hand me a bev - trends shaping the beverage landscape
+ Pepsi's $1.95B acquisition of Poppi is a striking example
📰Latest Consumer News:
Costco is reintroducing Coca-Cola to its menu
Lyft is discontinuing its Delta points program (hello Uber!)
Miu Miu is reporting 93% YoY growth
Protein Pints secure nationwide distribution at Kroger
“I just need a little bev”, as Gen Z would say. This post comes right on time with the $1.2B Pepsi and Poppi acquisition deal - beverages have been around a long time and the market has experienced many shifts to reflect ever-changing consumer needs. Recently, I’ve noticed that existing “bev” consumers are shifting their preferences given tailwind effects in health and wellness, incumbent brand pressure, and rapid innovation capabilities. These effects are also bringing in “anti-bev” consumers into the beverage market.
For the anti-bev people who:
don’t drink, there’s plenty of NA options now
want healthy alternatives, thank god there’s prebiotic and functional-driven sodas
can’t stand coffee, well energy drinks are a raging force now
The beverage landscape is experiencing many shifts as Gen Z becomes more intentional with their preferences around health, brand familiarity, and product functionality.
Health underscores most of Gen Z’s food and beverage decisions, driving demand for functional benefits, low sugar, and non-alcoholic options.
Brand familiarity is so critical to Gen Z, as new brands are introduced to us every day. Brands need to have a strong presence that resonates well across media platforms and within customer journeys. This puts pressure on incumbent brands to lead in new product innovation and strategic M&A activity.
With the beverage market becoming increasingly saturated, product placement becomes a greater priority. It’s something like the movie theater effect, where there’s popcorn is positioned perfectly to buy right before watching a movie. This market has an incredible opportunity to capitalize on where the product sits over the product itself.
With a lot happening in the space, there are five trends shaping the way Gen Z consumers are shaping the beverage sector. Knowing these trends can inform which brands have a clear runway vs. those that won’t sustain for over a few years.
Nostalgic brands are growing up with Gen Z by introducing alcoholic options
It hits me a little weird when I see brands I grew up with now have an ABV % tag to it, but it makes sense. For these older brands to stay relevant across Gen Z and millenials, they are launching innovative products in the alcohol scene. Crystal Light is now launching an RTD seltzer line, coming after Welch’s canned cocktail line in 2024 and Sunny D’s Vodka seltzer in 2023.
This further emphasizes a point I made in a different blog post about how nostalgia drives Gen Z purchasing behavior. Consumers develop a strong connection to these brands early in life, making it easier to reincorporate these brands into their current purchasing habits.
Prebiotic sodas on the rise, driven by Olipop and Poppi’s success
After seeing Olipop’s nearly $2B valuation after its latest round of funding, it was clear that “prebiotic” as a functional benefit is a true selling point for consumers. Almost half of their growth comes from converting existing soda drinkers to a better-for-you option, with the rest coming from new customers that didn’t have routine soda consumption. With only 5% of Americans hitting their recommended fiber intake, gut health continues to be a strong factor in how young consumers think about their diet. This highlights why prebiotic sodas is experiencing notable growth now.
This has spurred new activity in the $820M prebiotic soda market:
Incumbent brands are putting a stake in prebiotics, with Coca-Cola launching a line of prebiotic sodas under its Simply Pop brand
Pepsi is set to acquire Poppi for $1.5B👀
Bloom Nutrition just launched a line of prebiotic sodas called Bloom Pop
While I don’t think Coca-Cola or Bloom will be able to gain a strong footing in the market given Olipop and Poppi’s success, this is one view of how functional beverages have demonstrated success in the market. I project to see more brands incorporate functional benefits and establish a solid thesis/value proposition distinct from prebiotic sodas.I
Energy drinks remain a dominant force in the market
Celsius eating up its competition Alani Nu is a striking indicator that energy drinks are here to stay and will continue to be a highly competitive market to break into. Celsius has done an incredible job of carving out a position as THE better-for-you energy drink for young consumers. Existing energy drinks have been poorly aimed at primarily male consumers, but Celsius has maintained a neutral position with its branding.
Gen Z’s exposure to caffeine happened at a much earlier age relative to millennials. Mintel reports that millennials first began drinking coffee around their early 20s, and Gen Z started drinking coffee at the average age of 15.
While it worries me that our generation is addicted to caffeine, we’ve done a better job of being intentional about when we’re consuming caffeine (i think), such as not drinking coffee on an empty stomach, avoiding caffeine after a certain time, etc. Energy drinks have been around since the mid-20th century, so it’s safe to say that demand will not stop but instead shift towards better ingredients, less sugar, and (hopefully) safe amounts of caffeine for various times of the day — do we really need the same amount of caffeine in the morning as we do at night?
Optionality in the energy drink market will be valuable for consumers, especially as we think about brand placement. I think we’ll start seeing energy drinks expand into niche needs, such as low dose, global flavors, and young Gen Z-friendly options. The brands that win in the market are the ones that will offer consumers the right set of options to make different decisions depending on their needs.
Non-alc options continue to expand
This trend point may sound like it contradicts my first point now I’m saying the non-alc market is growing. However, this doesn’t mean that the alcohol market is reducing; instead, both will grow in parallel. Gen Z finds it overrated to live life in binary form. It’s no longer “I drink” vs. “I don’t drink”. Now, each decision is occasion-based, so consumers live on a spectrum of when they consume alcohol. Fortunately, the growing low-alc and non-alc market provides consumers with an option to have a “bev” in hand even if they’re not drinking that night.
Constellation Brands, a US producer of premium wine and spirits, supports the thesis that the alcohol market will grow in parallel to the non-alcoholic market with its recent minority stake investment in Hiyo, a non-alcoholic social tonic.
Nielsen has found that over 93% of non-alcoholic drink buyers are also purchasing drinks that contain alcohol, so this is a strong opportunity for large alcohol producers to diversify their portfolio with non-alc brands.
Gen Z doesn’t believe that we should be paying a premium for a product without alcohol, so I foresee that as the non-alcoholic market becomes more fragmented, we’ll begin to see these products at a lower price point.
Legacy brands staying relevant with new, unique flavors
Every Gen Zer has become conditioned by Trader Joe’s to embrace the journey of discovering a new product and enjoy the uncertainty when trying it out. For incumbent brands to stay relevant in the beverage space, they’ve been spinning off in new flavors to build a mass crowd of “taste-testers” on social media to organically market their brand.
A few notable examples:
7-Up’s Shirley Temple flavor
Dr.Pepper’s newest Blackberry flavor
Coca-Cola’s latest Orange Cream
While these launches aren’t likely to be the sole driver of incremental sales, there are ripple effects of brand loyalty and core sales growth. It must be the case that Coca-Cola campaigning its new flavors only drives more people to get a Diet Coke. Seasonality and limited edition builds hype around brands, and incumbent brands crave this attention even more now that the beverage landscape is becoming hard to compete in.
Thanks for reading,
Sanjana