The View from A Farr – Smooth(ie) move
Coca-Cola's purchase of a stake in leading UK smoothie brand Innocent could be a fillip for a sector that had grown rapidly but flagged last year, Annette Farr writes. It also sees Coke and PepsiCo extend their intense rivalry to another category.
The meteoric trajectory of the UK smoothie market could never have been sustained, and had at some point to plateau. But will the entry of Coca-Cola into the market, with a stake in Innocent, breathe life into a sector that may have dipped somewhat prematurely last year owing to the recession?
Just as interestingly, Coke's investment in Innocent could hasten international development for the smoothie sector, while also seeing Coke go head-to-head with its old rival, PepsiCo, in yet another category.
First introduced into the UK by PJ's in 1994 and then given a good shake when Innocent was formed in 1999, the smoothie soon became a fast-growing category. By 2007, the crushed juices were outperforming any other soft drink with market leader Innocent (having overtaken PJ's) enjoying sales growth of 47%.
But now the bubble has burst. Sales began to fall away in March 2008, dropping 20% over the year. The PJ's brand, having been acquired by PepsiCo in 2005 and revived with recipes and packaging offering a value buy, was 'retired' by PepsiCo in November 2008 following a strategic review of its business.
PepsiCo said at the time: "We recognise the importance of focusing on best-selling lines. We have acted to simplify our manufacturing operations, which includes ceasing production on one of the lines at Boxford; consequently we will be rationalising our beverage portfolio. This decision means we will be retiring the PJ's smoothie and Tropicana Spirit brands."
Coca-Cola's new interest in the smoothie sector, Innocent, suffered a sales decline of 26% in 2008 (Nielsen) due in part to the recession but also because of stiff competition from other juice companies wanting a slice of smoothie success.
And given that the most significant of these was PepsiCo's Tropicana, it seems a further theatre has been added to the never-relenting war between the world's two largest soft drinks groups.
Tropicana introduced its range of smoothies in February 2008 and although Tropicana achieved a creditable GBP16m sales in the year, the news that it is launching a new pack size and dropping the price reflects that it too is finding times hard. A new 750ml carton with a recommended retail price of GBP1.99, compared to GBP2.99 for the 1 litre which it is replacing, is to be rolled out. Tropicana says this is the only 750ml smoothie pack in the UK, and will appeal to smaller households and drive category growth.
The 750ml format can also be seen in France where Tropicana is the leading smoothie brand. The latest news from Tropicana France is that it has added a new flavour; Blackberry & Blackcurrant (Mûre Cassis) to its smoothie range.
Underpinning smoothie growth has been health and wellness product integrity, ethical and sustainability issues and - in Innocent's case - a youthful exuberance and a sense of humour, with ground-breaking marketing such as its earlier Fruitstock weekends held at London's Regent's Park. The drinks have enlivened and raised the profile of the premium juice market.
The smoothie concept and success has been emulated overseas. In Sweden, Froosh was launched in 2004 by Dean Taylor, an Englishman who had married a Swedish girl and moved to Stockholm. Froosh is now also sold in Denmark, Germany, Iceland and Finland. Another brand is mySmoothie, founded by former Miss Sweden Domenique Forsberg in 2004, which now sells in over 20 countries.
The UK is by far and away the leading European smoothie market, but Germany and France are showing sizeable volumes. Innocent currently operates in 12 European markets outside the UK, the latest being Finland where it was introduced in December 2008. The company has already gained a 77% market share in Ireland, 40% in Switzerland, 26% in Denmark, and 23% in Austria. Interestingly it is the most popular smoothie in Paris with a 40% market share, but has only a 25% share of the overall French market, second to Tropicana.
Innocent had said that it expects its international business to generate around 20% of its turnover in 2009. But Coke's involvement will expand its international potential considerably.
Prior to confirmation that Innocent had secured Coke's GBP30m equity investment, Innocent said it was "going to concentrate on making the most of the opportunity in the countries we are already in, which is keeping us pretty busy. Of course, we want to get our healthy drinks out to as many people as possible so we shall probably look at some new countries in 2010."
With Coca-Cola's involvement will those new countries now include the US? Time will tell. Despite being niche, the US smoothie market has, says research group Mintel, recorded an 80% increase since the beginning of the decade. But Americans prefer to drink their smoothies in juice bars and fastfood outlets (this year Starbucks has introduced its own range of smoothies), and Coca-Cola already has a leading smoothie brand in its portfolio following its acquisition of Odwalla.
Despite the challenging times brought on by the recession and keen competition Innocent is upbeat. "Our position has strengthened over the last six months with the competitors not really working, and our market share is the highest it has ever been (80% - IRI Infoscan EPOS sales four weeks to 21 February 2009). As a whole business March 2009 has been a bigger month for Innocent than March 2008."
So some mixed messages coming from the smoothie operators. It seems odd that PepsiCo should drop PJ's, its value offering, in favour of premium-priced Tropicana when consumers are looking to cut costs. And, of course, Innocent's whole business has expanded beyond smoothies: sister brand This Water had an exceptional 2008 with 200% growth (Nielsen) and the company has diversified into food with its veg pots.
Despite 2008's disheartening figures, there is reason to believe that the category will return to growth. Coke surely hasn't joined the party to witness an exciting growth sector fizzle out. As Innocent points out: "The long-term desire to stay healthy and the consequent need for healthy, delicious, convenient food and drink remains important to consumers - recession or not."
And with such price-led intense competition between Tropicana and Innocent it can only be good news for consumers and their purse strings.
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