Just weeks after enlisting Honickman Group's Canada Dry Delaware Valley and Potomac operations, Xyience Xenergy has filled remaining key void in Mid-Atlantic region by bringing aboard Carolina Beverage to work most of Carolinas. Carolina Beverage, familiar to many for its efforts behind Cheerwine soft drink brand it owns, operates 3 distribution units under Carolina Bottling, Quality Beverage and Piedmont Cheerwine names, covering about 60% of Carolinas, estimates Xyience prexy John Lennon. It's mainly a Dr Pepper Snapple house, operated by Ritchie family. "The beauty of this is we can essentially go to market from the Mid-Atlantic to the Carolinas through a very efficient system," John said. "Not having the Carolinas was a barrier to some of the chains."

In heart of summer, several bev categories were not so hot. Total CSD volume fell 4.2% on 0.3% price increase for $$ sales drop of 3.8% 4 wks thru Aug 3, per new Nielsen XAOC data reported by Wells Fargo's Bonnie Herzog. "Overall CSDs continue to be weighted down by the diet category," she noted, as diet CSD volume sagged 6.9% on flat pricing while regular CSDs were off 2.8% on 0.6% price increase. Wow - this is new territory we're in, where diet CSDs are starting to regularly underperform regular CSDs.

Coca-Cola CSD volume declined 2.9% on 0.3% price increase for 2.6% $$ sales dip last 4 wks. Given the importance of CSD category to KO, Bonnie noted pointedly, "we are hopeful that recent initiatives the company is undertaking, particularly with diets, will start to be reflected in the results." KO's diet volume was off 5.4% vs -1.2% drop for regular CSDs. PepsiCo CSD volume was off 6% last 4 wks on 0.7% price gain for $$ sales drop of 5.4%. That's a steeper decline that PEP's -5.1% volume drop over last 12 wks. PEP diet CSDs plunged 9.5% while regular CSDs were off 4.2% thru Aug 3. DPS soda volume and sales both were off 2.5% on flat pricing over 4-wk period. That's better than 3.4% volume slide over last 12 wks in these stores. Like KO and PEP, DPS diet brands struggled: -4.9% last 4 wks; -4.7% last 12 wks. DPS' much-touted Ten 10-calorie platform "appears to continue to underperform expectations, with DP10 posting its lowest $$ sales this period since the brand was launched," said Bonnie. While "conceptually" she believes in DP10 platform, she is "increasingly concerned" that it's being hurt by continued weakness in diet brands. "We fear the failure to sufficiently differentiate it from this struggling category is weighing on results."

Energy Losing Power Last 4 wks Energy drinks (incl coffee- and tea-energy hybrids) saw volume growth slow to a crawl, edging up 0.6% in these channels over last 4 wks, half volume gain pace of 12-wk period. That was despite slight cut in pricing, down 0.8%, and made for 0.2% $$ sales drop. Red Bull outperformed Monster Bev in most recent data. Red Bull volume rose 3.7% on slight price drop (-0.2%) for 3.5% $$ sales increase over 4 wks. MNST volume fell 0.4% vs 3% gain for 12-wk window. With MNST pricing flat, that translated into 0.5% $$ sales drop. Low pricing (-8.1%) continues to boost Rockstar volume (+5.1%), but $$ sales declined 3.4%. Speaking of low pricing, KO energy brands had steep price drop of 18.2% last 4 wks, which helped volume jump 41%. DPS's energy brands like Venom had double-digit price drop too (-10%) but volume still fell, albeit to more moderate 5.5% for last 4 wks vs 12% drop over last 12 wks. Meanwhile PEP energy volume (mainly Amp) plunged 27.2% despite 2.5% avg price dip.

Gatorade Outperforms Sports drink volume was off 3.1% last 4 wks, down from avg 2% decline over last 12 wks in these channels. Pricing was more positive at +0.9% for $$ sales dip of 2.3% thru Aug 3. Gatorade has been flat over last 12 wks but gained 1.5% this period on 1.8% price drop. Powerade effort to raise prices (+1.3%) fomented volume drop, -13.3%.

Tea Sales Gettin' Worse Yet another once-reliable bev growth engine had tough time thru July. RTD tea volume fell 2.3% with avg price off 0.7% last 4 wks, resulting in 2.9% $$ sales drop, "as this once bright spot in the beverage category continues to struggle, lagging even regular CSDs," lamented Herzog. While DPS volume was flat, PEP (Lipton) was only major supplier to increase its tea volume in these channels over last 4 wks. PEP volume up 4.4% on 1.5% price drop. Ferolito Vultaggio (AriZona) suffered 3.3% volume drop on 2% price decline. DPS (Snapple) volume flat on 2.5% price drop, while KO (Gold Peak, Fuze) tea volume plummeted 12% as consumers obviously didn't bite much on 2.6% price increase last 4 wks. Prices on private-label teas shot up 5.3% (vs +0.9% over last 12 wks) resulting in huge 17.4% drop in these channels.

Three-year-old 7-Eleven initiative that sent tremor thru bev biz by threatening to take wholesalers completely out of picture looks like it's about to be abandoned in its Southern Calif testbed. Several sources among distributors, brand marketers and 7-Eleven franchisees say c-store chain has concluded that highly controversial scheme to route all bev orders thru Costco hasn't delivered on promise in "heavy liquids" segment and will be phased out this year, moving toward "hybrid" model that's been successfully deployed in Tex and Fla and is slated to hit Seattle, Las Vegas and perhaps other markets in Q3. Phaseout of Southern Calif experiment - part of broader Business Transformation initiative - is likely in Nov/Dec timeframe, sources said, tho no date seems to have been communicated yet within 7-Eleven system. Regional 7-Eleven franchisees told BBI that approach delivered negligible improvements to bottom line rather than promised 10% improvement, while adding to store owners' labor burden and sometimes dropping items as significant as Powerade from more limited assortment made available to stores. That system gathered items at Costco, then got them to stores via McLane, 7-Eleven's preferred distribution partner. Costco will be out of mix now, and all bevs will go back to being delivered via traditional DSD houses.

Initiative had been brainchild of ceo Joe DePinto, who dropped bomb on Beverage Forum in 08 with word of DSD-eliminating initiative intended in part to ease clutter of delivery trucks in stores' parking lots during morning rush (BBI, May 23 08). Much-delayed program hit first LA-area stores in early 2010 (BBI, May 14, 2010), pitched as way to declutter lots, rationalize sku's and initiate new ordering system, with stores promised a profit boost in 10% range. Initial participants were Coca-Cola, PepsiCo, Red Bull and Monster Energy; beer was also to have been included in mix, but was dropped when Calif Dept of Alc Bev Control refused to go along.

Several store operators who're officers in franchisee groups told BBI they view ordering and check-in system of Business Transformation initiative - in which they essentially create their own error-free invoice as they scan incoming items - as big step forward that will be retained for other product categories. But they'll also welcome DSD wholesalers back to their stores. "I'm glad we're going back to the hybrid model, with business as usual," said one. "It's an old model, but is it really broken? And it's great that we can order products that our guests want." He termed BT's promised cost savings "insignificant" but termed ordering/check-in innovations "phenomenal" and said narrower sku assortment available via Costco at least had advantage of clearing clutter out of his store. And while truck congestion can be issue during morning coffee rush, he said individual store operators often work with wholesalers to find alternative delivery times. Another franchisee noted that his checkout staffers "are not lifters," so he's glad to see merchandising burden go back to wholesalers. Marketers' perspective? "Very good news for us because it's bringing the distributors back into the stores," said one, who's heard Nov 11 cited as cutover date to hybrid system. No immediate response today to inquiry placed with 7-Eleven rep.

Assets of Mix1 protein bevs, discontinued late last year by Hershey, apparently have been picked up by small bevco called PDK Energy. Jul 11 filing spotted by BevNet indicated that co bought assets for $120K and 2.5 mil shares of its stock, which trades over the counter under PDKIE symbol. Deal includes brand name, recipes and vendor lists . . . Starbucks Coffee is celebrating 5 years of offering its guests by-the-cup varietals brewed on the Clover system, a key element in restoring roaster's credibility under returned ceo Howard Schultz after period of drift. Seattle co said it's just opened 500th location offering Starbucks Reserve coffees brewed on a Clover system and plans to double # of locations globally by end of 2014 . . . Lifeway Foods said 2d-qtr sales rose 14% to $25.8 mil thanks mainly to higher sales of flagship Kefir line, as well as ProBugs Organic Kefir for kids and BioKefir. Net of promo activities, sales were up 12% to $23.1 mil. Operating income slipped to $2.5 mil from $3.1 mil partly because of higher operating expenses, including some incurred integrating newly acquired dairy facility.

Labrada Lean Body protein bevs made an ill-fated foray into DSD a few years back, dogged not just by co's inability to divide focus with its core health/nutrition channels, which it's worked successfully for 18 years now, but by relatively low awareness of protein among consumers. Seeing climate changing, tho, Houston-based co has thrown its hat back in ring, enlisting Dallas-based GBS Growth Partners to help it navigate revisited DSD terrain and overcome any reservations distributors might have after past misfire. Given leader Muscle Milk's migration to Pepsi bottling system, Labrada pitch may fall on surprisingly receptive ears, particularly given exit in recent years of such other promising rivals as Abbott Labs' EAS Myoplex and Hershey's Mix1. That's left CytoSport's Muscle Milk nearly unchallenged, tho Monster Beverage is starting to garner traction with energy/protein hybrid called Muscle Monster and intriguing startup Nu Aquos is building distribution. For its part, Coke has placed its bet on milk-based line called Core Power, run by former Coke exec.

"We were a little surprised when phone calls started coming in from outside channels when we were focusing on the core," said Keith Lessman. "But awareness of protein has become more mainstream," particularly as broadly targeted supermarket-staple brands like Kellogg have gotten involved. "It ignited our excitement to get into the mainstream business," he said.

It's not that Labrada can't be found at some pretty mainstream accounts these days. Its RTD line is in Walmart, Publix, HEB and Valero, which is just adding brand's 14-oz PET bottle to 17-oz Tetra Pak it already carries. But mandate to GBS is to carefully rebuild DSD network, with initial focus being Tex and NY, where GBS recently hired an in-market staffer. Maybe Fla and Calif next, figures GBS partner John Blackington.

Lessman believes brand can ride several advantages. It's only major brand formulated without sugar, he said, and having "Lean Body" in brand moniker is a good counter to bulging-muscle image of most protein plays, and should carry appeal to both male and female consumers. Of course, Labrada boasted those advantages the first time around, but with core biz humming, "there was a tendency to fall back on the things you're comfortable with," Keith acknowledged. So effort wasn't sustained thru inevitable adversity that arose. This time, with GBS as its DSD Sherpa, Labrada intends to stay the course, he vowed.

Yesterday in USA Today, Coca-Cola began running ads "defending the safety of artificial sweeteners," aspartame in particular, in face of increased pressures on diet soda sales, reported AP. Ads are seen as "next phase" of KO's campaign launched at start of year to push back vs soda critics. "This is a beginning and a learning process, but we do have plans to do more," said Caren Pasquale Secker, vp of social commitment. Ad takes subtle approach, with pic of 2 women below heading: "Quality products you can always feel good about." Text notes: "Time and again, these low- and no-calorie sweeteners have been shown to be safe, high-quality alternatives to sugar." Report notes that while full-calorie soda consumption has been in decline for some time, recently signs indicate "people have been pulling back on diet soda as well, signaling that concerns about soda go beyond weight gain." (Some of those users seem to be heading to up-and-coming alternatives like Sparkling Ice.) That's even tho both FDA and American Cancer Society have found aspartame to be safe. In general, tho, "artificial ingredients are also falling out of flavor as people increasingly move toward organic and natural ingredients," noted AP. Of course, that's why big bevcos are on quest for holy grail of all-natural sweetener, as via KO's recent test of Coke sweetened with stevia in Argentina. Indeed, gadfly Center for Science in the Public Interest was quick to respond that Coke is wasting its time with "propaganda" campaign. "The company would be better off phasing out its use of aspartame and accelerating its research into safer, natural sweeteners such as those extracted from the stevia plant," CSPI advised.

Questions about diet-soda were raised last week in Fox News piece that headlined: "Soda: Public health enemy No. 1?" Report quoted several health pros on various problems associated with overconsumption of soda and some noted diet soda issues as well. "Interestingly, diet soda is not without its own problems, because it turns out if you look at people who drink diet soda, they tend to be heavier," said Dr Mary Ann McLaughlin, dir of cardiac health at Mount Sinai Hospital. But Dr Christopher Ochner, asst prof of pediatrics and adolescent medicine at Mount Sinai (and no fan of soda), is keeping an "open" mind on diet sodas "since the studies out there have yet establish a causal connection" with obesity, wrote AP. One theory is that aspartame leads to insulin surge that makes people crave sweet items, but so far it hasn't been decisively proved.

After coupla years engaged in hectic effort to build brand presence in a dozen major retail chains, Marley marketer Viva Beverages has swung back focus this summer to up-and-down-the-street retailers serviced by DSD houses. Viva ceo Kevin McClafferty acknowledges that co may have moved a bit away from that after brand's first 2 years, which saw tremendous growth in indie channel. As that happened, c-stores came aboard, then big chains, culminating in retail wins like Walmart, 7-Eleven and Winn-Dixie. Supporting those accounts' stiff demands can lead you to forget what got you there, Kevin allowed, and it's possible brand lost some presence in UDS. So sales force has spent summer engaged in constant crew drives - 25 since mid-Jun - that have succeeded in broadening brand's presence or winning back lost shelf space in 100s of indie stores. "We've refocused on DSD and on what we did extremely well those first 2 years," Kevin told BBI in interview on Mon.

Several distributors say brand has plateaued or even declined in their markets, with reformulation away from regulatory red-flag-waving melatonin seen as possible culprit, but ceo Kevin McClafferty insisted brand is back up by double-digits thanks to very strong July. He reminded listener that new bev brands typically grow in stair-step pattern as new retail channels are won and absorbed. In truth, it's hard to find many brands that have attained as broad presence as Marley among those undertaking broad DSD landgrab. Marley, which employs 70, currently tallies about 150 DSD houses.

One irritant to harmony with DSD houses was co's decision to acquiesce to demand by 7-Eleven to service its stores via retailer's longtime partner McLane, which some wholesalers said was blatant violation of contract. Tho co has privately assured wholesalers it's working to get DSD into mix, Kevin said he had no news to report on that front for now.

Among other retail accounts, Walmart has gotten brand in about 2K stores so far, and is likely to broaden presence in 2014. This summer, brand has undertaken price rollback from everyday price of $1.68 to $1.48.

As reported this spring (BBI, Mar 12), this is first year that co has assembled comprehensive consumer-marketing effort, effort that's been enhanced by Marley family's broader tie - across all its businesses - with powerful Creative Artists Agency in Hollywood. By now, co has assembled 15 teams of Relaxation Rebels to work specific territories in key markets, including pair of teams in Canada, and is aiming to have 24 in place by fall. Co also is moving ahead with plan to put its Marley-branded "Big Bob" trailer - which can accommodate a band on top and has flat screens inside - on East Coast college tour this fall, working its way south from Northeast down to Southeast in time for SEC football frenzy. So far this summer it's been working mix of fests like Gathering of the Vibes in Conn and making trade-site visits, as to Couche-Tard hq in Canada. Brand has also brought Howard Stern into mix with favorable results, including with distribution community that can well recall Howard's successful work behind new-age brands like Snapple and Nantucket Nectars. "A known brand-builder," Kevin calls him.

Overseas, brand has launched as anticipated in Brazil via Global Beverage, distributor abandoned by Monster Energy for AmBev. With World Cup looming next year, Marley may undertake initiatives like special can displaying image of Bob Marley playing soccer.

Coffee Relaunches via Allocation Scheme Coffee, recall, was restaged in cans, which allowed co to reduce shelf price from $2.39 to match that of Marley's Mellow Mood teas and sodas at $1.99. Co hopes combo of 4 teas, 3 sodas and 3 coffees offers chance to capture full shelves at some c-stores. To get restaged coffee out there, co used allocation scheme for first production run of 50K cases, enlisting 50 key DSD houses that demonstrated strong interest in pushing forward and moving from western markets eastward. (All the shops have reordered within first 6 weeks, Kevin said.) By Sep/Oct timeframe he hopes to have 80% of DSD network supplied. Meanwhile, on core line, with lower- and zero-calorie brands thriving co also has added lighter Raspberry and Half & Half bevs to its tea line and Mango to its soda line.

Reed's Inc produced 2d qtr result that allayed key one fear of investors in recent quarters - that its audacious Reed's Culture Club kombucha may be taking too long to catch on - but instilled another fear: that its revenue-boosting private-label initiative is runnin' into problems. Throw in production shortfalls that kept LA-based co from hitting anticipated 35% sales gain, and it proved very mixed report.

Sales rose healthy 22% to $9.5 mil, maintaining growth pace of Q1 and leaving 6-month figure up 23% to $17.6 mil. But in surprise development at close of qtr, co was forced to establish $412K reserve vs loss on private-label contract that helped throw it into net loss of $494K for qtr, vs $444K in net income a year earlier. Among key segments, new kombucha line surged 75% in volume, to annual run rate of $3.6 mil, and branded Reed's and Virgil's natural sodas rose 20%, suggesting that arduous kombucha launch hasn't proved undue distraction from core biz. All told, private-label biz accounted for about $1 mil of qtr's sales, meaning loss reserve was big hit for relatively small contributor, in tuff private-label biz that's snagged other branded-bev cos in past.

Results would have been far more robust were it not for PL squabble and chronic inventory shortages that kept key accounts out of branded products for a coupla weeks each in key Jun and Jul months. Were it not for PL snag, revenues would have come in closer to $10M. And better supplies might have tilted top line closer to $11 mil as co probably walked away from $200-300K in kombucha sales and $700K or more of branded soda sales because of output issues. In that case, REED would have been reporting close to 40% sales gain. Founder/ceo Chris Reed said unidentified East Coast copacker suffered unanticipated equipment failure that backed up all its customers and caused Reed's to receive only 75-80% of its requested production from May into summer. Because of complexity of production and proprietary formulas, co produces all its Reed's Ginger Brew and Culture Club Kombucha at its LA hq plant, even as that unit undertakes capacity expansion and modernization, while contracting out easier-to-produce Virgil's soda line at Eastern copacker. Chris said he's in talks to sign backup copacker this fall.

Conference call Wed afternoon bore various earmarks of Reed's distinctively casual approach for publicly traded co: call commenced before results were actually released, 10 minutes into call, and Reed dialed in from vacation out in Yosemite. But founder sounded dead serious about frustration caused by qtr's various crises: Given that co performed well at difficult task of winning new biz, "I can't stand it personally that we're not standing there filling orders . . . I've lost some hair . . . the battles between sales and production, you can imagine . . . We should have handled this better." Still, "the great news is that demand is at an all-time high and it's only getting bigger."

Leaky Crowns - and Overly 'Ballsy' Flavor? On private-label front, unnamed customer rejected order in which some bottle crowns were found to be leaking. Reed's quickly isolated problem and offered to replace defective items in timely manner, Chris maintained, but retailer has additional claims vs Reed's, which has filed counterclaims. Tho that was main issue, Reed also believes retailer got cold feet about "pretty ballsy flavor" devised by Reed's under direction from retailer's flavor development people. "The economics would say the parties are going to work something out here," Reed said hopefully, and he hasn't lost hope of retaining retailer as PL customer. Meanwhile, co is undaunted in maintaining PL as key strategic focus.

As for the production snags, those caused host of related costs: out-of-stocks that clipped sales growth and aggravated retail customers (not to mention causing stresses between sales and production staffs), even as need to source high proportion of Virgil's sodas out east caused warehouse and delivery costs to rise because it replaced some production in co's hq plant in LA that was serving nearby markets.

CEO Signs on as 'De Facto' Plant Mgr, Too Co has sunk $300K in first half into capital program at LA plant that is tripling refrigeration, doubling compressed air and rebuilding line equipment for great throughput. It became clear during Q&A that, dissatisfied with fumbling by prior plant mgrs, former engineer Chris Reed has stepped into role himself. The kombuchas now are running 250-300% faster with him as "de facto" plant mgr than when "other people" were running plant, he noted, with evident satisfaction. During all the work, plant also has been transitioning from 2 long shifts to 3 regular shifts as it aims to double output from to 100K cases per month by end of year. Chris said he'll probably bring another staffer aboard with formal plant mgr title "once all the heavy lifting is done."

Kombucha Finally Attaining Liftoff? The best news, perhaps, was that kombucha seems to be turning corner after Reed himself expressed concern last qtr that it was taking so long to win retail acceptance and start building meaningful sales. "If it had not come up significantly in sales in the second quarter I would have been much more nervous about kombucha," given spending and attention it's absorbed, he acknowledged on yesterday's call. But run rate has grown from $2.4 mil last qtr to $3.6 mil in Q2, and lately brand has been boosting penetration of Whole Foods, while adding likes of Sprouts Farmers Market, Fresh Market, Giant Eagle, Natural Grocers by Vitamin Cottage, Bristol Farms and Lassen's. It's also brought on natural-foods brokerage to help seed brand, step it never resorted to on its natural sodas. Indeed, Culture Club has won surprising degree of interest from grocers, perhaps because Culture Club is not as "gnarly-tasting" as segment-dominating GT's, Chris suggested. Brand's 6-month shelf life vs 1 mo for GT's and others doesn't hurt either. Thus, while supers initially were "just dabbling" with kombucha, it may be on way to becoming "full-blown movement," he said. Tho brand only launched first 4 flavors last Nov and added 4 more in May, it's already leapfrogged existing players like Hain Celestial and High Country, he said. Still, he readily acknowledged, GT's has nothing to be worried about yet.

Coca-Cola Bottling Consolidated said its 2d qtr income came in flat at $11.2 mil, on sales that were flat at $429 mil. But co hopes to generate future growth via territory expansion in eastern Tenn and Ky that's in negotiation with Coca-Cola. "Our team is making good progress and we continue to be excited about the possibility of bringing these employees and new markets into the company in late 2014," said chmn/ceo Frank Harrison . . . Reed's Inc teased Q2 financials, saying revenues rose 22% to $9.52 mil. Fuller accounting of period is due next week . . . Multilevel marketer Vemma Nutrition is claiming that its monthly sales hit $20 mil mark in Jul on strength mainly of its Verve healthier-energy brand. "After taking 7 years to reach the $10 million monthly sales mark in July 2012, Vemma has now doubled that to $20 million a month just 12 months later," co said, thanks to 30K "brand partners" now enrolled. Verve Bold extension launched in Jan sold 4 mil cans in its first 5 mos, co said . . . Sometimes it pays to be flying a bit below the radar. Case in point: Unilever has found itself at center of furor over TV ads for its Marmite spread that "features a spoof rescue unit traveling around the UK recovering 'neglected' jars of Marmite racked up more than 400 complaints" to country's ad watchdog since launching earlier this week, Marketing Week reports. Complainers argue ad is trivializing serious issue. Of course, Activate has taken similar tack with its own new "Stop Vitamin Cruelty" campaign. Among shocking instances of neglect shown in Unilever ad, one jar of Marmite found buried in back of cupboard has lid stuck. Unilever has withdrawn ad and made donation to animal rescue charity.

Sun Orchard Juice has picked up majority stake in Fruit 66 marketer 4U2U, which will retain 4U2U's Richmond, Va-based founder Bill Hargis at helm. Fruit 66's 100%-juice line and related Epic brand have been primarily a schools play similarly to Hargis' earlier brand Switch, and co is believed to be doing a bit over $3 mil in biz. Eric Skae's Bricktown Group consultancy advised 4U2U on deal, along with General Capital Partners, said Eric, former New Leaf Brands ceo whose recent activities as capital advisor have also resulted in successful capital raise for Hangover Joe. Partnership under 1 Epic LLC name offers synergies working foodservice resources of Tempe, Ariz-based Sun Orchard, and frees Hargis up to spend most of his time on sales. Terms weren't disclosed.