Retail analyst issues industry challenge in 2008

A new year brings with it the opportunity for a new outlook. Beverage Industry spoke with Thom Blischok, president of retail solutions North America and strategic solutions for Information Resources Inc., Chicago, to delve into his expertise and gather a few 2008 predictions for the beverage category. Blischok shared his insights on the segment’s need to innovate and how those innovations will impact retail.

Beverage Industry: What challenges do you currently see in the beverage industry?

Thom Blischok: There are four trends I see as critical in the beverage industry. The first is that gas prices will start to impact consumption. Consumption-wise, we are beginning to see consumers going back to the basics as gas prices increase. With this in mind, the beverage industry needs to have a very precise focus on what changes are occurring in consumer behavior.

Second, there has been a growing drumbeat for what I’ll term “better-for-you” products. In the past, consumers simply bought something to drink without considering how that product fit into their overall personal approach to healthy consuming. Now these same consumers are viewing the value of their beverage choice through a healthy eating and drinking lens and are questioning whether they want to drink it at all.

Third, is the issue of sustainability — the effort to weigh the environmental impact and labor circumstances that bring individual products to market. Whether the issue is organic food, eco-friendly packaging or Fair Trade practices, figuring out how to deal with these evolving green issues will become a true challenge for companies.

Fourth is the need to innovate. People want new and innovative ways to drink things. The winning approach will be the one that provides a fresh look, approach and attitude to beverages.

BI: Hybrid products seem to be a new direction for the industry. Do you think that is a worthwhile innovation?

TB: First, it’s important to recognize that there has been a major shift from premium brands to functional brands in the marketplace. Consumers are wondering, “How do I make what I put in my body better for me?” They are beginning to understand wellness from the outside and wellness from the inside. So instead of taking a vitamin with water, “Why don’t I drink water that has vitamins in it?”

Manufacturers and retailers are beginning to address this new brand of thinking with some very innovative products. And there’s a real up-side to this new approach. Some of the single biggest hybrid functional brands are redefining support by thinking about dietary management and personal health needs, such as providing solutions for the consumer who wonders, “What should I drink to address my diabetic condition?”

BI: Are there any beverage categories you think are not innovating enough or well enough?

TB: I don’t think “not innovative enough” is the proper terminology. But, yes, I am certain there are some examples in the category of underachievement to date. However, the real news in beverages is the innovations that are taking place, including the fact that we are on the cusp of the next wave of innovative functional waters. I also think there will be an evolution in providing different levels of packaging as consumers become more concerned with dietary and diabetic control, which basically means portion control. I also expect a range of new packaging of 100-calorie beers and other 100-calorie flavored beverages. They will be smaller portions, but will remind consumers of the overall mission or strategy to extend their life. And [the focus] won’t be a subtle awareness on a product’s health — it will be a dramatic one.

Another interesting innovation I see is the pairing of particular beverages with food. Pairings are a very important strategy for the positioning of drinks, removing them from the traditional presentation of them as just a commodity. Examples can be seen in how consumers are expanding their knowledge of how certain wines work with specific spices or how beer flavors are a complement to specific food.

I think we’ll see an increasing sophistication of beers and wines at retailers. There may be some retailers who begin stocking wine at 55 degrees, which is the optimum temperature for wine storage. This will appeal to “wine-o-philes” who will recognize the retailers’ understanding of their own sophistication.

BI: As consumers’ shopping habits change, what can beverage companies do to keep their brands top of mind?

TB: There are three things that are fundamental, in my opinion. First, beverage companies need to begin to understand the changing shape of thirst. If they are marketing to boomers, they should understand that the Roosevelt boomers, who are 60 years old and above, are “wine-o-philes;” Truman boomers are beer drinkers; and Kennedy boomers have a less precise preference of wine or beer based on their local environment. And they are just one example of the ongoing landscape and changing perspective of thirst.

Second, retailers themselves need to remind people that beverages can be functionally driven. They can merchandise beverages based on the quality of the beverage. For example, you can bundle purchases of coffee with bottled water, so you have hot-to-go and cold-to-go.

Third, is packaging innovations, which could mean beverages that are self-heating, self-chilling or converting a package to be visually open to show what the product is. This could mean beer packaging in clear glass. Beer used to deteriorate faster in clear packaging, but now there are packaging micro-technologies that will advance the freshness. Following on the strength of the popularity of antioxidants, packaging will have to tell the story of how the product is better for you and why.

BI: Within retail, do you think there are flaws in the current approach to beverage retailing?

TB: I see trends in retailing that I believe are based on history and not moving forward. The current strategy is stacking [products] wide and high to get as many flavors and products in the store as possible. The plus side of that is you have multiple variations. The minus is that there are so many variations that it blurs the consumer’s focus and creates some uncertainty on what they should buy.

I think the future is in a beverage center that’s divided by physical displays to help solve the thirst challenge for families. The beverage center could be organized by green or non-green concerns or by diabetic needs. It would be the beginning of an assemblage of a story on why beverages are better for you. Packaging and displays will also remind shoppers to buy other pieces or classes of product. Grocery stores need to make a clear statement for diabetic consumers, the person on the go, or quick-trip shoppers. The displays need to find ways to actively tell me what I’m buying vs. just passively buying a product. If you look at [office supply store] Staples, their paper wall tells you what the paper is for.

In the beverage aisle, there are some chains that are categorizing wines for chicken and fish. Consumers want to know why this is the right product to buy for a particular meal or occasion. Bridging this need with clear and organized information will change the retail beverage experience.

BI: What do you think is in the future of beverage retailing?

TB: If I had to look into my crystal ball, I would first say there is a lot of innovation developing in displays at stores. The display needs to appeal to total consumption, which is a move away from affinity-based marketing and retailing. I see this happening by degree, and I think will continue to gather momentum.

Second, at some point in time I think selling condensed beverages will increase. Is it feasible for a non-traditional water manufacturer to take their ingredients and make it in a way that will fundamentally improve a bottle of water? I think we will be finding that out in the near future, and I think the answer is yes.

Third, I think there will be an explosion in the convenience store beverage sections that will turn the convenience store into a micro-beverage store. It will be a new way of selling and branding beverages. The possibilities are limitless.