From The Spring 2004 Issue of Natural Grocery Buyer

Niche Beverages Add Fizz to the Drinks Cooler

John Aguilar

Three companies, Coca-Cola, PepsiCo and Cadbury Schweppes, own nearly 90 percent of the $60 billion annual soft drink market in the United States, according to Beverage Digest.

But in the other $8 billion resides a hearty collection of small, alternative drink makers: those who develop energy drinks, natural sodas, sparkling juices, ready-to-drink teas, sports drinks, enhanced waters and soy beverages. Fortunately for them, that’s the part of the beverage market where most of the growth is expected, analysts say.

Growing is just what Hansen Beverage Co. has been doing. The maker of natural sodas, energy drinks, soy beverages and juices managed to crack Beverage Digest’s top 10 companies list for the first time in 2003, placing eighth, right behind Red Bull. With $92 million in 2002 sales, Hansen commands a mere fraction of the overall beverage market, but its 34.4 percent sales growth was second-highest on the list.

“Consumers young and old like choice—a broad array of beverages makes a cooler or aisle more interesting,” says John Sicher, Beverage Digest editor and publisher.

Most companies tend to focus on the younger end of the demographic scale, partly because they have a longer time to be consumers, but also because they’re considered trendsetters. Whether young people are looking for alternatives to mainstream soda for health reasons or just because they think the bottle looks good, they notice what their peers are drinking.

“It’s a statement, it’s a label they can carry in their hand,” says Michael Banks, a veteran consultant to the retail food industry.

This kind of peer-to-peer marketing can sometimes lend a new drink enough cachet to take off in the marketplace. “They have to first build a success story outside of the grocery channel,” says Gary Hemphill, senior vice president of Beverage Marketing Corp. “If they’re unproven, retail is less likely to take a chance on them.”

Boulder, Colo.-based Izze Beverage Co. still relies on a word-of-mouth sales strategy. Founder, President and Chief Executive Officer Todd Woloson says Izze engages in a form of stealth marketing, whereby it quietly tries to get samples of its beverage into the hands of “tastemakers”—people who are influential at some level, whether it’s New York’s artistic elite or the coolest of the cool on the middle school playground.

Izze has built its brand and now sells six flavors of sparkling juice in Whole Foods Markets, Wild Oats Markets, Starbucks coffee shops and some 7-Eleven stores. It is also gaining access to a captive audience by appearing in vending machines in some Colorado schools.

Richmond, Va.-based The Switch Beverage Co., another maker of sparkling juice, sells its products in schools in three states. President Bill Hargis says Switch tries to reach the younger crowd by sponsoring a team in the U.S. Adventure Racing Association’s national championships.

Attracting youthful consumers is not the sole province of the sparkling juice category. Honest Tea and Oregon Chai Inc. have both created single-serve, ready-to-drink options that appeal to younger, convenience-oriented consumers. Stonyfield Farm branched out from spoonable yogurt and created a grab-‘n’-go yogurt smoothie.

In the end, however, when a niche drink becomes popular, big beverage or food companies are always in the wings. In March, an Irish consumer foods conglomerate purchased Oregon Chai as part of a $96 million deal, while SoBe, Odwalla and Snapple have all been acquired by the Big Three. John Craven, editor of Bevnet.com, an online publication, says it’s inevitable.

“If you do anything that’s good, Coke and Pepsi are going to come after you,” he says.

John Aguilar is a free-lance business reporter in Denver.