Unseating Category Giants (Thoughts From the Beverage Forum)

We recently attended the Beverage Forum in Chicago, IL (April 29-May 30). This annual conference brings together a wide range of speakers who shared their views on trends affecting the beverage market today. Executives from Mark Anthony Group (Mike’s Hard Lemonade), Coca-Cola, Diageo, Body Armor, Wal-Mart, PepsiCo, Craft Brew Alliance, and others, presented their views.

The different presentations provided some valuable insights and unique perspectives, which we’ve distilled into six common themes that reflect the major trends facing the beverage industry today:

Disruption is Alive and Well

The presentations from Body Armor, C4, Mark Anthony Group (think Mike’s Hard and White Claw), and others, as well as ongoing references to the rapid rise of Bang!, drive home the point that disruption in the beverage market is alive and well. The revolution is here – established mainstream brands, and even entire categories, are being challenged (and upended) by new brands that bring new passion and better meet evolving consumer needs. We first wrote about this trend in 2015, and the trend shows no sign of slowing.

What is more, presentations from Wal-Mart and Bristol Farms make it clear that retailers are on the front-line of recognizing growing consumer demand for innovative new brands, and are actively driving this demand through increased shelf space, rapid roll-outs for new brands, and increasingly targeted plans to develop smaller brands. As retailers formalize support for new, small and growing brands, the disruptive effect of these emerging brands is likely to gain momentum.

Bringing Disruptors In-House… Opportunities and Challenges

Given the impact that disruptors are having on established brands, it is obvious why beverage companies are actively trying to acquire them. Nearly every major beverage company now has a venture capital fund whose purpose is to bring innovative new brands into their portfolio at an early stage.

Coke’s investment in Body Armor is a good example of this, given Body Armor’s disruption of the sports hydration category. And, as one Wall Street analyst noted, “Coke gets a system that is full of passion… Gatorade doesn’t have anyone with passion anymore.”

But Bill Hackett’s discussion on the challenges Constellation has had with Ballast Point really underscored the challenges that can sometimes arise from trying to incorporate these emerging brands into an established portfolio – especially if the founders do not stay on board.

Building Brands: Go Deep Rather Than Wide

Both Andy Thomas of CBA and Jason Cohen of Owyn Brands talked about the importance of building brands by going deep into a market, rather than by trying to rapidly expand distribution. Going deep, rather than wide, allows a brand builder to really understand what drives velocity. Interestingly, going deep meant different things for these brands, with CBA focused on geographic strength and Owyn going ultra-narrow to really develop specific key chain accounts.

Speed… and Patience

The issue of the need for improved agility and speed was mentioned several times. The CEO of CCNA noted, “The pace of change has never been this fast… and will never be this slow again.”

But while the need for quick decision making is indisputable, the number of ‘overnight successes’ that took decades to build (Mike’s Hard, Corona, etc.) also speaks to the need for patience. We believe that large beverage companies struggle with in-house innovation both because they lack speed in tactical decision making, and they lack patience in their long-term strategy. Worth noting is that most large corporates (ABI, Coke, Pepsi) highlighted specific (and already implemented) programs to greatly reduce time to market for innovation.

Plastic Takes Center Stage

Plastic packing is quickly coming under increasing scrutiny from both consumers and retailers, and beverage companies need to find a solution. The panel of Wall Street analysts identified this as one of the greatest risks facing the industry today. Corporate presenters touched on the issue, but it was clear the industry remains at the stage of identifying the problem, as opposed to implementing solutions.

Corn-Gate

The issue of ABI’s ad campaign mocking Coors Light and Miller Lite for using corn syrup (‘corn-gate’) was raised several times during the conference, and it is generally seen as counter-productive for the beer category as a whole. Most notable was Bill Hackett (formerly of Constellation Brands) who referred to it as “unconscionable” and “BS”… We would strongly concur. The issue wonderfully illustrates the difference in approach between a passionate start-up disrupting (but elevating) a segment and the incumbents holding on for dear life…