Beverages | Major acquisitions stir activity in flat category
Leaders invest in core brands while adding new products
Change began to stir in a category that had gone flat. Coca-Cola Company purchased Costa Coffee, a UK coffee shop chain with around 3,800 locations, and PepsiCo Inc. acquired SodaStream, the at-home device for adding fizz and flavor to still water. Both initiatives moved these leading brands into direct-to-consumer businesses, opening new possibilities for collecting data, developing new products, leveraging retail distribution channels, adding experiences, and finding new marketing opportunities.
These developments followed years of flattening volume in a one-time effervescent category misaligned with a powerful cultural shift—the consumer concern with health and wellness. Over the past nine years, the brand value of carbonated drinks in the BrandZ™ Beverage Top 15 increased only 14 percent. The share of value contributed by carbonated drinks to the Beverage Top 15 declined from over three-quarters to less than two-thirds.
Volume sales rose slightly in Europe last year, but value grew at a faster rate because of product premiumization, according to Kantar. In the US, the volume carbonated beverages sold declined for the fourteenth consecutive year, according to Beverage Digest, an industry publication.
Along with their major acquisitions, both Coca-Cola Company and PepsiCo Inc. continued to protect their core brand with marketing investment, while expanding their portfolios with new beverages intended to appeal to younger drinkers and others seeking healthier beverage alternatives. The brands also introduced new variants of their carbonated soft drinks.
The brand value change among most of carbonated soft drink brands was weak or down, with the exception of Dr Pepper, which rose 10 percent. The energy drink Red Bull rose 11 percent in value. Both brands benefited from their strong appeal to specific audiences. Tea and coffee brands increased in brand value, reflecting the desire for beverage options other than carbonated soft drinks.
To more accurately describe the category today, the name changed from soft drinks to beverages in this edition of the BrandZ™ Global Top 100 report. With a more expansive definition, two leading Chinese dairy brands, Yili and Mengniu, appear in the category ranking for the first time. The value of the BrandZ™ Beverage Top 15 increased 9 percent compared with 4 percent a year ago.
Building around the core
After several years focused on developing new drinks, PepsiCo Inc. invested more into its core Pepsi brands, spending on advertising, social media, and events. Rather than promote new variants of Mountain Dew, for example, PepsiCo Inc. invested to protect the core brand.
In another instance on leveraging the core business, Coca-Cola Co. introduced Orange Vanilla Coke and Orange Vanilla Coke Zero, its first new flavors for the Coke brand in over a decade. The line extension follows the recent positive response to new Diet Coke flavors. Diet Coke, along with Coke Zero and low-calorie versions of Sprite and Fanta helped boost Coca-Cola sales.
The new Coke Diet flavors also reflects the company’s determination to experiment more with variants of its key brands, including flavors that appeal in specific markets, such as cucumber Sprite in Russia and a Sesame inspired drink in China. In a related effort, Coca-Cola is leveraging its global reach to test brands in certain markets and then introduce them more widely.
Coca-Cola Co. introduced an energy drink internationally, starting with Europe. Called Coca-Cola Energy, the product targets a Coke brand at an audience that continues to buy carbonated beverages. The beverage is formulated to taste like Coke. Coca-Cola Co. is involved in a dispute over the provisions of its partnership with the energy drink company Monster.
The health and wellness trend that slowed the growth of carbonated soft drinks is also driving the introduction of new functional beverages, both by Coke and Pepsi and smaller brands. Kombucha, a tea for gut health is gaining in popularity. PepsiCo Inc. offers a kombucha tea under its probiotic KeVita brands, which it acquired in 2016.
Addressing a trifecta of consumer concerns about personal health, personalization, and the environment, PepsiCo Inc. marketed its Drinkfinity line of waters that includes a reusable bottle and disposable flavor pods. The drink was marketed online, direct-to-consumer.
PepsiCo Inc. also tested its Aquafina Water Station, a vending machine where users could fill up their reusable containers with plain or flavored water. In an irreverent spot on the Ellen DeGeneres Show and Super Bowl commercials featuring singer Michael Bublé playing off of his name, PepsiCo Inc introduced Bubbly, a sparkling water similar to La Croix.
Costa Coffee and SodaStream
In acquiring Costa Coffee, Coca-Cola Co invested substantially to expand its “share of throat” by moving into coffee drinks, a growth sector, as evidenced by the strong value increases of Nespresso and Nescafé, both ranked in the BrandZ™ Beverages Top 15. The acquisition gives Coca-Cola Co a platform in hot beverages, advancing the company’s strategy of becoming a total beverage company.
Costa Coffee operates around 2,500 branches in the UK, its home market. Another roughly 1,800 locations are scattered across 31 countries without significant concentration, except in China, where Costa Coffee has almost 500 stores. Initially, however, Coca-Cola Co. plans to extend the reach of the Costa Coffee brand by leveraging vending capabilities of both Costa Coffee and Coca-Cola Co.
The Costa Coffee retail locations potentially can add touchpoints for Coca-Cola Co. and a direct-to-consumer channel for gathering data and personalizing the customer experience. They also provide opportunities for new, younger drinkers to experience the Coke brand. Coca-Cola Co. intends to leverage its distribution and put Costa-Coffee branded drinks onto retail shelves for ready-to-drink and at-home consumption.
Coca-Cola Co. already has a product and distribution arrangement with Dunkin in the US. In a similar way, Nestlé recently purchased the rights to distribute Starbucks packaged coffee and tea worldwide, while PepsiCo Inc. continues to distribute Starbucks ready-to-drink products.
In acquiring SodaStream, PepsiCo Inc. is attempting to add in-home occasions. Using the SodaStream device—adding a flavor to water and carbonating the mix with a blast of carbon dioxide—also adds a new customer experience around the Pepsi brand.
Additionally, the reduction in packaging, with single-use containers, reduces waste. Coca-Cola Co. had attempted—and abandoned—a similar idea with Keurig Dr Pepper, which has since joined with the brewer AB InBev to use a K-cup machine for at-home cocktail mixing.
These initiatives—the introduction of healthier choices and increased commitment to sustainability—have impressed consumers and perhaps prepared them for the bold transactions with Costa Coffee and SodaStream. From the consumer viewpoint, Coke has increased in Purpose and Responsibility and, according to BrandZ™ research, consumers now see the brand as more likely to “Shake things up.”
Brand Building Action Points
- Grow beyond boundaries
The change in the BrandZ™ category name this year indicates more opportunity and also more potential competition as two Chinese brands with global ambitions are now ranked in the BrandZ™ Beverages Top 15.
- Add more occasions
Add and re-think occasions. Fast food restaurants were an obvious meal occasion, but the notion of fast food is changing as people have more choice about how their meals are prepared and increasingly delivered.
- Be convenient
For convenience-obsessed consumers, it is important to provide the product people want, where and when they want it. In China, that could mean being selected on an app for prompt delivery. Elsewhere it could be being present at a lot of retail and vending locations.
- Sustain trust
The category’s efforts to revitalize and adjust to changing consumer attitudes about health and wellness are gaining traction, according to BrandZ™ research. The takeaways from this initial momentum are: stay the course; and stay honest.