BUBBLE UP

JON SPRINGER

Supermarket beverage aisles in 2004 will reflect the increasingly lighter tastes and more adventuresome thirsts of shoppers, retailers and observers told SN.

The trends promise to make managing the section more challenging than ever, but still offer retailers opportunities for new profits and differentiation.

Line extensions from carbonated soft-drink brands will likely be a key leveraging point this year, analysts said. The Coca-Cola Co., Atlanta, for one, rang in the new year with yet another version of Diet Coke, this one with lime flavoring. Diet trends are also the rage in beer where low-carbohydrate Michelob Ultra was an unqualified success in 2003, and will spark a variety of imitators in the high-end light/low-carb category it virtually created.

The trends in health and energy drinks will continue to evolve as new hybrids like Invigor8 -- an energy drink with 100% juice from Campbell's V-8 family -- seek a home on store shelves.

"Beverages in the last five years have been way ahead of the rest of grocery when it comes to line expansions and new products," said Dennis Darling, president of Foods Etc., a two-store IGA operator in Clearlake, Calif.

That's a mixed blessing, he feels. "We've got just a limited amount of shelf space, so when [a manufacturer] does an extension, we usually have to replace another one of their items. So in overall sales growth, it really hasn't done a lot for us."

Yet, Darling added that generally vendors in soft drinks and beer have done good jobs helping to manage that space. "It's very helpful to us and frankly, [it's] the kind of help we're not getting enough of elsewhere in grocery," he said.

In virtually all beverage categories, the flow of new products will tilt strongly to those that appeal to the health- and weight-conscious.

"Supermarkets are going to be more receptive to those products that speak to the so-called obesity issue," predicted Manny Goldman, a former Wall Street beverage company analyst and now president of Goldman Consulting Services, Hillsborough, Calif. "It's the issue of the day. Now, soft drinks are not the root cause of obesity, but as long as the issue persists, you'll see the continued resurgence of diet sodas and drinks."

In the beer aisle, Michelob Ultra, which debuted late in 2002, was last year's biggest success story. "It was the best new item we had in the beer section over the last year, no question," said Chad Streeter, manager of Quality Foods IGA, Schofield, Wis. "We just keep picking it up in more and more sizes."

St. Louis-based Ultra brewer Anheuser-Busch most recently made the product available in 12-ounce cans in six-packs, 12-packs and 18-packs. The beer, positioned to appeal to "active adults" aware of reduced-carbohydrate diets, zoomed from a zero share to 2.1% of the overall U.S. beer market during 2003, according to Information Resources Inc., Chicago.

Ultra's placement in the higher-end Michelob family helped drive better margins, and sparked additional interest in the high-end light category. That segment continues to grow behind new products like Michelob Ultra and Sam Adams Light, observers said.

Michelob Ultra's success in the low-carb niche means more company on shelves this year, as new low-carb brands are already out, such as Labbatt USA's Rock Green Light, or soon to be -- Coors' Aspen Edge, and a new low-carb formula from Mike's Hard Lemonade, to name two. The power of the low-carb message was perhaps best illustrated by Miller Lite, which reversed years of slow growth simply by reminding consumers of the low-carb content it always had.

"In Miller Lite, you had a mature megabrand whose performance was soft, at best, for years. All of a sudden, the low-carb association has given it five months of steady growth, so much so they're taking share from Coors Light and Bud Light," noted Tom Fox, president of retail consultant CM Profit Group, Troy, Mich.

John Beese, former beer and wine category manager for Pittsburgh-based Giant Eagle and now president of his own consulting group in Akron, Ohio, said he expects more growth from the premium lights, imports and specialty beers in 2004.

"Corona, Heineken, Samuel Adams ... all have a good following, all are image-conscious for people who want to entertain," he said.

Fox feels that the beer aisle offers opportunities for differentiation and profits but that too few retailers are exploiting it.

"I think retailers have a pretty good idea what products are hot. But are they doing enough, merchandising-wise, to take advantage of those dynamics?" Fox asked. "Retailers should think about how they allocate space and promotional activity. High-end beer can be a good business. But it's hard for a retailer to net growth in that business if they don't chase it."

In soft drinks, high-end sodas are having a harder run than high-end beer because of pricing pressures, Goldman, the consultant, said. "It's very hard to sell things for as much as you'd like to sell them."

Amid the line extensions, Goldman also expects the large CSD companies to re-address their flagship brands in 2004. "Pepsi cannot stand a 5% drop in Pepsi. That can't continue to happen," he said. Programs that promote soft drinks by occasion rather than price have shown promise in this area.

New packaging can also have an impact, retailers noted. Newly shaped 12-packs, such as Coke's "Fridge Pack," have been well received by consumers, observers said. John Zagara, store director of Zagara's Marketplace, Cleveland Heights, Ohio, said 8-ounce soda cans designed for lunch boxes are doing well at his store, as are a variety of energy drinks and New Age beverages merchandised by the prepared-foods section of his store.

"Snapple started that whole thing, and everybody's on the bandwagon now," Zagara said. "I have an 8-foot cooler by prepared foods selling Fuze, Red Bull, Monster Energy and Starbucks' Doubleshot. My Red Bull has sold down better than iced teas or juice."

Darling of Foods Etc. also reported a sales jolt from the energy category, including Rock Star, a favorite brand among teens in his market area.

"I've got employees who drink three cans of that stuff a day -- and they get a lot work done," he quipped.