Insight

Top 2020 beverage trends and insights

Minimal effort, maximum benefit

Ross Colbert

Ross Colbert

Managing Director, KPMG Corporate Finance LLC

+1 212-997-0500



For beverage companies, the past year has been a lesson in adapting to a “new normal”—from trade tensions, currency volatility, to economic uncertainty and the impacts of climate change. Moving forward, beverage companies should look beyond their core businesses and become more nimble at implementing new strategies to mitigate market headwinds.

Minimal effort, maximum benefit

Consumers are increasingly focused on finding shortcuts to address their desired needs. When this comes to beverage choices, the greater a brand’s ability to fulfill these needs, the greater the chances for disrupting the status quo. Today’s consumers have simple but often conflicting needs. They want to:

As beverage companies reflect on these trends in 2020, we anticipate that embracing these five core themes will enable businesses to align to consumer demand, overcome market pressure, and grow.

  • Support the environment but don’t want to put in too much effort in doing so.
  • Invest in high quality, but need to see the benefits of paying more.
  • Be healthy, but don’t want to put in time to be well.
  • Have preferred beverage options, but these options must be available when and where they are.
  • Try new products, but they aren’t loyal to a particular brand.

Key takeaways

Sustainability

Sustainability: Make it easy to be ecofriendly

  • Consider how each step of the process, from sourcing to shipping, can be more eco-friendly.
  • Know your target consumer and position your sustainable efforts in a way that aligns to their demands.

 

Learn more


 

Premium beverages

Premium beverages: Align to consumers’ desire for quality

  • To improve margins, focus on quality over quantity.
  • Fresh and natural ingredients present supply chain challenges that can result in inefficiencies if they are not addressed during product development.
  • Innovation, even for mature brands, is needed to grow.


 

Functionality

Functionality: Give consumers health benefits with minimal effort

  • While CBD has grown rapidly in North America, specifically in Canada, the rest of the world should watch carefully and anticipate what the product can do in their market.
  • Offerings that provide health benefits are a key element of product portfolios in the future.


 

New routes to market

New routes to market: Provide consumers access to beverages on their terms

  • Evolve your distribution to put your products in front of your target consumers and making purchasing easy.
  • Look at digital capabilities as an essential rather than a bonus.
  • Consider how you can partner with distributors to create a better experience for them as well as the consumers.


 

Portfolio management

Portfolio management: Evolve as consumer demand shifts

  • Product portfolios will need to evolve and brands should seek to anticipate new shifts in consumer demand.
  • Collaborations, partnerships and acquisitions can help businesses future-proof their brand portfolios and move into new markets quickly.


 

Sustainability: Make it easy to be ecofriendly

As consumers become increasingly aware of the impact of waste on the environment, they’re seeking more ecofriendly packaging options. Beverage companies can no longer look at sustainability as a goal they want to achieve in the next five to ten years, especially as regulations around single-use plastic increase. Packaging like aluminum cans, glass bottles, and cardboard cartons were replaced by polyethylene terephthalate (PET), and now we’re seeing a resurgence of these products, along with new concepts.


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 Cola2 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.


Premium beverages: Align to consumers’ desire for quality

“Less is more” has become a mantra for consumers as they trade up to premium brands and abandon more traditional categories. This has led to the growth of niche categories including craft beer, origin coffee and premium cocktails. Consumers in developing countries as well as mature markets are willing to pay more for beverages made with high-quality ingredients that align to their needs.


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.


Functionality: Give consumers health benefits with minimal effort

While consumers are willing to pay more, as reflected by the growth of premium beverages, they’re also expecting more functional benefits from their drinks. The jolt of energy from a low cost soda is no longer enough; consumers want clean ingredients, mental clarity, more energy, improved athletic performance, better mood, and lower stress. This has led to the rise of “miracle beverages” such as collagen water for hair and skin; kombucha for gut health, and CBD for reducing anxiety and pain. As new products continue to emerge, the global functional beverages market size is expected to reach 208.13 billion by 2024, a CAGR of 8.66 percent from 2019-2024.


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.


New routes to market: Provide consumers access to beverages on their terms

As consumers change the way they shop, beverage companies must put their products in these new locations and channels or they risk losing market share to competitors. Routes to market are evolving, in part due to new entrants that are providing more convenient options for purchasing compared to more traditional brick and mortar stores. Consumers are demanding beverages when, where, and how they want them.

 


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.


Portfolio management: Evolve as consumer demand shifts

Throughout 2020, we can expect to see plant-based drinks, hard seltzers, and FMBs to lead the surge in new product launches. Successful products will be those that align with the five trends we’ve outlined. For incumbent businesses, a careful portfolio assessment and proactive response to these trends will be critical for future success.

Beverage companies are no longer focused on a single category like soda or beer. They’re acquiring new or existing brands to fill gaps and divesting the products that are less relevant. In this rapidly evolving market, it’s important to assess portfolio gaps as well as the opportunity to reposition mature or orphan brands in the marketplace.


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.


 

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KPMG Corporate Finance LLC’s investment bankers have extensive Consumer Markets transaction and industry experience, which enables them to understand the industry- specific issues and challenges facing our clients.