2018 Year-End Report: Top 5 Beverage Stories

CHICAGO -- The year in packaged beverages was clearly one of transition: transition in consumer preferences, transition in manufacturer strategy, even transition in the strength of beer.

Here's a look at some of the biggest news stories to hit the category in 2018 ...

In a midyear list of top beverage stories, we called out Keurig Green Mountain's acquisition of Dr Pepper Snapple Group as a significant and positive move. The result, Keurig Dr Pepper (KDP), created a new kind of beverage company, one that could potentially reach consumers not just at retail but also in their homes. Since then, the list of big nonalcohol beverage companies extending their reach has grown even more. In August, PepsiCo acquired SodaStream, the home-carbonation company that launched in 1998. SodaStream gives PepsiCo a spot in the kitchen of many homes across the country, possibly opening a new route to market for the beverage maker. Also that month, Coca-Cola Co. acquired a minority stake in BodyArmor, essentially taking the fast-growing sports drink out of KDP’s delivery trucks. Coca-Cola Co. also acquired the English coffee brewer and retailer Costa Ltd. This will give the beverage manufacturer “a strong coffee platform [overseas] with the opportunity for additional expansion,” Coca-Cola said. “Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand," Coca-Cola President and CEO James Quincey said. "Costa gives us access to this market with a strong coffee platform.”

The low unemployment rate, hovering at 3.7% as of October, has been a boon to the economy and a bane to retailers in more ways than one. Certainly, finding quality employees to staff convenience stores has been a challenge. Similarly, trucking companies have struggled to keep positions staffed, forcing some to raise prices for their services. On top of that, President Donald Trump's aluminum tariff has led many beverage manufacturers to speak out against a fee that will add to the cost of making cans. “The proposed 10% tariff on aluminum will likely cost U.S. brewers millions of dollars, making it more difficult to grow and further invest in our U.S. operations," Anheuser-Busch reported. Together, the additional costs are adding up to a higher price on store shelves.

As mainstream beverage categories such as carbonated soft drinks and beer continue to lose traction, consumers' palates and influences are taking them in so many directions that it's difficult to keep up, let alone stock a cold vault. In 2018, it became clear that several small subcategories are taking share from major segments piecemeal. To characterize those subcategories, research firm Beverage Marketing Corp., New York, has created the “niche” category, “a host of emerging categories that have entered the market." Most boast health and wellness attributes and/or promise specific functional benefits. Among them:

• High-pressure pasteurized juice
• Coconut water
• Cold-brew coffee
• Kombucha
• Plant-based waters
• Dairy alternatives
• Protein drinks
• Probiotic drinks
• Matcha
• Premium mixers

Combined, this niche category represents about 3% of the beverage market and grew an astounding 13.6% in 2017. A big part of the challenge is the fact that the bulk of these niche segments often are represented by a single brand or SKU, making it difficult to build the market or a product set.

Shortly after the Volstead Act repealed Prohibition in 1933, several states enacted their own laws limiting the maximum amount of alcohol in beer to 3.2%. Today, only five states still enforce these laws, which require convenience stores and supermarkets to sell 3.2% alcohol by weight brew. Within the next year, three of those states—Oklahoma, Colorado and Kansas—will enact laws that allow c-stores to sell full-strength, or “full-point,” beer. While the remaining two states—Minnesota and Utah—expect the issue to be harshly debated in 2019, both have sought assurances from major brewers that 3.2 beer will still be produced and made available to them.

With protein and hydration as major beverage drivers today, a new ingredient stands as a possible traffic driver for the future. Cannabis found its way into several beverage-related headlines over the past year, including investments by Constellation Brands and Molson Coors and consideration as an ingredient by Coca-Cola Co. and Diageo. In states where cannabis products are legal, retailers reported brisk sales of waters and beers made with the substance, both those that contain the psychoactive ingredient THC and those that don't (cannabidiol, or CBD, products). CBD drinks typically promise various medicinal benefits such as relief from stress, insomnia and aches and pains.