While it includes a wide variety of products, the alternative beverage segment is most clearly defined by what it’s not — namely, the usual carbonated soft drink fare.

“When we first started, alternative beverages were those that served as an alternative to carbonated soft drinks, and that’s still the segment’s biggest makeup,” says Francie Patton, vice president of marketing for Arizona Beverages, maker of the Arizona Iced Teas, Arizona Infused Waters and Rx Herbal Tonic brands.

Alternative beverages typically contain functional ingredients or have some nutritional value, and many favor organic ingredients and are formulated without preservatives or artificial colors or flavors. Carbonated juices, flavored waters and various juice, coffee and tea-based drinks fall into the alternative segment.

“The alternative beverage segment encompasses what’s commonly referred as ‘new age’ beverages — functional beverages made with ingredients such as vitamins or ginseng, and generally non-carbonated,” says Fuze Beverage LLC Founder and Chief Executive Officer Lance Collins. Fuze’s alternative beverage lines include the non-carbonated Energize, Slenderize, Refresh and Essentials beverages, as well as Speedo Sportswater.

Because of the segment’s diversity, it’s difficult to pinpoint its size or sales. Data from Information Resources Inc., for the 52 weeks ending April 17, 2005, provides a snapshot of some of the subcategories that comprise the alternative segment. The shelf-stable bottled sparkling juice and refrigerated “all other fruit juice” segments have current dollar sales of $64.9 million (a 5.4 percent increase) and $68.1 million (a 105.2 percent increase), respectively. Shelf stable bottled lemonades are up 9.8 percent vs. a year ago, with current sales of $142 million and a 7.5 percent increase in unit sales. Meanwhile, refrigerated ready-to-drink coffee drinks are down 55.5 percent vs. a year ago, with current sales of $4.5 million.

Baby boomers are driving much of the alternative beverage segment as they strive to stave off the effects of aging by opting for healthier beverage choices. However, as the alternative market grows, it appeals to a wider range of consumers.

“We see tremendous growth in people looking for alternatives,” says Seth Goldman, president and “TeaEO” of Honest Tea, an organic bottled tea company that recently launched a line of citrus quenchers called Honest Ade, sweetened with natural organic cane sugar rather than high fructose corn syrup. “After decades of the same choices, there is a sense that people are interested in something new. But also, there’s really strong and growing interest in health and you can see that across all segments of the food industry.”

At Fuze, that population is known as the “modern consumer.” “The modern consumer is age 25 and up, Generation Y-ers and Baby Boomers that have a lot of disposable income,”  Collins says. “They really care about what they drink and eat and are very mindful of healthy ingredients. They read what they drink — the ingredients, sugar content and carbohydrate content.”

Consumers’ quest for health drives the alternative beverage segment in a number of ways, since what constitutes a healthy choice has different meanings. For some, it may entail cutting sugar consumption or increasing vitamin intake, while for others, it may involve consuming more organic foods. Organic products like Honest Tea’s are experiencing a boost from the three-year-old USDA Organic symbol, which sets parameters for what beverages and foods can be labeled as organic.

“Both health and organics are growing together in the same way,” Goldman says. “Two years ago, we would have all been touting low-carb, and that has clearly spiked and is now sinking. But what isn’t going down is this trend of people looking at labels and thinking about what they’re putting in their bodies.”

Using natural sweeteners is another aspect of alternative beverages’ appeal. While most traditional carbonated soft drinks use high fructose corn syrup, many alternative beverages opt instead for ingredients such as crystalline fructose, a derivative of fruit sugar used by Fuze. The companies that choose alternative sweeteners are banking on the interest from dieters and those with certain health concerns.

Of course, while alternative beverage consumers may be choosier about what they drink, they’re still interested in good taste. “Exotic flavors are hot. I think if the taste is completely different, it’s going to resonate with the modern consumer. That’s what we focus our time and energy on,” Collins says.

There are also some packaging trends among alternative beverages. Because they are usually produced in smaller quantities, many are packaged uniquely using more complex printing and labeling techniques; this also serves as a differentiator, given the range of products with which alternatives are competing.

Arizona, known for its colorful, Southwestern-themed packaging, is seeing its business move beyond single-serve cans and bottles toward gallon containers, which are growing at about 30 percent a year.

“Our two best-selling packages are gallons and the 23.5-ounce cans,” Patton says. “Our bottle business is still healthy, but people like those take-home packages.”

Fuze, Honest Tea and Arizona report strong and growing sales. “As long as you bring consumers new and exciting products, they’ll continue to grow,” Patton says.

The fact that many alternative beverages are produced by smaller companies that can make adjustments based on consumer demand positions the segment to compete against other beverages.

“What’s great about Fuze is we’re small enough to listen and monitor those trends, yet we’re large enough to react,” Collins says. “We embrace the changing pace of the market — we call it ‘survival of the tastiest.’” BI