Beverage InView (September 2010)

Beverage InView
September 2010

News and observations from Q3 2010

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General Industry News
 A recent study found that over 90% of Americans are worried about the long-term environmental effects
of their packaged beverage purchases and consumption. (PR Newswire, 8/9/10)

 A new restaurant industry report states that over 20% of general
consumers said they would consider trying a new beverage if their
waitperson recommended it, but that number rose to 30% among “heavy
beverage users.” The report also states that:
86% of consumers purchased a beverage away from home in the
past 30 days.
Consumers drink roughly seven different types of drinks per month,
on average.
The number of consumers who visited a fast-food restaurant in the
past month but only bought a beverage is up to 36% from 24% in
the same survey from 2008. (Business Wire, 8/11/10)

 Cott Corporation, the largest private-label soft drink manufacturer in North America, announced that it
will purchase Cliffstar Corp., the largest private-label juice maker, in a deal worth $500 million. (Beverage
World, 8/15/10)

 The most frequently cited claims on new non-alcoholic beverages launched in the U.S. for the year
ending March 31, 2010, were (in order of frequency): kosher, environmentally-friendly packaging, no
additives/preservatives, all natural, low/no/reduced calorie, organic, low/no/reduced allergen,
low/no/reduced sugar, premium, and vitamin/mineral fortified. (Beverage Spectrum, 9/2010)

 The most popular sub-categories of new non-alcoholic beverages launched in the U.S. for the year
ending March 31, 2010, were: coffee, juice, beverage mixes, fruit/flavored still drinks, carbonated soft
drinks, beverage concentrates, energy drinks, and malt/other hot beverages. (Beverage Spectrum, 9/2010)

 The most popular flavors for new beverages launched in the United States for the year ending July 31
were (in order): orange, grape, chocolate, vanilla, lemon, berry, cola, fruit/punch, and lemon/lime.
(Beverage Industry, 9/1/10)

 When surveyed about what beverages they would pack in their children’s
lunches, 20% of American shoppers said they were probably going to pack
bottled water more often than they did last year and 16% said they would
likely pack juice more often. Fourteen percent said that they were likely to
pack soft drinks less often this year compared to last year.

©2010 by M/A/R/C® Research
Page 22  2Q09
Page  3Q10

 The city government for Boston has called together a group of health,
education and housing leaders with the task of developing a policy that
would reduce the consumption of sugary beverages such as soft drinks
and juice cocktails in city-owned buildings.
(Associated Press State & Local Wire, 9/20/10)

 The mayor of San Francisco changed his mind about introducing
legislation that would charge retailers a fee on the sale of sugary
beverages. He told reporters that he still wanted to find a way to cut
back on the amount of sugary beverages sold in the city and would
introduce a new plan in a few weeks. (Associated Press State & Local Wire, 9/23/10)

 Restaurant sales data shows that almost half of the 15 beverage categories tracked showed growth in
the second quarter of 2010, after two straight years of declining servings. The beverage categories
seeing the most growth were (in order): specialty coffee, frozen soft drinks, iced tea, bottled water, non-
carbonated soft drinks, milk and traditional coffee. (Nation’s Restaurant News, 9/20/10)

Page 33  2Q09
Page  3Q10

Carbonated Soft Drinks
 Safeway rebranded its private-label carbonated soft drink line to “Refreshe,” which is also the brand of
its private-label bottled water. (Supermarket News, 7/21/10)

 Coca-Cola announced a contest in which it would give away one million
points in its My Coke Rewards Program during August and September.
Daily instant win awards would be given out to 70,000 My Coke Rewards
members, with one member per day winning a 1,000 point shopping
spree and one grand prize winner per week winning 10,000 points.
(Business Wire, 8/4/10)

 Sales of carbonated beverages at supermarkets, drug stores and mass
merchants dropped 1.3% to $13.6 billion for the year ending June 13,
2010. (Supermarket News, 8/16/10)

Milk
 A new report from the USDA and the U.S. Department of Health & Human Services’ joint Dietary
Guidelines Advisory Committee recommends that most Americans should consume three or more
servings of low-fat or fat-free milk or dairy products each day. Currently, Americans only get 52% of the
recommended amounts of dairy products per day. (Dairy Foods, 8/1/10)

 A recent study (funded by the Milk Processor Education Program)
found that when schools stopped offering chocolate or other
flavored milk as a beverage option, overall consumption of milk
by students dropped 35% on average. (Dairy Foods, 9/1/10)

Page 44  2Q09
Page  3Q10

Beer/Wine/Liquor
 Many cities and counties are repealing alcohol sales bans. In the past eight years, 14 states have
overturned bans on selling alcohol on Sundays and multiple cities and counties across the United States
have had voter referendums to allow beer and wine to be sold in grocery stores. Reasons for the switch
from “dry” to “wet” include the recession – which has made local governments desperate for new
sources of tax revenue – and the growth of high-end grocery stores and warehouse club stores that
won’t open stores where they can’t sell beer and wine. (USA Today, 7/1/10)

 Restaurant chain P.F. Chang’s introduced its own handcrafted
wine called “Vineyard 518.” The chain created the syrah
blend and sauvignon blanc with the help of Wattle Creek
Winery. The wines are delivered to each restaurant location
in 10-liter containers that are recyclable and able to keep
the wine fresh for almost four weeks after opening.
(Cheers, 7/1/10)

 Smirnoff Vodka launched two new flavors: Mango and Peach.
In addition to the new flavors, the brand has redesigned its
packaging to better “align with the individualism of the brand.” (PR Newswire, 7/8/10)

 Senator Charles Schumer of New York wrote a letter to the Federal Trade Commission asking that it
investigate the sales and marketing of alcoholic energy drinks like Four Loko because they appear to be
marketed to underage drinkers. In his letter, Sen. Schumer noted that the cans are designed to look like
regular, non-alcoholic energy drinks and only disclose their alcoholic content in very small print. Large
brewers like Anheuser-Busch and MillerCoors stopped selling caffeinated alcoholic beverages in 2008
after receiving pressure from state and federal regulators. The FDA had sent letters out to over 24
manufacturers in 2009 to notify them that the FDA had never approved adding caffeine to alcoholic
beverages and that it was going to start studying the combination to determine if it was safe. (Associated
Press State and Local Wire, 7/11/10)

 Starbucks is testing a new Starbucks-branded store format that offers beer and wine in addition to its
normal coffee drinks. The beer and wine sales are an attempt to draw more afternoon and evening store
traffic. The company has been testing beer and wine sales at two non-Starbucks branded locations in
Seattle. (Nation’s Restaurant News, 7/12/10)

 Chambord Liqueur introduced its first-ever line extension with Chambord
Flavored Vodka. The brand also updated its packaging for the first time in
nearly 30 years so that the brand name is more apparent and easily read,
plus the neck and cap have been redesigned to make pouring easier and
cleaner. (Business Wire, 7/14/10)

Page 55  2Q09
Page  3Q10

 Industry research shows that alcohol manufacturers are
benefitting from the economic downturn as more consumers
are drinking at home instead of in bars or restaurants. The off-
premise alcoholic beverage market has grown over 20% since
2004. At-home drinkers aren’t spending as much on their
beverages though, with 28% saying that they’ve traded down
to cheaper brands in the last year to save money.
(PR Newswire, 7/15/10)

 A survey of U.S. consumers who eat dinner at home found that 29% preferred Merlot for their red wine
and 28% preferred Chardonnay for their white wine when having wine with their meals at home. (PR
Newswire, 7/20/10)

 Sales of spirits rose 1.4% in 2009, with lower-priced spirits seeing a 5.5% increase in sales and super-
premium spirits seeing a 5.1% decline as consumers traded down. The spirits category also saw a 2.2%
increase in off-premise sales. Value-priced vodka saw its volume jump 10.7%, rum’s volume grew 1.2%,
tequila was up 5.2% and Irish whiskey grew 10.2%. (Beverage Industry, 8/1/10)

 Wine sales in the United States rose 2% in volume during 2009, but dropped 4% in value as consumers
continued to trade down. (Beverage Industry, 8/1/10)

 Alcoholic beverage makers are having a difficult time using social media to connect with consumers. The
marketers have required visitors to their websites to provide age verification before they can fully enter
the site, but that is more difficult to control with Twitter, which doesn’t require users to enter a birth
date. The FTC is going to publish a report in early 2011 that reveals how many times its researchers have
found alcohol-brand related fan pages featuring photos of drunk frat boys or messages/tweets about
binge drinking. (Adweek, 8/9/10)

 A new study released by the Center for Alcohol Marketing and Youth found that child/teen exposure to
alcohol advertising in magazines dropped by 48% from 2001 to 2008. In magazines with under-21
readership levels over 30%, there is now virtually no alcohol advertising. (PR Newswire, 8/12/10)

 The Brewers Association reported that sales of beer produced by small
and independent craft brewers rose 12% in the first half of 2010 in terms
of dollar sales and 9% in volume. This compares to a decline of 2.7% in
volume sales for the beer industry in general. (Business Wire, 8/2/10)

 Sales of beer, ale and alcoholic cider at supermarkets, drug stores and
mass merchants rose slightly at 1.3% to reach $9.4 billion for the year
ending June 13, 2010. (Supermarket News, 8/16/10)

 Dollar General announced that it would start selling beer and wine in
some of its stores located in the southeastern part of the country.
(Associated Press State & Local Wire, 8/19/10)

Page 66  2Q09
Page  3Q10

 MillerCoors launched a small independent craft/import beer company
called Tenth and Blake Beer Co. The new company will manage beer
brands such as Blue Moon, Leinenkugel’s, Colorado Native, Peroni
Nastro Azzurro, PilsnerUrquell and Grolsch. (Beverage Industry, 9/1/10)

 Industry data shows that the total volume of beer sold in the U.S.
during 2009 fell 2.1% from 2008. Domestic beer sales volume
dropped 1.4%, while import beers saw their sales volume
decline 6.9%. (Beverage Dynamics, 9/2010)

 Sears is working with Illinois state and local liquor commissions to try to get permission for customers of
its MyGofer online shopping service to order alcoholic beverages. MyGofer recently started a home
delivery service for products ranging from electronics to groceries, but most items are picked up at
participating Kmart and Sears stores. Currently, any online orders that include alcoholic beverages can
only be picked up at Kmart stores that have a liquor license. Sears hopes to work through any legal issues
so that MyGofer can better compete with Peapod and other online grocery retailers. (Crain’s Chicago Business,
9/20/10)

 Anheuser-Busch is turning to free samples in hopes of boosting sales of Budweiser. The company will
hand out 500,000 samples in trendy bars and restaurants through October and host the “Budweiser
National Happy Hour” on September 29. The company is also going to partner with Facebook to offer
people turning age 22 or older a free Budweiser on their birthday. (USA Today, 9/22/10)

 The website TastingRoom.com announced that it is expanding its sales
to consumers in Alaska, Nevada, New Mexico, Wyoming, Virginia,
Missouri, Nebraska, Louisiana, North Dakota, New Hampshire, the
District of Columbia, New York, Illinois, and Florida. The company had
previously limited its unique wine sampling service to consumers in
California. TastingRoom.com sells six-pack wine sampling kits featuring
50mL bottles of wines from over 13 California wineries.
(Marketwire, 9/14/10)

Page 77  2Q09
Page  3Q10

Coffee/Tea
 Sales of coffee at supermarkets, drug stores and mass merchants
rose 3.2% to $3.7 billion for the year ending June 13, 2010. The
single cup coffee segment saw the largest increase, up 102% from
the same period in 2009, while sales of coffee additives/flavorings
dropped 14.1%. (Supermarket News, 8/16/10)

 Sales of refrigerated teas and coffees at supermarkets, drug stores
and mass merchants rose 7.2% to $353.4 million for the year
ending June 13, 2010. The refrigerated tea segment saw the largest
increase, up 6.6% from the same period in 2009. (Supermarket News, 8/16/10)

 Retailers scurried to find new sources for kombucha tea after various agencies began questioning the
alcoholic content of the tea. Many healthy living enthusiasts like the tea, claiming that it enhances their
immune systems and help detox their bodies. The tea’s natural fermentation process continues even
after bottling, however, so that a bottle close to the end of its sell-by date can have up to 3% alcohol
even though the product is marketed as non-alcoholic. (Supermarket News, 8/2/10)

 Starbucks announced that sales of its new VIA instant coffee reached the $100 million mark globally after
just 10 months on the market. (Business Wire, 8/3/10)

 Private-label canned/bottled teas saw their sales soar 32.3% for the year ending July 11, 2010. Private-
label refrigerated teas have a 19.5% market share within their category. (Beverage Industry 9/10/10)

 A survey of American workers found that those who say they need coffee
the most in order to be productive at work are (in order): nurses, doctors,
hotel employees, designers/architects, financial/ insurance sales
representatives, food preparers, engineers, teachers, marketing/PR
professionals, scientists, machine operators and government workers.
Overall, almost one-third of workers said they are less productive if they
aren’t able to drink coffee while at work. (PR Newswire, 9/27/10)

 A different survey found that almost 60% of coffee drinkers said they
drink two to three cups of coffee per day, with 90% of coffee drinkers
having it in the morning and 72% drinking it at work. Thirty percent of
coffee drinkers said that they would rather not have to talk with their
boss before having a cup of coffee in the morning. (PR Newswire, 9/29/10)

Page 88  2Q09
Page  3Q10

Functional Beverages (Sports/Energy/Nutritional Drinks)
 The functional beverage category saw sales drop in 2009 due to the economic recession, a drop in
discretionary income and low levels of consumer confidence, and future sales trends for the category do
not look good. An industry research firm projects that sales will only rise between 1.2% and 1.6% for the
five years between 2010 and 2014. The functional beverage segment is also suffering from an increasing
level of distrust by consumers as the FDA starts to investigate the truthfulness of claims by beverage
makers. (Nutraceuticals World, 7/1/10)

 The latest trend in functional beverages is coconut water. Both
Coca-Cola and PepsiCo have started looking into coconut water
beverages as some people are referring to it as “nature’s sports
drink.” (Nutraceuticals World, 7/1/10)

 Relaxation drink manufacturers are running into problems with
the use of melatonin in their drinks, as the FDA has not given its
approval for its use in foods or beverages. One company ended up
changing the product labels to say the drink was a dietary
supplement just so that it could continue including melatonin.

 The relaxation drink category is small – with just 33 SKUs launched in 2010, 32 in 2009 and 21 in 2008 –
but it is seeing some momentum with brands like “drank” selling 7 million cans from the spring of 2008
to fall of 2009. Industry experts feel that the category will face tough competition from other, better-
known relaxation drinks like milk, hot chocolate and alcohol. Plus, many relaxation drinks are being
targeted to urban youth, but the people actually buying it are older adults looking for a way to fall
asleep. (Convenience Store News, 7/5/10)

 A new functional beverage claim is “heart healthy,” with the number of beverages claiming heart health
benefits rising 36% from 2008 to 2009 globally. The most popular additives in the U.S. are vitamin E and
magnesium, followed by omega-3 fatty acids, grape seed extract, phytosterols, soy protein, niacin,
flaxseed, DHA (docosahexaenoic acid), and coenzyme Q10. Most (34.8%) new “heart healthy” drinks are
dairy products, followed by tea (33.9%) and dairy alternatives (25.9%). (Beverage Industry, 8/1/10)

 PepsiCo is seeing increased sales for its Gatorade line. Its sales
volumes were up 10% during the second quarter of 2010 and
up 3% across the first half of the year, compared to a 13%
decline in sales for 2009. After some industry experts said
that the brand had strayed away from its core athlete
audience, PepsiCo launched a new series of products
aimed at athletes to drink before and after their workouts,
plus the new G Series Pro aimed at “serious” athletes.
(Wall Street Journal, 7/14/10)

Page 99  2Q09
Page  3Q10

 Energy drink manufacturers have hit a plateau in their quest for market
penetration. According to a new industry report, almost three-quarters
of Americans said they do not drink energy drinks or energy shots and
among those, 69% said they have no interest in ever drinking them.
These non-users said they don’t drink the energy beverages/shots because
of high price (48%), high amounts of caffeine (43%) and the basic idea that
energy drinks/shots “just aren’t good for you” (43%). (PR Newswire, 8/11/10)

 PepsiCo has created a “Mission Control” room at its Gatorade headquarters
in Chicago where a team of employees watches for references to Gatorade
on social media sites like Facebook and Twitter. (Wall Street Journal, 9/13/10)

 Coca-Cola lost its attempt to dismiss a lawsuit brought by the Center for Science in the Public Interest
against the health benefit claims for Coca-Cola’s Vitaminwater brand. The federal judge hearing the case
decided that both the Vitaminwater beverage names and statements on the labels “have the potential to
reinforce a consumer’s mistaken belief that the product is comprised only of vitamins and water.” (Beverage
World, 8/15/10)

Page 10  3Q10
Page 10  2Q09

Fruit Juice/Drinks
 Juice sales in the U.S. have been flat recently, mostly due to rising orange juice prices, which caused
consumers to either stop buying juice at all or switch to lower-priced juice drinks. (Beverage Industry, 7/9/10)

 The latest campaign for a line extension to V-8 Fusion fruit and
vegetable juice drink is solely through Facebook. Facebook members
who “friend” the V-8 V-Fusion page can enter in their mailing address
and receive a free sample of the new V-8 V-Fusion + Tea drink.
During the first two weeks of the campaign, V-8 gave away 1,000
samples a week. The number of samples still available was posted
on the Facebook page, so viewers could see how many were left.
A few people left complaints on the site after the samples for the
week ran out, but more people posted messages saying they were
going to come back the next week and try to get a sample then.
(Promo, 7/22/10)

 A recent survey found that over 20% of consumers who don’t drink fruit juice drinks do not because of
the high-fructose corn syrup in the drinks. Over 30% of juice drinkers specifically look for juice products
that do not have HFCS as an ingredient. Even natural sugar content is worrisome for consumers, with
mothers sometimes diluting 100% natural juice with water. Industry experts think that “watered down”
juice products may be a growth segment, positioned as enhanced water. (Drug Store News, 7/19/10)

 Sales of bottled juice at supermarkets, drug stores and mass merchants dropped 3.1% to $3.8 billion for
the year ending June 13, 2010. The bottled lemonade segment saw the largest increase, up 7.9% from
the same period in 2009, while sales of specialty juices dropped 10.1%. (Supermarket News, 8/16/10)

 Sales of refrigerated juices at supermarkets, drug stores and mass merchants dropped 0.4% to $4.3
billion for the year ending June 13, 2010. The refrigerated lemonade segment saw the largest increase,
up 22.3% from the same period in 2009, while sales of specialty refrigerated juices like cranberry juice
dropped 42.7%. (Supermarket News, 8/16/10)

 Minute Maid redesigned its packaging for the larger 89-ounce and 128-ounce
jugs, switching to a clear PET bottle. The new bottle is more ergonomic, with a
larger handle and lower center of gravity, plus the juice can be seen through
the clear plastic. (Food & Beverage Packaging, 8/1/10)

 The Federal Trade Commission filed complaints against the makers of POM
Wonderful Pomegranate Juice, arguing that the company is making “false and
deceptive claims” about pomegranate juice’s disease prevention and treatment
properties. The FTC complaint also requests that any future health claims about
pomegranate-based products must be approved by the FDA. (Associated Press State & Local Wire, 9/27/10)

Page 11  3Q10
Page 11  2Q09

Bottled Water (Plain and Enhanced)
 Sales of enhanced water dropped almost 7% in 2009, with one possible reason being the increase in
cheap powdered mix products that allow consumers to “doctor” a plain bottle of water themselves.
(Nutraceuticals World, 7/1/10)

 A recent survey found that over 70 cities had considered reducing
the amount of bottled water they purchase for use at city facilities
or stopping the purchases altogether as a way to save money and
be more environmentally friendly. Another 44 cities already have
bottled water bans or have been encouraging city government
workers to use tap water instead. (Atlanta Journal-Constitution, 7/24/10)

 Sales of bottled water at supermarkets, drug stores and mass
merchants dropped 2.8% to $4.8 billion for the year ending June 13,
2010. The sparkling mineral water segment saw the largest increase, up 6.1% from the same period in
2009, while sales of jug/bulk still water dropped 5.6%. (Supermarket News, 8/16/10)

Page 12  3Q10
Page 12  2Q09

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Beverage InView (September 2010)

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