Pulling Out of a Stall

By Michael C. Bellas

Reprinted from the October 2008 issue of Beverage World (www.beverageworld.com)

Growth is great any time, but growth that sustains is preferable to growth that is fleeting. It's an easy enough equation to calculate. But how do you make that kind of enduring growth add up month after month, year after year?

You clearly need to compile a few favorable components:

• Topline growth is vital. Without it, you risk falling victim to the next market cycle or becoming the next acquisition target.

• People have got to be ready to buy what you are trying to sell them.

• Compete in the right place at the right time.

Beyond gaining market share, beyond a momentary surge in revenue, long–term sustainable growth is the key to establishing a strong market footprint and maintaining a strong market position.

Examples are plentiful in every product category when you step back and scope out the segment success stories of the past 35 or so years. In non–alcohol liquid refreshment beverages, we've seen the likes of Gatorade, Nestlé Waters, Snapple, AriZona, Lipton, RedBull, Monster, Glacéau and even Coca–Cola and Pepsi–Cola craft long–term sustainable growth in sectors where the elements were favorable to enduring success. On the alcohol beverage side, we've seen everything from Absolut, Patrón, Jose Cuervo and Kendall–Jackson to Corona, Heineken, Sam Adams, MillerLite and Bud Light build, create and sustain segments and results that, like the best of gifts, just kept on giving.

Indeed, there's nothing like having the wind at your back, but even the strongest market tailwinds inevitably die down. Some of those gusts cited directly above have slowed to a breeze, and, in some cases, a standstill. A stall can be overcome and strong sustainable growth can be restarted. What causes a stall? We have found it usually results from the strategic choices you make and—though external factors can play a role—in most cases it's controllable by management. So once the slow–down begins, the challenge for management is to build a new market footprint for growth.

Building such a footprint requires more attention on where a company is and should be competing. The key will be to build new portfolio momentum—i.e. the organic growth that a company achieves through the market growth of the beverage segments represented in its portfolio. Creating portfolio momentum—toward growth and away from stall—is a crucial measure of a company's strategic performance. Coke's more reliable growth today, for example, is a result of a new market footprint, one that takes the popularity of non–carbonated beverages into account.

How do you create that momentum?

• You can select acquisitions and divestitures, which affect the company's exposure to underlying market growth, both domestically and internationally.

• You can create market growth by introducing or entering a new beverage category.

But, before you can proceed, you need to identify new areas for growth. The key to accomplishing this is applying a granular perspective to market segments and trends. Granular means examining the components that build a given product category and understanding what goes into its composition, specifically what composes its growth areas. If you take an average view of markets—that is, averaging out the different growth rates in a beverage category's segments and subsegments—you can be left with a very misleading view of its growth prospects. Most so–called beverage growth categories, you see, include segments that are not growing at all. And likewise, many allegedly "mature" beverage categories contain segments that are growing rapidly.

Distill a segment to its granules, its particles. Develop an understanding of which pieces represent the potential for growth. Look closely at any product category and you will find it.

In our next column, we'll explore where some of that growth is taking place.

Michael C. Bellas is Chairman and CEO of Beverage Marketing Corporation (New York, NY, USA) Tel: +1 212/688–7640. Fax +1 212/826–1255. E–mail: .

Growing Your New Brand

By Michael C. Bellas

Reprinted from the May 2008 issue of Beverage World (www.beverageworld.com)

Once the world became industrialized, it became a rarity for anyone to create at home the goods that could be had more easily via purchase. You'll notice we no longer stitch our own clothes, churn our own butter or grow our own vegetables.

But do we create our own beverages anymore via traditional product development processes? More and more, it seems, the Coca–Colas, Pepsi–Colas, Anheuser–Busches and Diageos—those who can do it—are just as likely to look past their proverbial drawing boards and outside their labs for new beverages. Why go through all of the inventing when you can just write a check?

We shouldn't oversimplify here. Acquisition is ideally a complement to internal new product development. Some of the best minds in beverage creation are employed gainfully at those companies and they keep busy trying to create the next big hits in the drinks business, often with success. Yet purchasing your way to participation in a given category is a legitimate option and one that deserves deeper consideration as a discipline than it has probably received.

The overriding challenge of how exactly to handle your new beverage acquisition is job one—and there is no single template to follow. Sometimes you may want to pay for your new property and then let it continue to do what it does best under the management that built it. A "best of both worlds" strategy may be in order: access to your resources, but a delicate hand when it comes to your involvement.

Based on recent history, you have several options for how you go about it.

• Leave It Alone: You buy an interest in a beverage company to get the most out of it, and sometimes that means letting it be. We've seen that tact work with the likes of Gatorade and Quaker Oats, which is still run out of Chicago nearly eight years since PepsiCo bought it and the erstwhile Perrier Group of America, which remains independently operated long after it became Nestlé Waters of North America. Smaller examples would include those brands whose uniqueness almost demands a different road: Coke with Odwalla and Honest Tea (in which Atlanta recently bought a 40 percent stake for US$43 million) and Pepsi with Izze and Naked Juice.

• Take Your Time: Pepsi didn't rush SoBe from standalone status. Instead, it took time to get to know the New Age lizard's tendencies before incorporating it into Pepsi–Cola North America. Coke has likewise taken it step by step in terms of making Fuze and glacéau part of its overall portfolio.

The key is not to let a former "boutique" brand lose the integrity nor diminish the culture that made it appeal to discerning drinkers in the first place even as you endeavor to build scale. We saw what happened when the old Quaker Oats company bought the thriving Snapple and tried to shoehorn (or "Quakerize") it into a big brand playbook. Both the buyer and the brand suffered.

• Fully Incorporate: Look no further than SoBe, which also received Super Bowl treatment this February, and how its trademark lizard evolved into a full–fledged member of the Pepsi menagerie. Likewise, once Snapple was fully re–Snappleized, Cadbury was able to absorb it into its North American operations far more comfortably had it tried to squeeze it between Dr Pepper and 7UP from the get–go.

• Distribute Only: A–B gave Hansen's Monster Energy a great leg up by arranging a distribution deal, but has otherwise stayed out of the energy drinks business. There is something for everybody in this kind of deal, even if complete control of every facet of a brand's fortunes isn't one of them.

When acquiring brands, the largest marketers have to maintain the integrity of the culture that surrounds them, make sure there is a good fit all around and proceed with care when it comes to integrating operations. It's not as easy as buying a stick of butter.

Michael C. Bellas is Chairman and CEO of Beverage Marketing Corporation (New York, NY, USA) Tel: +1 212/688-7640. Fax +1 212/826-1255. E-mail: .

Budgeting Promotional Packaging

By Michael C. Bellas

Reprinted from the April 2008 issue of Beverage World (www.beverageworld.com)

When students learn higher mathematics, they are usually required to show their work. Their teachers believe it is as important to demonstrate understanding of the process that results in the correct answer as it is to arrive at that answer. As academic theory, this concept has its merits. But in most endeavors, the final answer is what counts.

I bring up this classroom example to make a case for beverage marketers to think more broadly about what constitutes making the grade for them. Their goal should be consistent sales growth, the number on the proverbial (and literal) bottom line. How they get there does not have to reflect some sort of neat and tidy formula. It just may be there is a better formula waiting to be perfected.

Packaging, I believe, is becoming an increasingly important key to building sales growth, especially new promotional packages, as represented by the likes of aluminum bottles, colorful graphics, enticing shapes and custom cans (which Pepsi has rolled out so successfully). Think about some of these packaging innovations and the excitement they can create. They give the consumer new reason to reevaluate and select a product they might have otherwise passed up, just as they grab retailers' attention and motivate them to setup new displays. The effect overall is to create new trial, sales lift and to generate repeat business. But this asset isn't always granted the opportunity to show all it can do because too often the best promotional packaging becomes the fastest to be pulled from the shelves.

The reason? A familiar and not irrelevant one: cost. Budgets dictate that X be spent on packaging, yet the production costs behind the most innovative packaging, to put it in mathematical terms, can be described as X + Y. If Y isn't in the packaging budget, it might be considered too much to spend on those shiny new containers, even if they are proving to be effective in the marketplace. In turn, the marketing and promotional departments in a given company can wind up disappointed that one of its best weapons in attracting new sales has been blunted.

It doesn't have to be this way. There is a solution that, if everybody involved doesn't mind readjusting their conceptions of process, can make everybody happy.

Where budgets come into play, make the extra costs of producing promotional packaging part of the marketing and promotional budget. Need new molds or line changes? Extra materials? Items considered above and beyond the usual packaging bailiwick? Then count the costs under marketing and promotion.

I've been campaigning for a few years to have beverage marketers steer clear of narrowly crafted definitions, suggesting they look at the benefits of and the audience for a particular drink rather than just classifying something a juice and something else a beer as they always have. The same thought applies here. Why do "packaging people" shake their heads at paying for initiating a winning tactic initiated by the "promotional people"? Everybody, after all, is in the same business of wanting to spark sales and excitement.

Whether it's the aluminum bottle or a colorful wrap or any packaging innovation that drives trial, the beverage business needs all the excitement it can generate. The old saying that the medium is the message has never been more true in beverage marketing. And at the moment of truth, the package is your surest medium to communicate your message.

Don't lessen your medium. Don't get hung up on what is penciled in whereon a ledger sheet. If something walks like a duck, quacks like a duck and, at the end of the day, acts every bit the duck, then I'm pretty sure you've got to call that bird a duck. If a promotional package is all about promoting your brand, then let's say we've just spotted a promotional duck and list it in our budgets as such. Ruffling feathers over semantics is not nearly as vital as maximizing beverage sales.

Michael C. Bellas is Chairman and CEO of Beverage Marketing Corporation (New York, NY, USA) Tel: +1 212/688-7640. Fax +1 212/826-1255. E-mail: .

Achieving Innovation Takes Some Thought

By Michael C. Bellas

Reprinted from the October 2006 issue of Beverage World (www.beverageworld.com)

The beverage world always can use more beverage innovation. Without it, we would be stuck running in place with whatever we are offering right now. As surely as there are constants in this business, there also is the prevailing realization that little remains constant for long. Innovation must occur.

It’s all well and good to pay lip service to innovation as a concept. You can lump it with sunny days and good health as things everybody is generally in favor of. But as ever, the details tell the story of what innovation is and can be.

There is no one single formula that will lead you to effect impactful innovation. Nobody’s compiled a perfect success rate in this regard, and if there were secrets that guaranteed a winner every time, you can be assured they would be kept pretty safely guarded.

I don’t have those secrets. But I do believe there are a few guidelines worth following when considering beverage innovation. They are not rules so much as thoughts to keep in mind in quest of the next breakthrough.

Know Why You’re Innovating. As we begin to consider, in earnest, the industry as motivated by need states, you need to consider the purpose of the drink you’re developing. Are you hoping to promote wellness? Is there an alertness component? Will managing weight or enhancing moods be a part of your reason to be? Why, exactly, will somebody want to literally swallow what you’re selling?

Picture Your Audience. In an ideal marketing world, you will create a beverage and the widest possible demographic will take to it. So often we like to believe we are targeting our newest product at “anybody with a mouth.” Today, a new beverage, no matter how spectacular its prospects, will simply not reach anything close to this lofty level of acceptance. Therefore, you have to understand consumers —every last version of them. You need to embrace quantifiable data as well as empirical observations. Understand what moves your potential base and what could and should appeal to them. Seek your match and then go after it with laser-like focus.

Do What Hasn’t Been Done. Energy has been a hot category for several years now. As imitation is the sincerest form of flattery, we have seen dozens upon dozens upon probably hundreds of energy drinks follow the original trendsetter, Red Bull, onto the market.  Energy is just one example. There can be new flavors in a popular category, better ways of packaging them, maybe even a name and a lifestyle component that would break through the clutter. But to just do another energy drink (or light beer or bottled water) so you can sell it a few cents cheaper? That’s not innovation.

Be Inspired. There is a difference between merely imitating what’s come before and taking inspiration from previously developed notions. Look around the entire beverage universe. If you’re thinking in terms of packaging, there’s more to cans and bottles than those that hold drinks. The cosmetics business, for example, knows a few things about styles and shapes. No creative person will ever tell you that he or she hasn’t co-opted a little something here and there to eventually construct something that is very much his or her own.

Size Doesn’t Matter. Surely it helps to have resources, but don’t worry that you’re not big enough to come up with the big idea that will change the business. Remember: Once upon a time, every big player was “the little guy.”

There Are No Rules. Some of the greatest breakthroughs in the history of this industry came less with a roadmap than with just a couple of pencil sketches on a stray sheet of paper. You should make your route to success as probable as possible, but if you’re absolutely sure you’ve got a winner, go after the end result and don’t let anyone tell you you’re wrong. Because for all anyone knows, you may be right.

Michael C. Bellas is Chairman and CEO of Beverage Marketing Corporation (New York, NY, USA) Tel: +1 212/688-7640. Fax +1 212/826-1255. E-mail: .

Competing in a Redefined  Marketplace

By Michael C. Bellas

Reprinted from the September 2006 issue of Beverage World (www.beverageworld.com)

Capturing profitable, topline growth will only get more challenging as we advance toward the beginning of the second decade of the new century. That’s why securing every possible advantage is necessary.

That’s also why I want to spend just a little more of your time on the subject of beverage definitions. Defining our terms in a changing world is crucial. I went into it at some detail in the May and June issues of Beverage World, so I won’t repeat myself ad infinitum. But I do want to stress that putting your new beverage category definitions into play and taking the need states that motivate them into account at every turn is simply crucial in the service of achieving profitable, topline growth.

Today, the consumer is in charge. What affects the consumer affects those of us who wish to reach him or her. The exploding occasion-based need states will define everything going forward. It will define not just marketing, but also how your supply chain functions and how your retail customers organize their space. Content-based  segmentation of the industry will more and more become a historical relic.

If a beverage marketer says he is competing in the beverage wellness or beverage energy or beverage rehydration market, he now can attack those segments with a variety of traditionally defined beverages—carbonated soft drinks, bottled waters, fruit beverages—as well as a growing assortment of non-traditional liquid refreshment beverages, hybrid beverages or even alcohol beverages.

That’s because that marketer is in fact not playing in a single content-based category anymore. Similarly, an alcohol beverage marketer who says he is competing in the alcoholic “release” beverage market can now attack the market with a variety of alcohol beverages both traditional and non-traditional.

A company’s new scorecard would be based upon its share within each of these newly redefined beverage segments. Additionally, beverage marketers also could restructure their organizations to more directly address this new playing field.

By redefining the beverage playing field, beverage marketers will open up new vistas for growth. Their size and growth opportunities will be different; their product positionings will be more specific, their consumption occasions will be more directly addressed by their product’s marketing, packaging and supply chain. Innovation as well will be more targeted to these new beverage market definitions.

The factors that determine success have changed again and again in recent years and they will continue to change the beverage business—yours and everybody’s—as long and as deeply as you can imagine...and then some.

Those changes are already in effect whether it is we who have set them off or, as is more often the case, they were triggered by forces beyond our immediate control. No matter how much beverage savvy we all collectively enjoy, we can’t control every factor that contributes to our chances for success. We should, however, at least be able to understand them.

If the beverage business we are entering, defined in this evolutionary manner, strikes you as a brave new world, you are not alone. When we look back 20 years from the perspective of today, we see that we didn’t really know about New Age beverages or malt alternatives. We also didn’t know about organic ingredients or hybrid distribution or club stores or SKU rationalization or alternative media buys or the Internet. We can see that we didn’t know a lot that we know now.

When we look back to today 20 years from now, I have a hunch that we will marvel at all that seems so obvious in hindsight. And we will probably start by marveling that we didn’t always define beverages the way we began to in 2006.

Michael C. Bellas is Chairman and CEO of Beverage Marketing Corporation (New York, NY, USA) Tel: +1 212/688-7640. Fax +1 212/826-1255. E-mail: .

Motivational Need States and How We Need to Think

By Michael C. Bellas

Reprinted from the June 2006 issue of Beverage World (www.beverageworld.com)

Last month, we discussed definitions of beverage categories. This month, I’d like to delve a little further into the topic, with not just what those definitions are becoming, but why they are changing.

Our terms must be relevant to what the consumer is thinking and how he or she is living. When you don’t relate to the consumer, you’re simply not relevant. That means we have to look at what motivates the consumer toward a beverage, whether it’s an occasion-based factor, whether it’s a demographically driven decision, whether psychographics play a role. When we take all those into account, we begin to understand just how much consumer motivational need states are exploding and why they’re pushing beverage boundaries.

I’m sure “motivational need state” is not a phrase you’re hearing for the first time. There isn’t a single beverage marketer, large or small, that doesn’t take need states into account when developing a new product or projecting its likelihood of success.

Already, some companies have begun to think first and foremost in terms of these motivational need states. Historically there were three identifiable beverage need states, at least where non-alcohol beverages were concerned: Simple refreshment; Rehydration and Basic nutrition.

Now? Twenty or more have been identified by beverage marketers. That’s almost 10 times as many as we’ve looked at traditionally. Likewise, the alcohol industry is staring at as many as 15 to 20 distinct need states. If that sounds daunting, look at it as opportunity: There are now close to ten times as many ways to position your beverage to reach consumers as before. Take carbonated soft drinks, something so many of us took as a given for years in terms of why they were consumed: for refreshment’s sake.

Now and later? In the future, when we look at the CSD category, we will be looking at segments that simply didn’t exist a few years ago. Carbonated refreshment beverages will describe what we’ve always thought of, but we’ll also need to think in terms of: Carbonated energy beverages; Carbonated wellness beverages; Carbonated reinvigoration beverages; Carbonated weight-management beverages and Carbonated mood-enhancement beverages.

Likewise, bottled water has branched way beyond traditional rehydration. We’re now in a water market that includes: Flavored sweetened waters; Energy waters; Reinvigoration waters; Weight management waters; Mood enhancement waters and Wellness waters.

Every brand from Poland Spring to Aquafina to Glaceau to Propel realizes the consumer reaches for water for different reasons, thus there exists a need for different waters.

Similar subcategories are popping up with frequency among fruit beverages, milk, tea and coffee, in the United States and all around the world. These categories are nurturing emerging energy, mood enhancement, nutrition and weight management sub-segments. Their latest offerings only confirm that people drink what they drink for as many reasons as there are slots in a cooler.

 In the alcohol beverage marketplace, something similar is going on. Marketers of beers, wines and spirits have not been immune to adjusting their offerings according to whys rather than whats. Anheuser-Busch, Diageo and others are looking at their alcoholic portfolios in terms of: Status; Contentment; Release; Affiliation; Discernment; Exploration Independence; Accompaniment and Refreshment.

As these marketplace dynamics continue to play out across all categories, beverage marketers may be best served—and this is the key point—by classifying their products according to the new evolving need states that define our consumers. “We’re in the carbonated soft drink business” or “We sell bottled water” or “I’m a beer marketer” or “I sell spirits” will be replaced by “We’re in the beverage energy marketplace” or “We sell rehydration beverages” or “I’m a mood-enhancement beverage marketer” or “I’m into beverage status beverages.” It sounds strange, I grant you, but ultimately it should make for a sharper reflection of reality. Newly discerned need states require new boundaries and new boundaries require new definitions.

This redefinition of the marketplace is much like the business school case study that redefined the buggy whip manufacturer’s playing field. Those who continued to say they sold buggy whips slowly went out of business; those who redefined their market as “transportation” prospered.

With this new approach to the marketplace, a beverage marketer would have a whole new perspective on his playing field.

Michael C. Bellas is Chairman and CEO of Beverage Marketing Corporation (New York, NY, USA) Tel: +1 212/688-7640. Fax +1 212/826-1255. E-mail: .

Defining Terms and Keeping Score

By Michael C. Bellas

Reprinted from the May 2006 issue of Beverage World (www.beverageworld.com)

It was easy enough for years to decide what beverage belonged under what definition. We didn’t have to explain what a carbonated soft drink was, we didn’t have to go into details about what a beer was and we understood implicitly what a fruit beverage was as soon as we heard the phrase. More significantly, we didn’t have to tell each other which new beverage matched up with which word. You could recognize a lemon-lime soda, a light beer or a glass of orange juice right off the bat.

Those years were simple. But they’re also gone. Nowadays, the definitions that defined our industry are just not that useful. That’s not so bad because as our defining becomes more complex, our industry gets that much more interesting and profitable.

• So what if we don’t quite know if the latest energy drink fits under fruit beverage or carbonated soft drink or, for that matter, New Age? Chances are it packs a little bit of each category into its slim can and, of greater importance, it’s got a chance to do well.

Look up “energy drink” in the dictionary, and you’ll see Red Bull’s picture, but Red Bull didn’t worry about definitions as it built its business.

• So what if a sports drink behaves in ways we didn’t previously understand sports drinks to behave; that it sells in single-serve packages and isn’t necessarily consumed by weightlifters and marathon runners? If it’s marketed correctly, it will sprint across boundaries and into consumers’ hands.

Look up “sports drink” in the dictionary, and you’ll see Gatorade’s picture, but Gatorade didn’t worry about definitions as it built its business.

• And so what if PET water has plenty in common with the liquid that’s in bulk water but competes more directly with sports drinks and soft drinks? PET water has proven it can elude barriers while smashing expectations.

Look up “PET water” in the dictionary, and you’ll see Nestlé Waters’ picture, but Nestlé Waters didn’t worry about definitions as it built its business.

Naturally, we can define energy drinks, sports drinks, PET water and any number of things as their own categories. We did that at Beverage Marketing Corporation as each segment of the business emerged in its own right. But the longer look we take at the broad canvas that is the beverage industry, the less helpful it is to pigeonhole a brand or a product by something as confining as a definition.

To be fair, there is a place for definitions in any discussion of beverages, but that place is diminishing, or at least evolving.

Hence, we move from defining terms to keeping score. That’s something else we’ve always done in the beverage industry. If the efficacy of strictly defining terms is dwindling, the need to keep score remains as urgent as ever.

It’s human nature to want to know how we’re doing, whether we launch a new undertaking or continue along familiar paths. But it’s not just a matter of self-affirmation. Knowing the progress we’re making clues us in to what we’re doing right, what we’re doing wrong and what we can do to correct our course in the near- and long-term. It also tells us how we’re doing in relation to our competitors, a handy piece of information for anyone to have. After all, very little in the beverage industry or any industry takes place in a vacuum.

The issues of how we define our terms and the way we keep score intersect at the point of applicability. Worrying too much about category definitions, given the way the beverage business has evolved, may be holding us back from understanding the marketplace at large.

Energy drinks do not compete only with energy drinks.

Sports drinks do not compete only with sports drinks.

PET waters do not compete only with PET water.

Nothing any longer competes only with those items that are most nominally similar. We can dissect ingredients, usage occasions, psychographics, package types and marketing angles, but when you get right down to it, it’s almost impossible to separate out one drink from the next. The arena has become inclusive, not exclusive. Other than noting whether one drink contains alcohol and another is aimed strictly at children, we may have arrived at a time when our first impulse should be to think of all beverages as part and parcel of a single, expansive menu of choices.

Our consumers are already doing that.

Michael C. Bellas is Chairman and CEO of Beverage Marketing Corporation (New York, NY, USA) Tel: +1 212/688-7640. Fax +1 212/826-1255. E-mail: .