Closely watched bev case is heading to nation's highest court after US Supreme Court agreed on Fri to hear dispute between POM Wonderful LLC and Coca-Cola Co over Coke's labeling of Minute Maid item marketed as pomegranate blueberry juice despite its containing minimal amount of either juice. Some bev watchers argue that, whether KO's marketing is misleading or not, most bev marketers probably ought to be rooting for KO on this one, because it followed FDA regs to the letter so that a defeat would leave all marketers on uncertain ground regarding their own labeling practices.

POM Wonderful owner Roll Int'l, which itself has had to grapple in past with complaints about its marketing behind its pom entries, contends that Coke is guilty of false advertising because bev contains mainly apple and grape juices, not nutrient-rich pom and blueberry that POM uses in much higher quantities in its own drinks. Yet in calling drink pomegranate and blueberry "flavored," KO is following long-established FDA guidelines.

"Calling it pomegranate and blueberry flavored is totally appropriate and POM is trying to impose requirements on Coke that are more than what the law requires," noted one regulatory expert, who requested anonymity because he's been involved in cases involving plaintiff. "POM is trying to make the argument that the Lanham Act's False Advertising provisions are in conflict with the labeling regulations. Coke is saying the 9th Circuit just said, no, if there are regulations that specifically allow for it, you can't bring a false advertising claim." His conclusion: "The bulk of the industry should be squarely behind Coke, as a decision in favor of POM would open the floodgates for anyone to bring false advertising claims against companies even if they are compliant with the labeling regulations."

As Reuters recounted, after lower court ruled in favor of Coca-Cola, SF-based 9th US Circuit Court of Appeals found in May 2012 that POM may have standing to pursue some state law claims vs KO. But it upheld lower court's judgment in favor of Coca-Cola on other federal law claims. POM is seeking Supreme Court review of that part of decision, Reuters noted. Legal issue is jurisdictional one of whether 9th Circuit was wrong to conclude that POM, as private party, couldn't make complaint under federal trademark law when product in question was regulated under the US Food, Drug & Cosmetic Act, FDA purview. Decision on case, # 12-761, is due by end of Jun. Court said justices Stephen Breyer and Samuel Alito won't participate.  

PepsiCo used Golden Globes this weekend as platform for further tinkering with planned superpremium water entry, essaying elegantly packaged tap-water-based Qua among glitterati attending Hollywood event. Brand dispensed on red carpet and placed on tables is still just test run, with name and package subject to change, a rep informed AP, but there's no question PEP is going for superpremium allure as it looks for alternative to brands like Smartwater, Fiji and Voss, offering proprietary tall bottle that's elegantly tapered toward middle, where white tone at either end bleeds into pale blue shade. Embossed water droplet sits on shoulder. Placeholder site under DrinkQua.com describes it as "Water designed for the mind and body. Coming summer." Entry set for test in Calif seems to supersede earlier concept that would have gone out under Om name that some found mystical and others a mystifying stretch for a mass-marketed water brand. PEP described brand as "micro-filtered" and free of sodium but didn't otherwise offer much in way of product differentiator. Pepsi's Qua appears to be no relation to major brand offered by Danone in India under Qua Natural Mineral Water moniker, via its Danone Narang Beverages joint venture . . . Pepsi's moving to attack another daypart beyond morning with its fast-growing Mountain Dew Kickstart "energizing" sub-brand, offering pair of sku's that allow "you and your buddies (to) start the night right," per marketing vp Greg Lyons. The new Black Cherry and Limeade flavors will be sampled by fleet of 5 "Night Machines" that will hit streets near clubs and other potential consumption venues. Initial 2 sku's - Orange Citrus and Fruit Punch - already have generated $150 mil at retail since launch last year, PEP noted . . . Stumptown is moving into stores' dairy section with launch of Cold Brew with Milk. New entry, immediately available just in core markets of Portland, Ore, and Seattle, is packed in gable-topped carton in deep brown hue, in contrast to stubby glass bottles in which core lines goes out nationally. It adds half-and-half and cane sugar to regular cold-brew recipe. Move mirrors foray into space from other side when almond milk maker Califia Farms last year launched subline employing cold-brewed coffee.  

Tho keeping their cards close to vest, capital providers seem reasonably bullish on prospects heading into new year, judging by responses received to query sent out by BBI as we approached the new year. What are they looking for? Several themes came up: proven sell-through rather than mere sell-in, as in the old days before the financial bust, and less-engineered products with proven efficacy. And with overall equities markets healthy and narrower range of bev segments that are appealing to investors, valuations should be reasonably robust. Here are responses from our capital-side contacts:

Mike Burgmaier, managing dir at Silverwood Partners:
"Significant capital exists for the right beverage companies - and capital exists from many types of sources (angels, family offices, fundless sponsors, VC, PE, strategics . . .) for various company stages - from early stage to those with significant sales (over $50MM). Investors are most interested in segments that have science and efficacy (like probiotics), energy/caffeine (tea, coffee, coffee fruit, healthy/clean energy), hydration and overall health (low-calorie, especially). In the end the brand must be strong, though - it must have the ability to expand beyond what the company sells today. But there has to be a data story as well - sell-through is paramount while sell-in has little value. And gross margins are increasingly important too - many deals fall flat due to low margins - and even if they get done, value will be suppressed as a result of low margins. The best companies will get funded and we plan on closing several beverage (and food/supplement) transactions in the coming months."

Franklin Isacson, investment dir at Verlinvest:
"We continue to see new sources of capital being available to young companies, whether that be from newly created smaller funds (less than $50M under management) or from families looking to invest directly into beverage companies as opposed to going through PE funds. We see fewer segments being of interest to early-stage investors and expect HPP juices, coconut water and other non-alcoholic beverages with fewer ingredients and less engineering to continue to garner most of the attention. The combination of increased capital in the market and fewer segments that are of interest to investors should keep valuations robust through the new year. This is aided also by the high public markets comps."

Tom First, managing partner, First Beverage Ventures:
"We're excited about the growing number of opportunities in emerging beverage brands. Consumers, in larger and larger numbers, are looking for healthy, crafty and thoughtfully created products and brands. We expect this trend to pick up steam in 2014, providing exciting opportunities for top-notch innovators, entrepreneurs and investors." Tom added, "There's little doubt that bigger consumer product companies, across all categories, are feeling the impact of the changing consumer. This doesn't mean that every new trend is a great opportunity - or that it's any easier to build a great company in the beverage industry. It does mean, however, that lots of volume is going somewhere . . . and the best entrepreneurs have a huge opportunity to get a piece of that pie."

Andrew Whitman, managing partner, 2X Consumer Products Growth Partners:
"Highly differentiated, emerging branded consumer products, including functional and other specialty beverages, are of great interest to 2X Consumer Products Growth Partners. We look to partner with founders and management in businesses capable of growing exponentially via an infusion of capital and management expertise. If a brand can demonstrate what we refer to as a strong sense of 'proven-ness' in the market based on sell-through not sell-in, we're very interested. Most often that occurs someplace between $2 million and $25 million in revenue. Unfortunately, pre-revenue or new-to-revenue businesses are never within our charter."

Josh Goldin, partner, Alliance Capital Growth Fund:
Tho co can't comment on specific bev sectors or niches, "general investor sentiment is positive. We expect to see continued investor interest in truly best-in-class emerging brands, who can create superior products with a clear point of difference versus competitors. Brands that we are most excited about are ones that - based on consumer feedback and sell-through data - are really resonating with consumers, distributors and retailers."  

Operating under co-founder who's reclaimed top operating post, Activate Drinks has started new year off on strong foot with expansion of presence in Safeway grocery chain. Starting in Apr, cap-dispensed brand will be available in functional bev sections of about 1,300 Safeway units, per Anders Eisner, prexy of LA-based co. Grocer will pick up as many as 9 varieties of bevs that go out under names like Activate Beauty: Exotic Berry and Activate Defy: Pomegranate Blue. Tho much-watched brand has struggled to build momentum under prior ceo's, Safeway apparently has been hospitable environment, with Eisner saying it grew by double-digits there in 2013 in narrower range of locations. The retail win follows earlier push into such East Coast retailers as Stop & Shop, Shaw's and Market Basket under prior ceo, Reza Mirza. These days, co is working to keep brand priced below $2, with nominal SRP of $1.99. 

Minute Maid is latest brand to enter burgeoning realm of fruit/veggie blends, with intro of 2 new sku's under Minute Maid Juices To Go subline: Tropical Blend and Berry Blend. These "Blends with Benefits" contain vitamins A and C and are packed in 15.2-oz single-serve bottles.  

No bevcos were involved in Federal Trade Commission sweep on cos promoting weight-loss products, but in discussing 4 individual cases yesterday the agency offered a glimpse of hot-button marketing practices that particularly arouse its ire.

Dubbed Operation Failed Resolution, sweep won settlements from marketers of 4 products: Sensa powder that consumers purportedly could "sprinkle, eat and lose weight" without changes in diet or exercise; L'Occitane skin cream; HCG Diet Direct hormones, and LeanSpa LLC acai berry and "colon cleanse" weight loss products. All told, the settlements netted $34 mil, including $26.5 mil from Sensa, with funds to be made available to consumers for refunds. Tho sales of cited products were far higher than that, agency had to measure cos' ability to pay - indeed, Sensa sum could rise to $46.5 mil if agency later deems that co misled it about its financial resources. Note that agency isn't banning any of those items, just saying marketers can't make false claims behind them.

"Resolutions to lose weight are easy to make but hard to keep," said Jessica Rich, dir of FTC's Bureau of Consumer Protection, who presided over Wash media conference Tues. "And the chances of being successful just by sprinkling something on your food, rubbing cream on your thighs or using a supplement are slim to none. The science just isn't there."

On science side, FTC officials made it clear they'll only accept as valid double-blind, placebo-controlled studies to document efficacy of particular product or regimen, and will insist that results be honestly communicated. Thus, Luxiton skin creams were targeted in part for relying on 2 flawed studies and exaggerating results of another. Marketer of HCG Diet Direct Drops fell under FTC's gaze for promoting diluted liquid form of human chorionic gonadotropin - "hormone produced by the human placenta that has been falsely promoted for decades as a weight-loss supplement" and had been subject of prior warning letter from FDA/FTC to HCG and 6 other cos in Nov 2011 (which didn't stop HCG from claiming its drops were FDA-approved). In case of LeanSpa, agency wants to see "at least 2 human clinical trials to support any weight-loss claims."

On endorsement side, agency is insisting that any relationships that aren't arms-length be fully disclosed. Thus, agency took umbrage that Sensa failed to disclose that endorsers cited in its marketing were compensated at levels ranging from $1-5K and given free trips to LA. Similarly, marketer of HCG Diet Direct homeopathic diet drops was faulted for using endorsers who were either paid or were related to founder. Generally, agency frowns on marketers who cherry-pick endorsers who aren't typical of achieved results without "conspicuously" disclosing what those typical results are. Among other marketing practices, LeanSpa was nailed for operating fake news Web sites to promote its items.

Seven species of weight-loss claims are outright no-no's to agency. They're outlined in updated version of decade-old Red Flag Bogus Weight-Loss Claims media reference guide that's now dubbed Gut Check: A Reference Guide for Media on Spotting False Weight-Loss Claims, in effort to deter media outlets from accepting ads that make clearly false claims. Those 7 claims that evidence has shown to never be true include losing 2 lbs or more of weight weekly without dieting or exercise, or blocking absorption of fat or calories. Gut Check guide also contains advice on dealing with areas like consumer testimonials and fine print disclosures. Guidelines are available at http://www.business.ftc.gov/documents/gut-check-reference-guide-media-spotting-false-weight-loss-claims.  

For canned Xyience's Xenergy energy line whose ability to meld zero calories and great taste has been crucial differentiator, no question this past year represented challenge: growing momentum of lighter-tasting zero-calorie lines launched by bigger rivals under monikers like Monster Ultra Zero and Rockstar Pure Zero took bite out of growth. Assault forced Las Vegas-based co to step up activation of markets it deemed critical and it was able to weather storm, growing by 12% in Nov/Dec and ending up slightly for year, said prexy John Lennon in chat this morning. "The markets we invested in performed very well," he said, referring to strongholds in areas like Las Vegas, Phoenix and other western and Midwestern areas that account for about 2/3 of sales. "So that will require investment" going forward. For 2014, # of core markets expands from barely half a dozen last year to 12-15. Style of activation also is evolving, from activities tied to major UFC bouts to broader array of sampling and sponsorship activities around public events tied to individual participatory sports like running and cycling.

Quite a few balls are still in air for 2014. Brand's "energy-plus" sublines likes energy teas launched too late to make most spring retail sets, so this really will be coming-out year for them. Then there's key affiliation, Ultimate Fighting Championship, which is also Vegas-based and shares common ownership with Xyience. Xyience is in process of renewing that deal, and also is looking to re-up with key endorser, female mixed-martial arts fighter and Maxim cover girl Ronda Rousey, whose image on Xenergy cans late in 2013 helped win that late-year sales pop. Her deal ended Dec 31 and Xyience would hate to lose her "clear star power," Lennon said. Brand has also signed Mark Munoz and is actively supporting rebuilding work of his charitable org in his native Philippines. Also re-upped are Dan Hardy to handle local promos out west and Matt Serra out east.

At retail level, brand has scored some solid wins in recent weeks. Chevron gas chain is adding sku's and offering better shelf position, and Lennon expects to be in more Walmart stores in more markets this year. Alliance c&g chain in New England has come aboard, and an Ohio test in Speedway gas stores has become permanent. Brand has returned to Albertsons grocery chain in Northwest and Mountain States, in move that should offer lift to syndicated scanner performance. Brand also is making headway in retail buying co-ops in Texas, such as Greater Houston Retail Assn, and at military bases, whose residents have clear affinity for UFC-themed brand. Calif has been a key focus for further development, and LA-based Statewide house has done well by brand, adding Ralph's grocery chain in Oct, with further retail additions anticipated.

There's also been key change on distribution front: as of this week, distribution in hq market has shifted from Bonanza to Wirtz - move, Lennon emphasized, that wasn't driven by any dissatisfaction with Bonanza effort but rather as part of broader transaction between those 2 houses. Still, Wirtz should prove good steward, he said.

Tho 2013 brought lotta pressure on brand, Lennon pointed to positive outcome: not just Xenergy sales' responsiveness to programming, but fact that zero-calorie segment has grown from just 2% of total category 3 years ago to 9% currently. That broadening consumer interest should allow Xyience to play to its strengths as all-natural player that delivers on taste. Lennon is hoping that rising tide lifts all boats, including his.  

Energy drink volume surged 9.4% in convenience stores for 4 wks thru Dec 21, per Nielsen figures reported by Wells Fargo Securities' Bonnie Herzog. That's down from 20% volume gain over last 12 wks in c-stores, but there was far less price promotion in latest period, with pricing down avg of 1.4% vs 9.3% decline for 12-wk period. Once again Monster Bev was biggest gainer with 15.9% volume gain on avg price of -1.7% last 4 wks. Red Bull volume rose 5.9% (vs 9.7% gain over 12 wks) with avg price off a slight 0.3%. Rockstar slowed to 3% volume gain vs +23.8% last 12 wks as its avg price was down 1.5% compared to near 12% avg drop previous 12 wks. Coca-Cola energy brand volume (NOS, Full Throttle) rose 15.4% on 3.2% price drop while PEP brands (mainly Amp) slipped 2.7% last 4 wks on 1.3% price drop.

CSDs Struggle as Pricing Comes Down a Bit CSD volume fell 4.8% in c-stores last 4 wks on avg price increase of 3.3%, down from 3.9% avg over last 12 wks. That dropped CSD sales 1.7% for 4 wks, the first decline in sales "in last 12 months," noted Bonnie. Coca-Cola volume was down 2.1% with 3.1% price increase while PepsiCo volume fell 7.2% with prices up a stiffer 5.1% last 4 wks. Dr Pepper Snapple volume fell 6.5% last 4 wks on 1.7% avg price increase. Even with avg price decline of 7.8% over last 4 wks, private-label brands sank 3.4% in key impulse channel.  

Monster Beverage Corp offered 2014 outlook that was a bit sparse on specifics but succeeded in reassuring investors that there's no reason Corona, Calif-based co shouldn't be able to rack up another strong year of growth after slight deceleration in recent months. "All Is Well Now in Monster World" headlined Goldman Sachs' Judy Hong, in typical comment, and shares edged up a couple of points in trading today. Perhaps most striking was that meeting was so little preoccupied with regulatory concerns, a dominating theme in some recent qtrs - so little, in fact, that toward end of meeting ceo Rodney Sacks made light of issue with quip that "I've drunk 3 a day for the last 13 years and I'm still here and still functioning."

In presentation, Sacks built strong case that MNST is functioning well, too, pointing to building momentum of successful innovations as Ultra Zero zero-calorie line and Muscle Monster protein line, even as core green can picks up speed again. In key C&G channel over latest period, green can scored 7.1% unit gain, even as Java Monster coffee hybrid outgrew that segment, rising 15.3%; recently launched Muscle Monster was holding 20.3% of protein category and Zero Ultra continued to build consumer base for Monster brand. In just a year, 3-flavor Zero Ultra has become #2 sub-brand (holding 5.1% dollar share in C&G) and line's initial entry, white-can Zero Ultra, has become co's #2 sku after green can. There's been manageable degree of cannibalization of Lo-Carb, Rodney suggested. Co also has hopes for Q1 restaging of Dub Nation line of juice-based items as simpler Punch proposition with different flavor and mainstream cans intended to appeal to far broader audience. Meanwhile, after couple of slow months, core green can has resumed brisk growth, tho Rodney didn't offer any data from current qtr. Still, he's "very optimistic that we will continue to see growth in the green Monster."

Overall, in core c&g channel, in past 4 weeks, Monster holds $$ share of 35.2% vs 33.8% for archrival and onetime leader Red Bull, at time key rivals 5-Hour Energy, Rockstar and NOS are "treading water," in Sacks' phrase.

On innovation front, Muscle Monster will augment line with 4th flavor, Peanut Butter Cup, launching in Walmart. MNST continues to seek ways to make its Peace Tea brand more relevant, now branching into juice drinks via Viva Mango, even as it lessens reliance on big cans prepriced at 99 cents, AriZona-style. On warehouse side of co, Hubert's Lemonade continues to grow on heels of additions like diet subline and 40-oz multiserve glass bottle. On struggling natural soda side, it's ready to resort to Jones Soda-style promotional gambits like in-and-out kale flavor.

Marketing, meanwhile, continues to broaden reach, ranging from sponsorship of 3-day, blue-collar-oriented Professional Bull Riders event at Madison Square Garden in NY this past weekend to array of tie-ins meant to win over videogame enthusiasts. These range from alliance with Activision that put Call of Duty title on 200 mil cans in 30+ countries last year to support of gaming teams like 23-player Evil Geniuses. Diversity attests to increasingly broad audience being courted by brand, with lightly flavored Ultra Zero doing much to bring in females and older consumers. One evolution appears to be co's greater reliance on paid sponsorships of events, in contrast to earlier penchant for placing bets on individual athletes while letting more corporate brands pay for event signage and TV ads. These days, it's going in for on-track branding in Moto Grand Prix racing events overseas and will be energy category sponsor of X Games events, with on-field branding and integration into 27 episodes of World of X show airing on NBC. No discussion in presentation of any special efforts to move off radar of younger consumers, key issue for congressional critics, tho Sacks has previously offered conciliatory remarks on matter.

As noted, analyst response was positive. This from Morgan Stanley's Dara Mohsenian: "MNST indicated that both US and EMEA (Europe/Middle East/Africa) retail sales and shipment trends are rebounding, although did not provide gross sales for Q4. While the US re-acceleration is well known given rebounding scanner data, and consensus already implies a Q4 shipment acceleration, management confidence was nonetheless a positive." Noted Nik Modi of RBC Capital Markets: "We believe the risk/reward profile for Monster is still very attractive, as regulatory headlines abate and growth accelerates."  

We explained that brand name is properly pronounced "Tea for 2," then failed to spell it correctly, per its trade dress. Of course it's T42. In update on longstanding brand last week (BBI, Jan 2), BBI had also intended to include Web URLs for T42 and its sibling brand Mr Mo's lemonade. They are DrinkT42.com and DrinkMrMos.com, respectively.