Focus on health impacts beverages

Consumers’ desire for healthier foods with fewer ingredients is having a significant impact on the beverage category. The result is a dizzying array of new products that’s causing retailers to find new ways to accommodate shoppers’ changing tastes for fresh, healthy forms of refreshment.

SPINS defines the refreshment drink category as shelf-stable and refrigerated ready-to-drink tea and coffee, refrigerated juices and functional beverages, shelf-stable juices, shelf-stable functional beverages, carbonated beverages, and nonbulk water. Those segments, which are becoming harder to define as new products blur the distinctions between channels, grew 4.5 percent last year, according to Kora Lazarski, senior strategic alliance manager at Chicago-based SPINS. Most of that growth came from healthy/natural beverages such as premium juice, kombucha, plant-based water, and single-serve tea and coffee.

A focus on healthier, fresher beverage alternatives is causing retailers to rethink their product mix in center store and to scramble to create a greater amount of refrigerated sections that accommodate a wider selection of higher-priced fresh and functional options. Fresher taste without preservatives also means narrow refrigerated shelf life, so retailers must manage the category more tightly than ever before.

Manufacturers continue to offer new products to satisfy younger consumers, who are thirsty for a steady stream of innovative items that offer the most on-trend ingredients, and who are reaching for many types of beverages over the course of a day. The new beverage landscape is ultra-fractured, with innovations blurring the lines between segments (sparkling tea and natural juice-flavored waters are just two examples).

“In the last year or two, retailers are reducing the amount of space they are giving to carbonated soft drinks and significantly expanding their selection of healthier beverages,” says James Hoagland, CEO of Brooklyn, N.Y.-based Ito En North America, manufacturer of the Teas’ Tea brand of RTD green tea and Matcha Love beverages.

“Conventional channels are quicker to respond than they have been in the past, and we’re seeing trends move into the mainstream at a much faster pace,” observes Lazarski. Once found exclusively on health food and specialty food retailers’ shelves, products such as kombucha and chia beverages are migrating more quickly than ever before to conventional supermarkets as retailers seek to satisfy consumers’ desire for new beverages with fewer and more natural ingredients, lower-calorie profiles, and added health benefits.

Cold-brew coffee, kombucha on fire

The RTD single-serve tea and coffee segments are punching above their weight class, according to Lazarski. While they comprise only 7 percent of category sales, SPINS data show that the segments experienced 15 percent growth this year over last year.

Cold-brew coffee is quickly becoming a category star. Starbucks and PepsiCo debuted a cold-brew beverage in the grocery channel last June, and Dunkin’ Brands Group and Coca-Cola will launch a cold-brew line in 2017, making the segment’s appeal even more mainstream.

Cold-brew coffee, made by steeping coffee grounds in room-temperature or cold water for an extended period, has lower acidity but a higher coffee-to-water ratio than conventional coffee, meaning that it has a smooth taste, but its concentrated nature gives it a higher caffeine content per serving. Since it has a wider appeal than traditional energy drinks, it could create competition for that category, which is viewed as having a less healthful profile and appeals to a more narrow demographic.

“Ready-to-drink coffee as a category is growing at a 20 percent average year to year, and the cold-brew subcategory is exploding with triple-digit growth,” asserts Jared Smith, VP of sales and marketing at Los Angeles-based Bowery Coffee Co., which recently launched at Ralphs and Aldi. Despite a higher price point, Smith says that consumers are “spending more, buying more often and buying in multiples. They’re not scared of higher price points.”

“Millennial consumers are used to customization and high quality in coffee, and they want that level of quality in a cold ready-to-drink product,” says Greg Steltenpohl, founder and CEO of Califia Farms, also based in Los Angeles. Califia recently launched three new flavors of bottled cold-brew, and a new dairy-free nitrogen-infused Nitro Cold Brew latté with almond milk, packaged in an aluminum bottle.

Cold-brew coffees are also emerging in shelf-stable multipacks. St. Louis-based Madrinas Coffee is now rolling out its brand nationwide. The company has placed high-impact cut-case displays of its 6-packs of canned coffee in Jewel-Osco, Roundy’s and Schnucks.

In addition to refrigerated single-serves and multipacks in center store, manufacturers are testing tapped coffee. Rory Mulcahy, director of sales, eastern division at Austin, Texas-based Chameleon Cold-Brew, sees potential for tapped cold-brew coffee in conventional markets. “There’s still growth for our bottled line, but we’d like to take our kegs national,” he observes. “Wegmans would be on our hot list.”

SPINS’ Lazarski says that the coffee category could even move into cultured and fermented territory, which has been a big factor in teas such as kombucha.

Still one of the hottest trends in health beverages, kombucha, along with other fermented drinks, topped $318 million in sales, with nearly 30 percent growth in the past year, according to SPINS data for the 52 weeks ending Sept. 4.

“A recent survey found that more than 70 percent of respondents would prefer to consume probiotics in a food or beverage product rather than in a supplement, and 40 percent to 54 percent were willing to pay more for products with probiotics in them,” says Bryan Crowley, chief strategy officer at Oxnard, Calif.-based KeVita, a maker of handcrafted fermented drinks.

The fizzy, low-calorie probiotic drink category to which KeVita belongs continues to show upside. “It’s a huge category,” says Lazarski. “We’re seeing not just the three big brands showing growth, but growth among regional brands that are heavily marketing in their place of origin.”

KeVita recently launched a Master Brew Kombucha in three flavors — dragonfruit, lemongrass and mango habanero — and a CitrusCleansing Probiotic Tonic line of sparkling drinking vinegars in three flavors: Meyer lemon, ginseng Mandarin and elderberry.

Next wave for teas

The next generation of kombuchas may be drinking vinegars and switchel, which is made from apple cider vinegar, fresh ginger and maple syrup, and then cut with water. In addition to KeVita’s recent launch, Cide Road, based in Mendham, N.J., has expanded distribution of its switchel, launched in 2014, to 3,500 stores nationwide, including ShopRite stores in New Jersey.

Austin-based Live Beverages, meanwhile, recently launched drinking vinegars with soft-drink flavor profiles like lemon-lime and root beer that are being sold in operators such as H-E-B, Safeway, Ahold USA and Kroger. “The gateway was kombucha,” says Live Beverages CEO Trevor Ross. “Consumers are becoming more adventurous, and they are willing to explore more sour flavor profiles.”

Matcha tea, which is partly shade-grown and then ground into a powder, is becoming a popular additive across a number of different beverage segments. “Matcha is on consumers’ radar because of its antioxidant and clean-energy profile, but we wouldn’t have predicted that it would [go] mainstream as quickly as it has,” admits Adam Hertel, Ito En’s SVP of sales for grocery and alternate channels. Carried in such retailers as Wegmans, Fresh Thyme and Gelson’s, the brand is gaining wider distribution.

Nonfermented sparkling teas is another specialized segment that’s erasing the barriers between the tea and sparkling water categories. “There was space in the category between sparkling water and tea,” explains New York-based Sound Sparkling Tea co-founder Tommy Kelly.

Willing to pay more for less

For a growing number of consumers, what’s not in their beverages is just as important as what’s included. “These products bring in a younger consumer who recognizes the value of nutrition density and clean labels,” says Anne Williams, VP of marketing for Bellevue, Wash.-based Evolution Fresh, a juice company owned by Starbucks. “Consumers are looking at labels and don’t want to see preservatives and too many ingredients in their beverage.”

New entrants into the cold-pressed juice category are helping to educate consumers on the value of higher-quality, more nutrient-dense products.

Consumers are paying for higher-priced single-serve juices that contain on-trend antioxidant-rich ingredients such as spirulina and turmeric. New York-based Fairway Market stocks cold-pressed juices made by BluePrint Organics, a division of The Hain Celestial Group, in Lake Success, N.Y., for $6.99 each, and juices from Saratoga Springs, N.Y.-based Saratoga Juice Bar for $7.99 each.

Most brands keep their prices in the $3.99-to-$4.99 range. Evolution Fresh recently developed a new four-SKU Superfoods line of organic juices that will roll out in March 2017.

“Retailers are chasing that Millennial consumer with higher disposable income,” says Cristian Robiou, CEO of Caribé Juice, in Alexandria, Va. “Whole Foods has proven that the traction already exists for people to pay $1 extra for a beverage with perceived health benefits.”

Robiou adds that while consumers will pay more, they’re not indifferent to price. Caribé adjusted its packaging to bring down the price of a single-serve juice from $4.99 to $2.99. “When you are aiming for adoption at mass, price still signals to consumers,” he explains. “The magic number is $3.”

SPINS’ Lazarski predicts that the future of cold-pressed juice could begin to look more like gazpacho than orange juice. Fairway is carrying juices from Salinas, Calif.-based organicgirl, which carry the tagline “more greens less fruit.”

“Cold-pressed, which has been associated with sweeter juices, is now moving into more vegetable-based juices that are starting to look more like soup than juice, with ingredients like balsamic vinegar, sweet potato, adaptogens [a natural substance considered to help the body adapt to stress], ginseng root, turmeric and other herbs, and fungi,” she says.

There’s also action in the lemonade segment. Daily Greens, based in Austin, recently launched new flavors — Watermelon-Hibiscus Ade, Lime-Basil Ade, Jicama-Blue Majik Ade and Orange-Turmeric Ade — in its Green Ade line of hydrating lemonade. The beverages boast nutrient-dense algae-based superfoods such as chlorella and Blue Majik spirulina in their formulations.

Brooklyn-based Honeydrop Beverages is marketing cold-pressed lemonade made with honey in flavors like cayenne, lavender, basil, turmeric and matcha. The company also makes an apple kale’ade and a lemonade with charcoal.

Suja, a San Diego-based maker of organic, cold-pressed and non-GMO beverages, also introduced a juice with charcoal last year. Charcoal is porous and adsorbent, meaning that a wide range of molecules and chemicals stick to it so it can be used as a “detoxifier.” The ingredient has been showing up in beauty products, including masks and pore strips, for several years, and now it’s made the jump to juice.

The industry is still taking a wait-and-see approach to this particular innovation, however. “The juice-with-activated-charcoal segment has legs,” says Lazarski, “but it’s so new we’re not tracking it yet.”