After making big bet on massive ad and guerrilla marketing blitz in core Chicago market, Solixir founder Scott Lerner has sold out to Eternal Beverages, marketer of high-pH Eternal Water.  Functional canned line, out in sku’s like Think and Relax, made big splash in Windy City with zombie-themed blitz that drew lotta local attention (BBI, Apr 2) but may not have sufficiently moved sales needle.  Source close to co had said Lerner lately was mulling options, including trying to pull in new round of funding.  Sale, first reported on BevNet, puts brand in hands of Eternal Beverage principals Chris Running, who played instrumental role in Muscle Milk launch, and Karim Mashouf, whose dad founded Bebe women’s clothing chain.  Terms weren’t disclosed, and Scott is moving on.

Dr Pepper Snapple Group brass offered spirited defense of Ten CSD platform, on heels of informing bottlers that it will maintain strong support for 10-calorie formulations in 2014, as it seeks to get out of morass that now sees diet CSDs weakening at even faster rate than full-calorie ones.  “CSDs are currently facing significant pressures and it’s critical industry brings consumers back to the CSD category,” prexy/ceo Larry Young told investors on conference call this morning.  “We believe we’re doing just that with our Ten platform,” tho it will take time, he said.

On investor call, Young and his cfo, Marty Ellen, also said they’ll cut back marketing in Q4, even as their ongoing Rapid Continuous Improvement productivity program now turns up significant inefficiencies in the way co has traditional deployed its marketing budgets.  And so-called “allied brands” – which DPS distributes but doesn’t own – got rare show of love for their outsize contribution to profitability, despite small size relative to sales of core CSDs and Snapple.  Details:

EPS Boost Masks Ongoing Challenges    For 3d qtr, net sales rose 1% to $1.54 bil.  Operating inc narrowed 3% to $300 mil.  For 9 mos, sales were up 0.5% to $4.53 bil. Oper income narrowed 2.3% to $782 mil.  Thanks to good price/mix, cost efficiencies and a beneficial inventory accounting credit, earnings per share for Q3 jumped to $1.02 from 84 cents.  Wells Fargo’s Bonnie Herzog offered this initial take:  “Fundamentals remain relatively weak for DPS with negative volume growth; $14M LIFO benefit provides boost to EPS and masks ongoing challenges to business.”  For 2d time this year DPS has trimmed full-year revenue forecast, now saying it will be flat.

For qtr, CSDs were flat and noncarbs sank 1%, tho much of that was accounted for by 6% decline at Hawaiian Punch, which has been at odds with unnamed key customer.  In CSD category that’s down for everyone, DPS at least was able to say it grew volume share, even as it held $$ share.  Dr Pepper volume slipped 1%, including Dr Pepper Ten, while Core 4 CSD brands were flat, including Ten extensions.  Canada Dry was rare star, up 8%, but 7 Up and Sunkist both suffered mid-single-digit declines.  On noncarb side, Snapple rose 4% and Hawaiian Punch slipped 6%.  Tho Motts trademark also was up, that seemed to be driven by apple sauce side of biz.

Standing by Ten, Despite Doubters     Larry and his cfo, Marty Ellen, again mustered data suggesting that Ten is bringing consumers back into CSD category, even as analysts repeatedly pressed them on whether performance justifies heavy spend.  For first 9 months, Dr Pepper Ten and Core 4 Ten extensions have sold over 14 mil cases – “not so small to us,” Young argued.  Repeat purchase rates are coming at 4X rate of trial.  And Nielsen HomeScan surveys suggest that 51% of Ten sales are coming from shoppers who’d left CSD category rather than cannibalizing existing brands.  Overall, Ten performance is “in line” with internal expectations.  So “we’re going to stay behind it and see if we can’t pick up some of this decline in diet,” Young vowed.  Word is he made similar vow at recent bottler meeting.

Still, skepticism on Ten seems to be mounting both on Wall Street and among some indie bottlers as earliest launch, Dr Pepper Ten, seems to be plateauing 2 years into run, while more recent Ten extensions launched among so-called Core 4 brands appear to be struggling to hold onto shelf space in some retail accounts, per surveys conducted by some Wall Street analysts.  At one point in call Young spoke of setting programs to get Dr Pepper Ten “reignited,” thereby acknowledging softness there.  Co is sticking to plan to support Ten with a bit over $30 mil in spending this year, with almost $28 mil of that spent thru Sep, Ellen noted.  Next year also will get high spend, to be disclosed next qtr. 

Pressed as to why diets, for first time in memory, are performing worse than full-calorie CSDs, Young chalked up problem mainly to “misperception of aspartame.”  It’s one of most tested sweeteners on market, but social media is amplifying unfounded talk of Alzheimer’s links, role in fostering appetite, he argued.  So “we’ve got to do a better job of educating people with the facts, the science . . . It is a concern,” Larry said. 

That concern is compounded by fact that Ten contains aspartame.  “When we went into Ten, it was clear to us and still is pretty clear that a huge segment of consumers want caloric intake reduction and really don’t care about the sweetener,” he said.  It’s only more recently that aspartame has become a focus, and “we should be somewhat concerned if the aspartame issue affects Ten.” 

Marketing: Local Media, POS Getting Trimmed as Inefficiencies Spotted    With eye on efficiency, looks like marketing spend situation is fluid.  Given weaker category performance, DPS has reduced spend in some areas and now expects marketing investments to be up just $5 mil for year (equal to 8% of net sales).  Since marketing spend is up $14 mil for ytd, that suggest $9 mil cutback in Q4.  Earlier, co had anticipated raising marketing spend by $10 mil or more.

Some of that simply reflects efficiencies, as co learns more about where it’s getting adequate return.  So local media is taking a hit, Ellen said, because it only seems to pay off if retailers offer incremental activity; when DPS doesn’t get that, it doesn’t want to spend, he said.  Ditto on POS, where co initially has identified $2 mil in waste, “and that number could be a lot greater,” Marty noted.  Some spending on coastal regions far from Dr Pepper heartland core may also be trimmed.  “I would call these near-term adjustments” rather than any sweeping rethinking, however, he added.

Showing Allied Brands Some Love, for a Change   On most DPS investor calls, those allied brands don’t even merit a mention.  Today was exception: with focus on profitability, DPS brass was quick to show love for Fiji Water and Vita Coco coconut water trademarks as dropping solid profits to bottom line even if overall gross margins don’t look as attractive.  Flip side of that is Hawaiian Punch, which even when it isn’t down in sales “doesn’t do much for our operating margin or gross margin despite its impact on the top line,” Ellen indicated.  Also on positive side, Motts and Clamato make money moving via warehouse side, while bulk water is money loser.  “It’s where we’re really focused – doing things that grow operating profits,” Ellen said.

Claims Innovation Hunt Is on; Doubtful on Acquisitions   At DPS, flow of innovation beyond line extensions has been scant in recent years, but on call Young insisted that “we look at that constantly” at time portfolio remains skewed to 80% CSDs, 20% noncarbs.  R&D focus is more noncarbs/better-for-you drinks and natural CSD sweetener that might eliminate diet declines.  DPS will play next year in carbonated waters segment in which Sparkling Ice has done so well.  As for acquisitions, “if the right thing would come along, we never say never, but with 58 brands out there we have a lot of things we can build off of,” Young said.

Xingtea, iced tea line devised by Denver distrib New Age, finally has added pair of long-awaited packaging configurations to mix.  It’s ready with fridge packs, which are getting test in King Sooper in Denver and in Fry’s in Ariz, said co-owner Tom Lebon.  And it’s hoping 16-oz PET bottles, priced in $1.59 range, will offer good counter to Coca-Cola’s surging Gold Peak line.  It goes out in 5 top flavors of core brand, which is packed in 23-oz cans . . . Red Bull mustered big presence at show but kept its innovations to redesign of Red Bull Total Zero to dark-grey scheme along with pair of in-and-out cans.  LA gets can themed to Clippers forward Blake Griffin, with graphics by street artist Tristan Eaton, while NY gets can themed to Brooklyn Nets point guard Deron Williams, via graphics from street artist El Mac.  Also on display were year-old flavored “Editions,” which co said now account for 4% of all energy category volume . . . It’s dilemma that’s often seen in bevs: dramatic look of black package, vs actual legibility on shelf and other practical considerations.  New Whey Nutrition is latest marketer to opt for latter, moving from primarily black palette of its Nu Aquos protein/electrolyte line to blue tone, judging by prototypes on view at show.  Line offers 12 g of protein, 5 electrolytes and 19 vitamins/minerals, looking for spot as alternative to established protein drinks, enhanced waters and sports drinks. 

Big Red Ltd’s Hydrive Energy Water is dramatically expanding presence within Walmart, moving from just 100 stores in Jul to about 1,450 now, said Big Red ceo Gary Smith.  Brand goes on shelf at $1.18 per bottle, reaching stores via Dr Pepper Snapple Group DSD network.  Brand has also been making inroads in Target and HEB chains, sales chief Tiny Nelson noted.  On marketing front, handled by Thomas Oh, co has readied series of whimsical online videos that draw contrast between 30-calorie Hydrive and conventional energy drinks, on one hand, and Starbucks fraps on other.  One ad poses “Radical Rob” overgrown skateboard type as goofy embodiment of conventional canned drinks and black-suited woman who’s Starbucks addict, vs sober but hip Hydrive user.  Rob demands “Extreme blast with gnarly power,” which milk-mustachioed woman derides in favor of her “way more refined” latte.  Hydrive guy breaks tie with “energy water: there’s no mysterious ingredients and it tastes refreshing.”  Tagline:  “Energy done better.”  Ads are reminiscent of well-received Apple campaign of a few years back in which hip, aware Apple spokesman banters with endearing but clueless guy in suit representing Microsoft.  Brand is also doing some celeb seeding on Dancing with the Stars. 

Celsius Holdings continued on comeback trail in Q3, notching 61% net revenue gain to $2.3 mil and narrowing net loss by 9% to $700K.  Sales gain melded 33% domestic growth to $1.3 mil even as push into China and South America yielded more than doubling of int’l sales to $1 mil for period.  Among key channels, retail sales of calorie-burning Celsius line rose 33% if one excludes year-earlier sales to Costco, which Celsius brand now has exited along with prior multipack strategy.  Health/fitness channel surged 74%, Internet retail surged 142% and direct-to-consumer sales edged up 3%.  For 9 mos, net rev is up 34% to $7.7 mil and net loss is down 45% to $1.3 mil.  Excluding Costco sales, domestic rev would have been up 49% to $4.3 mil for 9 mos.  “Everything is moving in the right direction, and now we’re aggressively trying to raise $15 million to fuel the fire,” ceo Gerry David told BBI.  As reported (BBI, Oct 8), next initiative is to pull in $15 mil to fund such marketing initiatives as deeper Pandora Music buy.  Effort starts with pitch at Nutritional Capital Network gathering next week. 

Coalition of health orgs are lookin’ to turn up heat on celebs who endorse unhealthy items, starting with Pepsi endorser Katy Perry.  Groups, gathered in LA for Healthy Beverages Summit, issued open letter to singer that her marketing of sugar drinks echoes earlier generation of celebs who flogged cigarettes.  They argue that such ties are way for soda marketers to get around self-restrictions on marketing to kids, given that nearly half of Perry’s 43 mil Twitter followers are under age 16.  “Pepsi might claim not to market to 10- or 11-year olds, but the company knows that Katy Perry appeals to kids of that age,” said CCPHA exec dir Harold Goldstein.  Coalition includes Berkeley Media Studies Group, Campaign for Commercial-Free Childhood, Calif Pan-Ethnic Health Network and Latino Coalition for Healthy Calif.  

Ad Campaign Will Urge Folks to Make ‘Healthier’ Switch   Maryland-based health group is spending $40K to run local ads for morning audience to convince them to switch away from full-calorie sodas to low-cal or calorie-free bevs.  Horizon Foundation will run 30-second spots beginning Oct 28 that show young crowd decked out in “Burp Better” and “Gulp Better” shirts, convincing folks to swap their Coke for better-for-you items, reported Advertising Age.  “Corporations spend millions convincing us we like soda.  We’re testing this theory: people can like something better,” ad will tell viewers.  “We’re not trying to make Coke a villain.  We’re not going to improve public health if we make enemies out of the beverage makers,” said dir Ian Kennedy.  Ad Age also notes that, in some versions of ad, brands from “both Coca-Cola and PepsiCo, like Honest Tea’s kids line and Aquafina, can be seen as the better-for-you alternatives to soda.”  Horizon Foundation is getting support to run ads from Maryland State Medical Society, Yale Univ Rudd Center for Food Policy & Obesity and Center for Science in Public Interest, noted report.  

Mayoral Hopeful De Blasio Ready to Carry Ball for Bloomy   As BBI noted last week, court battle over New York City’s proposed ban on sugared drinks over 16-oz will likely be decided after departure from office in Jan of Mayor Mike Bloomberg, main backer of legislation.  But bev industry’s battle in NYC will continue as leading candidate, Dem Bill De Blasio, is making it clear he backs idea.  “I think the mayor is right and I would continue the legal process.  We have to, of course, look at the specifics with our own lawyers to handle the mechanics, but there’s no question I want to see this rule go through,” he told CBS Radio 880.  “Unfortunately, as parents, it feels like every day we’re fighting an enemy and that is the growing availability of bigger and bigger sugary drinks.”  If NYC Appeals Court backs up ruling of 2 lower courts, tho, proposed law in present form won’t be implemented.  

There may be lotsa little, local kombucha cos out there these days, but minority investment by First Beverage Group this month has eyes fixed on one in particular: LA-based Health-Ade (BBI, Oct 8).  So what’s deal with co?  Turns out it’s interesting bootstrap yarn.  Which is not to say trio of founders are lacking in ambition: they’re taking leaf from fresh-pressed juice marketers by using fresh, local ingredients, fermenting bevs painstakingly in glass jugs and charging hefty premium.  Now, with First Beverage’s check in their bank account, they’re also talking about establishing NY production beachhead.

Health-Ade was founded in Mar 12 by husband-and-wife team of Daina Slekys Trout and Justin Trout and their friend Vanessa Dew, who bring interesting mix of skills to project.  Daina and Vanessa were colleagues at nutraceutical div of Calif pharma co with enough of entrepreneurial itch that they’d previously tried launching coupla ventures.  (Both fizzled for lack of real commitment, Daina says.)  Justin Trout was guitarist who – improbably enough – found his entrepreneurial instincts whetted by his first day job, at hair loss masking co.  At entrepreneurial club they started in LA they analyzed various pains for which they might offer remedy, only to be daunted by capital demands.  Answer was staring them in face: Daina’s kombucha, which had helped all 3 deal with health issues and was in constant demand among friends.  They started working Brentwood farmers market, borrowing production space from bakery that was idle on Sundays, and soon enough were in 7 farmers markets.  Retailers encountered there urged trio to make bottled version for stores.  So the 3 made leap, quitting jobs and moving full-steam ahead with project.  Daina generally focuses on operations, Justin on marketing and Vanessa on sales.

Trio went from 7 stores in Jan to 175 currently, including likes of Rainbow Acres, Erewhon and several CrossFit gyms, to which they distribute brand themselves.  They also found own production space in industrial burb of Gardena, little realizing that by now, mere 12 months later, they’d be maxed out.  They just signed deal to relocate to far larger plant in Van Nuys that can accommodate need for fermentation room.  Once they occupy it in month or so, “we’ll finally be ahead of demand,” Daina said.  That will happen just as brand’s been picked up by Amazon Fresh and is prepping to enter 3 local Whole Foods stores in Jan, which should further spike awareness and demand.

What’s at heart of brand?  In cluttered kombucha market, they’ve opted for “disruptive and different approach,” eschewing “hippy-dippy” look that would appeal to narrow core in favor of antique, apothecary look that signals healing properties of elixir.  They use straight-ahead brand name and brown-glass jars vs clear glass used by most rivals.  Since broad range of consumers understand benefits of probiotics these days, front-panel slogan proclaims:  “A bubbly, probiotic tea.”  Bottom of label flags, American Apparel-style:  “Made in California, USA.”  Besides Original, flavor range encompasses seasonal offerings such as Lemon Ginger, Pink Lady Apple, Plum, California Grape, Pomegranate and sole cleanse item, Cayenne Cleanse.  Fruit is sourced from local farmers such as Etheridge Farms.  Taking cue from premiums commanded by HPP juices, Health-Ade isn’t shy about demanding $8 per bottle – nearly $10 at 5-unit Jack’s Stir Brew coffee chain in NY that FedExes product in for customers.  Co provides home delivery in LA, idea that may translate well to NY, where that’s been longstanding tradition.  Kegs are part of mix, too.

With small-biz loans difficult to come by, trio resorted for capital to Kickstarter campaign in Jun – only to flounder in hitting aggressive $100K goal – perhaps because they did too good a job flagging their success, undermining underdog lure of crowdsource platform, Daina thinks now.  Effort generated contacts that resulted in approaches from likes of Shark Tank, but team didn’t view those as best fit.  Fortunately, First Beverage emerged as investor and closed deal Oct 7.  Its key attraction to Health-Ade, Daina said, is deep expertise of partners like Tom First in areas like production, financial modeling and distribution.  With capital and expertise, “now we actually have the capability to act on things,” Daina said.  So far co is comprised just of 3 founders, 2 production workers and delivery driver.

Two key priorities are production and distribution.  On production front, scaling up poses significant challenge, given artisanal way brand is produced, fermenting in 2.5-gal glass jars and without resorting to powdered probiotics to accelerate process.  Health-Ade takes as much as 21 days.  Partners don’t want to trade that away in going bigger, with even stainless steel regarded as too great a compromise.  They’re also set on opening production unit in NY, both to save on freight costs for heavy glass-bottle brand and “because locality is key,” Daina figures.  Reception at Jack’s Stir Brew has been heartening, too.  As for distribution, they’re looking for mix of DSD and broadline partners, tho it’s early days on that front.

First Beverage Played Key Role in Big Boulevard Craft Beer Deal    Since its first transaction in NA bevs, Activate cap-dispensed brand which it flipped to India’s Tata Group, First Beverage Group has been associated with trickle of small-$$ deals involving Thomas Kemper Sodas, Purity Organic juices and most recently Health-Ade.  But co just played instrumental role in one of biggest craft-beer transactions: Boulevard’s acquisition last week by Belgium’s Duvel Moortgat for figure estimated between $110-$120 mil.  Deal flowed out of work that First Beverage’s consulting arm had been performing for Boulevard founder John McDonald; that turned into assignment on banking side, as McDonald sought private-equity or strategic partner that would maintain integrity of operation down road.  

Battle over Mayor Bloomberg’s proposed ban on sugared bevs over 16-oz will be resolved by NY State’s Court of Appeals after he leaves office, reported Wall Street Jnl.  Arguments in state’s highest court are not expected to begin til early 2014.  So far, ban has been shot down by 2 courts.  Democrat Bill de Blasio, who has sizable lead in current polls, backs proposed ban while his opponent, Republican Joe Lhota, has voiced opposition to it.    

More NACS coverage next week, readers!

Sounds like ski town Telluride, Colo, has its own version of Michael Bloomberg.  There’s a penny-per-ounce tax on ballot there and Colorado Bev Assn has “spent $20,000” funding battle vs tax that’s opposed by lots of local businesses, reported The Watch.  But, “with a stroke of the pen,” part-time resident John Arnold, a former Enron exec, has leveled playing field and “single-handedly bankrolled ‘Kick the Can Telluride’” with a $50K check.  Those pushing for tax estimate it will bring in $200K annually for Telluride to fund health education programs.  Business owners point out “there are multiple hidden costs associated with the tax,” which supporters acknowledge, so they’re pledging a 10% reimbursement to store owners.  Another fear is that a new tax on soft drinks will encourage tourists “to do all their grocery shopping for their ski vacation” in neighboring cities, cautioned local store owner Bob Harnish.  

Energy drink volume rose 12.2% in convenience stores for 4 wks thru Sep 28, per Nielsen data reported by Wells Fargo Securities’ Bonnie Herzog.  That was first double-digit volume gain this yr, and was “largely driven” by Monster, she noted.  Some of that was accomplished on pricing, tho: avg price was down 4.4% vs -3.2% avg last 12 wks.  Monster volume surged 13.9% on 3.7% price drop while Red Bull gained 8.1% on small price gain (+0.3%).  Rockstar showed “significant improvement” as volume jumped 12.7% for 4 wks vs -0.3% over broader 12-wk period.  Also, Coca-Cola “continues to perform well based on ongoing strength and recovery of NOS,” noted Bonnie, even with Full Throttle in doldrums.  KO energy volume surged 10.6% on 2.3% price drop for 4 wks.  PepsiCo energy volume (mainly Amp) fell 13% on 2.5% price drop, even as co lately has talked up successes of alternative energy platforms like Starbucks Refreshers and Kickstart.  DPS continues to struggle with its Venom line: volume plunged 26.6% despite 3.5% avg price decline over last 4 wks. 

CSDs Still Sluggish   CSD volume sank 4.8% for last 4 wks in c-stores (vs -4% last 12 wks) but pricing was up solid 5.2%.  KO volume slipped 2.1% on avg price increase of 4.2%.  “KO again seemed to manage its price architecture best, as it was the only major manufacturer that had positive sales growth this period,” wrote Bonnie.  PEP volume dropped 9.3% on 8.5% price hike while DPS volume slipped 1.8% on 1.4% price increase.