linear and virtually limitless.

Our cover feature, reported and written by editor-at-large Jeff Cioletti, outlines the issues in China—and Russia—another macro market targeted for huge growth by beverage multinationals just a few years ago. It isn’t that the Chinese market isn’t growing (it is), but as Jeff reports, the questions are whether the economic impact is cyclical and whether the socio-political factors at play in the market will stubbornly affect growth prospects.

Our cover feature makes for an interesting read on many levels, not the least of which is that it reveals something of a universal truth about the state of global consumer marketing today: that even in markets with opportunities as huge as China (and Russia), growth is likely to be much less linear and more long-term.  

The “It” industry

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Category: General Blogs  |  Tags: beer, brewing, New Belgium Brewing, Kim Jordan

It made me quite proud the other night to flip on the PBS News Hour and see a report about New Belgium Brewing Co.’s employee stock ownership plan (ESOP). Proud not because I have any personal involvement in it, of course, but because the report was presented as an example of a forward-thinking company doing something that is still relatively cutting edge in the business world: sharing its ownership with all of its employees.

I’ve been covering the beverage industry for a while now and the New Belgium coverage got me thinking about just how much this industry has changed since I first started reporting on it back in 2002. It has really gone from being an industry that was more of a follower, to one that is more of a trendsetter, one that is increasingly exciting to younger people because it is innovative. Agree with the New Belgium ESOP or not, it is an example of this industry shift from following to leading, and I think that only bodes well for the future of the industry.

The PBS report interviewed New Belgium co-founder Kim Jordan about the plan, along with several employees. Asked why she decided to share ownership of her company with her employees, she told the PBS reporter: “You got this one life, right, and you get to think about what am I going to do that makes me sort of joyful and sing? And this makes me joyful.” Hearing that, I thought to myself, ‘wow, this industry really has changed.’

Such forward-thinking companies were hard to come by when I first started covering the industry. But I’ve watched as what was very much a stolid, kind of tired industry, has been reinvigorated by exciting new trends like the craft beer movement, the explosion in healthful, functional liquid refreshment beverages, and a rise in the number and prominence of beverage incubation companies. 

And one of the major results of all this is that the beverage industry has begun attracting an entirely new generation of people into it. The PBS report interviewed several of the employee-owners at New Belgium who could not say enough good things about their company. Said one: “I feel like I have a stake in what happens here and that I play a part in making this awesome place successful.” Wow again.

I think the industry is only at the start of a positive cycle that will only attract more innovation in the coming years. As more beverage companies become innovative, like New Belgium, and new categories continue to emerge, these dual trends are attracting the next generation of young innovative people who want to work in this industry. It feeds on itself. And this will probably continue for a while.

For a long time, it was the tech industry that was attracting all the new young talent. But suddenly it seems like a lot of those younger people are also choosing to enter the beverage arena in droves. Just look at emerging innovative brands like Runa Tea or RawNature5, and the countless craft brewers or distillers, all either founded by or staffed by those in their 20s or 30s. 

With such innovation, naturally follows the great, positive media coverage, like the exposé about New Belgium’s ESOP on the PBS News Hour, which really went into detail about the company. And that only gets consumers more excited about the industry. And those consumers may be the beverage innovators of tomorrow.  

What price freedom?

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Category: General Blogs

Anyone who’s been in a supermarket or an industry trade show in the past handful will not have been able to escape freedom. Never has the word “free” been so oppressive. Spend barely 20 seconds speaking with product marketer and you’re likely to hear the word “free” at least three times. “This beverage is gluten-free and GMO-free and its bottle is BPA-free.”

Market research company Mintel recently studied the phenomenon. Eighty-four percent of Americans buy what Mintel terms “free-from” foods because they are seeking out more natural or less-processed foods. And there’s no disputing that natural and less-processed foods tend to be better for you.

But when as many 43 percent of consumers agree that free-from foods are healthier than those without a free-from claim, you have to question how many of them are actually fully informed about what “X-free” or “Y-free” even means.

Take the gluten-free craze, for instance. Gluten is a true scourge for anyone who suffers Celiac disease. The Mayo Clinic estimates that 2 million Americans suffer from Celiac disease (I know at least three people in my own social/familial circle who have it and it’s brutal). However, there are more than 2 million consumers on a gluten-free diet who do not suffer from the disease. They read in some magazine or heard from celebrity health advocates like Dr. Oz that gluten-free is the way to go, regardless of whether you’ve exhibited any symptoms of a gluten intolerance. (The cider boom has been partially credited to the rise in gluten-free diets).

It makes me think of a scene in the 2013 film, “This is the End,” when Seth Rogen (playing himself) tells Jay Baruchel (also playing himself) that he’s on a gluten-free diet, but can’t really explain what gluten actually is. “Calories, that’s a gluten; fat, that’s a gluten,” Rogen says.

And then, take GMO-free foods, which are all the rage these days. In fact, Mintel found that GMO-free claims are important to 58 percent of those “free-from” consumers.  (Those attitudes are more pronounced among millennials)

Many consumers feel you need to avoid genetically modified organisms like the plague, but truth is, most scientists think they’re fine. Earlier this year the Pew Research Center released the results of a study where it surveyed members of the world’s largest multidisciplinary scientific professional society, the American Association for the Advancement of Science (AAAS). Eighty-eight percent of scientists in the study said genetically modified products are safe to eat and drink. Neil DeGrasse Tyson, on of the most respected scientists in the world also says they’re fine. A video of Tyson criticizing the non-GMO hysteria went viral last year. He points out humans have been genetically modifying what we consume since the dawn of agriculture. “So now that we can do it in a lab,” Tyson said, “all of sudden you’re going to complain?”

I’m a staunch advocate of transparency on product labels. But I’m equally passionate in my belief that beverage marketers play an important role in educating the public. Slapping a buzzword on a label or inserting it a salesperson’s talking points without supplying the necessary facts to support it is a hollow gesture.

And, ultimately, a product and a company risk getting slapped with another “free” label: integrity-free.