By Max Rothman
If prognosticator Neil Kimberley has foretold the tipping point of the beverage industry, and it’s true that $7 billion in opportunities await in the next five years, more than emerging brands, distributors and consumers will have to play along.
For the beverage industry to fully realize the growth figures predicted by Kimberley, the founder of beverage consulting and advisory firm Foods, Fluids and Beyond, retailers must possess a willingness to stock and feature the strands of innovation.
Early signs indicate that they’re all in.
At BevNET Live in Santa Monica earlier this week, retailers restated the theme: they understand the potential for emerging brands and they’re looking for partnerships. Representatives from 7-Eleven, Costco and Life Time Fitness, Inc. were on hand to discuss their interest in identifying the next wave of innovation and stocking their shelves with the buzzworthy brands of the next few years.
It’s been going on since the announcement of Kroger’s Taste of Tomorrow program in March, and the supermarket chain has steadily added up-and-coming brands — Just Chill, AquaBall, Reed’s Culture Club Kombucha and AQUAhydrate, among several others. In September, Inko’s founder and president Andrew Schamisso announced a distribution agreement with Walmart and mentioned the mass-retailer’s maturing identity, which will include more health-focused options. Target continues to assess the results of its four-wave test of emerging beverages, which includes brands such as ChiaVie, Bai, Oatworks and Karma Wellness Water.
7-Eleven Venturing Into Innovation
Julie Whittle, category manager for soft drinks and energy/nutritional beverages for 7-Eleven, envisions results that could put a real dent in the beverage industry. She’s not talking trade-offs.
“We’re not interested in just shifting the share from one brand to another,” she said.
One new 7-Eleven store opens approximately every two hours. There are more than 50,000 7-Eleven stores in the world. The company projects that number to reach 80,000 by 2020. And Whittle and her colleagues who make the decisions for this massive network realize that consumers are eating less, but more frequently. This trend could lead to direct benefits for the beverage industry, especially for meal replacement beverages.
“We believe that beverages can very much play a role in that snacking occasion,” Whittle said.
As she searches for compatible partners, Whittle said that she’s looking for beverage brands with a regional niche and the potential to work in another market. Aside from the typical interest for quality products with a point of differentiation and packing that’s ready for the marketplace, she also wants brands that have the production capabilities and the distribution arrangements necessary for a bond of this proportion.
Whittle also mentioned that interested brands should pitch her during the spring and summer. However, if necessary, she’s willing to be flexible.
“We’re open to working with smaller companies and new concepts,” she said.
While she’s looking for more of an immediate return (six to 18 months after placement), 7-Eleven has also created 7-Ventures, a venture capitalist arm that could have the patience to cradle the right brands for three to four years.
Raja Doddala, the vice president of portfolio investment for 7-Ventures, said that the branch was founded in part because much of the beverage industry’s innovation derives from smaller brands. Doddala wants to learn about these products before the market does.
He said that he’s still unsure of the cold-pressed juice category. Whittle said that she’s interested in the next phase of energy, beyond energy drinks, such as coffee, juices and protein drinks.
Costco Calls the Shots
Costco has also entered the fray and John Eagan, the vice president and senior general merchandiser for Costco Wholesale, and Danny Stepper, the CEO and co-founder of L.A. Libations, sat down with BevNET editor-in-chief Jeffrey Klineman and explained the need for malleable brands. Costco, the second-largest mass retailer in the U.S., designs the store to do the shopping for its consumers — a unique business model that requires elasticity.
“You have to be open minded and listen to the Costco buyer,” said Stepper, who has worked with Costco for many years and played a key role in securing distribution there for ChiaVie and Aloe Gloe.
The threshold for a beverage in Costco is $1,000 per week, per store. Such quick turns result from lower pricing structures, which shrink margins but increase volume.
Stepper said that the store’s buyers will tell you what it takes to survive in their stores, from the packaging to the pricing to the delivery plans. Costco wants an acquisition value and rewards the brands that play their way.
However, despite Costco’s heavy influence in the brands that it stocks, Eagan said that he doesn’t want his store to be the only place where a certain product sells. If Costco grows to about 25 percent of a product’s revenue, he encourages other streams of distribution. If the percentage grows to 30 percent, he gets antsy.
“I don’t want to own that company and I don’t want to dictate to them how to run their business,” Eagan said. “It’s not healthy.”
Beverage brands regularly mentioned as emerging category leaders have already succeeded in Costco. Eagan and Stepper mentioned Zico, which sold more than 1 million cases in Costco last year, Naked Juice, Sambazon, Evolution Fresh and Bolthouse Farms.