First Lady Michelle Obama and US Dept of Agriculture Secretary Tom Vilsack jointly proposed new guidelines limiting marketing of foods and bevs in school to only those already deemed nutritious enough to be sold in vending machines and cafeterias. Proposal stems from review of discussions following last year's White House Summit on Foods Marketing to Children. These new guidelines "would ensure that foods and beverages marketed to children in schools are consistent with the recently released Smart Snacks in School standards" and ensure "that unhealthy food is not marketed to children." These new standards "would support better health for our kids and echo the good work already taking place at home and in schools across the country," said Secretary Vilsack. CSPI came out for new guidelines and cited FTC figures that found 70% of elementary and middle school and 90% of high school students saw in-school mkting in 2012 . . . Meanwhile, new data suggested country may be making progress on obesity in kids, reporting that condition dropped 43% in kids age 2 to 5 over past decade, trend "that came as a welcome surprise to researchers," NY Times reported today. Data showed that 8% of the 2-to-5's were obese in 2012, vs 14% in 2004.  

Viewing high sugar content as vulnerability in growing lemonade sector, acai marketer Zola is ready to expand its aseptically packed coconut water subline into that sector with 1-liter pack that will debut at Natural Products Expo West opening next week in Anaheim, Calif. Move comes as co continues to build out its organizational infrastructure, bringing aboard Clif Bar and Jamba vet Rosa Compean as its vp marketing, said founder/ceo Chris Cuvelier.

Deemed "hydration with a twist," new Lemonade entry due in May adds yellow shade to color palate that includes blue pack for Natural sku, green for Pulp sku and brown for quietly intro'd Espresso sku - coconut water with 2-oz shot of espresso, which has performed well as lower-cal alternative to RTD coffees, Chris said. Like that item, Lemonade aims to source consumers from outside coconut water category, in way that's incremental to category for retailers. Lemonade sku comes in at just 45 calories per 8-oz serving - fact that's prominently flagged on-pack - and offers 100% RDA of vitamin C. Visitors to booth at Expo West will see acai and coconut water lineup that's gotten revamped package graphics, with miniature landscapes at center of label intended to offer greater sense of place - whether Rio or Thailand, depending on where ingredients are sourced - and catchphrase at top of box with arrow pointing to twistoff cap, say, "One way ticket to Rio."

Co finished off 2013 with 30% sales growth, making for 37% compound annual growth rate over past 5 years, Cuvelier indicated, and last month received significant new capital round from key investor, Emigrant Capital, which also extended co's line of credit. Co also segued in Nov from network of regional brokers to Acosta's NSSI unit. Payroll has increased to 26, 14 of them based in SF office, and Zola is eyeing a few more key hires. Latest aboard is Compean, seguing from role as brand dir on Luna brands at Clif Bar, following marketing roles at Peet's Coffee & Tea, William-Sonoma, Jamba and Nestle. She's hit ground running, gearing up summer promo and soliciting agencies for help.  

"Category sales remain weak" for CSDs in latest IRI all outlet + convenience data thru Feb 16, reported Morgan Stanley's Dara Mohsenian. Latest period includes Super Bowl (Feb 2) but any boost from big game for bevs appears to be wiped out from cold/snow that hit large parts of US, particularly Northeast. CSD volume slipped 1.6% (vs 0.7% decline over last 12 wks) with avg price down 0.9% during 4 wks thru Feb 16. Regular CSD volume increased 1% those 4 wks but low-calorie brands sank 7%, continuing ominous trend of recent qtrs. Coca-Cola CSD volume slipped from -0.3% last 12 wks to 2.4% decline last 4 wks. But avg price for KO brands edged up +0.5% last 4 wks. PepsiCo CSD volume edged up just 0.2% last 4 wks, down from +1.5% last 12 wks. PEP prices were down 2.7% in latest period. Dr Pepper Snapple CSD volume actually improved to +0.4% (vs +0.1% last 12 wks) aided by avg 2.2% price drop last 4 wks. Private-label prices were down avg of 2.5% but volume still tumbled almost 10% over last 4 wks.

Energy Prices Down; Doesn't Lift Volume Energy drink volume increased 4.2% last 4 wks in all-outlet data. That's down from 5.2% gain pace last 12 wks. Pricing in segment slipped from +0.1% last 12 wks to -0.3% last 4 wks. While Monster and Red Bull each outperformed, volume gains were slower over latest month. Monster gained 10.9% with avg 1.7% price drop last 4 wks. That's down from 13% gain last 12 wks. Red Bull rose 6.1% (vs +7% last 12 wks) with a slight price increase (0.1%) last 4 wks. Rockstar price drop of 5% last 4 wks helped lift volume by 8.8%, up from +7.7% last 12 wks. PEP energy brands gained 8% on 2% price drop while KO brands fell 9.6% last 4 wks despite price decline of 5%.

When you break out gas/c-store channel separately, energy drink volume slowed to +4.9% last 4 wks, down from 7.4% gain pace over previous 12 wks, reported Morgan Stanley. Energy volume slowed in these stores even while pricing was still in line with longer-term trends at -1.5% last 4 wks. Monster volume slowed to +6.8% last 4 wks, down from +10.6% last 12 wks, while Red Bull slowed to +5.6% from +7.5%.

Power Surge for Isotonics Sports drinks volume trends improved to 0.6% gain last 4 wks while pricing was up avg 0.4%, in line with 12-wk avg pricing. But that masked divergent trends for 2 key players. KO's Powerade volume was up nearly 8% on 3.9% price drop last 4 wks. That's up from 1.8% volume gain on -2.8% price drop last 12 wks. Gatorade volume slipped 1.4% last 4 wks as avg price rose 2.1% (vs +1.7% last 12 wks). A 9% price drop still couldn't lift private-label sports drinks, which dipped 1.1% last 4 wks.

Price Cuts Lift Water Volume Bottled water volume rose 7.8% last 4 wks in all-outlet + c-store data, on avg price decline of 4.4%, generally in line with 12-wk pricing trend. Increased promos helped bump up volume for both Nestle and Coca- Cola. Nestle gained 5.8% (vs 4.9% gain last 12 wks) on avg price cut of 2.7%. KO water volume up 3.6% (vs 2.2% gain last 12 wks) on 7% price drop. PEP volume up 4.5%, slightly below its 12-wk gain pace, despite 10% price cut last 4 wks. Private-label waters continued to outperform: volume surged 11% on 3% price drop over last 4 wks.

KO, DPS Teas Outperform RTD tea volume increased 0.7% on avg price gain of 1.1% in all-outlet + c-stores last 4 wks. Pepsi tea volume (mainly Lipton) slipped 1.6% on sizable 5.5% price increase. While DPS (Snapple) and KO teas (Gold Peak, Fuze, Honest Tea) were up 5% and 7% respectively. DPS prices fell avg 2.7% while KO prices were flat last 4 wks.  

Bidding for Muscle Milk marketer CytoSport is entering final stages and has come down to pair of rivals for protein bevco: Irish dairy co Glanbia PLC and Post cereal marketer Post Holdings, per report in Reuters. Report confirms rumor reported in BBI that long-running effort by controlling Pickett family and key investor TSG Consumer Partners to exit may finally be reaching conclusion (BBI, Feb 4). Of the 2 finalists, Glanbia would be well-positioned to operate CytoSport because it's low-cost producer of whey protein, a key ingredient for Muscle Milk drinks and powders that struggle with margin challenges, while Post has been looking to recover lost eating occasions for its core cereals via acquisitions like that of protein bar maker Premier Nutrition last Aug and protein bar maker Dymatize in Dec. Decision on sale could be made within days, source told Reuters, which is what BBI has been hearing, but there's no assurance deal will pan out. Tho PepsiCo distributes brand nationally via bottler system, Reuters doesn't name it as among last crop of bidders winnowed down now to these 2.  

Reyes Holdings LLC, powerfully executing MillerCoors wholesaler operating in multiple territories around US, has long been biggest beer holdout on NAs, concluding that bevs' slower growth, modest margins and flight risk to soft drink systems make them poor bets at time opportunities abound in craft beer, imports and other alc segments. Suddenly, tho, Reyes is heading into bevs in big, big way: selected as new Coca-Cola franchisee for greater Chicago metro - tens of millions of cases all told, it's believed. It's move that may redefine path of soft drink distribution in North America, representing biggest commitment by beer house to sodas, in nation where the 2 businesses generally operate on separate tracks, unlike model in overseas markets like Brazil and Mexico. So long-contemplated combo, advocated years ago by then-Bear Stearns analyst Carlos Laboy, will become a reality, tho Reyes isn't expected to put both beer and soft drinks on same trucks.

Announcement from KO this morning said co had signed letter of intent for "greater Chicago area" with Reyes principals Chris and Jude Reyes, with definitive agreement expected shortly (tho deal likely won't take effect until next year). Coke has similarly signed LOI with longtime Coke advisor Troy Taylor for central Fla market including Tampa/St Petersburg, on similar time frame. "As we have said, the Coca-Cola System should be a reflection of the communities where we operate and the consumers and customers that we serve," said Sandy Douglas, group prexy for Coca-Cola North America. "Partnering with these 2 top-notch ownership groups is further evidence of this commitment." As reported in BBI earlier this week (BBI, Feb 18), Mexico's Coca-Cola FEMSA has had teams inspecting Coca-Cola Refreshments assets in Southern Calif and may be close to reaching agreement for that Latino-heavy territory, possibly extending as far east as Texas.

With Chicago-based Reyes, Coke gets largest US beer distributor, operating in markets spanning Washington DC to Chicago to Calif. It's technologically forward operator that's widely viewed as having raised executional bar in beer distribution, and also is owner of Martin-Brower Co, major supplier to McDonald's and other fast-food eateries, and Reinhart Foodservice, key foodservice player in segment in which Coke is keen to maintain longstanding edge over rival PepsiCo. Troy Taylor, Coke's partner in central Fla, runs small investment advisory service called Spinel and has been advisor to Coke over past 20 years, KO said.

In announcement, KO said bottlers in all the newly granted territories will be sold Coca-Cola Refreshments' local warehouses and other distribution assets as well as its cold drink equipment, but KO will hang onto mfg part of biz to "facilitate future implementation of a national product supply system." Latter can be viewed as disincentive to incumbent bottlers to do deals, as many view bottling activity as core competitive strength, but would be advantage to newcomers like Reyes and Taylor in reducing capital commitment and complexity of assignment. Also in mix, KO said, are "improved, more integrated information technology platform," area in which Reyes excels, and new bev agreement "that supports the evolving operating model." KO has previously said that entails its continuing to serve key big-box chains directly, while new bottlers focus on harder-to-service small accounts that have proved a striking weakness for CCR in some markets.

Move comes at time Coke brass have said they're accelerating refranchising program, working to close 5 relatively modest deals announced last year with incumbent bottlers, starting with transition at close of 2013 for Coca-Cola Bottling Co High Country, and moving to bring in new blood in other territories. Besides taking capital off Coke's books, such moves are expected to increase agility with which bottlers react to local market conditions while offering local rather than anonymous bureaucratic face in policy deliberations at time of mounting challenges to soft drinks. In recent decades, of course, that's been great strength of more decentralized beer wholesaler system in weathering constant attacks on alcohol on regulation and tax fronts. Coca-Cola brass may offer further insight at presentation planned for later this morning at Consumer Analysts Group of NY meeting; if so, BBI will be out with quick follow-up.  

While announcing a 9% boost in its quarterly dividend today, Coca-Cola also disclosed that cfo Gary Fayard will be retiring in May after 20 yrs with KO. Gary, who served as cfo since 1999, first joined KO in 1994, serving as vp and controller. Current veep of finance/controller Kathy Waller will succeed Gary as cfo. "Gary will leave a legacy of financial strength across the global organization, and the successful development of leaders who will now steward the growth of our system. He has been my trusted adviser, providing leadership, guidance and, importantly, a dry wit," said ceo Muhtar Kent.  

NY beer house SKI is continuing to expand its Ralph & Charlie's juice line, adding Apple Orange Carrot and Papaya Orange Pineapple flavors and looking to build distribution footprint up and down East Coast. New entries are launching into core NY market served by SKI, a distributor of Harpoon and other beers, as well as NJ (via Nash and High Grade) and Detroit (via Intrastate), picking up 700 customers in first 2 weeks, said sales chief Paul Catalano. They bring line to 11 flavors now, 6 of them carrot-based. With SKI serving broad range of retail customers, from inner-city bodegas to gourmet markets, it's tuned Ralph & Charlie's to be approachably priced and positioned, but to employ glass bottles and formulas with limited added sugar that offer upscale cues. To date brand has made limited forays beyond East Coast, with Detroit proving strong market, and brand also established in Atlanta/Savannah via Savannah Distributing and Ariz via small shop called Blue Luna. Paul said co is holding off on pushing into W Coast for now, but is seeking to build DSD footprint in Conn, southern NJ, Penn, RI and perhaps Fla. Co also is prepping first multiserve bottle, most likely 33-oz PET bottle that can go out in $2.19-2.59 price range.

Story on daily e-letter of Convenience Store News on 7-Eleven's lagging effort to move to 100%-franchised model offers intriguing glimpse of what key source in story, an unidentified former employee, deems to be rivalry between staid, more established one-third of current franchisees and more ambitious, up-and-coming one-third that's "made up of very aggressive marketers who are pro-7-Eleven and support the company's efforts to change, specifically 7-Eleven's push around fresh food." Story helps explain sometimes warring signals that bev marketers receive as they try to move innovative products into c-store chain that has heralded that as priority.

Per story, older franchisee tier is generally content to operate single store reliant on old staples like cigarettes, while younger tier is more attuned to efforts to refresh culture and interested in operating multiple units, as 7-Eleven prefers new franchisees to do these days. Middle tier is "on the bubble. They're not real productive, but they could be with the right influence," as ex-employee put it. "While it's not uncommon in any franchise system to have varying levels of franchisees, the challenge for 7-Eleven is that its old school group is very vocal and influential in the retailer's franchisee community, according to the former employee. 'They wield a lot of power in the organization and the old school is now negatively influencing the middle third.'" According to CSNews.com story, what many franchisees over the years have criticized as heavy-handed tactics by 7-Eleven, as occasionally reported in BBI, reflected efforts to instill new culture. "The company was put in a position of how do we move these operators to not just rely on cigarettes but embrace food, beverages, new business development and private-label products," the former employee noted. "The tactics employed is what's causing the problems with the franchisees." Story notes that ceo Joe DePinto has lately assured store operators that co is now in more of listening mode, "overhauling its corporate culture to one of 'servant leadership' that supports the stores and franchisees." As for push to be 100%-franchised, which was supposed to be concluded by 2013 but stands at just 75% now, 7-Eleven rep said that's still the goal but was a sidetracked as co stepped up pace of new-store openings. Story can be accessed at http://www.csnews.com/industry-news-and-trends/special-features/7-eleven-faces-some-delays-road-franchising  

Telephone poll of 1,000 voters in California found 74% in favor of warning labels on sugary drinks, reported San Jose Mercury News. Poll commissioned by health care org called The California Endowment asked voters if they would approve of a label that read: "Studies show that daily consumption of sodas and other sugary drinks contributes to diabetes, obesity and tooth decay." Survey also asked about putting tax on sodas, and that was supported by 67%. Report notes that over past 3 yrs, same poll has found tax support in "mid to high 60s" each time, yet tax initiatives have failed by wide margins on election day in both Richmond and El Monte in recent years.  

Arguably, Coca-Cola and PepsiCo have navigated unforgiving economic and consumer environment with fair amount of dexterity, lately turning in quarterly and full-year earnings reports that keep cos well out of crisis zone, even if they slightly missed targets and have tamped down expectations for 2014. But even before activist investor Nelson Peltz yesterday reasserted his ambition of splitting PEP's bev and snack divs, commentary about both cos this week seems to have taken harder-edged tone than anything we've seen in recent years. That's particularly true for KO, which has had something of charmed run on Wall Street under chmn/ceo Muhtar Kent, who until now has been viewed fairly unquestioningly as assertive leader well up to task of delivering on his Vision 2020 growth program. Suddenly, he's being criticized for failures on innovation and other fronts even as Peltz steps up questioning of PEP's model just as co had hoped to have put issue behind it for now. Several commenters also have viewed both cos' intention to return more to cash to shareholders as tantamount to bribe to look other way from fundamental issues. "Can we distract you with some cash?" headlined Seeking Alpha commenter, referring to PEP move.

Recall, Kent's ascendancy started with a bang in 07 as he orchestrated $4.1 bil acquisition of Vitaminwater marketer Glaceau as sign of co's willingness to assertively enter non-CSD growth categories. Yet this week Bloomberg News invoked appearance last spring at KO annual meeting of Coke investor and equities savant Warren Buffett, who noted that his studies of failed cos had turned up unwarranted complacency as common factor. Implication of story was that maybe KO has entered that realm itself lately, view that's been stoked by analysts like Bernstein's Ali Dibadj, whose skepticism has been widely picked up.

Some, like Wells Fargo's Bonnie Herzog, have taken latest results at both KO and PEP as vindication of ceo Indra Nooyi's strategy. "Despite ongoing challenges in its beverage business, PEP delivered a solid quarter and full-year results in line with its 2013 goals," she wrote in wake of earnings release. "We remain positive on PEP's prospects, and believe the decision to not split off North America Beverages is the right one." Several commentators have noted that, at time that Coke's broad geographical diversity has not proved adequate hedge against travails in core market, model like Pepsi's begins to look more attractive.

Peltz, of course, isn't buying that. His Trian Fund Mgmt, which claims to hold $1.2 bil worth of PEP shares, released 31-page letter to PEP board last night making renewed argument for bev/food splitup and promising to lobby investors around idea. Updated white paper makes familiar argument that Power of One integration of snacks/bevs hasn't delivered. "We view this strategy - now described euphemistically as 'connected autonomy' - as largely responsible for a diminished PepsiCo culture and deteriorating performance," Trian claims. Other key arguments: PEP is burdened by centralized holding-company bureaucracy ($1.1 bil of unallocated corporate costs); bevs' 2d-tier status within PEP has kept best mgmt talent on snack side, and unshackling bev unit would allow it to reclaim past mantle of disruptive innovator, role in which it's been "consistently out-innovated and outmaneuvered by Coca-Cola (via Coke Zero, Simply Orange, Freestyle, PlantBottle, transition to more popular package sizes, Green Mountain partnership)." In general, standalone bevco would be forced to be more agile. "We believe the probability of productivity hitting the bottom line and sweetener technology having a material impact increases if there is a standalone management team with 'no place to hide,'" argues Peltz. He added: "As a sign of its commitment and confidence in the standalone beverage business, Trian is willing to buy additional shares and, if asked, join the Board of a newly formed beverage company to help lead it on the best path forward."

For now, at least, PEP is sticking to its plan. "PepsiCo's management and board of directors have spoken clearly on this issue and are fully aligned with our strategy outlined last week," a PEP rep told Reuters. "Our focus is on delivering results for our shareholders, not new, costly distractions that will harm shareholder interests."

Oddly, Dr Pepper Snapple Group so far has been pretty much left out of fray - oddly, because it's done far less than either KO or PEP to hedge its reliance on conventional CSDs, at time that its gambit of offering mid-calorie Ten CSD platform as a kind of placeholder until zero-cal natural sweetener emerges has been looking dicey. Still, its challenges notwithstanding, Peltz, who was involved in that spinoff from confectioner Cadbury, is happy to use DPS as example of what unleashed Pepsi bevs unit might become. DPS "has shined since it was spun off from Cadbury in 2008 (in the middle of a financial crisis) and has outmaneuvered both Coke and Pepsi over the past 5 years," he argues. "In fact, Dr Pepper Snapple grew EPS more than PepsiCo in 2013 and forecasts similar growth to PepsiCo in 2014 despite a weaker portfolio, no exposure to snacks and more exposure to North American carbonated soft drinks."

Still, if skepticism about both cos' prospects continues, don't discount chance that they may abandon some of current precepts and feel compelled to take Glaceau-style step that might be favorably received on Street as transformative - say, by making run at Monster Energy marketer Monster Beverage Corp, as some analysts have urged Coke or Pepsi to do. That's despite rhetoric from both cos in recent years that they're skeptical of need for risky, big-ticket deals to stoke their growth. With organic growth hard to come by, maybe that view changes. Or maybe Coke moves to buy a snack co, both as diversification play and to open up new DSD routes to retail? After all, there's nothing like deep anxiety - and a hound dog like Peltz breathing down your neck - to make one rethink one's core assumptions. Or in Pepsi's case, re-rethink.