Thirsty For More

These days, consumers are demanding more from their alternative beverages — from added health benefits to exciting new flavors.

For years, many of us washed down breakfast with orange juice or hot coffee — and completed lunch and dinner with a tall glass of cold milk. In between, we enjoyed soda or plain old water.

But times have changed. These days, our choices within the non-alcoholic beverage world seem virtually endless, ranging from vitamin-enhanced water and energy-reviving shots to decadent mocha lattes and refreshing tea and juice blends. And the selection of these "alternative" beverages just keeps expanding.

Larry Williams, vice president of sales for Atlanta-based Monarch Custom Beverages, believes the alternative beverages segment is still in its infancy, at least within the grocery channel. And that's good news for the store brand side of things, he says. But he adds a caveat to that assessment: Retailers must make sure that 20 percent of any specific subsegment within that alternative beverages universe — what he calls an achievable store brand percentage — would be a large enough number to justify spending the time and money required to build a brand.

Bright spots

One area ripe with opportunity for store brands is ready-to-drink (RTD) tea. Store brands already have made impressive headway here, notes Sarah Theodore, senior food and drink analyst for Mintel, a global market research company.

"That segment gained nearly 60 percent in food, drug and mass merchandise accounts in 2009," she says. "This is a category that was once dominated by national brands. But as consumers looked for ways to save money, they found comparable private label products, and many of them made the switch to store brand teas."

Pat Nicolino, vice president of marketing for Clement Pappas & Co., Carneys Point, N.J., expects the RTD tea segment to continue to expand, with sweet tea, peach and tea & lemonade flavors leading growth. She also predicts a broadening into more juice-based teas and fair trade teas.

Another potentially lucrative area for store brands is enhanced water, Theodore says.

"The top enhanced water brands have managed to maintain and grow sales," she says. "But the rest of the convenience still/PET segment is moving toward private label and value-priced brands."

Jeff Daanen, vice president of retail sales for Winona Foods of Green Bay, Wis., agrees that staples such as green tea and waters haven't lost steam, and adds other familiar favorites such as energy drinks to the opportunity list. But he also notes that consumers now are more willing to try new or exotic flavors (for example, infused flavors are hot), and are demanding more in the way of functional ingredients such as vitamins and antioxidants.

And green isn't the only color in vogue when it comes to RTD tea blends. Williams points to heightened interest in blends based on red rooibos or white teas. Global beverage trends, including one favoring coconut water, also beckon.

"Research has shown that coconut waters provide many of the same benefits as an isotonic beverage does," he says. "So there has been a lot of interest lately on the national brand side in coconut waters."

Focus on health

Indeed, health benefits are top of mind when it comes to much of the product development within the segment. Tim Greene, director of sales, branded and private label for Sparta, Wis.-based Century Foods International, says consumers — facing healthcare reforms and unemployment threats — increasingly are gravitating toward diet-related preventive measures.

Health benefits definitely should be a focus for store brands going forward, according to Matt Walker, director of marketing for Dunkirk, N.Y.-based Cliffstar Corp.

"These are beverages that [do] more than just quench the thirst, but also supply consumers the ability to remain or get healthy from the inside out," he explains. "Superfruits, antioxidants and enhancements are three areas that consumers — and, therefore, retailers — are paying close attention to."

Theodore says Mintel's consumer research shows that half of U.S. consumers now purchase products with a health-related claim.

"Consumers have told us they are most interested in basic health needs such as vitamins and minerals, ingredients for a strong immune system and ingredients to maintain a healthy digestive system," she says. "Beyond that, some of the interesting enhancements they would like to see are ingredients to help with weight management — satiety, in particular — stress relief and memory enhancement."

Andy Dratt, executive vice president of Imbibe Inc., Wilmette, Ill., agrees that condition-specific beverages are a growth area. Of interest to retailers here is the fact that function usually trumps brand, in the consumer's eye.

"If a customer is going in looking for hangover relief in a 2-ounce shot, he's looking for something that tells him what it does — the brand is less important," he says. "Products that stress specific need states offer high-value niche opportunities for private label. The volumes may be lower than broader audience products, but the functional benefits allow for higher margins for retailers."

Greene agrees that a national brand need not be the driver in some alternative beverage subcategories, as long as the store brand offering is innovative enough and its consumer messaging is strong. He also believes that protein-based beverages will be a key driver of the overall alternative beverages segment during the next five years.

"In this case, Gatorade will be a key component to drive the message with their G series launch," he adds.

Steve Fay, executive vice president for Roscoe, Ill.-based Berner Food & Beverage, says his company is looking at protein recovery drinks as a future growth area, and currently is doing R&D on several other health and wellness-oriented beverage concepts.

But even though health benefits (or at least the perception of health benefits) are making the most noise in the category, consumers also are finding plenty of excuses to indulge. In fact, data from The Nielsen Co. show dollar and unit sales of private label liquid coffee (RTD) up 7.3 percent and 17.2 percent, respectively, during the 52 weeks ending May 15 (food, drug and mass merchandiser stores, including Walmart).

Fay points to some "bold moves" recently within the RTD iced latte sector in terms of flavor. Target, for example, added a raspberry flavor twist to one of its newest offerings under its Archer Farms label.

But no matter what the new product concept, Greene advises retailers not to rely solely on quality/safety testing organizations for evaluation. By doing so, they will end up with blind spots regarding opportunities.

"Organizations that use internal panels of employees or consumer panels are probably more relevant as to true evaluations of private label offerings, as they can measure the true value of the offering [in terms of] price, quality, taste, etc.," he contends.

Do make health benefits a focus for new store brand alternative beverages.

Don't waste time and money on alternative beverage development within a particular subsegment if 20 percent of sales — an achievable store brand percentage — represents too small of a number.

Do treat store brand beverages as "best in category" in activities ranging from shelf positioning to store-related advertising.

Don't risk store brand image by promoting your alternative beverages at too low of a price.

Looking good

No matter how great the store brand beverage, it's unlikely to sell itself. Retailers will want to do all they can to get that beverage in front of shoppers — and the show begins, of course, with the bottle and its label.

Williams encourages retailers to be unique here, at least wherever they can.

"If the category is 95 percent 20-ounce plastic bottles, then look at 24-ounce glass bottles, or look at 24-ounce plastic bottles," he recommends. "Do something a little bit different and have it look interesting or appealing to a consumer."

Daanen says Winona Foods has found that PET is still the most practical substrate for many applications.

"Consumers want to see the product's color and consistency, and even though aluminum or other materials might stand out at first glance, they don't instill the same confidence in the contents," he says.

On the merchandising side, the beverage has to be treated as the best in category, Williams believes — in activities ranging from shelf positioning to store-related advertising.

"Don't treat your private label products as something that you did just to be in the business," he stresses. "Advertise them; promote them; sample them. Get them into people's hands and let them know that the products they are consuming are very good offerings."

Beth Wierzbicki, Clement Pappas' marketing manager, agrees that a branded approach is called for — one that clearly communicates the product benefits on the primary display panel and promotes the product off shelf during the optimum times of the year. Price point, too, is a critical consideration. As proof, Berner's Fay points to one major retailer's troubles with a new milk-based coffee energy drink program.

"Their store brand price gap is generally 10 points greater than most [other] retailers," he explains. "The product we placed with them did not do well. I believe, in large part, the product was not established enough with consumers that an obvious value equation was communicated."

That same retailer, Fay adds, has a highly successful iced latte program that boasts a 30 percent price gap in relation to a well-known national brand.

But don't promote alternative beverages at too low of a price, Cliffstar's Walker advises. By doing so, retailers could harm store brand image — consumers could perceive such products to be of a lesser quality than the national brand.

That advice, of course, assumes the quality IS on par with or better than the national brand's. Although competitive pressures might lead some retailers to sacrifice quality for a lower cost, Walker believes that's the worst mistake they could make.

"This destroys the value equation and has negative cross-category effects as well," he warns. "Strategic marketing with timing of promotions, more effective price points and integrated merchandising are more effective than a simple price reduction."

Ingredients Under Scrutiny

Health-promoting ingredients aren't the only benefits consumers are demanding within the alternative beverage arena. They also are looking for more "recognizable" ingredients, according to Andy Dratt, executive vice president of Imbibe Inc., Wilmette, Ill. (a trend also playing out in other food and beverage categories). But that doesn't necessarily mean all natural. For example, erythritol is a natural sweetener, but uniformed consumers might hear the chemical-sounding name and think of it as a dietary no-no.

"There's a major trend toward keeping labels simple," Dratt says, "toward using ingredients that are recognizable and clearly aren't artificial [or] don't sound like they're artificial."

Larry Williams, vice president of sales for Atlanta-based Monarch Custom Beverages, also sees more consumers shunning high-fructose corn syrup and artificial flavors and ingredients — and major beverage manufacturers reacting by formulating beverages to be unique. That means more options with non-nutritive sweeteners such as stevia-derived offerings (which may be labeled as natural) and even retro or throw-back brands that get their sweetness from cane or beet sugar.