BUBBLE BUSTERS

DAN ALAIMO

The concept of "New Age" may be showing signs of old age, but natural beverages are here to stay in supermarkets.

From the multitude of teas and fruit drinks, to the booming water segment, to more exotic smoothies and nutritionally enhanced products, natural beverages of all kinds are providing growth and excitement to a beverage category that is otherwise stagnant. Acquisitions by the major soft-drink companies are bringing significant marketing muscle, while a steady stream of new items keeps consumers interested.

"We are seeing great growth in that category," said Don Whittaker, grocery buyer, Rosauers Supermarkets, Spokane, Wash., which merchandises the products in its natural foods sections. "But this category is also still a work-in-progress. Hardly a day goes by that I don't get a call about a new line or manufacturer."

"The number of product offerings certainly has increased dramatically over the last few years," said Katherine DiMatteo, executive director, Organic Trade Association, Greenfield, Mass. "You are getting bottled teas of all varieties. Bottled juices. You are even getting noncarbonated, flavored waters. And they are coming in all sizes and shapes."

Beverage Marketing Corp., New York, reports double-digit sales growth for what it calls "New Age" beverages in the last four years withprojected growth of 14.2% from 2000 to 2001.

In the group of products, which includes everything from energy drinks to premium sodas, bottled water has seen the most startling growth in this period: 30.1% from 1997 to 1998, 38.2% from 1998 to 1999, 26.1% from 1999 to 2000 and a projected 32% from 2000 to 2001.

"Health is an overriding, driving trend with today's consumers -- and that certainly applies to beverages," said Gary Hemphill, senior vice president at Beverage Marketing.

ACNielsen, Schaumburg, Ill., which breaks out numbers for the supermarket channel alone, also reflected this trend. Total bottled-water sales for the 52 weeks ended Jan. 19 were up 21.6% in supermarkets, with flavored bottled waters increasing 25.3%. Meanwhile, ready-to-drink iced teas went up 9.4%.

"Supermarkets are going to continue to add shelf space for these products because consumers are moving toward drinking healthier beverages," said Greg Badishkanian, vice president of equity research, Salomon Smith Barney, New York. "As that trend continues, this category is going to continue to take share."

"I'm still seeing products like the Snapples and the Arizonas moving quite well," said Andy Butera, grocery buyer, Draeger's Supermarkets, Palo Alto, Calif. "I haven't seen anything slow up in that arena at all."

But like others, Draeger's is starting to bring in flavored, noncarbonated waters. "I think the beverage people are trying to attract people who want a water, but want something besides plain water, and they are using the fruit flavors to do it," Butera said.

"Water continues to be an exploding category with continued, positive sales trends for our company," said Rick Kelly, category manager, K-VA-T Food Stores, Abingdon, Va. K-VA-T had just about given up on flavored waters when the requests started to come in. "So we picked them back up about three months ago and are seeing extremely good sales."

The nutritionally enhanced products are getting attention at K-VA-T as the retailer works Gatorade's Propel line into its water section. "It will be interesting to see how that does this spring," Kelly said.

But other natural products, such as teas and juices, are not doing that well, he said. "They are fair at best."

Kelly sees two marketing keys to such products. First, they sell best from a cold case. "The consumer is looking for instant consumption on those items, so they look for it in a cold location," he said.

But, second, it is a very trendy product. "Sales are according to what is the latest, greatest, hottest line," he said.

Superior Super Warehouse Grocers, Lynwood, Calif., has 13 stores in less-affluent neighborhoods where there is not much call for the higher-end natural beverages, said Rick Fry, vice president of grocery. "But what sales we get out of it are from the coolers at the checkstands," he said.

Remke Markets, Covington, Ky., outside of Cincinnati, also is re-examining the natural beverage category. "That seems to be a market that reached a certain point and just didn't go beyond it," said Tom Litzler, vice president. "Regardless of what you do with it, you just can't drive the products to what you would consider to be a good volume."

Litzler recently met with his soft-drink suppliers to review the situation. "We are tying up a lot of space with items that are just not really turning," such as the Snapple, Mad River and Sobe products. "And they've got the high-energy drinks that just do nothing."

From that experience, Litzler is not optimistic about the prospects for the new flavored waters.

"I think a lot of varieties are going to bite the dust. The motivation for most of the big beverage companies in getting into them was because their core soft-drink business is flat. But if they really want to put their efforts in another direction, it should be just in the water category. If there's a reason their core products are flat, it's water. People are drinking more water and we sell a tremendous amount of it," he said.

The soft-drink companies have been moving more aggressively into natural beverages because that is where the growth is, confirmed Badishkanian of Salomon Smith Barney. "When you look at the typical beverage companies, the market for carbonated soft drinks is pretty weak in the United States. Growth is slightly better than flat. So the noncarbonated products are an area of growth, and the natural beverages are one of the highest-growth areas in that segment," he said.

While many of these drinks are healthier, "natural" is often a matter of perception, Hemphill of Beverage Marketing pointed out. "Tea is perceived to be a healthy product. Sports beverages are perceived to be for active, healthy lifestyles," he said.

To appeal to young customers, variety and novelty are especially important, he said. "Innovation tends to be really key in terms of line extensions, new flavors and adding functional benefits. These consumers are often looking for the next hot thing," he said.

Nutrient-enhanced waters, like Glaceau, are the products to watch for in the future, he said. "There are only a few of these products in the marketplace right now and, because the water category is so hot, I think that you will see more activity there by some of the bigger companies," Hemphill said.