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Good For You Drinks Take Root

Kombucha, raw juices and other healthy beverages begin their growth phase in convenience stores.

​By Terri Allan

For Kizer Couch, timing is everything.

As co-owner of Stop & Go Mini Mart in Bend, Oregon, he first began witnessing a sales decline in fountain drinks about five or six years ago. Couch knew he’d have to find something else to make up for the dollars lost at the fountain, as well as the rising costs associated with Stop & Go’s 24-head soft drink dispenser. “Carbonated soft drinks were being hit hard, but at the same time, costs — including paper cups — were going up,” he recalled.

Fortunately for Couch, he discovered increasing demand among Bend’s health-conscious consumers for an emerging functional drink: kombucha. Not only did Couch’s environmentally minded customers approve of the likes of Kombucha Mama on tap and in glass bottles, they were drawn to the drink’s claim of health benefits. And for Couch, the arrival of kombucha and other health-focused beverages has been a serendipity of sorts. With 14-ounce bottles priced at about $3.69, “It’s a high ring,” the retailer reported.

Indeed, for the 52-week period ending August 31, 2013, sales of teas with probiotic content — including kombucha — increased 30% in combined natural supermarkets (excluding Whole Foods) and conventional food outlets, according to SPINS LLC, which tracks natural and organic products. The even larger segment that includes refrigerated juices and functional beverages with probiotic content surged 36% during the period to total sales of $136.3 million, SPINS reported.

Largely dominated by start-ups, top-selling labels in this alternative beverage segment include GT’s, GoodBelly and PepsiCo’s Naked Juice. While not available in the United States, Coca-Cola recently introduced Habu in Thailand, described as an “all-natural herbal tea drink,” containing four cooling herbs.

STARTING TO CATCH ON
With sales of the catchall health-focused beverage category now established in outlets such as Whole Foods, the segment is beginning to catch on in convenience stores. Neal Cohane, senior vice president, sales, at Reed’s Inc., the marketer of Reed’s Culture Club kombucha and ginger brews, for example, reported that Pacific Convenience & Fuels recently moved to place his company’s products in 230 of its stores in northern California that feature natural foods sections. While he conceded that it’s taking a “little while” for the segment to take root in convenience stores, Cohane said that increasingly the channel is moving to “carve out space for healthy beverages.”

Paul Gregg, executive vice president at Raw Foods International, marketer of It Tastes Raaw Juices, remarked that once a major convenience chain makes big strides with health-focused beverages, “we’ll see significant growth in the channel.” Already, Gregg added, some convenience stores are dedicating their first cooler door to the high-margin drinks.

Famima!! stores — with nine locations in southern California — is an early adopter of the segment. According to Elizabeth Synn, packaged beverages buyer and merchandiser, health-focused beverages are expanding at Famima!! “because they’re functional. People are looking for healthy beverages; they’re looking to lead healthy lifestyles. Consumers are busy and may need the properties that these products offer, such as for energy.” She added that Famima!! has stocked labels like GT’s kombucha for nearly a decade.

Kombucha is “so much better for you than soda pop,” said Couch. A consumer of the fermented tea himself, the retailer pointed to the anti-oxidants contained in the beverage, as well as its low sugar content and natural carbonation. Moreover, he sees particular opportunity for kombuchas in convenience stores as they typically contain a small amount of caffeine, and “make a nice replacement to morning coffee.”

GLARING GAP
In addition to its availability in Pacific Convenience stores, Reed’s beverages have been placed in about 1,000 independent convenience accounts, Chris Reed, founder and CEO of Reed’s Inc. reported. He sees particular potential for Reed’s ginger brews in the channel, noting that ginger is a proven “cure for motion sickness.” Overall, Reed said health-focused beverages should fare well in convenience stores as “there is an obvious glaring gap between Coke and Pepsi and energy drinks from a pure price-point perspective.” Reed’s beverages — packaged in 13.5-ounce glass bottles — are priced between $2.99 and $3.99.

It Tastes Raaw juices, meanwhile, are in just a limited number of convenience stores, but Gregg said he expects expansion in the channel next year. The fruit and vegetable juice blends are flash pasteurized and cold filled but have a nine-month (refrigerated) shelf life. “They are 100% natural, pure juice, contain natural sugars and no preservatives,” the marketer said, and are packaged in 12-ounce PET bottles, priced at $2.99 and up. It Tastes Raaw is available in nine SKUs, such as Strawberry Purple Carrot and Mango Guarana, which, Gregg noted, contains natural caffeine, and is ideal for the convenience channel.

While long available in its stores, health-focused beverages are “definitely expanding” at Famima!! — a concept that specializes in healthy food — Synn reported. Since joining the company five years ago, she has added more SKUs, including drinks that cross into the juice and iced tea categories.

Kombucha has emerged as the largest subsegment, the retailer noted, with 16-ounce bottles priced between $4.49 and $4.79. GT’s Kombucha is promoted at $7 for two bottles, in an effort to position the concept as “a destination for these drinks,” Synn explained. She added that Famima!! competes with specialty stores such as Whole Foods and Sprouts Farmers Market, where the drinks tend to be priced under $4 a bottle.

Stop & Go, meanwhile, first entered the category with kombuchas on tap — as part of its beer growler program. While sales were slow at first, Couch remarked that less than two years later, “kombucha sales have really taken off.
They’re selling like crazy.” He now offers 16 kombuchas on tap — eight from Kombucha Mama and eight from Townshend’s Tea Co.’s Brew Dr. Customers are charged 20 cents per ounce, allowing them to decide on volume, and the drinks can be poured into any number of vessels — growlers, smaller growlettes and even personal coffee cups.

Not surprisingly, Couch reported that other local convenience stores have “started imitating us,” no doubt attracted to the handsome 37% margin the beverages offer. The store also stocks bottled kombuchas in the cold box’s tea section, as well as merchandised in an open-faced end-cap cooler.

ATTRACTIVE CONSUMERS
Marketers of health-focused beverages and convenience retailers agree that consumers of the drinks are knowl-edgeable, health-minded, young to middle age and often affluent. Couch said his kombucha patrons prefer organic food and beverages and are physically active, like cyclists and hikers. Reed agreed with the health-conscious assessment and added, “These are consumers who don’t scrimp when it comes to food and drinks.” Synn said that many of her healthy beverage customers come into Famima!! specifically for the drinks, “and we try to sell them up.

For some, the trip into the store encourages them to buy other items.” Gregg motioned that with convenience store operators increasingly anxious to offer healthy options to their customers, beverages like It Tastes Raaw juice can fit the bill. “It’s basically produce in a bottle,” and for the retailer who can solve the difficulty of stocking fresh produce, the marketer said. Reed projected that within five years, health-focused beverages will “break through” in convenience stores. Couch concurred, saying, “I think we’re only at the beginning of the growth phase for these products. It’s nowhere close to peaking.”

Terri Allan is a New Jersey-based freelance writer, specializing in the beverage industry. She can be reached at
terri4beer@aol.com, and on Twitter @terriallan.