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Store Brand Beverage Trends

Beverage innovation related to K-cup concept extensions, upscale cold-pressed juices, sparkling waters, and next-generation sodas pose multiple opportunities for private label.

December 2, 2013
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Once you move beyond the biggest revenue-driving beverage categories for private label—milk and water—a diverse playing field of opportunity opens itself to new degrees of innovation. Granted, soda is still another major private label beverage category, but soda sales continue to slip as manufacturers (private label and national brands alike…), experiment with innovation to attract new levels of attention.

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Some select areas within the beverage space have already started gaining ground of late, including the growing diversity of products associated with the K-cup market, upscale cold-pressed juices, and sparkling waters.

And soda just might have another surge in the near future.  R&D is tackling ingredient issues related to sweeteners. Flavor experimentation and fine-tuning continues. Also, for a number of reasons, soda is poised for a “natural” boost.

These beverage areas hold much promise for private label in the coming years for forward-thinking retailers willing to take a leading edge through development of private brands—one that often can take the nationally branded competition by surprise.


Next-Generation K-cups

When the K-cup patents owned by Green Mountain Coffee Roasters expired late last year, the industry saw a mad rush to jump into the market (and Green Mountain has started to dabble in private label, now supplying the private label lines for Canadian retailer Metro). Now manufacturers from across the industry have begun flooding stores with their takes on convenient K-cups—and for good reason.  Estimates have projected Keurig’s K-cup machines are in over 16 million U.S. households, and upward of 13 percent of the U.S. adult population has at least one K-cup coffee a day. Wegmans, Whole Foods, Safeway, Kroger, ALDI, Trader Joe’s, Sam’s Club, Costco and many others have released private label K-cup coffees, spanning the spectrum from value-driven to premium and gourmet. This activity has driven private label single cup coffee through the stratosphere over the past year, up 1,990 percent and hitting $140.4 million in sales for the 52 weeks ending October 6, 2013, per SymphonyIRI.

But coffee—which is far from done in this category—is just the tip of the iceberg for the K-cup phenomenon. Other K-cup products have already started to roll out, including tea, hot cocoa (from milk to dark, kid-friendly to gourmet), hot apple cider and even soup (Campbell Soup Company is collaborating with Green Mountain for its K-cup soup line). Other concepts capitalizing on K-cups include products designed to pour over ice, including lemonade, “Arnold Palmer” products (half tea, half lemonade), and nutraceutical beverages fortified with vitamins and minerals.

But K-cups have one clear Achilles’ heel—the beginning backlash related to K-cups’ environmental footprint, strong enough to negatively impact purchase decisions. Any new lines should seriously consider moving away from the typical hybrid packaging (non-recyclable) and use recyclable polypropylene, or perhaps compostable options, instead. The details of this investment should then factor into all of the brand’s messaging, online to brick-and-mortar, as well as on product packaging.

The Cold-Pressed Bonanza

Private label refrigerated, blended fruit juice is up over 14 percent in dollar share for the 52 weeks ending October 6, 2013, with $10.8 million in sales, per SymphonyIRI, and could point to further opportunities in the juice market.

Starbucks helped bring cold-pressed, high-pressure-processed (HPP) juices to the masses back in late 2011 when it bought Evolution Fresh, a brand that is now hitting retailers across the country and is supplanting PepsiCo’s Naked Juice in its foodservice business (a new $70 million facility in California has upped production capabilities). Other brands playing in this premium market include BluePrint (owned by Hain Celestial Group) and Suja. BluePrint had $20 million in sales last year, and the overall cold-pressed juice category has been valued at $3.4 billion.

This category combines manifold forward-trending factors—nutrition, raw, often organic, clearly natural, etc. “The advent of raw, growth in organic year-over-year, and ‘back to nature’ will be the new order for R&D,” said James S. Tonkin, founder and president of HealthyBrandBuilders.

The technology associated with cold-pressed juices carries an expensive price tag—while commercial hydraulic juice presses capable of moderate output might cost in the neighborhood of $30,000, and an HPP can run north of $1 million—so these cold-pressed juices sell for a premium, typically in the ballpark of $10 for 16 oz. Whole Foods worked with Suja to create an exclusive brand, Suja Elements, that sells for around $5 for 12 oz.

Cold-pressed, HPP juices tend to have a shelf life of around 30 days. Conversely, flash-pasteurized juices (quickly heated and cooled to deactivate enzymes), like national brand leaders Bolthouse Farms (Campbell Soup Company), Naked Juice (PepsiCo) and Odwalla (The Coca-Cola Company), offer a much longer shelf life.

Hard-core adherents to the cold-pressed philosophy know the difference, though. “There is a major difference between cold-pressed, raw, organic fruits and vegetables produced with HPP vs. flash pasteurization,” said Tonkin. “The reason is that HPP does not use any heat. It uses very high pressure to pulverize bacteria for a short period of time, 30 to 45 days.” Nutritionally, the key is reputedly enzyme activity. “Once pasteurization or heat is brought to bear against the enzymes found in raw fruits and vegetables, they break down and lose their efficacious delivery potential,” he explained.

While the category still tends to command a premium, Tonkin suggested that as the market matures, downward pressure on pricing will follow.

But when looking into fresh sales—raw products not subjected to HPP, and therefore, with a much-shorter shelf life—as a portion of a retailer’s carry-out foodservice offerings, the investment can prove much more reasonable. After buying a hydraulic juice press, Whole Foods began processing and selling its own bottled cold-pressed juices at a location in Philadelphia. The grab-and-go juices are pressed and bottled on-site, made from ingredients like carrots, beets, pineapples, Granny Smith apples, Bartlett pears, green grapes, cucumbers, lemons, kale, green cabbage, curly parsley, mint, ginger, celery, broccoli, spinach and jalapeño.

It’s not just the specialty grocery retail channel that’s getting in on the fresh juice game. 

It’s not just the specialty grocery retail channel that’s getting in on the fresh juice game. Walgreens, along with its subsidiary Duane Reade, have entered this market via in-store foodservice counters offering freshly created juices and smoothies made with fruits, vegetables and other ingredients. New foodservice players in cold-pressed juice include Creative Juice, a QSR chain backed by New York restaurateur Danny Meyer, where cold-pressed juices and smoothies are menued alongside sandwiches and salads; bottled juices are available to go. The multiunit franchise Nékter Juice Bar focuses on juices, smoothies and granola—but again, with bottled juices available for carry-out. The handful of Evolution Fresh Cafés offer juices and smoothies, along with breakfast, lunch and dinner.

A Sparkling Future

While still products will continue strong market dominance, new category penetration is coming from sparkling waters. Private label sparkling and mineral water has started an upswing, up nearly 9 percent in dollar sales over the past year per SymphonayIRI for the 52 weeks ending October 6, 2013, taking in over $260 million.

As traditional carbonated soda sales continue to slip, water continues its ascent. “Sugar-laden soft drinks will continue to decline in favor of lighter, naturally sweetened and or unsweetened drinks,” predicated Tonkin.

Wegmans, Whole Foods, ALDI, Kroger, Walgreens and others have already entered this market. And while the category continues to grow, the next push forward will come from concerted efforts toward innovation—finding flavors that “pop” while still light on the palate, achieving just the right mouthfeel, fine-tuning sweetness and carbonation levels, and perhaps with some nutritionally functional ingredients in the mix. Such moves would logically extend into overall private branding.

One national brand is taking the spotlight of late. Talking Rain’s Sparkling ICE is the brand to watch. The products have caught on with shoppers in a big way this year, with projected sales poised to capture $400 million for 2013, a significant jump from the $10 million garnered by the brand in 2010. Kevin Klock, CEO of Talking Rain, has confidently suggested that the brand will hit $1 billion by 2018. Multiple copycat “ice” waters have jumped into the fray in the wake of Sparkling ICE’s success.

The key commonalities in this growing product area are lightness—light carbonation, as well as a light touch in terms of flavor and sweetness (almost invariably via zero-calorie sweetener ingredients like stevia extract or sucralose, or the new zero-calorie sweetener on the block, monk fruit extract).

Soda’s Saving Grace?

According to John Sicher, editor/publisher of Beverage Digest, for the first nine months of 2013, the carbonated soft drinks category—compared to the same period last year—is down about 4 percent, with private label taking an even harder hit, down about 10 percent.

Despite the still-high value of the carbonated soft drink category—at $19.4 billion for the past 52 weeks ending October 6, 2013, per SymphonyIRI—sales of regular sweetened soda have been on a downward spiral for the past several years. Turning the tide on this wave of change will prove no small feat. “It all depends upon innovation over the next few years,” said Sicher. “Coke and Pepsi are working very hard on sweetener innovation. If they can crack the code, there’s a good chance we’re going to see resurgence in carbonated soft drink performance.”

Polishing the health-and-wellness image of soda a bit might help spur sales, and sweetener options can help in that regard. Revitalized attention could also come via astute use of the many GRAS nutritional ingredients found in some other forward-trending beverage categories (private label shelf-stable sports and energy drink mixes are performing well) that have a proven positive impact on health.

“The only way that soda can rebound, possibly, is through the addition of efficacious functional ingredients,” said Tonkin. “Today, consumers are interested in fighting condition-specific ailments, and with an aging population that grew up with soda, they probably would come back to soda if the nutritional content wasn’t negligible…”

Another key here—whether going retro, straightforward or modern gourmet, natural or not—is to focus on distinctive, memorable flavors.

Soda might also soon begin its own “Starbucks effect,” driving more cultural factors into the soda category (something we’re currently seeing with cold-pressed juice via its subsidiary Evolution Fresh). Now Starbucks is starting to play in the carbonated soft drink space with its Fizzio concept, a trademarked name for the machine the company will use to bring carbonation to its cafés (along with other beverage capabilities). Initial tests of the new sodas this past summer in the Atlanta and Austin markets highlighted three flavors: lemon ale, ginger ale and spiced root beer.

This move by Starbucks contributes momentum to drive new interest in “natural” sodas. The key tenets of these new natural sodas will be natural flavors that look good on a label (think juices, extracts, spices, essences, etc.), natural sweeteners like good-old cane sugar (often used with a lighter touch than with traditional sweetened sodas), monk fruit extract for zero-calorie products (now that stevia extract might prove ingredient non gratain natural circles in the wake of Cargill settling its lawsuit…), non-GMO, and an overall “clean” ingredient statement.

Several companies manufacturing upscale natural sodas have tossed their hat into this ring in recent years to compete with longtime national brand leader Hansen’s Natural (owned by Monster Beverage Corporation). Dry Soda Company is one worth a close look, with flavors like blood orange, ginger, vanilla, apple, cherry, rhubarb, lavender, juniper, cucumber, lime and pear. Some entrants to the category, like GuS (“Grown-up Soda”), walk a fine line between sparkling water and soda.

 Perhaps it’s navigation of those fine lines that will make all the difference.  

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Recent Articles by Douglas J. Peckenpaugh

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