News Column

New Products Help Beverage Giants Move Forward

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Move over coffee, orange juice, tea and even you ever-so-trendy vegetable smoothies. To get Americans going in the morning, Pepsi has a new suggestion: Mountain Dew Kickstart.

Yes, Mountain Dew in the morning.

Purchase, N.Y.-based Pepsi is pitching Kickstart -- an 80-calorie blend of fruit juice with one of the nation's best-selling carbonated sodas -- as a breakfast drink and is boosting awareness with a multimillion-dollar ad campaign featuring young people skateboarding into a new day with Kickstart instead of their parent's cup of java or their friends' energy drinks.

It's a move that reflects the beverage industry's biggest challenge these days: maintaining sales growth as its bread-and-butter business, carbonated drinks, has flattened or declined.

That has meant a lot of new products on store shelves. For instance, in addition to Kickstart, Pepsi has launched Tropicana Farmstand, Gatorade Recover Protein Shakes and Pepsi Next over the past 18 months.

"PepsiCo has successfully built new capabilities to drive innovation and growth across our portfolio," said Gina Anderson, a spokeswoman for Pepsi. "We're highly focused on continuing to develop new product, packaging and equipment innovations that meet consumer needs and unlock new opportunities to grow our business."

Not to be outdone, the company's market-leading rival, Atlanta-based Coca-Cola, introduced Dasani Drops, a flavor enhancer for its water products, last year, as well as Fruitwater, a carbonated water drink, in April. The beverage giant also has extended its Simply juice and Minute Maid lines with additional flavors.

Pepsi also rolled out Pepsi Touch Tower 1.0, a machine that will dispense nearly 100 flavor combinations of up to eight brands. The machine is being tested at five Garbanzo Mediterranean Grills in Denver.

It is seen as Pepsi's answer to Coca-Cola's Freestyle dispenser, which the beverage giant launched more than two years ago. Freestyle offers 146 brand choices and has more than 12,000 dispensers in more than 7,000 outlets across the nation.

Other competitors, such as Dr. Pepper Snapple, have stepped up with lower calorie products, such as Dr. Pepper Snapple's recently introduced "Ten" line, featuring popular brands such as RC Cola, A&W Root Beer and 7 Up, all with just 10 calories.

There is good reason for the expansions. Overall beverage consumption in the United States grew 1 percent in 2012, with teas, water and energy drinks leading the charge, according to Beverage Digest, a publication that tracks the industry. Meanwhile, sales of carbonated drinks -- which represent nearly half of all non-alcoholic beverage business -- fell 1.2 percent last year, continuing a slide that began in 2005.

Carbonated drinks also have been in the cross hairs in recent years among health officials and some politicians, including New York City's Mayor Michael Bloomberg, for their sugar content and links many have made between the beverages and obesity. A judge earlier this year rejected Bloomberg's attempt to limit the amount of sodas that could be served in some city venues, but industry leaders took the move as a sign of challenges to come.

Meanwhile, the small startup SodaStream, an Israeli product that allows consumers to make their own carbonated drinks, has grabbed headlines and raised its profile in the last year with a guerrilla anti-pollution campaign that takes direct aim at beverage companies.

To be fair, the industry has always created new products to grow business. What was a handful of drinks in the 1970s exploded in the 1980s and has been increasing exponentially ever since. That evidence allows leaders at Coca-Cola, Pepsi and within the industry to reject any suggestion that they have ramped up their output in response to slowing sales of carbonated drinks.

And, they argue, it would be inaccurate to dismiss the promising outlook for some carbonated products. Coke Zero, for instance, has seen double-digit growth for five consecutive years, and Coca-Cola officials hope to boost those numbers with a future line extension featuring Caffeine Free Coke Zero.

"To be clear, offering new brands and supporting and growing our existing brands isn't mutually exclusive," said Coca-Cola spokeswoman Susan Stribling. "We don't abdicate one at the expense of the other. We do both."

Still, experts said there is no denying that the industry has read the tea leaves and wants to be ready with alternative products to fill any sales void that might result if carbonated drink sales erode further.

"It's an ever-changing market and the biggest players will only stay on top by being innovative," said analyst and Columbus State University President Tim Mescon.

And the current crop of offerings are smarter and hail from more sound research, the experts said. For every hit the big beverage companies have had, such as Coke Zero and Gatorade G Series, there has been a Coke Blak or Pepsi Blue failure.

"Both companies (Coca-Cola and Pepsi) are innovating, but focusing their innovation," said John Sicher, editor and publisher of Beverage Digest. "Over the last decade, they both introduced products that went boom splat."

For some, there is a lot riding on the industry getting it right. Two top reasons convenience store visitors stop in after filling their gas tanks are to use the restroom and to get something to drink, said Jeff Lenard, a spokesman for the National Association of Convenience Stores. And because margins on gasoline sales are razor thin, those beverage sales are crucial to keeping the doors open.

In fact, a recent survey by NACS found that packaged drinks -- which include carbonated and non-carbonated offerings -- are big drivers of sales during the summer months, with 84 percent of retailers reporting that sales of packaged drinks increase when it is warm outside, while 59 percent said the same thing happens with fountain drinks.

"People want to try new drinks and the manufacturers created that environment," Lenard said.

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Carbonated drink sales in the United States have been declining since 2005, according to Beverage Digest, a publication that follows the industry. That is a contrast to the 1990s, when business was robust and soaring.

Carbonated drink sales growth over the past 10 years

2002: +.08 percent

2007: -2.3 percent

2012: -1.2 percent

Per capita consumption of 8-ounce serving of carbonated drinks

2002: 841

2008: 790

2012: 701

Source: Beverage Digest

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(c)2013 The Atlanta Journal-Constitution (Atlanta, Ga.)

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