Opinion from global food and drink experts, Zenith Global
Header

However Americas Beverages is sold or demerged, it will be unfinished business.

Cadbury Schweppes will leave its American operations in stronger shape than before. But whoever takes them on will still be number three to Coke and Pepsi, with relative weakness in some of the higher margin and faster growth sectors. The gaps will need filling.

Moreover, the bigger brands cannot avoid the question of international potential. Schweppes is already owned by other companies in most countries, as is 7 UP. Snapple may have the widest opportunity. Dr Pepper and others could be good candidates for expansion too.

There will also be unfinished business for the new confectionery based Cadbury plc, mainly because its Australian beverage activities will remain a strategic anomaly.

All this is confusing and ironic. Growing brands at some point need to explore new territories. They tend to need larger companies to sustain them. Cadbury Schweppes was once just such a worldwide player, but it has progressively retrenched in beverages towards narrower country based priorities. This is most evidently demonstrated by the Schweppes brand itself, which will be divided between four geographies.

  • Cadbury – Australia
  • Americas Beverages – US, Canada, Mexico
  • Orangina Group – Benelux, France, Iberia, Italy
  • Coca-Cola – Rest of world

So success for the new Americas Beverages will mean taking some beverages beyond the Americas. And success for the Orangina Group will mean taking more beverages beyond Europe. But Coca-Cola has the widest interests and Australia cannot remain isolated forever. There are also relationship complications for other brands such as Oasis and Orangina.

So the outlook for these lemonades will become cloudier before it becomes clearer.

$4.1 billion for a business with latest full year sales of reportedly around $350 million. Hats off to Bikoff.

This level of price multiple is scaling new heights. It’s Coke’s biggest ever deal with a drinks competitor. Coke certainly needs greater strength outside carbonates. But there has to be a question mark over whether such a premium can be made to pay its way.

In its favour:

  • Glacéau is the clear pioneer in US enhanced waters.
  • Vitaminwater has phenomenal design, character and lifestyle appeal.
  • It’s currently enjoying more momentum than any other brand in the sector, most notably its rival Propel from PepsiCo.
  • Darius Bikoff and his team have sweated their socks off in store-by-store sampling with courage and conviction.
  • They’ve innovated with intelligence, most recently with vitaminenergy.
  • There are still substantial new US distribution opportunities, particularly in mainstream retail, foodservice and fountain.
  • The international potential is also huge, with few other serious contenders at the moment.

Against this:

  • Vitaminwater is not as low in calories as its water associations might suggest.
  • Its functionality benefits may be challenged and it may take time for claims to be backed up by sufficient scientific evidence.
  • It is largely unproven outside North America.
  • There is little track record of successful internationalisation in flavoured or enhanced waters.
  • The Coke system will have to show exceptional flexibility to adapt, especially in respecting the best of existing distribution partnerships.
  • $4.1 billion must assume very high and long lasting growth.

In my opinion, the strategy is sound, but even the Tata price of $2.3 billion last August was steep.

Gatorade has always struggled to spread internationally. Snapple suffered at the hands of big company integration in the 1990s. Numerous other brands have lost momentum after losing their independence, some under the tutelage of Coca-Cola. With all its other priorities and pressures, Coke will need to tread with extreme care to sustain what’s special about Glacéau and must be wished well in pulling it off. This is the start of a new chapter in the company’s annals and success will move the whole industry forward.

PS If Glacéau is worth over $4 billion, where does that put Red Bull and Hansen ? Even Innocent could expect more than £1 billion, but I hope it will carry on to join the other angels in the firmament by sticking to the knitting for a few more years yet.

This looks a smart deal at a fair price.

It would be difficult to find a better fit. The two companies have been long standing distribution partners. PepsiCo will gain a stronger unified franchisee for the whole United Kingdom and Republic of Ireland. Ballygowan will add a necessary boost to Britvic’s water range.

The acquisition also gives Britvic a better chance to shape its own destiny and fulfil further expansion potential. It coincides with a radical repositioning of Tango as a more natural soft drink. Several of Britvic’s brands are already sold internationally; the C & C portfolio and a revamped Tango provide further opportunities.

Red Bull celebrates its 20th anniversary this year. It has been an outstanding example of brand development and market leadership, creating a new premium opportunity and generating astonishing growth.

With 2006 sales of 2,600 million euros, its value could easily be over 10,000 million euros.

It has achieved this despite the challenge of very little real competition except in a limited number of countries.

Until now. A Californian brand called Monster could seize the retail crown in Red Bull’s largest market this year. Monster has learned from Red Bull’s successes such as edgy imagery and extreme sports sponsorship, but has also gone well beyond – most notably in double size cans at better value prices, but also with flavour and ingredient innovation.

The 2006 US retail volume figures show Red Bull charging ahead by 27%, but down 7 share points to a 30% share, against Hansen’s Monster and other brands roaring up by a fiery 88% and gaining 5 share points to a 27% share.

Hansen looks set to boost its overall business sales to well over US $1,000 million this year and has every chance of overtaking Red Bull.

Red Bull, meanwhile, has tightened its strategy, restructured its distribution and strengthened its team. So there will certainly be a locking of horns.

But nothing ever stands still in consumer marketing. As Red Bull defends its US stronghold, Monster has declared plans to expand internationally. Stimulating times.

TAX ANOMALIES ENCOURAGE OBESITY

April 12th, 2007 | Posted by Richard Hall in Health - (3 Comments)

Over the weekend, I learned that the expression ‘daylight robbery’ stems from when a form of UK property wealth tax was introduced on window panes. It was curtains for the tax long ago, but many buildings still have bricked up windows or windows with large panes.

In the same way, Value Added Tax in Europe needs adjusting to reflect new social concerns and product innovation. I’m thinking here of VAT on food and drink set against the continuing rise in obesity, especially amongst young people.

It seems so simple to me. Most of us know we should take more exercise, but probably won’t on a regular basis. We are more likely to moderate our diet, especially if given an incentive as well as the knowledge to do so. If the balance of our diet were a bit healthier, there would be less obesity.

This could be assisted easily by adjusting VAT levels on healthier food and drink. Each country has its own anomalies, but in the UK two that stand out the most are :

  • 17.5% VAT on pure fruit juice including smoothies
  • 17.5% VAT on bottled water whether still or sparkling

Yet the general rate on most other foods is a giant 0%.

Hmm. Governments want us to consume 5 portions of fruit and vegetables a day and less high calorie drinks, yet they also make it more difficult for people, especially those with smaller incomes and often less good health, to achieve this.

Politicians are not known for their public acceptance of shame, but this state of affairs is truly shameful.

If governments mean what they say about health, diet and obesity, then VAT on juice and water should be reduced to encourage rather than discourage consumption.

NO MORE BULL FROM DAIRY

April 5th, 2007 | Posted by Richard Hall in Dairy - (0 Comments)

The dairy industry has been pre-occupied with production issues for as long as anyone can remember. Today it is definitely turning the corner.

Last week, I had the privilege of chairing the First Global Dairy Marketing Congress in Amsterdam, attended by over 200 delegates from more than 30 countries.

The mood was upbeat. The energy was palpable. Why ?

Because dairy innovations are now leading the way across many food and drink categories. Because their health benefits are backed by proper science. Because consumers are responding with real enthusiasm. And because the result is a better deal for farmers as well as dairies.

What did I learn that was new ? This is always a good test for any conference. Much, of course, was reaffirmation.

But perhaps I realised for the first time just how many drinking milks, desserts, spreads and cheeses now have added health benefits beyond their valuable natural ingredients.

Three prevailing long term changes stand out in today’s market:

  • the scale of lower fat, lighter diet products,
  • the rapid growth of probiotics for those who simply want their bodies to function more efficiently and
  • the surge in a whole range of functional shot drinks with all kinds of merits from cholesterol reduction to cognitive enhancement.

One revelation was how far the US market must move to catch up with these trends elsewhere.

Three new emerging themes also seem to be taking shape:

  • the idea of satiety products, which make you feel more full and were the winners of an informal delegate vote as The Next Big Thing,
  • the need for muscle repair drinks to redress the slow weakening of ageing muscles known as sarcopenia and
  • the introduction of cosmeceutical products to improve skin suppleness.

Surprisingly little was said about the need for more exercise. Which must mean that the dairy industry is concentrating on what it can do to help, rather than trying to suggest solutions are up to others.

The weather is set fair for dairy to enjoy new pastures.

Some people think the world would be better off without bottled water. I believe the opposite.

They say bottled water is unnecessary and wasteful. Unnecessary because there is a direct substitute in tap water. Wasteful because of all the packaging and transport. There are also criticisms of comparative cost without real benefit.

These are all good arguments, but they could be levelled at almost any element of consumer choice.

My reasoning starts from the premise that all water is good. Drinking more water will do almost anyone more good. Whether from the tap or from a bottle. If we all drank more water, our minds would be clearer, our skin would be more supple, our organs would naturally flush out more toxins and our bodies would weigh less.

If you had to invent the perfect product for the 21st century, it would have to be water. Water is natural, healthy, calorie free and abundant.

Abundance, however, is not universal and nor is it without cost. Many regions of the world do not have adequate municipal supplies and bottled water is often part of the interim solution. In more developed countries, people still need hydration at work, at leisure or while travelling and bottled water provides that convenience.

Waste is an issue for the bottled water industry and it needs to do more in responding to increasingly widespread concerns. The full facts, I suspect, will favour bottled water more than its producers might imagine.

First, they waste very little water itself, less than any other beverage and way below other food or even non-food products. Secondly, they actually use only a tiny fraction of water resources in most areas. Third, natural mineral water is not treated at all and other waters are safeguarded by minimal purification. Tap water requires massive long term investment, all of it has to be treated, regardless of ultimate use, and leakages amount to many times the level of bottled water consumption.

Bottled water does use a lot of packaging and transport, but here too its record is among the strongest in industry. Most bottled water is sold at very low prices and is distributed only locally. It uses lighter weight materials than most other beverages and packaging is increasingly returned or recycled. The earliest biopackaging initiatives started with bottled water.

The number and volume of premium international brands is actually quite small. Is there any defence for them ? In my view, consumer choice is paramount within the bounds of social acceptability. And there are so many much more important concerns to address before this. If there is something wrong with buying a French bottled water outside France, that logic applies just as much to wine or coffee or bananas or toys or technology. Open and competitive free markets would fall apart if any one of these became a political football.

My last point is about benefit. Why pay hundreds of times more for bottled water when you can’t taste the difference and it is no healthier ? Well, some people can taste the difference and many bottled waters do contain a particular beneficial balance of minerals. You do at least know exactly where a natural mineral water has come from, that it is from a protected environment and that it has not been treated.

Personally, I enjoy all water and do not have a very discerning palate. There are many times when I buy a bottled water out of convenience or preference, but I drink a lot from the tap too. Increasingly, I expect I will pay more attention to products which tell me more about their environment and ethical credentials. If anyone wishes to stop me, then please look at the alternatives first.

Oh, and when there’s a natural disaster, what is always one of the first priorities for rescue teams ? Yes, quite.

So Coca-Cola is now a sparkling beverage instead of a carbonated soft drink and industry associations from Australia to Europe have removed soft drinks from their names in favour of beverages. Even Zenith’s own magazine softdrinksworld has been renamed beverage innovation.
Imagine the time devoted in boardrooms to these subtleties. Actually, finding the right expression for anything is important. Especially one that encapsulates an entire global industry. This blog will aim to add an informed and balancing comment on great issues such as this, as well as on quirky ones or on general new developments. It will also seek to stimulate wider debate in the hope of finding more satisfactory solutions or leading to better decision making.
Well, what’s wrong with soft drinks then ? In my view, not much. They’re fun, refreshing and affordable. They offer convenience, choice and increasing health benefits. Overall consumption is growing remarkably consistently. There are issues surrounding calories and packaging waste and I hope to address these in the future, but all industries have to adapt to social change. Soft drinks are among the fastest to adjust.
To me, the reason why the soft drinks industry is agonising over its name is because it is relatively young, it has never been regulated in the same way as agricultural products or alcohol, its success has brought unaccustomed scrutiny and society has yet to resolve its new perceptions about obesity or the environment. In some media, there is a straight line from soft drinks through sugar to obesity.
One of the problems with soft drinks is that the expression means different things in different countries. The United States has had the narrowest definition of carbonated soft drinks. Continental Europe has included still fruit drinks. Zenith has always embraced a wider definition including bottled water, fruit juice and iced teas. In time, the universe may be extended to include drinking yogurts and flavoured milks, as is already the case with ACNielsen research.
What of the alternatives ? Non-alcoholic is too negative. Sparkling could include champagne and water. Beverages are commonly associated with hot drinks as well as cold. Liquid refreshment beverages are rather a mouthful. For technical precision, one could decide on something like non-alcoholic non-dairy cold beverages, but that’s not exactly media or consumer friendly.
I have no problem with trying out new ideas. Sparkling may work. Beverages may do. But personally, I keep coming back to soft drinks as the generic category and carbonated soft drinks as the sparkling sector – as distinct from bottled water or fruit juice or other soft drinks such as still drinks or dilutables.
If you have better ideas, I’d be delighted to hear them via bevblog@zenithinternational.com
Richard