Drinking games: the popularity of diet beverages is at an all-time high, augmented by the growing variety of effective sweeteners on the market. Yet, one segment's boon is another's disappointment, as sales of regular versions falter

Prepared Foods, Nov, 2004 by William A. Roberts, Jr.

Something Old, Something New

The success of such flavored offerings suggests that Americans like new drinks but, at the same time, like some familiarity. With a number of Mountain Dew offerings, PepsiCo has experimented with using limited availability to boost awareness and drive future interest. Mountain Dew LiveWire was the first such attempt. Adding orange concentrate to the citrus staple, the product sold from Memorial Day to Labor Day with aggressive marketing, and the effort has continued with this year's limited run of Mountain Dew Pitch Black, melding the citrus flavor with black grape flavor.

Mintel finds, however, that such products with a smaller potential base may be the victim of cannibalization, as evidenced by the Mountain Dew extensions. The namesake brand achieved its best sales the year before the Code Red offering debuted, which hit its peak the year before LiveWire briefly appeared. In fact, LiveWire's $55 million haul in 2003 roughly matched the sales decline for Code Red that year.

The same is seen in the regular carbonated arena, which has experienced no significant constant dollar growth since 2000. Mintel finds that beverage companies face a conundrum: a familiar name is a strong selling point, yet "putting that name on a product that is too different risks brand dilution or, worse, attaching the name to a high-profile failure. As a result, many of the 'new' products from Coca-Cola or PepsiCo are not remarkably different from the products whose name they share."

Therefore, original, new beverage brands are more apt to come from a company other than the big three. The company may start with very limited distribution, develop a good track record with a certain client niche and, as was the case with SoBe and Snapple, get acquired by one of the major players--PepsiCo in SoBe's case, Cadbury-Schweppes in Snapple's.

Speaking of Snapple, the tea segment posted growth from 2002 to 2004, but it is one of the category's smallest segments and is largely composed of aging brands, Mintel says. Snapple and AriZona Iced Tea (AriZona Beverage Co., Lake Success, N.Y.), both relatively young brands, have contributed the most to the segment's 19% sales growth since 1999. Both stand out through packaging and other means. Nevertheless, the segment saw a decline, as a drop in sales of more-traditional teas undercut the gains made by the leading brands; Mintel believes this may foreshadow difficulties ahead for the segment. Many consumers may regard simple sweetened and unsweetened varieties as old fashioned, suggesting companies may need to "find some new tack or angle to provide themselves with the sense of personality that has become essential in beverage marketing," speculates Mintel.

Beverage Boom?

Forecast of U.S. supermarket and mass merchandiser beverage sales
2005-2009

         Sales at                   Sales at
       current prices               constant
Year    ($ millions)    % change   2004 prices   % change

2009      $32,607         3.8%       $28,805       1.2%
2008      $31,428         3.9%       $28,460       1.3%
2007      $30,259         4.0%       $28,090       1.5%
2006      $29,088         4.2%       $27,681       1.7%
2005      $27,913         4.4%       $27,229       1.9%

Source: Mintel

Drinking Up

Supermarket and mass merchandiser beverage sales, 1999-2004,
in millions

                Sales at                   Sales at
              current prices               constant
Year           ($ millions)    % change   2004 prices   % change

2004 (est.)      $26,732         4.9%       $26,732       2.3%
2003             $25,483         3.9%       $26,119       1.6%
2002             $24,523         5.7%       $25,709       4.1%
2001             $23,190         5.1%       $24,696       2.2%
2000             $22,067         6.9%       $24,168       3.4%
1999             $20,642          --        $23,368        --

Source: Information Resources Inc./Mintel