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January 31, 2018

In beverage category, the big get bigger but the little companies have all the fun

Keurig Dr Pepper. The name just rolls off your tongue, right? Not really, but those three words were uttered or printed by thousands of newscasters, newspapers and bloggers analyzing the latest mega merger in the food and beverage industry.

But before we get into that, did you know that there is not a “period” after the “Dr” in Dr Pepper? How have I never noticed this? And more importantly, what’s the reasoning behind this? I quickly found the answers (thank you Google) on the Dr Pepper Snapple Group website. Evidently, the period was dropped in the 1950s because the font they used in the old logo confused people, who thought the company was named “DriPepper.”

Ok, back to the mega merger. Keurig Green Mountain forked over $18.7 billion to buy Dr Pepper Snapple. The new company will be called Keurig Dr Pepper. From a branding perspective (I digress again), this is a big miss. I would have went with Keurig Mountain Pepper as the name. Or maybe Keurig Pepper Snapple.

Despite my disapproval of the new name, I understand why Keurig felt it worthwhile to spend slightly more than the GDP of Bosnia and Herzegovina for the Plano, Texas-based maker of 7Up, Bai, Dr Pepper, Snapple, Hawaiian Punch and more.

Size and scale.

At the top end of the beverage market, the big guys are really big guys. The Goliath’s of the category, Coca-Cola, Nestle, Pepsico and Keurig Dr Pepper, need to keep growing to satisfy shareholders. However, for the most part, many of their core product lines aren’t growing at all or not fast enough. Soda was once the big winner and driver for these companies, but that segment has been in steady decline for years, with only packaging innovations left to boost sales.

Outside of putting people’s names on soda cans, the big guys also are turning to incremental acquisitions of smaller players to diversify their lineups and hopefully pick a winner that sells on a global scale. This is a nice long-term play, but shareholders need immediate results, so the big guys start buying out other big guys, which gives them even more size and even more scale.

Down below, the market is scattered, populated with hundreds of regional and start-up companies using their innovative products to gain any shelf space they can. Here, you’ll find the “Davids” of the beverage industry. The cactus waters and all-natural energy drinks looking for shelf space and staying power.

If I were running a beverage company, I’d want to be one of the “Davids.” It’s an unbelievably tough market and the battle to gain any shelf space is difficult to say the least. And, if you do gain shelf space, you have to move a lot of units, and quickly. There is not an opportunity anymore for niche products to slowly develop or catch on. If your cactus water isn’t selling quickly, there is a watermelon water waiting in the wings to replace you.

Guide for beverage product development

Despite this, I still believe there is significant opportunity if your beverage company follows these three rules.

1. Create a quality product: Seems obvious, but this goes beyond taste. Use real ingredients, clean up your label and source responsibly. Sure, this often creates a higher price point, but the premium side of the beverage category is booming, and consumers have proven that they’re willing to spend more money for a quality product.

2. Nail your marketing: Have you been to a convenience store recently? The shelf space for cold, ready-to-drink beverages is massive now. Sodas, juices, waters, carbonated waters, kombuchas, RTD-teas and coffees. Bottles and cans in different shapes, formats and materials. Colors, graphics, illustrations, pictures. It’s all a bit overwhelming, but it’s essential to stand out for success in this category.

And, it doesn’t stop at the packaging. Success in the beverage category requires a company to be able to tell their story. What makes you unique and differentiates your product? Go the extra mile in telling this story, as it will pay dividends in the long term.

3. Make noise: Most likely, you’re going to be targeting millennials with your product. They are the largest consumer group, and one that broadcasts everything they do via their Instagram feeds or other social media outlets. They are your biggest influencers and advertisers. Make noise with your product. Make it shareable. Make it purposeful to drink and post about it.

It’s going to be an exciting year in the beverage category for 2018, and I’ll be keeping a close eye on it. I hope you’ll be watching it too through this blog and others. If you have any questions, reach out by email.

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