New age rides a new wave - new category of beverages boosts retail outlet sales - Food Merchandising

Discount Store News, March 7, 1994

Americans' Ongoing Health Kick and Retailers' Use of Beverages as Traffic Builders Have Fueled Growth in Sales of Natural Teas, Juices and Sparkling Waters

New Age beverages are entering a new age. Drugstores and mass merchants say this relatively new category of beverages is turning loose a well-spring of profits in retail outlets across America. Fueling the trend is Americans' ongoing concern with their health, and retailers' increased use of beverages as sales and traffic builders.

"Health is in," said Jim Mitchell, a beverage industry consultant based in Irving, Texas. "All those fitness and weight-loss clubs are no illusion. When Clearly Canadian takes off like a rocket there has to be a reason, and the reason is the concern people have with what they ingest."

Clearly Canadian remains the New Age segment leader, followed by Seagram's 2 Calorie Quest, which in two years seems to have "stormed the market," according to Michael Duff, editor of Beverage Aisle magazine. Another big comer over the last year has been Snapple's line of natural teas and sodas.

What is helping jump-start sales to new levels is the Wal-Mart-inspired move to use beverages as promotional tools and traffic builders, as well as the latest vending technology. To a large extent, it is the increasing popularity of beverages as a promotional tool that may continue to carry New Age beverages along on the wave.

Wal-Mart's strategy of placing Coke and Pepsi machines outside its stores with large signs trumpeting prices as much as 20% to 25% lower than area norms has rippled through retailing. Wal-Mart then followed up with its own proprietary label, Sam's Choice, at a price point as low as 25 cents in some areas. The results--higher sales, profits and customer traffic--have convinced retailers in all segments to follow suit with a variety of beverages.

The definition of New Age is not universally agreed upon. While retailers generally use the term to refer to natural sodas, flavored waters and teas, the beverage industry itself limits it to natural sodas. Tea and flavored or sparkling waters are viewed as categories unto themselves. Seven years ago, they were looked upon simply as alternatives to traditional sodas.

But by anyone's definition, the category is still seeing significant growth. It began in 1989 with the introduction of Clearly Canadian. Since then, products like 2 Calorie Quest, Mystic, Crystal Pepsi, Crystal Geyser, Koala, and Lipton Bottled Teas have crammed coolers and shelves across the country. Located somewhere on the fringe of the New Age are isotonic drinks like Quaker Oats' Gatorade, Coca-Cola's Power-Ade, Pepsi's All Sport, and the Suntory Water Group's 10-K. Last year, Dr. Pepper introduced a line of low-calorie thirst quenchers called Nautilus, which is available in three flavors, each of which has only one calorie.

According to beverage industry insiders, Clearly Canadian's growth has slowed as the public has become aware of the relatively large number of calories it has. Lower-calorie versions are reportedly on the way. Beverage Aisle magazine reports sales in 1992 were $155 million.

2 Calorie Quest recently introduced two new flavors, strawberry and lemon-lime. They join black cherry, raspberry, tangerine-lime and peach-citrus. According to Seagram's executive vice president for marketing, Mark Taxel, the introductions "will allow us to continue our aggressive marketing strategy for growing the business."

Drugstores, while late to enter the New Age fray, are slowly but surely becoming a more significant venue. Using suppliers' coolers, they can allot space in store, get paid for it, build traffic, and commonly add as much as $200 a month to the bottom line in what amounts to found money. Snapple, particularly, offers a relatively high retail price of $1 to $1.50.

"Drugstores are as important to use as supermarkets or convenience stores," says Carl Gilman, senior vp of sales and marketing for Snapple. "We're working feverishly to get more space all the time in stores like CVS, Rite-Aid, and Eckerd."

Keystone Pharmacy of Omaha, Neb., is working New Age beverages into all of its 14 stores in Nebraska and Iowa. Merchandised both in coolers and on 4-ft. shelves--"not enough, but all we can handle right now," says beverage buyer Marty Rosenstein--the category has become "too hot to ignore.

"It's hard to say what sales per square foot will be because we haven't really gotten the departments together yet," says Rosenstein. "We're still kind of 'piece-mealing.' Every bottler we work with has different products, and we're trying to get the best of everything."

Keystone will carry about 50 skus, with brands like Snapple, Evian, Mendota Springs, Clearly Canadian, Gatorade, Ocean Spray, La Croix, Lipton Teas, Nestea, All Sport, Pro Sport and Perrier. Margins are 20% to 25%. In-store merchandising will consist of signs on cooler doors and shelves.

May's Drugs, which got into New Age beverages a couple of years ago with Clearly Canadian, now carries one or two other lines, but is looking to expand its selection. According to buyer Gregg Heller, planograms jointly developed with Pepsi (which owns Ocean Spray and Lipton Teas) call for the expansion of the category. Pepsi, he says, is also planning to introduce at least one new sports drink and a line of bottled water.