HOT BEVERAGES

Liza Casabona / Additional reporting by Barbara Murray

Beverages are hot, hot, hot. A slew of colorful, uniquely flavored and unusually marketed products have propelled the previously flagging beverage aisle forward with the force of a geyser. While the new entries may not be establishing decade-long dynasties, retailers on both coasts agree that the new influx of products has put the buzz back in the beverage category.

"Beverage is definitely a hot category right now, driven by new items and packages. This is the start of what I see to be a great trend. Most of the manufacturer growth is coming from the new items and I foresee they will continue with innovation," said Marty Brown, category manager for Bi-Lo, Mauldin, S.C.

The last year and a half has seen the launch of Vanilla Coke, Mountain Dew Code Red, Diet Code Red, Pepsi Blue, Michelob Ultra (a low-carb beer), Pepsi Twist, Diet Coke with Lemon, Dr Pepper Red Fusion, Smirnoff Ice, Sierra Mist, Kool-Aid Jammers and Propel Fitness Water, to name a few of the high profile performers. The introductions continue this year as Dr Pepper/Seven Up expanded the limited November rollout of its new dnL (7 UP upside down) nationally this month.

This had a strong impact on the carbonated beverage segment, where there has not been a lot of product innovation in recent years, according to Gary Hemphill, vice president of information services, Beverage Marketing Corp., New York.

"Growth in the carbonated beverage soft drink category is a little better for 2002 than it was in the three preceding years, when we only saw about half-percent growth. You would have to credit this new product activity for bringing some excitement back to the carbonated soft drink aisle," he said.

The rollouts have the added benefit of being linked to existing brands, which retailers were quick to point out, noting that the marketing mechanisms and support from those major brand manufacturers can help propel a new beverage forward into consumer consciousness.

"Generally, at least initially, new beverages almost always perform very well because the beverage companies do a great job getting behind them advertising-wise. They're huge companies and you see strong national advertising," said John Spencer, owner and president of Spencer's Fresh Market, a three-store chain based in Santa Monica, Calif. His stores, part of an advertising group out of Unified Western Grocers, saw a lot of advertising and promotions around the product launches of the last year, which are starting to die out now, he said.

Bi-Lo's Brown said his stores supported new beverage launches using a lot of promotion in the form of incremental displays and ads. A spokesman at Food Lion, Salisbury, N.C., said the chain supported the product launches as well, leveraging ads, special in-store pricing and demonstrations. Products were also placed on endcap displays. Many of the items exceeded performance expectations, according to the spokesman.

In fact, many of the newer beverage launches performed well. Data from Information Resources Inc., Chicago, shows that seven of the Top 10 "Pacesetters" were

beverages last year. To be labeled a "Pacesetter," new products must achieve 30% or more distribution and top $7.5 million in sales for its first 52 weeks of distribution; the Top 10 all surpassed or came within reach of the $100 million sales mark.

Leading the pack were Mountain Dew Code Red, Pepsi Twist and Diet Coke with Lemon, generating sales of $195.2 million, $191.6 million and $154.6 million, respectively, in their first year. Vanilla Coke, cited by many retailers as the product with the best potential, was only tracked for the 26 weeks since its launch. If that current trajectory continues, IRI projects that it will top $302.8 million by the end of its first 52 weeks.

"Brand names give the product instant credibility because they carry that mega-brand name. Generally speaking it helps the product to get more trial with consumers having that name attached to it," Hemphill said.

Capitalizing on the existing advertising image of a mega-brand, particularly when targeting youth, can be very effective. Spencer pointed out that Mountain Dew Code Red, for example, had been a hit with young consumers, the successfully targeted audience for Mountain Dew's flagship soda. Rob Giusti, beverage buyer for Andronico's, Albany, Calif., agreed. "They're after the kids," he pointed out, adding that kids will often try new things but may be fickle consumers.

In fact, retailers question the staying power of many of these beverages. Spencer predicts that these products will eventually rotate out to be replaced by the next new item, a trend he said is seen increasingly in the beverage business, and is evident in the chip and snack categories as well. Big brands hold market share for manufacturers while new, unique items rotate in and out at a greater frequency and help generate instant volume, he explained.

Brown agreed, but pointed out, that's the nature of the beast.

"As far as staying power is concerned, these categories thrive on the new and exciting. It is difficult to say whether this year's hit will remain a hit, or if something else is looming on the horizon to take its place."

In today's fast-paced, volatile, youth-driven marketplace, the longevity of a product may be a moot point. What is a hit today may be tomorrow's industry caveat but that doesn't mean a product has failed. In the current climate, Hemphill pointed out, a two- or three-year life span for a product may not spell failure.

"A new product doesn't necessarily have to be around forever today to be considered a success," he said, adding that while it is difficult to predict, many of the newly introduced beverages probably do have staying power.

Coca-Cola's director of strategic innovation, Sean Seitzinger, told SN that research conducted by the company showed that consumers' attitudes are shifting away from a past emphasis on price to brand. He cited a negative 26% on price recall, adding that two-thirds of consumers want to buy products for reasons other than price.

"I think it paints a really good picture for retailers. There is a better place in front of us," Seitzinger said. "If we are willing to take some risks and move into new territory, we can have a dialogue that does not include price."

The future holds continued excitement for the beverage aisle, retailers, experts and numbers agree. Isotonics, bottled water, aseptic juices, refrigerated teas/coffee and carbonated beverages have all increased their dollar sales over the same period last year, according to IRI data. The industry as a whole totals over $38 billion. Isotonics have increased 16.7% to $1 billion in sales; bottled water, still riding the tide of growth it has seen in recent years, grew 14.7% to $2.5 million; and the carbonated beverage category, buoyed by the spate of product introductions, grew 4.2% to end the year at $13.6 billion. Aseptics increased 7.7% and refrigerated coffee/teas grew 5.2%.

Brown said that over the last year, introductions in the new-age and water categories have driven double-digit growth in their respective categories for Bi-Lo. He predicts that current flavor and color trends, as well as new package innovation, will drive sales in the coming year, an opinion others share.

"We think we will continue to see new flavors and packages emerge that will fuel category growth," the Food Lion spokesman told SN.

Hemphill agreed, pointing out that if the growth of the past year proved anything to the industry, it's that consumers will respond to strong new products.