MAKING A SPLASH 1999

WILLIAM SMYTH

The beverage industry in the United States is more robust than it has ever been, with manufacturers increasing distribution of all drinks, from carbonated beverages and bottled water to fruit juices.

Different brands and flavors are making the beverage world a tough place to compete, and manufacturers are finding it more difficult to promote and market their products. Although some categories have remained flat, most have seen growth in a variety of outlets.

Information Resources, Inc., Chicago, has tracked the various beverage categories for the 52-week period that ended July 18, 1999. Although single-serve canned juices, coffee and frozen juices are seeing a decline in sales within the supermarket aisles, aseptic juices, carbonated beverages, tea (bags/loose, ready-to-drink, and instant) and bottled water are experiencing substantial increases in dollar sales and volume, their statistics show.

Aseptic juices, drinks packaged in shelf-stable cardboard boxes, saw a 6.6% increase in sales and grossed $430 million for the year, while carbonated soft drink beverages crept up 3.1%, raking in $8.2 billion for the segment alone. Mass merchants increased their sales 25.4%, pulling in $1.2 billion. Overall, the state of soft drinks and the rise in aseptic drinks is contributing to increased productivity for supermarkets.

Tea is another category that saw significant increases in sales during the period tracked by IRI. Although instant tea mixes witnessed a mere 0.8% increase to $270 million, ready-to-drink tea was up 12.3% to $441 million and bagged/loose tea was up 4.4% with $625 million in sales. Mass merchants also experienced this trend first-hand with instant tea growing 33% to $17.7 million, bags/loose up 16.2% to $70.9 million, and ready-to-drink up 14.7% to $39 million in sales.

Some other categories, however, didn't fare as well. Frozen blended fruit juice concentrate, cocktail drink concentrate, grape juice concentrate, grapefruit juice concentrate and orange juice concentrate saw their sales percentages drop by 5.4, 5.8, 2.8, 1.2 and 6.0 respectively. Only lemonade concentrate frozen juice saw an increase, though it was a slight 0.8%.

Coffee supermarket sales across the board are also down. In ground coffee ($1.7 billion), decaf ground ($282 million), instant ($513 million), instant decaf ($156 million) and whole bean ($228 million), supermarkets are seeing sales percentages drop by a whopping 17, 14.7, 9.9, 12.5 and 0.9 respectively.

Although mass merchants have been hit by a 9.6% decrease in their ground sales to $26 million, and a 1.6% drop in decaf ground to $54.6 million, they're cleaning up in the instant category, reporting a 15.3% increase in sales to $82.6 million and a 14.8% rise in their decaf instant sales to $22 million. Whole bean sales were also up during the period, growing 51.3% to $8.5 million.

These statistics indicate that more consumers are using alternative channels like Starbucks and other coffee shops to get their caffeine fix for the day. Consumers are also more prone to buy their coffee in bulk with the assumption that they are saving more money.

Sports drinks are another area that seems to be doing well for supermarkets. Sports drinks like Gatorade and Coca-Cola's Powerade saw a 10.7% increase in sales, generating $615 million for supermarkets. The total FDM was up 13% and sales climbed to $755 million.

Despite the healthy growth in sales of some of the aforementioned beverages, the one that many analysts believe is driving the industry is bottled water.

According to the International Bottled Water Association, bottled water is flowing out of supermarkets at increasing rates, with 3.6 billion gallons sold in 1998. The volume increased to more than 350 million gallons as per capita consumption grew to 13.3 gallons, making 1998 the segment's best-performing year of the decade.

According to IRI, distilled water dollar sales were up 6.3% during the 52-week period and sales grew to $89 million. The biggest increase came from non-carbonated products including flavored water, where sales were up 17.1% to $1.1 billion. Unit sales in supermarkets were up a combined 11.5% with 1.2 billion units sold.

Mass merchants saw an even bigger percentage jump for distilled and non-carbonated categories. Distilled peaked at $18 million, a 23.7% increase, and non-carbonated/flavored bottled water was up 58% from the previous period with sales reaching $175 million.

In fact, for the total FDM, non-carbonated bottled water saw dollar sales increase in 19 of the 26 brands that were tracked by IRI. What seems to be a shock to the industry is that during the 52-week period, private label was the number one ranked brand with $327.8 million in sales--a 17.8% increase from the previous period.

The top five private-label bottled water sales came from Evian (7.2% increase to $100 million), Poland Spring (18.6% increase to $99.3 million), Aquafina (87.8% increase to $74 million) and Arrowhead (9.9% increase to $73.9 million). Dannon, Zephyrhills, Deer Park, Sparkletts and Crystal Geyser rounded out the top ten as far as sales, witnessing percentage increases of 52, 27.8, 27.9, 33.1 and 27.5 respectively.

"The basic fundamentals of the industry -- such as purity, convenience portability, and affordability -- remain very strong and this growth is likely to continue throughout 1999 and beyond," said Michael C. Belis, chairman of the New York-based Beverage Marketing Corporation.

According to the IBWA, the success of the bottled water industry was mainly driven by the performance of the single-serve sizes of 1.5 liter and smaller bottles of water, which accounts for more than 25% of the marketplace. The IBWA also noted that the single-serve category accounted for approximately 75% of the 10.1% growth.

"Single-serve bottled water use is convenient in almost every situation that you can think of because it doesn't have to be refrigerated and it is available in a resealable package that can fit in briefcases, lunch boxes and purses," Belis added.

Gary Hemphill, vice president of Beverage Marketing Corporation, a New York-based beverage consulting agency that conducts annual reports on the industry, agreed.

"Bottled water is the number one fastest growing category in the beverage industry. One-and-a-half-liter, non-carbonated water in the plastic container is growing 20% to 25% every year. That is a real dramatic growth category in the bottled water business," he said.

Hemphill also pointed out that the bottled water industry, which at one time consisted of smaller companies, is now being transformed into a national competition. "You now have entry into the bottled waterindustry from soft drink giants. Pepsi has come out with Aguafina and Coca-Cola now has Dasani. Consolidation is now starting to occur. The history is that small regional companies are now being led by national beverage giants," Hemphill added.

While not doing quite as well as bottled water, alcoholic beverages are pulling their own weight for supermarkets, and wine is an area that has picked up steam over the past year. According to Eileen Fredrikson, of Gomberg, Fredrikson and Associates, a San Francisco-based wine industry consulting company, wine was up in supermarkets 3% in volume and 6% in sales. Through mid-year 1999, 625,000 more cases were sold than during the same time in 1998.

"The wine market is up in general. Our research shows that at least 80% of wine that is purchased in the grocery store is picked up for an everyday meal," said Fredrikson. "Supermarket shoppers are not making that second trip. In fact, states that sell wine in supermarkets are all seeing a significant increase in sales."

"Through the first six months of this year, our data shows that 87% of wine bought in supermarkets is American while 13% is from other countries," added Fredrikson. "There is a definite trend for varietal or better wines rather than just the red and white blushes."

Similar to what wine is experiencing, imports are moving the beer industry this year as they did in 1998, and Corona was up 35.3% from last year, taking home $206 million. "Domestic beers are growing in 1999 at a 1% rate while the imported beer is in the double digit [15.1%] range," said Matt Hein, director of statistical and information services at the Washington-based Beer Institute.

Even though beverage sales have been up in most categories and the segment seems to thriving, Hemphill said he believes that supermarkets have been losing ground due to alternative channels like the mass merchants. However, according to Hemphill, manufacturers are becoming more aggressive with their marketing strategies in all four walls of supermarkets.

"An example is that a customer walks into a store and let's just say they're looking to buy Coca-Cola. They can find the single-serve can in the [center store] aisles, walk over to the prepared food section and find a single-serve bottle and then walk to a picnic display area and find a multi-pack package," said Hemphill.

"Companies and supermarkets have gotten better at putting the right package out at the right location and time. This is definitely the way that supermarkets are boosting sales," he added.