Which beverages will rise to fill void left by declining soda sales?

29-Mar-2017 - Last updated on 30-Mar-2017 at 13:21 GMT

As carbonated soft drinks’ long supreme reign over the beverage industry continues to slip amid fears of consuming too much sugar, sales and distribution of healthy, better-for-you and functional alternatives are gaining traction to fill the void.

Among those beverages benefiting from the drop in soda sales are kombucha, cold brew coffee, plant waters and fresh pressed juices, according to industry leaders who recently presented during FoodNavigator-USA’s Beverage Entrepreneurs To Watch online forum, which is now available free on demand. Even dairy milk is finding a larger share thanks to innovations in the category.

“What is happening in carbonates is really impacting the total soft drinks industry today, and really influencing what new trends we are seeing and where the market is going to be in years to come,” Eric Penicka, a research analyst with Euromonitor International, said during the forum.

“Carbonated soft drinks, pop and soda, and particularly cola carbonates, have rally experienced dramatic declines since around 2004,” when it was estimated that Americans drank around 33 billion liters of cola compared to last year when consumption had dropped to just under 23 billion liters even as the US population continued to expand, he said.

He explained the decline is due to Americans increasing health awareness and “a lot of attention attached to sugar” as well as “a long standing skepticism given to artificial sweeteners, which are used in a lot of the diet and low calorie alternatives that are on the market.”

As consumers take their thirst and dollars that they previously spent on carbonates to new beverages, the largest benefactor in terms of volume has been bottled water, “but there is also tremendous growth in categories like ready to drink tea, ready to drink coffee, sports drinks and really any beverage which can market itself as healthy and natural,” Penicka said.

Kombucha must overcome challenges to seize opportunity fully

One segment in particular that has benefited from soda’s decline and consumers’ increasing interest in health and wellness is kombucha, which has been around for hundreds of years but only recently became commercially available in the US, Penicka said.

“Kombucha is part tea, part probiotic beverage and in some ways it is marketed as a fountain of youth,” Penicka said. While he said he was joking about the fountain of youth, he said that the category has benefited from a mentality that it is packed with antioxidants, probiotics and offers digestive benefits.

A challenge for the category as it grows though will be reining in spurious health claims that could garner attention from regulators, Penicka said. Similarly, he added, manufacturers will need to provide quality assurance, especially related to alcohol content – a sticking point for the industry in the past.

Another challenge will be gaining consumer awareness, which for the most part has grown via word of mouth, he said.

Cold brew heats ups

Another category that is beginning to “flirt with mainstream” as cola sales fall, is cold brew coffee, Penicka said.

“There has been a lot of high profile adoption of cold brew” in food service in the past few years, with major players from Starbucks and Dunkin Donuts to Chick-fil-a offering it, he said. But, he said “there is still quite a bit of retail penetration needed before we can call it mainstream.”

In particular, there is a lot of opportunity in convenience stores, club stores and small format accounts, said David Smith, the CEO of High Brew Coffee.

But in order to fully seize this opportunity, Smith says manufacturers in the category must educate consumers about cold brew coffee given many people do not understand how it is different than iced coffee or how, by soaking the grounds for hours in cold water, the beverage not only offers a higher caffeine content, but has a smoother, less acidic taste that means consumers can skip the cream and sugar.

Plant based waters gain traction

The growth of plant-based waters, which includes coconut water even though it is technically a juice, has “been unreal,” Penicka said.

Coconut water and other plant-based waters in packages in the US “grew essentially from nothing in 2005 to $95 million in retail channels in 2010, and last year were just shy of $900 million,” he said, adding that the category’s explosive growth is such that “any new beverage type is aspiring to achieve.”

He attributes the growth in this category in part to these products’ simple ingredients, no added sugar and to a lighter feel that today’s consumers want because it gives the impression that the beverages are healthier.

He also noted that while in the past anything associated with water might have been viewed as “kind of boring and bland … today the way that consumers are moving, water is something a lot of beverages are aspiring to be and hoping to align themselves with.”

Is dairy innovation a dark horse?

While not as flashy as some of the newer categories, dairy beverages also are capturing consumers’ attention thanks in part to innovation and also a better understanding of their functional benefits, said Blake Waltrip, the CEO of The a2 Milk Company.

For example, he said, as people understand more that what they consume directly impacts their health, sales of kefier and fermented dairy drinks “have really exploded.”

Similarly, innovations in dairy are helping to drive the category’s growth, he said noting that his own a2 milk has done phenomenally since it launched in the US last year.

He explained that a2 milk stands apart from other dairy milk because it is made from cows that produce only the a2 protein, which Waltrip says is gentler on the system for some people.

“What we have found through many years of research is that the a1 protein is the culprit in terms of causing inflammation that manifests in many different ways for consumers,” he said.

While the company originally intended to keep its distribution in the US “tight” with distribution on the West Coast, Waltrip says “we have seen our velocity build” with many retailers requesting the product – prompting it to expand into the Southeast recently through Publix.

Retailer interest in milk also is contributing to the brand’s and category’s success, Waltrip added, noting, “The milk purchase for retailers is critical because they know if a consumer buys their milk on a regular shopping trip, the chances are they also are buying the rest of their products there. So, milk is a routine stock-up that is critical for retailers,” prompting them to look for “opportunities from the plant-based world or the dairy world to beef up their offerings in the dairy set.”