Key Innovation Trends in Soft Drinks 2018

William Sipper: Key Innovation Trends in Soft Drinks 2018

What Beverage Insiders Need To Watch Today

Product trending is usually closely related to the consumer’s lifestyle. We are experiencing a global trend where it’s becoming popular to be a workaholic, to go to the gym regularly, to live an organic and vegan lifestyle and to avoid unhealthy products, such as sugar or artificial ingredients. All these trends are affecting the consumption of specific products, thus affecting entire industries.

When it comes to the soft drinks sector, it represents a very dynamic space for growth because consumers continue to grow their quest for experimentation. GlobalData research explores all aspects of innovation and behavior and covers the top trends in the soft drinks sector. The report outlines the key trends that currently impact the core soft drink categories: carbonates, packaged water, sports and energy drinks, RTD tea and coffee, juices and smoothies.

Soft Drink Purchase Drivers

Sensor benefits, trust, and health drive soft drink purchases. The largest purchase driver is product enjoyability. Consumers prefer product enjoyment over all other trends when it comes to soft drinks. Despite health concerns and the latest trends promoting a sugar-free lifestyle, consumers are still interested in tasty, enjoyable soft drinks and perceive them as an indulgent treat.

Trust and familiarity are among the top purchase drivers, in addition to product enjoyment. In the soft drinks market, many consumers continuously stay by their trusted, favored brands.

However, the backlash against sugar is changing the competitive soft drink industry on many levels. Consumers are massively looking to moderate or limit their consumption of sugary beverages and replace them with alternatives perceived and promoted as healthier.

Consumers Want to Experiment, But Not With Everything

Soft drink producers should focus on the consumers’ willingness to experiment with various beverages, particularly with conventional beverages, such as bottled water, coffee or tea. When it comes to functional drinks, like sports drinks and energy drinks, customers tend to stay loyal to their favorite brands and don’t want to experiment with new ones.

In comparison, when it comes to RTD coffee and bottled water, consumers are more than open to trying new products, as there are no particular dominating brands in that department. Producers should look to capitalize on this specific consumer’s behavior by creating drinks with new, unique ingredients and fresh, innovative flavor combinations.

The research highlights the top six trends impacting innovation in soft drinks:

  • Authentic indulgence
  • Beyond plastic packaging
  • Natural energizers
  • Ethical soft drinks
  • Water hybrids
  • Added carbonation

 

Trend 1 – Authentic Indulgence

Consumers are willing to pay a higher price for a high-quality beverage that offers indulgence and authenticity. The focus of soft drink consumers everywhere is quickly shifting towards high-end, craftsmanship-made, authentic drinks. They are seeking more indulgent and premium soft drinks that represent authenticity and high quality. There is no official definition for “craft” soft drinks, and it is prone to subjectivity. However, GlobalData believes that certain attributes mark beverages as “craft.” These attributes include:

  • Appearing as a small-scale producer ( or even a small-scale producer within a larger company)
  • Appearing as independent
  • A collection of beverages with innovative styles
  • Using traditional or artisanal methods and techniques in the production process
  • Using locally grown ingredients

On a global scale, consumers identify “craft” with quality, and they associate the term with handmade, high-quality ingredients. People show a high interest in craft soft drinks, and according to the research, 55% of consumers around the globe would like to see more “craft” non-alcoholic beverages.

High-sugar soft drinks are now occasional, indulgent treats

The backlash against sugar that’s been dominating the consumer market is repositioning soft drinks from a habit to occasional, indulgent treats. Consumers are massively concerned about the high levels of sugar in soft drinks, especially when it comes to carbonated beverages and juices. However, despite the concern, consumers still like to indulge in sugary beverages, but they no longer see the products as something they would consume on a daily basis. They now see sugary drinks as an occasional treat.

Producers should focus on enhancing brand authenticity by leveraging brand heritage and history, and also by using home-grown or locally sourced ingredients for their products. The brand’s environmental impact also plays a role in positioning a product as a premium craft.

 

Consumers across all age groups enjoy craft

The desire for more authentic experiences is growing globally, across all age groups. Interest in craft-style soft drinks extends across all age groups, with the least receptive one being senior consumers (55 years and older) but 55% of them still find craft soft drinks appealing.

Older consumers care for the heritage and nostalgia craft offers, while younger generations value crafts for its authentic, meaningful experience.

Trend 2 – Beyond Plastic Packaging

Consumers value brands move away from plastic packaging towards more sustainable alternatives because they recognize that plastic packaging hurts the environment. The shift from plastic packaging to other options such as aluminum cans or beverage cartons is taking its toll. It is now a well-known fact that plastic bottles are a significant contributor to plastic waste, and governments around the world are actively looking for ways to address the issue. In fact, the UK government is seeking to eradicate all avoidable plastic waste by 2042.

The entire industry will be striving to provide sustainable innovations in packaging alternatives including refillable packaging, recyclables, and alternative materials – as well as material weight reductions to reduce its environmental impact.

While PET plastic bottles widely used in the soft drinks industry are highly recyclable, most of them don’t go into the recycling process – people often dump them in fields where they could take hundreds of years to decompose. Only one-third of consumers globally consider plastic bottles to be somewhat environmentally friendly, and consumers all over the world are fully aware of the harmful plastic bottles impact on our environment.

The attitude-action gap

While a majority of consumers recognize the detrimental effect plastic bottles have on the environment, they still mark them as their top choice for on-the-go portability. This attitude-action gap is pressuring brands to find new ways to address it.

In the packaged water category, for example, as much as 62% of global consumers claim to prefer plastic bottles when on the go. Plastic packaging is also a leading format in the carbonated and juice categories, followed by glass bottles.

However, sustainability-consciousness is growing and joined with the fact that new opportunities are opening up in the soft drinks market. The glass container is most likely to take the lead and throw plastic bottles off their throne in upcoming years.

The widely known sustainable packaging formats, such as aluminum cans and beverage cartons are still unpopular, especially when it comes to packaged water, mostly due to the fact you can’t reseal such packages. The industry has to produce more sustainable packaging alternatives to resolve the problem of plastic waste. Producers will be looking to packaging suppliers to provide significant innovation in areas such as refillable packages, alternative weight reductions, recyclables and alternative materials to reduce the negative environmental impact of plastic bottles.

Consumers from all age groups show interest in sustainability

At least two-thirds of consumers globally believe it is vital to be living a sustainable lifestyle. However, despite the consumers’ apparent interest in living more sustainable lifestyles, they still aren’t acting on it. Brands are still able to sway consumers through promotions and discount deals, and while ethics and sustainability address in the hearts of the consumers, they still use their heads when purchasing their drinks.

Trend 3 – Natural Energizers

The healthy lifestyle trend is affecting health-conscious consumers to favor naturally energized beverages.

Natural Energizers are soft drinks that contain naturally energizing ingredients such as guarana, ginseng, yerba mate, and similar. With entirely natural formulations and no artificial preservatives or additives, these drinks are gaining the trust of many consumers all over the world. Traditional beverages contain artificial ingredients and cause energy crashes, so consumers are shifting to healthier, natural products that deliver a more refreshing energy boost. Three-quarters of consumers agree that artificial additives are harmful to human’s health. Those concerns make consumers seek for healthier alternatives, and 46% of consumers say they would prefer one brand over another if they featured more natural ingredients in the beverage.

Natural energizers as a healthier alternative to traditional energy drinks

Consumers today live pretty hectic lifestyles, facing a lot of pressure from work and life situations, and they are continually seeking natural energy boosts to help fuel their energy levels during busy days. A total of 52% of global consumers feel like they need an energy boost to get through the day and the interest in functional beverages that improve concentration is ever growing. Also, there is an increase in demand for drinks that enhance stamina, physical performance, and alertness. In addition to beverages that enhance energy levels, other ingredients that feature therapeutic properties are becoming very popular too – such as botanicals and herbs that claim to help consumers rejuvenate and relax.

Growing health-consciousness is leading to a growing demand for natural stimulants perceived as a healthier alternative to traditional energy drinks with artificial ingredients.

Young consumers prefer Natural Energizers

Young consumers (aged 18-34) lead a more stressful and demanding lifestyle compared to older generations, which results in drained physical and mental energy levels. Young consumers are actively looking to switch off from the online life to take a break from all the complexity caused by the excessive use of digital tools. It is why younger consumers are more likely to seek out energy boosts compared to older consumers.

Thirty-nine percent of 18-34 year-olds are always interested in functional products that will help them boost their energy levels or help them relax and rejuvenate. While 57% of millennials are concerned about the levels of stress in their lives, only 39% of baby boomers think the same, on a global scale.

Trend 4 – Ethical Soft Drinks

Consumers are willing to pay a premium price for an ethical product. Ethical soft drinks and products are those that support environmental or socio-economic causes that actively seek to improve the welfare of the environment, of communities, or societies. Ecological reasons play the most prominent part in consumer’s choice, with 59% of consumers saying they would buy products that support environmental protection. Environmental issues received excessive media coverage during recent years, and this trend is no surprise.

Local community support, equality, and Fairtrade are also well received by the public and consumers all over the world. These socio-economic areas often get overlooked so these kinds of causes can act as differentiators in the soft drinks department. Consumers are incredibly receptive to brands that support Fair Trade and fight poverty, with 49% of consumers globally expressing interest in products that help these causes.

Producers globally are looking for ways to tap into this demand for ethical products, creating beverages with Fairtrade certified ingredients and openly supporting local projects that enhance ecological, social, and ecological structures – especially in the farming regions where they sourced the ingredients for the products.

Sustainability is growing, but it is still a secondary factor

Consumers become more ethically-conscious as the influence of sustainability grows. When it comes to purchasing soft drinks, sustainability is always a secondary factor, with 41% of consumers claiming to be influenced by the level of ethical/environmental/social responsibility of a product. While it is a lower percentage compared to other factors, it is still a significant number, and its influence is growing continuously.

The fact that 75% of consumers globally believe it is imperative to live an ethical or sustainable life to create a feeling of wellness and well-being implies that consumers recognize the importance of ethics and sustainability. Even though sustainability is a secondary factor at the moment, its influence will grow as the demand for sustainability grows.

 

Older consumers are less receptive to ethical soft drinks

Younger consumers are more likely to buy products that support poverty compared to older consumers. Researchers believe this is mostly due to the fact younger people can better relate to financial problems than their older counterparts.

However, older consumers are more receptive to Fairtrade products that younger consumers, which is most likely related to the fact Fairtrade itself are more familiar to older consumers.

When it comes to gender differences, female consumers appear to be more receptive to products that support causes than males. The findings aren’t surprising considering the fact women are more charitable than men, according to several studies.

 

Trend 5 – Water Hybrids

Water hybrids include energy waters, sports waters, and juice-infused waters, and they present significant opportunities for soft drink producers because they maintain health appeal while still delivering on sensory and functional levels.

There are many opportunities for water brands in combining water products with other drink categories to create cross-category, hybrid products that deliver best of both worlds to consumers. Hybrid beverages are becoming prevalent in the soft drinks market.  Consumers worry about the high levels of sugar in beverages, so diluting traditional soft drinks with water reduces the levels of sugar in the beverage, reducing its calorie content and raising the perceived healthiness of the product.

Water hybrids offer sensory value too, by appealing to consumers who are bored with traditional soft drinks and seek new experiences that taste good but are healthy, also. A total of 36% of global water consumers say they would gladly try different varieties of water products, including water hybrids. These products are appealing to a broad audience because people see them as a healthier alternative to conventional soft drink beverages

Producers have to work on finding the perfect balance between functionality, flavor and health appeal of water hybrids. They face a challenge of creating products that have satisfying taste, but with no added sugar or sweeteners. The critical route to innovation is creating water beverages that use natural energizers and natural sweetening ingredients, and deliver a hint of flavor. Many producers are actively exploring various ingredients with functional health benefits to enhance the perceived health appeal of their products and to distinguish water hybrids from popular soft drinks entirely.

Young consumers are the principal market for water hybrids

Young consumers show more interest in trying out new water hybrids compared to consumers who are over the age of 44. Younger people are willing to experiment with new products from the category, so they represent vital demographics to target. Water hybrid producers will need to engage in a digitally-focused marketing strategy to attract their key demographics because all of their potential consumers are online – on social media.

While older generations don’t prioritize experimenting, they are still interested in “healthier” soft drinks, and since the significant benefit of water hybrids is their low sugar and calorie content, older consumer groups should become more interested in them over time. As much as 60% of consumers who are over the age of 60 are actively choosing soft drinks with no sugar, or low sugar levels.

Trend 6 – Added Carbonation

While carbonated drinks have been run over by packaged water over the recent years, the category still exists, and it is still very popular. In fact, the popularity of carbonated drinks is encouraging producers of other soft drinks to include a little sparkle in their products too – creating sparkling varieties of their own. The new generation of carbonated beverages contains sparkling coconut water, various vinegar drinks and even RTD tea and coffee. Because they are a healthier alternative, these beverages are likely to drive consumption declines in traditional carbonated soft drinks (CSDs).

Added carbonation enhances consumption experience

As already said, consumers globally prioritize product enjoyment over all other factors and trends when it comes to soft drinks. Added carbonation offers a new level of sensations and more enjoyment to enhance consumption experience. They also enhance the indulgent appeal of products perceived as healthier alternatives to traditional soft drinks, such as sparkling coconut water and RTD tea. There are also studies that suggest added carbonation may even deliver added health benefits, like alleviating indigestion and constipation.

Still, consumers are continuously looking to limit their consumption of high-sugar soft drinks, such as carbonates, and replace them with alternatives they perceive to be healthier, like bottled water. Also, many producers are working on reducing the sugar content in their beverages to align with the trends that lead towards healthier drinks. Added carbonation to “healthier” beverages offers a great alternative to traditional carbonates, creating sensory enjoyment but still keeping the health levels high. The appeal of beverages with added carbonation is very likely to grow as consumers continue to experiment with soft drinks.

Younger consumers experiment with carbonated drinks

When it comes to carbonated drinks, younger consumers are more likely to experiment. The oldest consumer groups appear to be the least receptive to the trend. Younger consumers, however, are more open to trying out new sparkling beverages, with 25% of millennials claiming to try different varieties of carbonated soft drinks often. In comparison, only 14% of seniors say they are willing to experiment with this trend.

What the future holds for soft drinks

Future opportunities and innovations for soft drinks include the rise of extra-functional beverages, the increase of sugar alternatives, and packing innovations.

  • Extra-functional beverages: Western producers are likely to take inspiration from traditional Asian medicines and develop extra-functional beverages such as drinks that include collagen or placenta.
  • Sugar alternatives: Health industries never stop with research and development of healthier choices, so brands will have to adapt their product’s formulations when more sugar alternatives become available.
  • Packaging innovation: Have you heard about Ooho? It is a blob-like, edible water capsule made of a tasteless, biodegradable membrane made from 100% seaweed – and it stores water. It represents a significant step toward the packaging beverages revolution and brands should look to leverage this innovation as soon as it becomes commercially available.

Keeping up with the latest trends is vital for succeeding as a serious player in the soft drinks section. Always stay on the lookout for fresh industry news and insight to keep your entrepreneurial efforts on track.

Help Make A Difference In Medellin

City of Change

Medellin Colombia used to be known as the murder capital of the world.  Also was considered the drug cartel capital as well.  Nowadays, that has all changed.  I was lucky enough, or at the time didn’t think I was lucky,  to travel to this city years ago when all I heard about were those stories.

When I arrived in Medellin, all of those stories meant nothing to me. The city blew me away with the beauty and the people.  It is a city full of color.  From the buildings to the topography to the people.

The people of Medellin made that trip so special that even years later this city still holds a special place in my heart.  It’s residents are some of the nicest people I have ever met.

The Ghettos

The government have worked diligently to change the entire place to a innovative safer environment for its residents.  The so called ghettos of Medellin didn’t compare to the ghettos of the United States.  Today, the crime rate is considered much lower than most major cities in the US.

The innovative ways that has been implemented in the city have brought a great deal of prosperity to their people.  The city put in outdoor escalators and aerial tram systems to carry people around.  In some places, it would take 10 hours to get to and from work that was located just a few miles away.

Medellin is named one of the world’s most innovative cities next to New York and Tel Aviv.  Although this new title is a huge step in the right direction, there are still things that need to be helped.

Lending A Hand in Medellin

There are many areas that don’t look like innovation has or will ever come to that area.  The housing still look like shanty towns as some might call it.  The homes in these areas often do not have a decent roof.  Their roofs are just sheet metal just laid across so barely any protection from the heat, rain and sun.

This is where I am asking for your help.  One thing that will hugely improve the lives of these wonderful people is their living situations.  The roofs will provide them with better living conditions.  The children should not have to lay-down on water soaked beds at night.  Nor should the temperatures inside their homes rise because of a metal roof.

Go Fund Me

I decided to start a Go Fund Me page to help build roofs for the people of this city.  All of the funds generated by this page will go directly to the purchase of the necessary materials and for the installation of new roofs, hopefully throughout the city.

The roofs are not going to be fancy in any manner, just a good solid roof to protects its occupants from the outside elements.

The initial goal is to raise $100,000.00.  This should be able to install about 75 to 100 roofs.  This is a great starting goal.  I am asking for you to donate whatever you can, from $5, $10 to $20 or whatever you wish to provide.

Help make this world a better place one roof at a time.  Click on this link below for the page…

https://www.gofundme.com/help-colombia039s-poor

 

 

Medellin Columbia post by William Sipper photocredit unknown
Medellin Columbia post by William Sipper photocredit unknown

Starting a Marketing Plan for your Beverage Business? Here Are 7 Questions that You Need to Cover

Marketing can be a difficult thing to plan for if you don’t have the necessary experience. Still, there are things that only you as the business owner can determine before a marketing plan can even be made.

The beverage industry, in particular, has a couple of specifics you’ll need to plan for. A marketing plan is not a “one size fits all” solution to all possible business problems, but it’s still an important factor of successful marketing. If you want to grow your business, marketing will be your most powerful tool.

However, many businesses tend to overlook this fact, regarding comprehensive marketing plans as something they’d like to have one day when they have more funds to invest in it. What they’re unaware of is that a marketing plan doesn’t have to be expensive, and it can help immensely with boosting your profits and directing your future efforts.

So, if you’re starting a marketing plan for your beverage business, or considering whether you should do it, here are seven questions that you need to cover:

1. Where Do You Start?

So many beverage businesses begin with an idea for a product, and that’s great — but to come up with a marketing plan, you need to start with the basics. In most cases, that’s in-depth background research of the market itself. Who is buying your products now, and why? Or, if you haven’t offered a product yet, in which market do you want to provide your product?

The critical thing at the beginning is to take the time to understand the market where you are going to operate. Get to know it inside and out. Use market reports and statistics to figure out where it would be best to position your business.

2. Who Are the Stakeholders that Influence the Market?

In the beverage industry, there’s more to consider than just your target consumers and competitors (although they are a factor, too). Your market research will naturally lead you here. First, create your target consumer profile and research your main competitors. Studying their strategies will help you realize which essential things you need to focus on for your marketing strategy.

Then, there are the distributors and potential partners. Getting to know the distributors is vital, as you’ll need to be aware of all the pros and cons of different options before you can choose which one you’ll be going with. It is assuming that you won’t be using your own distribution channels. Be on the lookout for potential partnerships as well. Joining efforts with a suitable partner can give you the necessary boost, especially when it comes to marketing.

3. What Product Are You Offering?

It is where the product comes into play. Make sure that you develop your idea in the direction that leaves your target consumers with tangible benefits. Use all the research you’ve gathered before this point to create the product that has the most potential. If there is anything that you’ve determined you can do better than your competitors, include that in a product creation process. Keep in mind that the product should also be attractive for the distributors, so come up with ways to communicate its best attributes. These will be the building blocks of your beverage brand.

4. What’s In It for the Consumers and Distributors?

Not only should your product be attractive, but it needs to solve a pain point in the target consumer. It is crucial because that’s where your competitive advantage will come from. Write down everything that makes your product different from all the others in the market, and see how it holds up to this standard. Don’t settle for a product that your consumers will consider a nice-to-have instead of essential. If you’re having trouble coming up with a product that could do that, focus on the pain points of your target customers and ways they can be solved.

The same goes for negotiating with distributors. If you know what the value of your product is, you’ll see what you can offer to the distributor to ensure they sell your product over those of your competition.

5. What Is Your Intent?

Using all the information that you’ve gathered by answering the previous four questions, come up with your mission statement. Reference the consumers you’ll be selling to, define the product you’ll be offering, and state how it’s going to be different from every other product on the market.

6. What Are Your Strategic Goals and How Will You Achieve Them?

Plan your strategic goals both for the short-term and the long-term. Better yet, take your long-term strategic goals and break them down into smaller ones that will be easier to both track and achieve.

Determine your marketing activities direction and a couple of focus areas to start with. For example, email marketing, social media marketing, trade shows, public relations or partnerships could all be okay, inexpensive places to start. Your marketing plan needs to focus on supporting one specific business strategy. Rather than trying to be all things for all people, focus your marketing strategy on maintaining a more narrow position that’s easier to sustain.

7. What Is Your Marketing Budget?

The plan and strategy you go for will ultimately depend on your available budget. Make sure you research the cost of different marketing strategies so that you do not overshoot and plan for something you can’t pull off. Study the benefits and flaws of each one, so you’d be able to understand why you’re choosing one over the other. Perhaps something you thought would fit well with your marketing goals will turn out not to be the best possible solution. Your ultimate goal is to come up with a plan and strategy that will strengthen your brand’s positioning within the available budget limitations.

Many businesses that fail within the first couple of years of operation suffer that fate because of a lack of planning and market research. However, with the right plan, you won’t fall into the trap of wasting your resources while trying to wing it. To avoid that, make sure you do your research on the industry and ask the right questions. The more questions you ask and answer, the better your chances of creating a marketing plan that can carry your beverage business for many years to come.

How New Brands Can Win in the Beverage Sector: 3 Things to Keep in Mind

In today’s market, brands need to come up with ways to satisfy what their consumers crave to grow. And the beverage sector seems to be doing that well, considering its predicted growth trend. By 2021, it’s estimated that the beverage market worldwide will be worth close to $2 trillion.

Recent trends have seen independent brands rising to this universal challenge. By offering healthier beverages with unique ingredients, the market for craft beer as well as organic fresh juices and drinks are accomplishing consistent growth. Small craft beer brewers have doubled their overall market share from 2011 to 2016, and the fresh juice market has seen similar results, becoming the fastest-growing organic category.

With these trends in mind, it might be interesting to take a closer look at where the beverage sector is going, as well as how brands who want to grow might take advantage of the predicted trends. These are the three things to keep in mind when it comes to how new brands can win in the beverage sector:

Giving Consumers What They Crave — More Unique Ingredients

If the growth as mentioned above of fresh juice and craft beer markets can teach us anything, it’s that consumers are shifting towards new, natural ingredients. The influence of Millennials on the market is, likely at least, partially responsible for this shift. According to Cambridge Consultants research, Millennials are more health-aware and environmentally concerned than the previous generations of consumers. They’re twice as likely to buy organic products, and they appreciate recyclable packaging and renewable materials.

A typical Millennial beverage consumer is also likely to be bored with standard ingredient profiles and flavors. They favor unique blends that provide a new and different drinking experience. This appetite for novelty has undoubtedly made an impact, especially on the juice market which offers an excellent opportunity to satisfy those cravings. Big brands are taking notice and starting to provide cold-pressed HPP (high pressure processed) juices to target Millennial consumers. It presents an opportunity for smaller brands as well — proper labels tend to attract Millennials, and they are generally willing to pay more for a beverage they perceive to be healthier than the competition.

Hitting the Sweet SKU Spot

The number of SKUs (stock keeping unit — identifier for a single product) can be a significant factor in determining the success of a new beverage brand. It makes sense that this is one of the most difficult things to navigate in the beverage business. A new brand will naturally launch with their most reliable product, and start offering different things as it grows. Whether those end up being hits or misses, the number of SKUs can still affect how appealing the brand is to the consumers.

There will be some growing pains to address. According to Xian Wan’s research on the impact of product variety on operations and sales performance, there’s a delicate balance to accomplish when it comes to SKU proliferation. You can have too much of a good thing. When you segment demand by offering more different products, you match the needs of customers better, and sales can increase as a result. However, managing more products also increases costs, and the more products there are, the higher the chance of them cannibalizing the demand for existing products.

In other words, if a consumer wants to buy cider and you offer three different flavors, your overall sales won’t increase but rather be spread over different SKUs. As for the optimal number of SKUs, it’s 84 according to Wan’s study, but it will be significantly lower for smaller brands. Other research shows that beverage companies have good consumer ratings with either more than 20 SKUs or fewer than 10 SKUs.

Emphasizing Team Rather Than Brand Strength

For a new beverage company, building a strong brand is important — but perhaps it should be secondary to making a strong team. This observation comes from relevant factors: the future of any new company is inextricably linked to the strength of its founding team. In the early days, brand founders will be responsible for every aspect of the business, even those that they will later delegate to other team members as they hire them. Once the beverage brand becomes more established; the executive team may move on to making higher level decisions. At this point, they can leave the day-to-day operation of the company to the employees. From there, a company’s success will depend more on a well-developed brand.

Today’s technologies and social media prevalence make the mission of building brands easier. Advertising and brand-building costs used to be higher, so the more established beverage brands dominated the market. With the help of social media, new brands can become contenders. However, they have to have a team capable of building a brand strong enough to rival the most prominent companies. That’s what makes a difference and ensures good results for a new brand that wants to win in the beverage sector.

Key Takeaways

To summarize, these are the three key things new beverage companies should keep in mind for maximum impact on the market:

  • Millennial consumers reward companies that offer unique products, so don’t be afraid of offering new things and mixing it up with natural ingredients;
  • Don’t overdo the SKUs — start with a smaller number of products, and push through the rough patch in the middle of the process when your overall popularity is expected to drop slightly;
  • Bring together a strong team that can carry your company out of its fragile early days and turn it into a well-established, evolved brand.

 

Upon considering the predicted growth for the beverage sector, it’s likely a good time to get involved with the industry. Stay on the lookout for fresh industry insights that can help you in your entrepreneurial efforts, follow the trends and use them to the benefit of your business. Lastly, don’t be afraid of a little experimentation with the offer and ways of brand building. After all, there is no pushing the envelope without innovation.

The Changing Nature of the Natural Food Industry

William Sipper on the Changing Nature of the Natural Food Industry

What We Can Learn from UNFI, Whole Foods, and the Brokerage Landscape

The natural food industry is experiencing substantial growth while undergoing disruptive change across the supply-chain. The market for natural, organic, and specialty foods has seen an incremental increase over the past few years, as independent and chain retailers continue to respond to consumer demand. However, it’s not business as usual for natural food manufacturers, suppliers, and retailers.

Recent manoeuvres from distribution giants United Natural Foods Inc. (UNFI) and retail heavy-weights Whole Foods (recently purchased by e-commerce company Amazon) are indicative of a rapidly changing infrastructure – one in which cost-cutting and consolidation are the norms. Meanwhile, broker leverage continues to slide as manufacturers and retailers push for change.

Based on a market research report into the growth prospects for UNFI, here are four trends in the natural food industry that will shape the landscape of the future:

 

  1. Continued growth of the Organic and Speciality Foods market

What we can say for sure is that the market for organic and specialty foods is significant, and only getting larger. Retail sales of natural and organic food and beverage in the United States grew from $37.43 billion in 2016 to $40.05 billion in 2017. This is undoubtedly the result of consumers understanding the health and wellness benefits of organic and specialty foods, and aligning their consumption patterns to match. Demand for local, organic, and GMO-free items are all on the rise.

 

  1. Increased competition in the distribution market

A select few distributors played a leading role in getting natural food products from the warehouse to store shelves. United Natural Foods Inc. (UNFI) is one of them, and they are still the leading distributor of organic and specialty foods today. However, competition is stronger and more varied than ever. With increasing consumer demand comes more competition, both nationally and regionally.

On the national scale, traditional competitors like KeHe and Supervalu are going head-to-head with UNFI in the pursuit of offering the lowest cost for the most volume of goods.

On the regional scale, major distributors are up against a plethora of smaller distributors that are more responsive to consumer needs and able to innovate faster.

There is also the presence of Amazon Inc. to be grappled with, a new player in the food and beverage industry. The e-commerce giant recently purchased Whole Foods, who are UNFI’s most lucrative customer and have begun laying out plans to take some of the distribution markets away from UNFI.

What does competition mean in the distribution space?

No matter how involved Amazon gets in the distribution market, it will inevitably cause ripples throughout the industry. We can expect to see:

  • Increased diversification of the market, as distributors will tend to focus on a specific range of products.
  • Consolidation from the big distribution players in an attempt to manage regional competition. UNFI, KeHe, and Supervalu have all made numerous purchases in the past few years to strengthen their logistical base and product offerings.
  • Innovation in robotics and AI technology to save on labor costs.
  • Improved customer service. For instance, there is a growing demand amongst consumers for locally made products. Distributors need to jump on this opportunity before the manufacturer makes a separate deal with local retailers.

 

  1. Conventional grocers taking more market share

Conventional grocery stores have been slow to integrate into the natural food industry. Independent natural food stores and distributors were initially able to capture most of the market – but the days of independent retailer dominance are over.

By 2018, a lot of major grocers have begun investing in natural foods. Sprouts, Wegmans, Kroeger, and Walmart all have a massive stake in the market. Some chains – like The Kroger Corp., for instance – have a line of specialty products to sell in their stores.

Soon all the major grocery store chains will be selling a high volume of natural foods, either from their line or elsewhere. It remains to be seen if consumers respond approvingly to specialty foods manufactured by grocery chains like Walmart, a company known for selling nutrition-deficient foods at a low price. Even if natural foods do not become extremely popular at major grocery chains, it still represents a major market share shifting from independents to the ‘mainstream’ market.

For distributors, conventional supermarkets making their line of product means a shrinking market. A lot of the conventional stores entering the natural foods market are investing in self-distribution. Publix, Wegmans, Albertsons, and others all have the means to build a supply chain that works for them. This is also the model that Amazon is planning to develop with Whole Foods. It is not ideal for distributors, who are feeling the squeeze from many directions.

For consumers, the emergence of natural food products in conventional grocery stores should be welcomed. Why? Because the prices are lower for similar products, even if the selection is limited. Many experts project that leading grocery chains will subsume most of the natural foods market within a few years. Small independents will be forced to innovate by finding, sourcing, and selling new products to a dedicated base of health-conscious customers.

William Sippper on the effect of health conscious consumers
William Sippper on the effect of health conscious consumers
  1. Full-Service model in place of the wholesale model

Distribution companies usually fall into two operational models when dealing with retailers: full-service or wholesale. Each has benefits and drawbacks, depending on the size and needs of the retailer.

 

The full-service model includes:

  • Higher cost
  • Services in addition to delivery of products. Services could include sales strategies, inventory planning, and anything related to the management of products ordered from the distribution company. The focus is on increasing volume for the retailer, in which case both parties are profiting.
  • An on-site sales rep who has a salary from the distributor plus commission for every additional product they sell to the retailer

 

In contrast, the wholesale model includes:

 

  • Lower cost because no additional services are offered
  • Designing promotional programs to help move specific product in bulk. The focus is on moving a massive volume of product, not assisting the retailer to make sales.
  • High-profit margins for particular products based on the volume of goods shipped out of the warehouse
  • Lower operational cost for the distributor

 

Major distribution companies like UNFI and KeHe have doubled down on the wholesale model to maximize revenue. The intention was likely to save on expenses to ensure strong revenue numbers – but at what cost? Some retailers surely like the fact that they can pay less for distribution service, though the pendulum is swinging in favor of a full-service offering.

 

Spotlight on UNFI and Whole Foods

To get a clearer picture of where the industry is going, it will help to shine the spotlight on two key industry players. UNFI and Whole Foods are indicative of the strength of the natural food industry today. Both companies are hugely successful and have collaborated to bring natural food products into popular consciousness. Based on the four trends mentioned above, here is a rundown of the prospects for UNFI and Whole Foods.

 

United National Foods Inc.

Shrinking margins, limited opportunities. Operating costs for UNFI are high. The company has hundreds of distribution centers across the country and warehousing costs are only going up. For example, new truck driver regulations have meant a delay in delivery times across the board. Rather than soak up these expenses as part of their operating costs, UNFI tends to lump additional service fees into the price for retailers. Decisions like this one will only induce retailers to look elsewhere for a more full-service oriented experience which may cost more but come with added benefits.

 

To increase profit margins, UNFI should look to:

  • Re-negotiate generous volume discounts for customers who no longer warrant the discount based on ordering history.
  • Pursue new clients more aggressively, both big and small.
  • Shift to a full-service approach

Purchase of Whole Foods by Amazon likely to shrink margins even further. Nearly every industry commentator agrees that Amazon will sever ties between UNFI and Whole Foods when the distribution contract is up in 2025.

UNFI currently gets about 1/3rd of its business from Whole Foods, albeit it at a discounted price (8-12% margins). While it’s unlikely that Amazon will cut UNFI entirely out of the supply chain, they will certainly take a considerable portion of the business away.

Expansion into Fresh Foods to stay on top of market trends. The boardroom at UNFI has made an initial decision: expansion into the fresh produce market. On paper, this looks like a wise decision for two reasons. First, it matches consumer preferences. Second, none of the big chains (including Whole Foods) can distribute fresh produce on a massive scale.

To succeed in this new market, UNFI will have to overcome the following challenges:

  • Upgrade warehouse facilities with fridges and freezers.
  • Nurturing regional relationships with growers and retailers.
  • Change the sales model from wholesale to full-service.
  • Focus on smaller accounts.

Most importantly, the distribution giants need to move away from the practice of “bidding out.” They have already come under criticism from retailers for buying the cheapest produce available and selling it at an inflated price. This approach ignores all the dynamic costs involved in growing and asks the grower to swallow as much of those costs as possible. Why can they get away with this? Because competition in the fresh produce market is weak.

William Sipper on the effect of Whole Foods potential to push down costs
William Sipper on the effect of Whole Foods potential to push down costs

Whole Foods

Whole Foods is a major retailer in the natural food/specialty foods industry. Formed in 1980, it has grown to become the most extensive network of supermarkets in the United States, specializing in natural and organic foods. There is arguably no more influential company and brand responsible for leading the organic and specialty foods movement across the United States. Success came incrementally for the Austin-based company, who gradually expanded their reach to include 473 stores in 2018. However, perhaps due to aggressive growth initiatives, the past few years have seen declining sales and an unclear future.

The future of Whole Foods was made abundantly more clear in August of 2017 when it was sold to e-commerce giants Amazon. What will the sale mean for the natural food industry as a whole?

 

  1. Cut costs by re-negotiating or terminating existing distribution deals. Whole Foods has a distribution contract with UNFI signed until 2025. If Amazon has not re-negotiated the distribution terms by this point, they are bound to terminate the contract and sign-on for far less volume.
  2. Potentially buying out existing distributors (including UNFI). There is a possibility that Amazon will simply consolidate the existing distribution market, rather than expand their existing networks. The likelihood of this happening depends on the ability of UNFI and others to adapt.
  3. Building their distribution networks to meet the demand of Whole Foods supermarkets across the country. A third alternative is that Amazon simply builds out their existing distribution network to match the needs of each retail hub.

On a more general level, the presence of Amazon is indicative of where the natural foods retail market is going. Relying on technological innovation to disrupt existing relationships is helpful because it is bound to bring prices down. UNFI and others have had to pack extra costs into the supply chain to ensure they make a profit. These added costs are lumped onto the manufacturer or the retailer, and artificially inflate the cost of goods.

If Amazon and Whole Foods can bring costs down by removing arbitrary service costs, then the market will expand. The natural food industry is, after all, a consumer based industry. Amazon sees an opportunity to swallow some expenses, build out their distribution networks to include food and beverages, and ultimately, make natural foods affordable to mainstream markets.

William Sipper on Diminishing Broker Power
William Sipper on Diminishing Broker Power

 

The Broker Situation: What Has Changed?

Given the undulating landscape of the natural food industry, brokers are faced with plenty of material and existential challenges. What will their role be in 10 years once Amazon has settled into the market? Here are four ways in which the broker situation has changed in recent years:

 

  1. Broker leverage power has diminished because of fierce competition. The consolidation trend has opened a window in the retailer market for small distributors to carve out a niche market suited to the needs of equally small independent retailers. It is common knowledge in the industry that many retailers are unhappy with Haddon House since it was purchased by UNFI. Small distributors should be aggressive in attempts to win some of these accounts and pair them with manufacturers.

 

  1. Finding new products for the market is more important than ever. Brokers have always had to scan the underground and discover new products suitable for market. For brokers facing many roadblocks in the packaged natural and specialty foods market, the growing demand for fresh produce and local, GMO-free products are can’t-miss opportunities.

 

  1. Less variety in product offerings. In order to cut overhead costs, brokers will offer less variety in product selection for retailers.

 

  1. No more forward ordering deals. Manufacturers are putting the squeeze on distributors profit margins by pushing back against forward-ordering deals. Up until recently, manufacturers would sell bulk products at a considerable discount to distributors, who would then sell the products at the full value to retailers.

 

Manufacturers do not sell bulk product three or four months in advance at a promotional rate anymore because they lose out on revenue. As a result, distributors need to make their profits elsewhere: in cutting labor costs, buying cheaper fuel, or other means. This has been their approach for the past few decades, but they have run out of options. Perhaps the emergence of an e-commerce disruptor like Amazon will force distributors to shrink and specialize.

Conclusion

These are some of the major trends and developments taking place in the natural food industry today. As the consumer market for natural and specialty foods continues to grow, conventional chain grocers and an e-commerce giant have decided to get involved. It remains to be seen whether consolidation and cost-cutting strategies trim margins enough to keep existing distribution companies like UNFI profitable.

F&B Industry Branding

How Branding is Evolving In F&B post by Bill Sipper

How Branding is Evolving in the Food and Beverage Industry

In today’s food and beverage industry, consumers want brands to be authentic. Branding is evolving in this industry.  They are quick to pick up when they aren’t authentic and to tell others on social media.

Brands have to keep customers fully informed about the products they buy. They also need to be smart and strategic to grab market share in a very competitive market.

Brands must first identify their target audience and then create value for them. Once they’ve attracted customers, they have to build trust to turn them into brand advocates. If consumers are happy, they are more likely to continue to buy products and recommend them to others.

Branding and Social Media Interaction

Brands need to listen to what their customers say, and today this is much easier because they can interact with them on social media. Brands are receiving feedback from customers and understanding more about them helps them to cater to their needs.

Social media offers brands opportunities to create emotional connections with their customers and explain more about what their products offer them. In turn, consumers are better informed than ever before.

They have strong opinions about the quality of ingredients, nutritional value, and health. If brands provide this information to those who are interested, they create an opportunity to build loyalty.

More than ever before, people want the brands they choose to reflect who they are as people. Food packaging is one area where this is seen.  The designs must reflect environmental and social responsibility and make people feel they are making the best choices for their health and their identities as a whole.

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Would love to read and comments too.

 

Food and Beverage Company Faults

Food and Beverage Company Should Make Use of SM post by William Sipper

A Food and Beverage Company that doesn’t make Good Use of Social Media is Shooting itself in the Foot

The intense competition that exists in the food and beverage industry can make it difficult for smaller brands to gain the attention of consumers. Using social media marketing effectively can make a difference. People tend to try out new foods and beverages based on personal opinions, recommendations, and reviews. This shows how important it is for brands to interact with consumers on social media.

Influencers

Just one post by an influential food blogger about a specific product can generate countless impressions with high conversion rates. A social media presence gives brands the opportunity to connect with such influencers.

Brand personality

The personality of a brand is becoming more and more crucial when it comes to marketing.  Relating to consumers on social media helps to build that personality and create loyal followers. Companies are seeking out creative ways to relate to their customers and get feedback their feedback.

Social media interactions

Millennials love sharing dining experiences and will post about interesting beverages they have tasted. They want multi-sensory experiences and food and drink play a big part in this. Well-presented or well-packaged food is likely to be shared on Instagram or Facebook. Social media interactions provide a way for brands to be recognized and to create a loyal customer base without having to resort to more direct forms of advertising.

Companies that do not use social media to their benefit are definitely shooting themselves in the foot. A strong social media presence is no longer an option for food and beverage brands –it’s an absolute necessity.

Mobile Apps Influencing F&B Industry

Mobile Apps Impact by William Sipper

How mobile apps are influencing the food and beverage industry

We live in the age of mobile phones, and the majority of smartphone owners use their phones to engage in multiple activities. The impact of mobile apps on the food and beverage industry is continuing to create change.

Consumers love to share culinary experiences and give recommendations on social networks with photos as evidence. This takes customer influence to the next level. Restaurants are also using mobile apps to help streamline customer service.

On-demand food delivery apps

These apps are extremely popular with consumers who are very busy or prefer not to cook. Fewer customers may be attracted to a physical location, but the ease of online ordering usually makes up the difference in more orders. Discounts for new customers and specials can attract more customers.

This change is difficult for less tech-savvy restaurant owners not listed on apps but listing a restaurant, or even placing adverts on these apps can significantly increase traffic to an establishment and they need to explore this to remain competitive.

Reservation apps

These apps make it easier to find reservations at restaurants where you want to eat. OpenTable is one of these apps. One of the problems of such apps is no-shows at restaurants after bookings have been made. This means restaurant owners miss out and it reflects on the app too. Apps and restaurants both need to continue to explore and improve these new ways of doing business.  In turn, customers who use them need to play the game too.

BonApp is a popular app used in China. It lists all the restaurants in the largest Chinese cities and can also be used in Singapore, Bangkok, Taipei, and Tokyo. It is simple to use, and restaurants are classified by cuisine style, price, location proximity, customer rating and the possibility of delivery.

Users can use photos of meals with their comments. Users are even linked to maps to find out how to get to the restaurant and can book a table via the app. On the homepage, a Top 10 of best restaurants in various categories appears on a daily basis.

Review apps

Review apps, such as Yelp, have served to increase attention on customer service. They have also forced restaurant owners to be aware of more than just the need to serve good food. They have to embrace new technologies to remain competitive.

One way they can use social media to their advantage is by using it to create a buzz and amplify audiences for special events such as a special Valentine’s day menu or a St Patrick’s Day Celebration.

Discount apps

An app like DealNews works with restaurants to bring in new customers by offering special deals. Apps like this have influenced how restaurants price menus because they have to take into account that customers may use coupons or discounts.

Individual restaurant app

These can be gamechanger but are usually only used by big companies. Starbucks, for example, gives users the opportunity to order and pay for drinks from their app. Members earn loyalty points by making purchases with the app.

The food and beverage industry is changing rapidly, partly due to the widespread use of mobile apps to streamline processes.

Please connect with me on my LinkedIn or review my press releases and articles published on my crunchbase profile.

Electric Cars Could Have An Impact On Beverages

Electric Cars and Convenience Stores post by William Sipper

Will beverage sales drop as more electric cars take to the road?

When electric cars hit the road and drivers don’t have to fill up tanks at gas stations, could impulse purchases at convenience stores drop? Morgan Stanley analysts have concluded that this could take place.

Convenience stores could take a hit

In a report published recently, they noted that only a small fraction of vehicles on the road are electronic, but this could change in the future. Electric vehicles could account for 94% of car sales by 2040.

The analysts believe that convenience stores and beverage companies could suffer losses as a result.  Particularly companies like Monster Beverages, as 63% of its sales in the U.S. are made in convenience stores. The analysts did not see alcoholic drinks or tobacco products taking the same hit because beverages are often bought impulsively, and people drink them on the spot.

The Convenience store industry is more concerned about other factors

Those in the convenience store industry are more concerned about their competitors such as other retailers and online stores than about the effect of electric vehicles. They see this threat as being decades away.

Electric cars will not present a challenge unless they are adopted en masse. They are more concerned about the fact that everyone is selling convenience today.  With online outlets offering food delivery and grocery services and even hardware stores and clothing shops are selling beverages at checkout counters. New laws that impose taxes on sugary beverages are another current concern that pre-empts any worries about electric cars.

Current sales of electric vehicles

Sales of electric vehicles in 2017 reached nearly 200,000. This was a significant increase in sales in 2016 and happened despite the fact that new car sales overall were down. Still, to stay in context, over 17 million new cars were sold in 2017.

This may fuel the belief that widespread adoption of electric vehicles is still far in the future.  In turn, changes in consumer behavior and technological advances always tend to happen faster than we anticipate.

Ways convenience stores could respond

Fuel appears to account for less than half of the profit for gas stations.  Much of their money is made from drinks and other items bought inside the store.

People usually make plenty of ‘pit stops’ at gas stations on long journeys, and they don’t just buy gas. Humans need to rest and refuel their bodies, and this need will not go away. Just because electric vehicle owners could charge their cars at home doesn’t mean they wouldn’t want places to stop on a journey.

One way in which convenience stores could respond to the wide adoption of electric cars would be to install the types of charging stations people would enjoy. Those who currently spend money on gas could pay for a super-charge, a safety inspection, a beverage and a bite to eat. Charging stations could also be popular with those who may not have charging ability where they live.

Selling merchandise during the electric car era is not likely to be a problem to those who are tuned in to providing convenience.

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Drink Consumption in Philadelphia Drops

Drink Consumption in Philadelphia post by Bill Sipper

Sugary Drink Consumption in Philadelphia Drops

A Drexel University study has found that the tax of 1.5 cents per ounce on soda and sweetened beverages in Philadelphia has meant that residents are about 40% less likely to drink soda every day. The researchers surveyed 900 Philadelphia residents before and after the tax took effect.

They also compared responses with those from residents in places near Philadelphia without such a tax. The findings of the study were published in the American Journal of Preventative Medicine.

A co-author of the study, Amy Auchincloss, said the tax was in the interest of public health. She believes that sugary drinks have been under-priced in comparison with healthy beverages.  This tax has helped to level the playing field.

The study only reflected drinking patterns for two months after the tax took effect. Whether consumption of sugary drinks will continue to remain lower is yet to be seen. When Mexico imposed such a tax, soda consumption declined for at least two years.

Effects of the tax

The health costs of drinking sugary drinks are undeniable.  Weight gain, heart disease, higher risks of developing type 11 diabetes, tooth decay and other ills.

Whether a tax can change human behavior is questionable. Despite the fact that unhealthy drinks have become less competitive, 30% of Philadelphians continue to drink one sugary beverage a day.

The surveys for the study also showed that consumption of sugary fruit drinks like Koolaid did not go down, even though they are also taxed. Auchincloss believes that this could be due to the false perception of these drinks.  The thought is that these drinks are healthy, even though they contain very little fruit and about the same amount of added sugar as soda.

Reduced Projected Revenue

Philadelphia was the first major city to impose such a tax, and the revenue was to be used for public projects such as libraries, schools, recreation centers, and parks.  Projected revenues have not been as expected.  No one was surprised when Mayor Jim Kenney’s budget proposal reduced projected revenues from the tax by about 15%.

After Philadelphia passed its 1.5 cent-per-ounce tax on the supply of sweetened beverages in January 2017.  Other jurisdictions like Seattle, San Francisco, and Cook County did the same.

The Cook County tax was quickly repealed.  Also, none of the others have worked out as expected. It has been found that consumers shift to other beverages or buy the higher-priced items in other jurisdictions.

One of the main reasons the beverage tax passed was it was tied to popular programs. These programs are now facing serious shortfalls.

Some pending legal challenges from retailers and the American Beverage Association as to the legality of the tax, add further uncertainty. One thing seems sure – beverage taxes are not a reliable way to fund public programs.

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