Mix Up Profitability
Private label drink mixes that boast creative flavor combinations, clever packaging and/or added functional ingredients are poised for success.
In the fight for consumers' dollars, the supermarket beverage aisle is a veritable battlefield.
Store brands struggle to win over consumers who are fiercely loyal to their favorite national brand products.
Sophisticated marketing campaigns and relatively low price points account for name brand's dominance in some areas. But a little farther down the beverage aisle, retailers are finding that drink mixes — with their convenience, variety and value — could be the flexible platform they need to grow private label beverage profitability.
According to "The Private Label Food and Drink Consumer — US," a December 2010 report from global market research firm Mintel International, consumers are considerably less likely to purchase store brand products in the beverage category than they are in other categories. The drink mix segment, as a whole, is large and varied — with each subsegment possessing its own unique opportunities and challenges. However, innovative formulations and packaging are universally critical to remaining competitive. Just as they adopted the once-novel and now-ubiquitous stick packs, retailers need to stay one step ahead and explore ways to differentiate their store brand drink mix offerings.
One-two punch
Compared to ready-to-drink (RTD) beverages, drink mixes are a very attractive option for on-the-go consumers looking for value and refreshment. At the center of the popular sugar-free/low-calorie drink mix category are tried and true flavors that include fruit punch, lemonade and iced tea.
"These core flavors are reaching maturity within the category," says Harry Overly, vice president of marketing and sales for Manawa, Wis.-based Sturm Foods, a division of TreeHouse Foods. "Quality has increased substantially, and they offer a great value."
In fact, dollar sales of private label fruit punch bases and syrups within food, drug and mass merchandiser stores, including Walmart, increased 32.6 percent for the 52 weeks ending Dec. 25, 2010, according to data from The Nielsen Co. (see chart). Unit sales grew 48.9 percent.
But as name brands slowly come down in pricing, retailers need to make sure they are doing their all when it comes to positioning their store brand drink mixes, beginning with maintaining a price differential. Merchandising is also significant, Overly says.
"The shelves can be crowded with various sugar-free drink mix varieties," he adds. "Retailers need to make sure their private label offerings are shelved and packaged properly so that they are easily visible to consumers. Private label should have their fair share of merchandising such as end-cap placement and secondary placement in other parts of the aisle throughout the store."
Retailers also need to be on the ball in terms of timing their merchandising placement. Overly notes that in key seasons such as the beginning of summer, failure to merchandise sugar-free drink stick packs alongside bottled water in a timely manner could cost a retailer as much as 20 to 30 percent profit over a two- or three-week timeframe.
Do remember that innovative formulations and packaging are critical to remaining competitive.
Don't wait too long during key seasons such as the beginning of summer to merchandise sugar-free drink stick packs alongside bottled water.
Do consider currently popular flavors such as acai, pomegranate and cranberry, as well as more-natural-type sweeteners such as those derived from the stevia plant, for new store brand drink mixes.
Give me more
To quench their thirsts, consumers also are asking more from their drink mixes than ever before. New and interesting varieties incorporate popular new flavors such as acai, pomegranate and cranberry. And it doesn't stop there. Many of the best store brand opportunities within the drink mix segment involve giving shoppers more bang for their buck.
"Beverage mixes with functional positioning — an energy boost, [an increased] metabolic rate, probiotics, sports drinks, to name a few," says Garima Goel Lal, an analyst with Mintel, "show much higher growth than the ones that do not have such a marketing platform."
She goes on to add that energy drink mixes represent a "high-growth segment, and private labels have done well." In this instance, value plays in heavily as the mixes "offer a cheaper way of getting an energy boost compared to energy drinks or shots."
But in the case of powdered breakfast drinks, retailers might be better off investing their time and resources into improving and expanding private label smoothies and functional juice drink mixes, despite their overwhelming segment share, Goel Lal points out.
"Smoothie mixes that offer innovative flavors comparable to made-to-order smoothies are likely to do well," she adds, noting that traditional breakfast drink mixes have fallen out of trend.
Liquid brew
Americans are a coffee-loving bunch, but the economic downturn has managed to impact the ways in which they consume their favorite brews. Retail coffee sales continue to climb, as many consumers opt to cut costs and brew and drink their coffee at home instead of visiting coffee shops.
According to "Coffee - US," a September 2010 report from Mintel, sales of single-cup pods and discs are rising rapidly as more Americans consume relatively small amounts of coffee in each sitting and prefer a fresh-brewed cup over one that has been sitting in a coffee pot.
In regard to soluble coffee, the report points to strong demand for products such as Starbucks' VIA stick packs, which aim to provide premium taste along with the convenience of instant coffee and the freshness associated with a single-serving package. But private label appears to be struggling in this segment, with dollar sales falling nearly 17 percent during in the 52 weeks ending Dec. 25, 2010.
For store brand instant coffee and other drink mix segments such as tea mixes, retailers might want to look beyond the stick pack, or even powdered mixes altogether.
"As store brands push to become more innovative," says Tarick Gamay, business development manager for Alexandria, Va.-based DreamPak LLC, "they are seeking products and technology that differentiate them from the competition."
Gamay points to a "movement toward liquid drink mixes rather than powder drink mixes because the former is less messy when pouring and dissolves much more quickly." But a viable packaging option has been a major drawback until now. DreamPak offers liquid drink mixes in its easy-to-open, -store, -pour and -carry LiquiTubes, which are about the same size as existing stick packs and priced comparably, he adds.
"We see tremendous opportunities for the growth of liquid concentrates for beverage applications," Gamay says. "To get to that point, [however], some education on the merits of liquid concentrates and on the new packaging look may be required."
He adds that LiquiTubes have yet to make their debut in a store brand product.
Don't discount liquid-based alternatives to traditional powdered drink mixes — now that viable packaging options are available.
Packaging that speaks
The small size of today's single-serve drink mixes make them convenient, to be sure. But convenience and ease of use should not limit a retailer's ability to effectively communicate its product positioning to shoppers. The packaging may be small, but the overall message needs to remain as big as possible.
"Packaging communicating the product positioning, such as ease of use and health attributes," says Mintel's Goel Lal, "is likely to bring positive consumer response as consumers increasingly read product packaging to see ingredients, calories, positioning, etc."
Calorie-conscious consumers long have been drawn to drink mixes for their variety of flavorful low-calorie and sugar-free options. However, Sturm Foods' Overly says, these products rely heavily on artificial sweeteners; aspartame, in particular, shows up frequently on package labels.
More natural-type sweeteners such as those derived from the stevia plant have been garnering a lot of attention from consumers looking for an all-natural sugar substitute.
"Naturally sweetened drink mixes," Overly notes, "are an up-and-coming trend that private label should explore to differentiate their offerings."
Mintel's Goel Lal agrees and feels that "natural sweeteners are more likely to appeal to health-minded consumers.
Another area that Goel Lal feels is underexplored involves the carbon footprint of the overall category. Marketing that communicates a drink mix's reduced use of packaging and its lower volume and weight than RTD beverages could be used to private label's advantage, she says.
Top 5 Markets for Drink Mixes
- Atlanta, Sandy Springs, Marietta, Ga., Metro
- Chicago, Naperville, Joliet, Ill./lnd./Wis., Metro
- Dallas, Fort Worth, Arlington, Texas, Metro
- Los Angeles, Long Beach, Santa Ana, Calif., Metro
- Miami, Fort Lauderdale, Pompano Beach, Fla., Metro
Region s with the largest percentage of people with a tendency to buy store brand drink mixes, reported by Core Based Statistical Areas (CBSA) defined by the U.S. Office of Management and Budget.
Source: Buxton Co., Fort Worth, Texas.
