Craft soda’s growth spurt
Bottlers borrow page from craft beer,
You might expect to detect the hints of lavender, juniper or hibiscus in bath soap or potpourri, but not in your soft drink.
But unique formulations are at the heart of the growing segment of “craft soda,” fizzy concoctions that are starting to make an impact in the $52.5 billion U.S. soft drink market.
With traditional colas and other soft drinks under attack by nutritionists, craft soft drinks — also known as artisanal, specialty or small-batch soda — are capturing market share by hyping premium and natural ingredients, creative flavors, limited runs, unusual packaging or their local roots.
Smaller bottlers are borrowing a page from craft beer brewers, which have grown to become a major factor in an industry dominated by giants like AnheuserBusch InBev and SABMiller. They have helped spark the brewpub movement that has revitalized the bar business.
Coca-Cola and Pepsico haven’t just taken notice; they have created their own portfolios to compete with the smaller players.
Craft-soda volume grew 5% in 2016 to 88.8 million gallons compared with 2015, as the rest of the carbonated beverage industry was down 0.85%, according to Beverage Marketing, a consulting and research company. Craft soda sales reached $541 million wholesale in 2016, up from $427.7 million in 2011.
Adding to the froth: Craft soft drinks attract affluent Millennials who don’t want to be seen as following the crowd with traditional soft drinks.
“When you pick up a craft soda, you’re saying something about yourself. You identify with the qualities of that beverage. If you pick up a craft soda or beer, you’re saying, ‘I’m looking for something better, more natural, more conscious of the environment,” said Michael Bellas, chairman of the Beverage Marketing. “This has some legs. It has some good growth ahead of it. This is where the consumer is.”
Some of the better-known craft brands are publicly traded, such as Seattle-based Jones Soda and Los Angeles-based Reed’s, along with small-batch producers such as Brooklyn Soda Works in New York, DRY Sparkling in Seattle and Cool Mountain Beverages in suburban Chicago. Industry giants Coca-Cola and Pepsi both have craft soda lines in their beverage portfolios.
Many craft brewers started in specialty stores but are moving into the mainstream.
While their sales numbers don’t threaten Coke or Pepsi, they’re redefining the market.
“There’s a large trend for natu- ral wellness, and there’s a trend of gourmet food. This is the place the rubber hits the road,” said Chris Reed, founder of Reed’s. “Every industry I know has a premium category, from hotels to ice cream to cars. Soda didn’t have it. It made sense.”
But it isn’t all sugar and spice for craft soda makers. Earlier this month, Reed’s reported that it lost $2 million in the first quarter, up from a loss of $1.6 million a year ago.
Interim CEO Stefan Freeman told investors that the entire business is being evaluated to get back to profitability.
Likewise, Jones Soda said it lost $197,000 in the first quarter compared with a profit of $49,000 last year, due to issues involving shipments to 7-Eleven, one of its big customers.
With that top-shelf aura comes a higher price. Craft sodas can cost three times as much as traditional ones, and they often come in four-packs, rather than six- or 12-packs. For instance, a fourpack of 12-ounce glass bottles of Dry Sparkling ’s juniper-flavored soda costs $5.99 and contains less soda than a regular carbonated beverage. Cost doesn’t really bubble to the top of the discussion, because these drinks are more of a special treat to be savored rather than a mainstream soda that’s downed by the quart to wash down dinner.
“We drink so many carbonated beverages in the U.S.; I really want to create an elevated experience with unique flavors,” said Dry Sparkling founder Sharelle Klaus. “I came up with lavender, kumquat, rhubarb. I wanted make those flavors shine, so I didn’t use a lot of sugar.”
The Seattle-based company sold more than 10 million units last year and now is on some CVS shelves, she said.
Pepsi got into the game in 2014 with brands like Caleb’s Kola, named after the company’s PepsiCola creator Caleb Bradham. It added Stubborn in 2015 and added 1893, a reference to the year the business was founded, last year.
Coca-Cola, which declined to comment for this story, entered the craft soda market in 2015 through its purchase of Monster Beverage’s portfolio, which included craft soda brands Hansen’s and Blue Sky.