Beverage 2020

Packaging innovation is changing the way consumers engage with products. Saltwater Brewery¹ developed six-pack rings that are 100 percent biodegradable, and manufacturers are taking this one step further the creation of edible packaging made of seaweed. Coca Cola European Partners is shifting to 100 percent recycled polyethylene terephthalate (rPET) plastic. Through partnerships with global brands like Walgreens and Tesco, TerraCycle³ is increasing the production of sustainable products and making it easier for companies to access these products. In each situation, the company has created a more sustainable offering by improving specific elements of their packaging.

While there isn’t a one-size-fits-all packaging option, packaging manufacturers should create innovative solutions by assessing the characteristics of the beverage, current profit margins, client demographics, and how it is consumed, in an effort to find the right solution for their products. Those who do so today can differentiate themselves from the competition given the growing consumer demand for eco-friendly options.

Globally, premium wine has grown faster than any other category since 2009⁴. This growth has been driven by wine costing more than $20 per bottle, which has increased by three million cases in the past three years. Large alcohol businesses have divested more mainstream products recognizing that volume is not the path to profitability in today’s marketplace. In 2019, Constellation⁵ began the divestiture of 30 wine and spirit brands to E&J Gallo for $1.7 billion. Campari and Pernod Ricard have both reshaped their portfolios to offer more premium selections and divested of noncore brands.

The opportunity to innovate within the premium beverage space is virtually limitless. We’ve seen demand drive the growth of products like craft beer, first in the U.S. and now across Europe and Asia. This has led to the growth of super-premium craft tequila and mezcal, and nonalcoholic mixers across the globe. Premiumization is a key driver of M&A as businesses buy new, premium products, and no longer rely solely on in-house new product development. AB InBev acquired Cutwater Spirits⁶ to expand their presence in the craft spirit and ready-to-drink (RTD) cocktail space. Strong M&A interest continues for small-batch bourbons, whiskey, and gins, with innovative flavors and unique barrel aging processes.

Additionally, we’re seeing category lines blur as beverage companies combine traditional beverages to create premium options such as sparkling coffee and sparkling tea. Molson Coor’s investment in LA Libations underscores how traditional brewers can accelerate their product development pipeline through collaboration outside of beer. All beverage companies need to consider the benefits of this approach.

Beverage companies are no longer constrained by category definitions or by price. This gives companies the opportunity to continue to evolve your offerings.

As beverages are becoming an element of disease prevention and management, the credibility of the claims they make related to health benefits will be increasingly important. This is particularly true for CBD products, which are seeing rapid growth in North America. CBD-infused beverages, food, and beauty products claim many health benefits, but not all are backed by science. However, given the market potential, beverage companies are scrambling to get in the game as Constellation Brands, Diageo, Ab InBev, and Molson Coors Brewing have all invested in the space. Constellation has a $4 billion stake⁷ in Canopy Growth, and has already taken two successive write-downs in its investment value. Heineken is in the process of developing their own CBD-infused beer and already has THC-infused sparkling water available in California. Investments in CBD beverages, whether that’s through in-house R&D or an acquisition, can be risky. Investing early has a significant upside, but also increases the risk that the bubble will burst if market demand doesn’t materialize or further research in this space doesn’t back some of the health claims. However, not investing makes one vulnerable to missing the opportunity to gain market share in a sector that has significant growth potential.

While CBD may be the miracle beverage with the most risk and reward, the opportunity to focus on “beverages as medicine” is virtually limitless. The global collagen peptide market is estimated to be valued at nearly $1 billion in 2019⁸, and registered a CAGR of 7.7 percent. This product was virtually unknown just a few years ago but has gained a loyal following. Health and wellness is at the top of consumers’ minds in Asia Pacific⁹, with 65 percent of consumers saying they are “always or often” influenced by this when choosing what they eat and drink. In Europe, probiotics are projected to grow at a CAGR of 5.35 percent¹⁰ during the forecast period (2019–2024). Beverages such as infused waters, sparkling tonics, and kombucha make probiotics readily available in beverage form rather than relying on supplements. Even alcohol brands are getting on board adding botanicals and herbs with nutritional elements or infusing bee pollen and currents into their products.

With this tremendous growth trajectory, beverage companies are leveraging M&A to gain these new functional products. Celsius Holdings¹¹, Inc. announced the acquisition of Func Food Group, a Finland-based provider of functional beverages and foods, to expand its presence in the wellness product portfolio and the European market.

Functionality provides another opportunity for collaboration, as creators of beverages can enhance their products with supplements and offerings already on the market. Moving forward, the chance to personalize beverages and further expand on the concept of drinks as medicine for preventive health provides nearly endless opportunities for growth.

While the convenience store has been the epicenter of alcohol purchases, e-commerce platforms are increasing in popularity. With wine clubs offering curated wine delivered to one’s home, weekly smoothie delivery or one-hour alcohol delivery, consumers often have more options from these e-commerce platforms for delivery. In the U.S., Drizly provides one-hour delivery for a $4.99 delivery fee in many major markets and curates their alcohol selection from local stores providing consumers with a one-stop shop for alcohol.

Direct-to-consumer offerings are growing. Amazon¹² is adding to its own private label product line with its first spirit brand in the U.K. called Tovess Gin. The drink is listed as a premium single batch crafted dry gin and sells for £24.99 ($32.32) for a 70cl bottle, and is produced at a distillery in the U.K. Daily Harvest, delivers ready-made smoothie packs that cost around $7 per cup, providing consumers with the health benefits of a fresh healthy beverage for minimal effort but at a premium price. Consumers can expect to see more private label alcohol in the future as direct-to-consumer e-commerce players expand into more premium categories.

Delivery is becoming a key element of new offerings and a way for existing products to retain consumers. Starbucks in Asia is offering delivery via voice ordering through a Starbucks-branded version of Alibaba’s smart speaker¹³, Tmall Genie. Ab InBev is thinking about the on-premise channel of delivery with the launch of Beer Hawk Fresh¹⁴, a same-day delivery service of bottles, cans, and kegs of beer to restaurants and bars in London. This unique service enables bar and restaurant owners to adjust their selection based on a given night and continuously evolve their beverage offerings.

While digital investments in e-commerce are directly impacting consumers’ buying habits, consider how you can adapt distribution logistics to better align with these needs by thinking beyond e-commerce to new formats. For example, RTD coffee and tea allow beverage companies to reach a broader audience outside the walls of a coffee shop. There’s also increasing competition for refrigerated space at retail locations that is driving additional route-to-market innovation, whether that’s through direct-to-consumer delivery, shelf-stable offerings, and even on-tap products. Finding ways to make products increasingly accessible at any time or location and in packaging that fits the lifestyle of consumers will be increasingly important.

As routes to market evolve, continue to focus on putting beverages in front of the consumer in new locations and evolve your products so they can be distributed in new formats.

As global alcohol consumption declines, the growth of premium products, along with low and no-alcohol alcohol portfolios, are evolving. As highlighted in our recent report, in the United States, the summer of 2019 saw a huge increase in sales of beer-adjacent beverages such as canned cocktails flavored malt beverages (FMB’s) and hard seltzers. The fast-growing hard seltzer category has been a headwind for craft brewers, and not surprisingly, several leading brewers responded by launching their own hard seltzer in 2019. Looking forward, Boston Beer‘s Truly Hard Lemonade will be a challenger to Mike’s Hard Lemonade as these two compete in the fast-growing categories of FMBs.

As mature categories such as soda, milk, and juice see relatively flat sales, they’re feeling pressure from small niche beverage products. With consumer preferences changing, new alternatives to traditional milk due to plant-based offerings are becoming increasingly appealing. Twenty-three percent of Brits¹⁵ used plant milk in the last three months and the average consumption of traditional milk is 50 percent of what it was in the 1950s. In the United States, milk producers are rethinking their portfolios, with HP Hood releasing Planet Oat¹⁶ and Organic Valley serving as the distributor for New Barn Organics, plant-based milk¹⁷.

As new products enter the market, businesses are continuing to rethink what’s necessary for success in the future. While one beverage may be popular today, growth through new routes to market and the evolution of packaging should be factored into short- and long-term planning. A diverse portfolio and a pulse on the everchanging market will be needed for success in the future.