Industry Issues:Trend-Tracker- What's in Store for 2008?

January 15, 2008
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Safety First

A slew of recalls and fears over tainted imported products have had the food and beverage industry in the news a lot this year, and not in the way it would like. Add to that suspicions over genetically modified products and even the prospect of food from cloned animals, and you have a potent mix.

Just how much the news will affect consumer behavior remains to be seen, but several studies indicate it already has affected their attitudes. A Harris Interactive Poll taken this summer indicated two-thirds of consumers lack confidence in the safety of products from developing nations. On the other hand, consumers do not completely trust U.S. products either. A study released this fall by the Center for Food Integrity (CFI), Indianapolis, shows a little more than half of consumers trust products made in the United States more than those produced abroad, and only one-third strongly agreed that U.S. food is among the safest in the world. A quarter of those surveyed by CFI agreed that they are as confident today about the safety of the products they consume as they were a year ago.

Last month, President Bush proposed changes to the food inspection system based on recommendations from a food safety advisory panel put in place this summer. Under the recommendations, the USDA and FDA would have authority to order recalls and to set import requirements.


A gut feeling

Get ready to follow your gut, as probiotic products show promising growth potential in 2008. Foods and beverages containing so-called “good” bacteria — the kind the digestive tract needs to stay on track — are said to boost the immune system and promote better digestive health.

Dannon Activia yogurt was one of Information Resources Inc.’s New Product Pacesetters last year, with $128 million in first-year sales. According to a Reuters report, the company expects Activia and yogurt drink DanActive, two products that did not even exist in the United States two years ago, to make up 40 percent of its U.S. sales next year. But probiotics aren’t limited to dairy drinks. Naked Juice, Azusa, Calif., rolled out Naked Probiotic Juice Smoothie this summer in one of the first non-dairy offerings.


Naturally Sweet

The race to find an all-natural diet sweetener for beverages is likely to intensify as low-sugar and diet products gain popularity. Earlier this year, Dawn Hudson, former Pepsi-Cola North America president and chief executive officer, told The New York Times a sweetener that could be classified as natural and accepted by the natural and organic audience was considered the “holy grail” in the industry.

Later in the year, Coca-Cola and Cargill announced they have developed a new sweetener derived from the stevia plant, grown in South America. In a report in the Minneapolis Star-Tribune, a Cargill executive described the sweetener as having a “clean, sweet taste.” The companies expect to have the sweetener in countries such as Japan, where stevia already is used. Acceptance of the ingredient stateside will take longer — if ever. Stevia is not approved for use as a sweetener by the Food and Drug Administration, and must be labeled as a dietary supplement.


Brewing sales

Whether it is traditional hot brewed varieties or ready-to-drink, coffee is a top trend. After 12 years of doing businesses together in North America, Starbucks and Pepsi-Cola expanded their ready-to-drink coffee partnership internationally this year. And Coca-Cola has partnered with Italy’s Illy Café, Caribou Coffee and Godiva to create three lines of ready-to-drink coffee, each with a distinctly different profile.

At the recent NACS Show in Atlanta, several speakers emphasized the popularity of iced cappuccinos, including frozen drinks, among 18- to 24-year-old consumers. The trend shows promise for the future, according to Margaret Heery, vice president of national accounts and strategic marketing at Bunn, who pointed out that those younger consumers aren’t suddenly going to stop buying those products when they turn 25; they will take those preferences with them.


Functional water

Flavored and functional waters were a popular trend in 2007 and will likely gain traction in 2008 for several reasons. The first is Coca-Cola’s purchase of Vitaminwater — at $4 billion, Coca-Cola paid a hefty price for the brand and will expect it to perform. In addition, thanks to the “bottled water backlash” from environmentalists in 2007, Mintel International predicts, “We will likely see more functional waters, such as those with added vitamins and calcium, while consumers go back to the tap if all they want to do is quench their thirst.”

Whether or not consumers actually stray from bottled water, we agree that functional and flavored waters are more likely to escape the controversy that is affecting plain varieties.


Slow steady growth

Craig Purser, president of the National Beer Wholesalers Association, says continued slow, steady growth in the beer category is on tap for 2008. “Continued growth at the high end is likely, but even if it’s not, there are two other points that are good for the category,” he says. “One is that beer, related to wine and spirits, is arguably a more affordable luxury ... and there’s the continued great drinkability of the premium domestic category.”

Growth on the high end also is prompting the creation of a new kind of beer distributor — one that is focused on specialty products, or divisions within traditional beer wholesalers that handle craft products.

In addition, he says, the industry can expect to see “stronger, smarter distributors,” which may include taking on additional products such as non-alcohol beverages, or even wine and spirits. “I really believe that the beer distributor is understanding that they’ve got to think for themselves, and take into consideration industry developments, but look at them and how they impact their bottom line as an independent business,” Purser says.


Beauty from within

Joan Holleran, editor of Beverage Industry sister publication New Products Magazine, says consumers may be searching for beauty in a bottle next year.

“Not only are consumers taking more control over their health by consuming certain foods and beverages, now they’re trying to work food and beverages into their beauty regimen,” she says. “It’s not enough to slap beauty creams on our skin, now we’re ingesting products that will make us more beautiful.”

Holleran draws her predication from a number of entries in product categories such as chocolate and snack bars, as well as Function Drinks’ Youth Trip acai-grape beverage designed to minimize fine lines and wrinkles.


Mass confusion

Prepare to be perplexed, says Tom Pirko, president of Bevmark LLC. “We’re going through an era of consumer dissidence that is really unprecedented,” he says, pointing to an overwhelming amount of information that bombards consumers in the marketplace.

“Consumers, for the first time, are now confused in a way that’s preventing them from forming brand allegiances and making sometimes even sensible decisions,” he says. “They are overwhelmed to the point where they really just don’t know how to make [a choice].”

Unfortunately, Pirko isn’t optimistic that the industry will overcome the problem in ’08. “It affects the efficiency of marketing and sales. It certainly disrupts the entire clarity that we try to instill when we’re launching new products, because success rates are going down ... The consumer is, most importantly, not forming those brand allegiances, which have been the core of the business.

“Maybe somebody will find a way to fundamentally simplify what they do, or get it back down to a way of presenting their core brands in a way that insulates them a little better, but nobody has yet, I think, really waded into the problem enough to find solutions,” he says.


Mergers, acquisitions and changing demographics

Bump Williams, head of the beer, wine and spirits practice at Information Resources Inc., says continued consolidation among retailers, distributors and manufacturers will be the most profound influence on the industry, not just in 2008, but for the next five to 10 years, perhaps leading to single-distributor systems in some markets.

In addition, Williams says beverage companies need to consider growing ethnic populations — not just Latinos, but Indian and Asian consumers as well — including the flavor profiles that go with ethnic cuisine.

High-end products will continue to drive the beverage category, recession or not. “In all of the analysis that we do, we continue to see high double-digit growth for the high-end categories,” he says. In fact, he says, the craft beer industry is on its way to being developed enough that it will begin to divide into sub-segments of luxury craft beers, premium craft beers and popular craft beers.

On the flip side of the craft boom, smaller brewers will be hard hit by price increases on nearly every raw material. “That is going to absolutely break the back of some of the smaller brewers in the United States ... Some of these guys are going to be taking 10 to 15 percent price increases next year just to cover the cost of goods,” he says.

Also on Williams’ list of top trends: cracking the internet audience with advertising and promotion; the “never-ending growth of wine”; and, thanks to the entry of U.K. retailer Tesco, the influence of private label and changing retail formats. “A lot of that is going to be a result of Tesco coming in,” he says. “People are going to have to be better competitors.”


Staying Sustainable

Lisa Pierce, editor of Beverage Industry sister publication Food & Beverage Packaging, says: “In some circles, sustainable packaging is as hot a topic as the melting polar icecaps. Because of the media blitz on global warming and energy savings, consumers’ interest in sustainability is growing at an exponential rate. To capitalize on that, many savvy beverage marketers are boasting about how environmentally conscientious they are, especially with their packaging materials and production processes.”

But she says, earning points with consumers shouldn’t be the only reason to implement a sustainable packaging program. “Not only is it the ‘right’ thing to do for the environment and our kids’ futures, but it’s in your shareholders’ best interests, too. Companies on the Dow Jones Sustainability Index enjoy significantly higher returns than the Dow Jones Industrial Average, S&P 500 and Nasdaq.”


Green policy-making

Susan Neely, president of the American Beverage Association, also says environmental issues will continue in 2008, especially in government.

“We see all the major beverage manufacturers, along with everybody in the consumer products industry, articulating their green credentials,” she says. “I would say that this industry really has a significant track record of environmental stewardship, across the board, and is committing to even more things.

“To link it to the policy world is very important because it is part of a larger focus that everybody from the presidential candidates on down to mayors in local governments are going to be embracing and looking for ways to say that they are advancing policies that are good for the environment. That can affect us negatively and it can affect us positively.

“This whole ‘going green’ movement and things like carbon footprint, words like that becoming part of the popular culture and vernacular, will have consequences in the policy arena going forward and will definitely affect what we’re doing.”

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