The 2-Minute Thought: Beverages

The topic here is beverages.  Non-alcoholic beverages – and in particular, the niche and alternative beverages that are sprouting up everywhere and making life so difficult for big mainstream soda.

We’re not just talking about premium bottled water.  There is “functional” water.  There are plant-based waters.  There are energy drinks, “relaxation” drinks, ready-to-drink coffee and tea, kombucha, and non-dairy probiotic drinks.  These are the beverages with words like “pure,” “energy,” and “recovery” in their names – and the one thing that is clear is that there are many, many of them.   

After sitting through investment presentations by three microcap growth companies -- a healthy beverage company, a “craft soda” company, and a “taste science” company developing healthier sweeteners to replace refined sugar – I learned that it really is true that people are turning away from sugar and conventional soda.  I learned that millennials want unique, inventive flavors and ingredients that are good for you.  I learned that, at least according to one company, kombucha is the fastest growing beverage category today and that coconut water is the second.  I learned that a lot of money is being poured into innovation.  That is why there is such a thing as probiotic water that tastes just like regular water but has 12 million bugs in it to help your digestion.  Mostly, though, I learned that this is a very crowded space. 

So how do you compete in this space? What would make my coconut water better than yours?  In a 2014 article, The New York Times chronicled the fierce battle for shelf space that coconut water makers have had to fight.  Once upon a time, it said, companies like Goya sold coconut water to immigrants and no one cared.  But somehow, coconut water turned into a big thing – from nothing to 200 brands around the world and a $400 million market growing at double digits on its way to a $1 billion.   Along the way, some “preposterous” claims got made about coconut water’s health benefits, and then Coca-Cola and PepsiCo got involved.  

Today coconut water is everywhere – which brings us back to the question of how you compete when there are so many other choices marketed as healthy, unique, and alternative.  These companies would say they have differentiators like flavor, the healthiness of ingredients, and shelf life.  And it is true that these are differentiators.  The question is whether these are enough to gain traction with consumers.  Good luck seems to play a part.   And a company that hits it big will have to fend off a lot of new competitive entrants.

The other worry is that what rises quickly in popularity can fall quickly too.  The popularity of Coke and Pepsi may be waning for now but they’ve had incredibly good runs.  Could packaged yerba mate last as long?  These companies have to worry.  Aside from thinking about shelf space, product development, R&D, and distribution, they have to be asking, have we reached peak Kombucha yet?