After years of painstakingly building honey-based bev line as shelf-stable brand, Deluxe Honeydrop has done pivot into burgeoning cold-pressed juice realm.  Debuting at Whole Foods stores are pair of sku’s in slim 10-oz PET bottles: Raw Manuka Honey (positioned as Daily Immunity, with Apple Ginger Lemon flavor profile) and Raw Local Honey (positioned as Cleanse, with Lemon Cayenne flavor profile).  At Whole Foods store in Manhattan Daily Immunity went for $9.99 and Cleanse for $6.99.  Deluxe Honeydrop brand name is downplayed on label, appearing in small characters in similar color to background color.  No immediate response to call today to founder David Luks (D Luks, or the “Deluxe” of brand name), but co has been flogging sampling events at NY-area Whole Foods stores for past few days on its Facebook page.  Response to consumer query on availability indicates new line will be hitting Fairway chain and Whole Foods stores in NJ over next coupla weeks.  Core line of teas and juices, lately being promoted at 2 for $3 in Whole Foods stores in NY metro, is offered in flavors like Blood Orange, Blueberry, Lemon Ginger and Green Tea.  As with core line, portion of proceeds from sale of new sku’s goes toward prevention of Colony Collapse Disorder, which has been reducing bee population in N Amer.

Carbonated soft drink volume dropped 2.6% last 4 wks thru Jul 7 in IRI’s all-channel data (including gas/c-stores) reported by Morgan Stanley’s Dara Mohsenian.  That’s double CSD decline over last 12 wks, as solid pricing increase of 2.4% in latest period clearly took bite out of volume.  Diet CSD struggles continued, as volume dropped 8.2% vs flat performance for regular CSDs.  Coca-Cola CSD volume edged up (+0.2%) on avg price gain of 1.2% in all-channel data for 4-wk period.  PepsiCo went with far more aggressive pricing, up 4.2% (vs +1.6% last 12 wks), and that contributed to volume drop of 4.2% in latest period.  Dr Pepper Snapple CSD volume was off 2.9% on avg price up 1.6% last 4 wks.  Caught in branded players’ pricing skirmishes, private-label CSDs were still off nearly 8% even with avg price decline of 2.7%. 

Energy Volume Improves on Weaker Pricing   Energy drink volume gains accelerated to 3.4% last 4 wks in all-channel data, up from 2.3% gain pace over previous 12 wks.  Energy drink prices were up avg of 0.7% for 4 wks, down from avg of +1.2% for 12 wks.  With small price decline (-0.2%), Red Bull volume rose 5.3%, while Monster volume rose 4.8% on higher avg price gain of +1.6% last 4 wks.  Rockstar volume was up 3.7% on 2.4% price drop.  PepsiCo energy volume jumped 19% with avg price up 1% last 4 wks.  PEP up double-digits (+15%) for 12 wks as well.  Coca-Cola energy brands slipped 8.2% even with hefty avg discount of 3.6%. 

Powerade Tumbles with Higher Pricing   Sports drinks volume was flat in all-channel data for 4 wks thru Jul 7 as avg price edged up to +2.3% vs +1.8% last 12 wks.  Gatorade volume rose 2.6% on avg price increase of 1.5% while Powerade fell 6.4% on 2.6% price hike.  Private-label sports drinks dropped a whopping 30% in all-channel last 4 wks with avg price up nearly 6%. 

Solid Volume Gains but Pricing Still Weak in Water Category  Bottled water volume was up 5% with avg price down 2% in all-channel data last 4 wks.  That’s below 7.8% volume gain for water category previous 12 wks.  Nestle, Coca-Cola and PepsiCo were each up in mid to high single digits but pricing remains a challenge in category.  Nestle and KO bottled water prices were down avg 4% each, while PEP waters down steeper 7% for those 4 wks.

Maker of KeVita Sparkling Probiotic Drinks has closed on $6 mil Series D financing round led by SPK Capital LLC, its financial advisor Silverwood Partners said, confirming previous reports.  Other existing investors, including KarpReilly and Ecosystem Integrity Fund, also participated in financing.  As part of move, SPK’s Elliot Karathanasis will join board of Oxnard, Calif, co.   KeVita cofounder/ceo Bill Moses said latest round will support new marketing initiatives as well as several new products due for intro later this year.  “SPK’s knowledge and experience in the consumer space was a great fit and addition to our shareholder base,” he said. 

Nicole Fry, who boasts 15 years of experience in investment banking and corporate development, has joined First Beverage Group as managing ptnr of its investment banking division.  Fry grew up in family active in food and wine biz, and most recently served as managing dir in consumer investment banking group at Imperial Capital, where she led efforts in bev, food and restaurant sectors.  Along with prior banking assignments, Fry also managed corporate development activities for culinary site Cooking.com.

Claims that Chicha Limena, its Peruvian purple maize soft drink, could “help fight cancer and diabetes” has landed maker Varas Group in crosshairs of NY State Attorney General Eric Schneiderman, reported NY Daily News.  “While soft drinks may market the advantages of their products, they may not make unsubstantiated claims that their products have the potential to prevent or cure serious health problems,” Schneiderman said in announcing that co has agreed to cease claims.  Varas Group “went too far” when it made claim its drink was “a nutritional powerhouse packed with antioxidants” that “may help prevent” diseases like cancer, diabetes and obesity.  Brand is mainly marketed to Hispanics in NYC and surrounding areas with slogan “Embrace the power of purple,” noted Medical Daily, which slammed bev as a “farce of a magical drink.”  Besides ceasing health claims in its marketing materials, Varas must pay $5K in penalties and fees to state.

“It’s not just that people aren’t drinking soda – they’re not talking about it either.”  That’s lede of Advertising Age story on report from Keller Fay Group that word-of-mouth impressions for Coke, Pepsi, Dr Pepper and other soft drinks have been steadily declining since 2011.  Last year, report notes, Coke ceded most-talked-about-brand status to Apple.  Story notes that big increases in social-media conversations – up 39% for Coke and 31% for Pepsi – haven’t been enough to offset declines in face-to-face conversations, -6% for Coke, -9% for Pepsi.  That said, # of word-of-mouth impressions for soft drinks still exceeds that of alc bevs, noncarbs, sports drinks, energy drinks and coffee combined, AdAge notes.  Article doesn’t discuss any findings pertaining to other product categories, but they seem in synch with broader observations that fascination with technology is trumping even such old stand-bys as teens’ wish to obtain a driving license and car.  Citing big upswings in conversations about brands like Apple, Samsung, Verizon and AT&T, Keller Fay ceo Ed Keller noted, “When it comes to cultural relevance, a lot of the technology brands are taking up people’s talk time.”

Go N Syde, augmented reality platform tied to line of new bevs, shortly will announce additional partner/endorsers to current roster of Mariah Carey and Jay Z, and is about to break radio ads supporting line in key markets.  So far, “melodic beverage” called Butterfly, after Mariah tune, and 40/40 iced tea, after Jay Z’s sports lounge and nightclub, are available only in Walgreens drug chain and its Duane Reade unit in NY, as co keeps options open while entertaining approaches from potential strategic allies.  Cfo Russ Hackmann said co already has engaged in early talks with 2 strategics; while he wouldn’t ID them, it seems safe to assume that operators of bev networks who’re deep into entertainment biz like Coke, Pepsi and Red Bull might be eying immersive technology with curiosity.  So maybe one or two of those are in mix.

Update was offered on Fri afternoon by Hackmann while he offered informal demo of technical advances in which scanning labels of co’s Butterfly and 40/40 drinks with cellphone brought BBI editor into virtual world where speaking video figures of Mariah Carey and Jay Z, respectively, welcomed him into their world, with links to videos, music, etc.  New partner/endorsers, to be announced as early as this week, will take co further on way to having total of 6 or so figures from music, sports and entertainment milieu aboard, Russ said.

As reported, co’s ambitious plan is for its bevs to serve as social media portal with frequently updated entertainment, sports and other content, with marketing largely carried by social media presence of brand’s celeb partners.  Tho Hackmann wouldn’t offer specific data, he said plan has been borne out by sales performance to date in Walgreens: whenever Carey posts new reference to Butterfly to her millions of Twitter, Facebook or Instagram followers, sales spike.  Future marketing plans will dangle access to celebs, backstage and otherwise, to fans who frequent Go N’Syde portal.  Some of those promos should go live in next 2 weeks or so, Russ said.

As earlier reported, well-connected principals of Go N’Syde include ceo Kevin Liles, Death Row Records exec Kevyn Lewis, and LA entertainment lawyers Ken Hertz and Jordan Yospe.  Prime financial backer is investment firm Harborcove, where Hackmann is prexy (BBI, Mar 21 and Jun 3).

Just spotted at retail in NY: AriZona Oak Brewed Tea, premium-priced plastic-bottle line described as being “black tea steeped in American Oak.”  New entry spotted at 7-Eleven store in ethnic nabe in Brooklyn on Fri at $1.69 per 20-oz bottle in Lemon flavor, offers typical AriZona packaging extravaganza: full-wrap label mimics wooden staves and metal hoops of whisky barrel and contains faux red wax seal, along with such gourmet buzzwords as “reserve” and “refined artisanal blend.”  Branding as an AriZona item is minimal on front panel, tho back panel contains full-size vertical logo.  Drink clocks in at 30 calories per 8-oz serving, and it’s “sweetened with maple sugar,” per label copy, with ingredient list that includes sugar, honey and maple sugar.  AriZona exec hasn’t returned call placed Fri seeking info, but item was new enough that it didn’t scan at 7-Eleven store, and passing delivery truck driver confirmed he was making his first dropoffs that day.  BBI editor didn’t pick up any noticeably oaky taste from sampling drink, tho he enjoyed reduced sweetness profile of bev.  More as we hear it on this one.

With Vita Coco coconut water brand lodged in Dr Pepper Snapple Group distribution network in US, some have wondered where possible exits may lurk for NY-based co, given DPS’ well-known disinclination to write checks to acquire brands.  One sign of range of possibilities emerged today when co announced that Chinese owner of Red Bull in that market, Reignwood Group, is ponying up about $167 mil to acquire 25% stake in Vita Coco marketer All Market Inc, for enterprise value of $665 mil.  Reignwood, based in Beijing, also will distribute brand in China starting this fall, at time Vita Coco has been accelerating its global expansion efforts and claims its biz is booming in UK and Japan.  Indeed, Red Bull China is first of what’s to be coming wave of additional overseas distribution deals, Kirban told BBI, albeit only one with equity component.  All shareholders, including celeb endorsers like Madonna and Rihanna and employees participating in equity plan, were invited to tender shares, but even among those who did, “almost everybody is staying in (invested) in a significant way,” Kirban said.  Both he and Liran took some money off table, but key capital provider Verlinvest did not.  Verlinvest, steward of Stella Artois fortune whose other investments have included Glaceau, Hint, Sambazon and Leblon Cachaca, is retaining entire stake, “which is a strong indication of how we feel about the potential of the company,” Verlinvest dir Franklin Isacson told BBI today. 

All in all, Kirban viewed transaction as “different take on a liquidity event” than other bev deals seen in recent years.  “This is a small piece in what I see as the big picture for this brand,” whose pending distribution deals and continued rapid global may double valuation of co within next year or so.  Still enjoying operating biz (he also operates a software biz founded with his dad 20 years ago when he was 19), Kirban insisted he’s not interested in selling entire biz until it attains valuation commensurate with being a truly global brand, ambition that’s still in early stages.  He’s told Wall St Jnl that about 20% of co’s sales, now approaching $300 mil, come from outside US, and brand is now larger in London than in its launch market of NY.  Mike declined to say whether Red Bull China had pushed for higher stake than 25%.  Barclays served as financial advisor to Vita Coco on transaction, and Giannuzzi Group handled legal side of deal whose outline was hammered out golfing with Reignwood owner Chanchai Ruayrungruang and Donald Trump, at whose Fla mansion both were staying, Mike said.

Reignwood is formidable new partner, generating nearly $3 bil in revenues per year selling just 2 sku’s of Red Bull, which in China employs sweeter, noncarb formulation compared to one available in Europe and US.  That distributor, whose territory includes Hong Kong and territories like Macau, thereby accounts for about half of Red Bull’s $6-7 bil global biz.  Unlike in other markets, where Red Bull contracts contain tight restrictions on other brands distributors can carry, Red Bull China is entirely separate entity, under 50-year license.  It was quest for other brands that might go on trucks that brought approach from Ruayrungruang, who was coming to Fla to stay at Trump’s home and invited Kirban to join them.  Basic deal was worked out on nearby golf course, tho Trump’s role was limited mainly to interjecting frequent putting tips, Kirban recalled.

Resolves Quandary on Prospective Buyers   Deal helps resolve one quandary among bev observers, who’ve seen Vita Coco brand migrate from network of indie DSD houses to nearly national availability within distribution network of DPS, which has shown no inclination in recent years to pay for brands that are successful in segments in which it doesn’t directly participate (with less established brands than Vita Coco, it has occasionally been able to garner equity for free in exchange for offering up its distribution network).  Some close to DPS have noted that, since Vita Coco brings little to bottom line during growth phase, DPS already is capturing entire profit margin just at distribution level, lessening its interest in acquiring co.  With both Coca-Cola and PepsiCo struggling with their own coconut water efforts, tho, some have wondered whether one or the other might be tempted to make pre-emptive deal with Vita Coco, even at cost of having to buy out DPS as distributor.  Reignwood deal shows that there’s entire range of players, particularly overseas, who might be interested in participating in segment that’s still in early stages of global development.  Coconut water, of course, has long been staple in tropical countries in South America and Asia, but barely has presence in major markets like China, particularly in packaged form.

There’s irony here: years back, Vita Coco engaged in talks with Red Bull North America about possibility of putting Vita Coco on Red Bull distributors’ trucks, but talks did not reach fruition.  (RBNA is believed to have conducted similar talks with Muscle Milk and perhaps other brands, but it was only in late 2013 that it finally did accept first outside brand: Evian Water, in a few company-operated distribution zones.)  Jeff Popkin, who sat on Red Bull side of table during those talks, has since moved to #3 role at Vita Coco, behind Kirban and Liran. 

It’s question on minds of a lot of NA brand owners, particularly on energy side: how will Anheuser-Busch distributors react to losing Monster Energy to Coca-Cola bottlers in the half of US where they distribute juggernaut brand?  Will they be lookin’ to replace that lost volume with other NA brands?  Or will experience have so soured them on NA category that they move instead to de-emphasize or even drop entirely their NA portfolios? 

Maryland-based Kloser Group’s Trip Kloser, who as advisor to scores of Bud houses is in great position to evaluate issue, offers this rule of thumb: if particular Bud house also distributes Sparkling Ice, it’s likely to stand pat in NAs and may start lookin’ to add some new ones to fill gaping hole left by Monster departure.  But those who don’t distribute Ice may have had their fill, concluding “I’m done with this BS,” as one told Trip.  Best time to approach prospective A-B partners about your brand?  Maybe not immediately, because they’re “beyond furious” over brand’s pending exit, for scant compensation, per stingy contract.  But soon, while they’re still reviewing 2015 budgets.  “Don’t wait until the first of the year,” Kloser warns.  So far, he noted, none of his clients has made definitive decision on role of NAs in their house.

As profiled a few years back in this letter (BBI, Nov 22 2011), Kloser has carved out quiet niche as brand scout for most or all Bud houses in given state.  He vets newly available brands and pitches most promising ones to state’s Bud network, taking small commission on those the houses pick up, to align his interests with brands’ success.  He works with about 250 independently owned Bud houses in roughly 30 states, about two-thirds of whom, or close to 200, operate portfolios of NAs.  Given booming craft beer segment, Trip over past year had backed away from pitching NA brands, tho ramifications of Monster/Coke deal may put him back in game, at least temporarily, as his clients wrestle with where to go from here.

Do You Take Your NAs with Ice or No Ice?    Trip’s take:  “A significant number of my clients have Sparkling Ice, the little engine that could, and is” and they’re “very, very happy with it,” in contrast to their more muted successes on other well-known NA brands that enjoy prominent Bud-system presence, like Nesquik, reportedly because of low margins.  Ice houses are likely to stick with NAs, tho whether they actually add to portfolio will be individual decision.  At same time, “clients without Sparkling Ice really will take a look at, do I need stay in the NA business?” he said.  They may simply take opportunity to rationalize their route system, as one client is doing by dropping 2 or 3 routes with view to operating more profitably, even at significant loss of volume that Monster’s exit will entail.  Like other analysts lately, Kloser points to broader question: significant # of his clients are suffering eroding A-B volume.  But how much longer can they sustain strong profits if volume keeps eroding?  Craft beer provides obvious answer, but with that segment getting frothy, some indie Bud houses may keep open mind on NAs too, despite distasteful conclusion to Monster relationship. 

Are there any other brands that have had as meaningful an impact on NA side as Sparkling Ice?  Trip says not that he’s heard.  (Note, tho, that Kloser doesn’t currently do work in Calif, where some Bud houses say Mexico’s Jarritos CSD brand has been very strong seller out gate.)

Craft’s Strong Cultural, Biz Advantages over NAs    That said, craft segment confers lotsa advantages: good margins and growth, franchise protection, and fact that Bud wholesalers feel they understand segment “because it’s beer.  I can’t say many of my clients with Monster really embrace NAs” in same way, Kloser noted.  NAs in beer houses have “always been a marriage of metric and English system,” per his metaphor.  Billbacks and other factors make NAs incredibly labor-intensive, and they bring such other new challenges as slotting fees, extension of credit and need to cover unlicensed accounts or even, in some states, dry counties.  Those pitching NAs to beer houses need to be cognizant of that in negotiating terms.  Monster Beverage brought its own set of challenges, with Bud clients complaining to Kloser of Monster billing and payment practices.

Cutting a Deal with Bud Houses   So far, Trip said, Bud houses have been deluged with calls from other energy suppliers, tho not so much from cos in other NA categories.  (We suspect that will change.)  What will it take to cut a deal with Bud houses inclined to stay in segment?  Short answer: way better contract than Monster’s, with its 30-day termination notice and compensation of 1X gross profit that didn’t come close to reflecting value wholesalers contributed.  Bud wholesalers’ “nerves are so raw” from abrupt news of pending termination that even well-known brands like V8 or Jarritos are likely to get cold shoulder unless contract “is significantly better than Monster’s.”  That’s true whether prospective distributor is Sparkling Ice house or not.  As extreme example of this view, Kloser cited one client who’s sworn to select next energy supplier solely on basis of how favorable the contract is.

Other Observations: Bud Shops Outperformed Coke Bottlers in Some States; No Flack from A-B over NAs  Trip’s view of Bud vs Coke performance?  He’s going mainly by what he hears from his clients, the Bud guys, but believes red system hasn’t grown brand much if at all since taking over from Bud guys in Ga several years ago and Fla last year.  And contrary to some views, he says he hasn’t heard complaints about Bud houses being abused by core supplier over their NA portfolios.