Natural Foods Merchandiser

Natural soda market sparkles

Once upon a time, when you reached for a soft drink, the hardest decision you had to make was whether to choose Coke or Pepsi. And despite advertising meant to persuade consumers how different Coke was from Pepsi, in truth the two beverages were more similar than not. From a health perspective, though, neither could be considered good for you. But now the soft drink market is going through nothing less than a revolution, with a whole new cadre of all-natural sodas competing in the same space as the stalwart soft drinks. And all reports indicate that consumers are gulping down natural sodas with delight.

According to SPINS, the San Francisco-based company that tracks natural products sales, the natural soda market is increasing rapidly, with almost 15 percent growth from May 2004 to May 2005 and total annual sales of $69.9 million. The hottest segment of that market is carbonated beverages sweetened with fruit juice, with an annual growth rate of 13.1 percent and total annual sales of $25.7 million. Sugar- and fructose-sweetened natural sodas rang in $44.1 million in annual sales during the same period but experienced only 1.6 percent growth.

?There is a growing awareness among consumers about the sugar and high-fructose corn syrup in traditional soft drinks and what those ingredients do to you,? says Todd Woloson, president and chief executive of Izze Beverage Co., a natural soft drink manufacturer in Boulder, Colo. Woloson says that as schools around the country have begun to bar Coke and Pepsi sales on campus, a dialogue has started about why those ingredients in traditional soft drinks are harmful, and that dialogue has contributed to natural soft drinks? popularity.

But there?s also a positive reason for natural sodas? surge. ?It?s part of a larger trend in natural foods, where we?re seeing a melding of natural and specialty gourmet foods. The idea is that there?s a healthy way we can ingest otherwise indulgent foods and beverages,? Woloson says.

Erin Fowler, an editor and consumer research analyst with market research firm Mintel, concurs. ?Today, consumers are buying sodas more for what the beverages have, such as vitamins and flavors, as much as for what they don?t have—calories,? she says. ?Opting for diet sodas or fortified versions are small changes that consumers are willing to make for health. Natural sodas are appealing to these health-conscious consumers who like regular soda but avoid it due to its processed, unhealthy image.?

Shayne Law, marketing manager at Chico, Calif.-based beverage company Santa Cruz Organic, says flavor is another important factor driving consumers toward natural sodas. ?With natural sodas, they get a big hit of flavor that actually tastes authentic to the fruit on the label, without ingredients they find objectionable,? Law says. ?Consumers want to be able to indulge in a treat without the artificial chemicals.?

Growing interest in the benefits of organic products is another big factor that?s contributing to natural soda sales, Law says. ?Consumer awareness of organic and natural ingredients has been fueled by media attention,? he says. ?The implementation of the [U.S. Department of Agriculture] organic regulations garnered a lot of attention and helped consumers to understand and trust the label.

Therefore, consumer demand has created a wave of innovative organic sodas, and shoppers are snapping them up in the market.? He says Santa Cruz Organics? business has roughly doubled over the past three years. The company has been in business for more than 30 years.

Natural beverages break into the big time
Izze?s Woloson says Coke and Pepsi are losing about 5 percent to 7 percent market share per year to other beverages (but not specifically naturals). He says Izze has grown roughly 500 percent per year in the three years it?s been in business. Woloson believes the industry is on the brink of seeing even larger growth. ?If you look at the size of the soft drink business, it?s gargantuan,? he says. ?As the migration accelerates away from traditional soft drinks to healthier and higher-quality options, there?s great sales potential there because it?s a huge category.?

Woloson says that natural sodas have not yet enjoyed the mainstream acceptance that other natural and gourmet food categories have. ?We feel the natural soda market is primed for consumers making the trade-up from mainstream, conventional sodas—the ?Starbucks? of soft drinks if you will—but the trick is making sure customers have an intuitive and understandable rationale for spending more money for a higher-quality product. I think consumers are just at that point where they?re starting to understand the difference. From my perspective, I think all the signs are there that it?s going to happen.?

One major bone of contention in the beverage industry is the use of high-fructose corn sweetener. HFCS has been linked to a rise in obesity as well as an increase in type 2 diabetes. Although neither Izze nor Santa Cruz use HFCS in their beverages, some manufacturers selling ?all-natural? sodas do. Izze sweetens its beverages with 100 percent juice, mixed with sparkling water, while Santa Cruz uses organic sugar. ?We just feel fruit juice tastes better than high-fructose corn syrup,? Woloson says. ?We don?t really spend as much energy positioning Izze around the health aspects because we believe that our target market has an intuitive understanding that fruit juice is better than high-fructose corn syrup.?

Effervescent trends
?One of the newest trends in natural sodas is that interesting, fruity fusions are hot,? says Mintel?s Fowler. ?A good example of this is in 2004, [natural beverage company] Switch launched a watermelon-strawberry flavor of carbonated juice.? Woloson concurs that bold flavors are current favorites with consumers. He says Izze?s most popular flavors right now are blackberry, grapefruit, clementine and pear. Law says that Santa Cruz will soon introduce new South American flavors, as well as more exotic fruit flavors.

Fowler says another trend that?s picking up steam is carbonated nutraceutical beverages: ?Since natural brands are appealing to a group of consumers who are prone to be health-conscious, the natural sodas are releasing more fortified and/or functional formulas.?

Woloson agrees that nutraceuticals are an emerging trend in the industry, but he?s not sure if they?re ready for prime time yet. ?There is a growing trend to use beverages as a delivery mechanism for nutraceuticals,? he explains. ?But I don?t think anyone has figured out how to do it effectively because you can?t heat up vitamins and expect them to maintain their efficacy.?

Woloson says that in the next five years, he expects to see even greater choice, rather than consolidation, in the natural soda market. ?I see a massive fragmentation, which is really great for the consumer, to be able to buy all of these different products for different moods and different usage occasions,? he says. ?I wonder if there will ever again be another product with as big of a market share as Pepsi or Coke. Back then, you drank a Coke or a Pepsi for thirst, or as a pick-me-up, or even in lieu of a meal. Now I see those as three different beverages—brands and delivery systems for three different needs.?

Lynn Ginsburg is the author of What Are You Hungry For? Women, Food and Spirituality (St. Martin?s Press, 2003).

Natural Foods Merchandiser volume XXVI/number 9/p. 68

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