POWDER STRUGGLE

LISA SAXTON

Just add water" isn't as convenient as it used to be. The consumers' new litmus test for convenience -- ready-to-drink -- is pinching the market for powdered drinks.

Three major powdered segments -- flavored drinks, iced tea and hot chocolate mixes -- still make up a $1.2 billion business, but they are apparently hurting while their ready-to-drink competitors grow.

As a result, powdered drinks are a relatively mature category, but important enough to merchandise with a competitive edge. Savvy retailers merchandise them to reflect seasonal opportunities, and at the same time make sure powdered's most obvious asset -- price appeal -- is not drowned out by the latest New Age bottled concoction.

SN found a model of the category's merchandising challenge along a two-mile stretch of heavily trafficked Route 17, serving a middle-class enclave in the heart of New Jersey's densely populated Bergen County. The corridor includes stores operated by ShopRite, Pathmark, Grand Union and A&P, battling it out for powdered drink dollar share.

Ned Meara, corporate grocery merchandising manager at Grand Union Co., Wayne, N.J., acknowledged the difficulty the category faces.

"We definitely see a decline in the powdered iced tea segment. Corresponding to the decline in powdered tea, there's been a tremendous increase in the ready-to-drink iced teas," Meara noted.

"However, I do not mean to say, in any way, that the traditional powdered drink mix has fallen off the face of the earth, because it has not," he pointed out. "It remains a very important part of the business. And I believe it will remain that way as long as there are Country Times and Kool-Aids out there with their advertising and strong programming to keep it that way."

Meara said private-label products have also been on the decline, which he also attributed to the emergence of the ready-to-drink, New Age category.

Powdered tea mixes are struggling nationally, according to scanning data supplied by Schaumburg, Ill.-based Nielsen North America. For the 52-week period ended in September, with sales of $277.3 million, the category was down 3.9%.

Private-label tea mixes showed the least decline, only 0.7%, and ranked second in sales. However, dollar sales of the top-selling Lipton product were down 3.8%, and No. 3, Nestea, took a 4% dip. Crystal Light iced tea mix fell the furthest of the top four, with an 8.6% plunge in dollar sales.

Meara said traditional products such as Country Time lemonades, Kool-Aid in the canister and Flavor-Aid have been hurt by ready-to-drink products and the ascension of Crystal Light.

"Crystal Light has emerged as another growing force, because of diet-conscious and health-conscious consumers. It makes the same yield and it tastes good," Meara explained. "Also, people think they're feeding their children a better product, because it doesn't contain all that sugar."

Indeed, unlike its iced tea counterpart, sugar-free Crystal Light was up 2.5% in the flavored drink category, according to Nielsen. But, overall, the category was down 5.3%, with Kool-Aid products taking the biggest hit of the top five products.

Of course, in the Northeast the Kool-Aids of the world pick up during the warm months; likewise, cocoa in the winter.

"During the colder months, you'll always find a cocoa mix in every week's ad," explained Meara. "In everybody's ad. And that's what really spikes sales.

"I don't think there's an awful lot of brand loyalty in cocoa; I think the private label has a very strong niche because it's always a value and outstanding quality. And its price point is always significantly below -- even at regular retail -- the branded price."

Ten years ago, cocoa mixes "were a lot stronger than they are today. It was a category you couldn't keep on the shelf during the winter months," Meara noted. "That was when it was at a high point and it has leveled off and remained level for the past four or five years."

Meara again connects this leveling off to all the alternative drinks available to consumers. However, he has seen more interest in sugar-free cocoa products.

Nielsen's data indicates the hot chocolate mix category is up 7.1% with sales of $368 million, with a strong showing from the No. 2 brand, Swiss Miss, which saw a gain of 8.5%.

Bill Vitulli, vice president of government and community relations at Montvale, N.J.-based A&P, said the strength of powdered drinks is their price.

"There is a tremendous price differential between the powdered drinks and the bottles, which are rather expensive by comparison," Vitulli said. "So we look forward to substantial sales, especially in the cities and large family areas where people go for the powdered drinks, because of the economy and other reasons."

SN inspected the merchandising tactics of four competing supermarkets on Route 17: a Grand Union; a Pathmark Supercenter operated by Pathmark Stores, Woodbridge, N.J.; a ShopRite operated by Wakefern Food Corp. member Inserra Supermarkets, Mahwah, N.J., and an A&P.

While the stores varied in size -- the conventional A&P was half the size of the Grand Union superstore, for example -- they all averaged about 150 powdered drink stockkeeping units. Likewise, the products were generally competitively priced across the board.

Still, Grand Union came out ahead in the variety game, and ShopRite emerged the clear price leader when SN visited the stores Feb. 22.

The retailers exhibited a mixture of different ideas on where the powdered products should be merchandised.

A&P and ShopRite housed all the subsegments together in one powdered drink section in the coffee aisle. Grand Union merchandised the powdered teas and cocoas in the coffee aisle and the flavored drinks with shelf-stable juices.

Pathmark took that idea one step further by breaking up the category three ways. Powdered iced teas were merchandised with ready-to-drink teas and other New Age beverages. Flavored drinks were nestled in the shelf-stable juice aisle, and hot chocolates were displayed in the coffee aisle.

Apparently reflecting a cold weather set strategy, Pathmark devoted 16 feet to about 50 hot chocolate SKUs and 8 feet to 40 iced tea SKUs. Meanwhile, in the shelf-stable juice aisle, 60 SKUs of flavored drinks took up 8 feet.

Grand Union weighed in with roughly 100 SKUs of teas and cocoas in a 12-foot section and another 60 SKUs in a 4-foot flavored drink section.

ShopRite countered with 140 SKUs in its 22-foot powdered drink section, while the much smaller A&P somehow managed to get all of its 150 powdered SKUs in a 12-foot section.

That's where space management comes into play, according to A&P's Vitulli. However, because of the shelf stability of the powdered drink category, A&P won't be resetting the department to add or take away space, he said.

On the other hand, there appeared to be some tinkering with the category in the works at the ShopRite unit, which conspicuously tagged the 20-ounce Country Time lemonade mix, the 19-ounce Kool-Aid drink mix and several other products with "to be discontinued" signs.

Officials at Wakefern Food Corp., the cooperative wholesaler, declined to comment. But it was clear that ShopRite tries hard not to be undersold in this category. For instance, its private-label 24-ounce can of flavored drink mix retailed for $1.29, which was not only cheaper than the other three retailers' private-label offerings, but was a dime lower than the generic can sold at Pathmark.

While others sold the category icon Kool-Aid packet for about a quarter apiece, ShopRite came in at five packets for 99 cents -- and so it went, generally, across the board.

Grand Union -- which, by the way, is in the same shopping complex as the Pathmark -- offered outstanding variety. For instance, it offered the two flavors of an 18.4-ounce Gatorade mix, something its nearby competitors did not carry. Meara said the Gatorade, which retails for $4.99, is a promising new product.

Mixing It Up in Pricing

SN gathered retail prices of popular powdered drink products in major retail outlets in Bergen County, N.J., Feb. 22, 1995. Here's how the price competition stacked up.

RETAIL PRICES OF SELECTED SKUS

PRODUCT SHOPRITE PATHMARK GRAND UNION A&P

Crystal Light 3.3 oz $4.49 $4.49 $4.49 $4.59

Kool-Aid 19 oz $2.89 $2.99 $2.99 $2.99

Private label 24 oz $1.29 $1.69 $1.99 $1.69

Kool-Aid Packets .17 oz 5/.99 .25 3/.79 .25

Nestle Quick 32 oz $3.49 $3.59 $3.99 $3.99

Lipton lemon Tea 32 oz $3.59 $3.59 $3.69 $3.59

Swiss Miss 10-pack cocoa $1.49 $2.29 $1.59 $2.19

Priv. label 10-pack cocoa .99 $1.19 $1.29 $1.69