Thirsty for More

November 7, 2008
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Category Review: Functional beverages, as well as condition-specific drinks designed to address or prevent specific health issues, are gaining ground

With the exception of traditional milk and juice products (as well as coffee and tea, the original “energy drinks”), the North American non-alcoholic beverage sector long has centered almost solely on refreshment. During the past few years, however, many thirsty consumers have begun to demand more from their beverages. Sure, these consumers still expect thirst-quenching performance and great taste - but in conjunction with health, weight management and/or energy-boosting attributes.
“People are looking for alternatives to what their standard beverages used to be,” says Jason Krause, director of marketing for Dunkirk, N.Y.-based Cliffstar Corp.
He says consumers gravitate toward zero calories if the drink is solely for hydration purposes. If they must consume calories, on the other hand, they demand “meaningful calories” that provide some kind of functionality - whether that be energy or long-term health.
Krause adds that the lines across various beverage categories have blurred as well, with consumers who are accustomed to buying diet soda now willing to try, for example, a vitamin- or mineral-enhanced diet juice.
Functional beverages, as well as condition-specific drinks designed to address or prevent specific health issues, are gaining ground, especially with female consumers, notes Tim Greene, director of sales, branded and private label, for Century Foods International, Sparta, Wis. Popular here are protein and energy-boosting offerings, as well as all-natural formulations, he says.
“Health and wellness is the overriding message we are all getting from consumers,” notes Pat Nicolino, vice president of marketing for Clement Pappas & Co. Inc., Carneys Point, N.J. “For the big segments of enhanced waters and teas, the move is toward lower-calorie or even zero-calorie options.”
Larry Williams, vice president of sales for Canton, Ga.-based Monarch Custom Beverages, said he expects to see steady growth for functional waters, including enhanced waters, vitamin-fortified waters and more.
“The consumer is becoming more interested in good-for-you functionality behind the drinks,” he says. “I think they’re looking for something that’s got a benefit when they consume it. I think we’ll see a lot more herbal-infused beverages, too.”
Juices and juice-based beverages also have a lot of growth potential, Nicolino adds. “Lite” beverages, organics and naturals, superfruits, alternative sweeteners and “just good innovative thinking” will drive exciting product development on the healthful beverage side, she says.
But some consumers have more than health and wellness in mind when browsing a retailer’s alternative beverages selection. For that reason, energy drinks - both healthful and not so healthful - also represent a fast-growing niche in the alternative beverages segment.
“I believe energy drinks will continue to grow for the next three to five years,” Williams says.
Nicolino agrees the energy segment will remain strong, noting that growth is occurring here even though many of these drinks boast extra sugar and caffeine - not a particularly healthful combination.
“For the broad definition of energy drinks, we see the concept of functional ‘shots’ growing in the dairy aisle also,” she adds.
But Krause says energy drinks don’t necessarily have to rely on a lot of sugar or caffeine to provide that extra boost.
“You can get energy in a lot of different ways,” he says. “You can get it from B vitamins, if you fortify with B vitamins in an enhanced water. Or you can take a cranberry juice and fortify it with B vitamins. … In almost every category, you’re seeing consumers looking at the labels, looking at the products deeper than they used to,” he adds.
Of course, newfangled coffee drinks make for a natural extension of the energy drink sector. Steven Fay, executive vice president for Berner Foods Inc. in Roscoe, Ill., says the association between a “caffeine jolt and coffee is obvious,” and notes that coffee drinks boast a wider appeal to a greater demographic than do energy drinks, which attract mainly Gen-X and younger consumers.

Alternative Opportunities

The possibilities are virtually endless within the alternative beverage category. For that reason, Williams recommends that retailers concentrate on the areas with the largest percentage of volume and dollar sales.
“Right now, the growth [is in] energy drinks and functional waters,” he maintains.
Williams also advises retailers to define their goal before diving in, whether it’s to increase market share, grow overall brand image or accomplish something else.
“It’s a tough business,” Williams adds. “You’ve got to be relevant to your consumer.”
In addition to enhanced waters and energy drinks, Krause sees a store brand opportunity in high-end ready-to-drink teas. But for these and any other alternative beverages, retailers must offer something uniquely their own.
“It can be done with flavors; it can be done with reducing calories,” Krause says. “There are different ways to do it.
“The best thing for private label in alternative beverages is that no one’s figured it all out yet,” he adds. “You need to figure out the function that this product provides, or the consumer need this product meets, and take it to them in your own version.”
Greene points to functionally based high-end, value-added beverages as another private label growth area. Of course, such offerings also must taste great.
“Many private label programs are in a position of being very well developed and indistinguishable from the brand play,” he adds.
As for ready-to-drink coffee beverages, Fay says they provide “a rich vein to mine for store brands.” The category is enjoying double-digit growth, he adds.
“Ready-to-drink coffee drinks represent a great opportunity to associate the store and the store brand [with] quality and to [provide] signature flavors to complement existing store brand coffee programs,” Fay says. “It is also an opportunity to communicate corporate good citizenship with possible fair trade and other popular themes.”
Nicolino stresses that store brands are in a great position right now for entering or expanding the alternative beverage category.
“Many retailers have made a really dedicated commitment to establishing their own brands as compelling magnets for shoppers,” she says. “That kind of thinking will bring new life to the center store. We see huge opportunities in teas, waters of all types, super-healthy juices and … in creating engaging, exciting answers to the challenge of what we call the ‘healthy child initiative.’”
The challenge for retailers, Greene contends, is to launch on-trend products before the lifecycle of that trend is over. Ready-to drink alternative beverages typically have a shorter lifecycle and require faster replication and launch for store brand success. Retailers that are able to identify sustainable trends instead of fads should do well, he says.
Although many experts first thought energy drinks would be a fad, the sector now looks very sustainable, Greene adds.
“However, given the movement against energy-related ingredients like taurine, even businesses that look sustainable can quickly become fads in this segment,” he warns.
But many private label suppliers are able to lend product development expertise to develop a custom product that allows retailers to meet sustainable trends. Century Foods International, for example, is a source for custom functional and nutritional beverages, while Monarch has development expertise in energy drinks, herbal teas, gourmet sodas and more. Both Cliffstar and Clement Pappas provide a wide range of beverages, including juices and many types of alternative drinks, and have expertise in organics and naturals.
And Berner uses a proprietary system to chart emerging product groups that play to its specialization in ready-to-drink coffee and other beverages, Fays says. The system allows the company’s R&D department to develop winning prototypes that meet retailer needs.

Think Outside the Shelf

The development of a great-tasting alternative beverage is only one part of the store brand equation, of course. Retailers also must find ways to attract consumers to that all-important first sale.
Packaging can play a huge role here. The packaging for large bottles must be functional, Krause says, while single-serve items must be attractive. And both options should have clean labels that communicate to shoppers exactly what benefits they can get out of the product.
Cliffstar recently moved to smooth, panel-less PET bottles that resemble glass, Krause notes. The bottles make the product really stand out.
Nicolino maintains that package design “can make magic happen, or bore people to tears.” She advises retailers to take some risks and show some store brand pride here.
“Make sure the package communicates, first and foremost, and then make sure it communicates a compelling message,” she advises.
In addition to supporting the products with in-store marketing, Krause recommends that retailers offer a variety of ways for consumers to get the product in hand - for example, multi-serve, multi-pack and single-serve options. Even more important, he says, is product placement.
“Make the product available not just on your store shelf,” Krause stresses, “but also in the aisle ways - and in your coolers when they’re single-serve beverages. Don’t force the consumer to find you on that hidden shelf in the back where you put all the alternative beverages.”
As for promotion, Nicolino points to a lack of commitment on the part of many retailers here.
“National brand promotion funds didn’t get named ‘retailer heroin’ for no good reason,” she stresses. “But what about the strategic value of building [your] own brand as a functional building block of [your] own growth plan? Where is the investment in that?”
Williams advises promoting on a schedule that goes along with the national brands.
“If you’re promoting a Coke, Pepsi or Nestlé brand on a regular schedule, promote your private label on a rotating schedule as well,” he says. “Treat it as though you’re truly building another brand in addition to your nationally branded products.”
Fay agrees, noting that regular promotions, off-the-shelf displays and good shelf presence are very important to building sales on the ready-to-drink coffee side as well. PLB

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