From a strictly brand growth analysis, Coca Cola made a smart decision. The biggest sales and marketing challenges is the beverage industry are bottling, distribution, and gaining shelf space. Coca Cola is well positioned in each area. This move should positively impact its bottom line. Good post Ted.

Thanks for your input, Lewis. You're absolutely right: large companies like Coke have supply chain issues and distribution sewed up. Both Coca-Cola and Pepsico have been quietly diversifying their beverage brand mixes for some time now--a good idea at a time when soft drink sales are slowing down. It makes perfect sense for these companies to become players in the bottled water, juice, RTD teas and energy drink categories, doesn't it? Thanks for adding your insights, Lewis. They are always appreciated.

Ted, I am 27ys old and I am no marketing Guru, but I have to say that when a company promotes a product that is their "healthy" version, it is bound to sell, simply because the loyalty they have carried since the beginning. Coke or Pepsi are not the drinks you want to drink on a daily basis to maintain a good physique, so the brother or sister product will definitely generate revenue for the year. I think if Marlboro came out with a "healthier" "sister" product, that would be a number one seller as well. Who doesn't want change? Great Article!

You're right, Rob. One of the biggest consumer drivers today involves plugging into lifestyles. Whether consumers are practicing healthier lifestyles themselves, or they're healthier wannabes, the smart food/beverage companies are positioning brands that correspond to this evolving trend. Good observations, Rob. Thank you for weighing in.

I'm a huge fan of Stonyfield yogurt, and I had no idea it was owned by Danone. Similarly, I didn't realize Kashi was owned by Kellogg's, and (weirdest of all) Lightlife by Conagra. It does explain how I'm able to buy those brands in my local chain supermarket, rather than specialty or Whole Foods. And I thought it was just smart management on the part of the local supermarket... (ha!)

That said, the larger companies clearly see the wisdom in keeping their own big names out of way... which I think is interesting. What's your take on that Ted?

Hi Ann,

I think brands like Stonyfield Farm that clearly have a great following and strong brand images, are best left alone. For large companies that acquire niche brands, whether they're organic, natural, gourmet, dietetic, etc: why mess with success, you know? These companies must be realizing that the original owners and/or management teams made niche brands a success, so why not let them continue to continue to do what they do best? That's my guess, Ann. Thanks for posing a great question.

Interesting conversation, Ann and Ted. Thought I might interject here since I was a natural product industry marketer in the recent past. The companies you mentioned, Ann, had distribution in grocery stores for quite a long time now. What happened during the 90's in the natural product industry has happened in many others before it. Small entrepreneurs started up companies with passion and vision: they simply wanted to offer consumers greener, cleaner foods. Eventually, they took their brands as far as they could with the resources they had. Some needed greater cash infusions and greater distribution opportunities, so they eventually sold out to conglomerates. Others saw an opportunity to cash out after years of working extremely hard, either moving on to start up other environmentally responsible companies, or retiring.

The wise conglomerates out there have allowed the niche brands they've acquired to continue as they have in the past. This continuity is reassuring to consumers who have come to expect specific values from these brands, whether they purchase them from Whole Foods, a local natural food store independent or the grocery store.

Ted, so a bigger question (at least to me) is why larger conglomerates wait so long to get into a complementary market space either thru M&A, or creation of their own brands.

As already stated, they have the marketing (promotion) and the distribution heft, what are the missing ingredients?

Is this a purposeful investment strategy (wait til a brand achieves a following and then buy it), or is this a function of not being able to read the tea-leaves (pardon the pun) in advance and thus perhaps overpaying for these brands?

Thanks for filling in with more background information, Claire. I appreciate it.

Good questions, Paul. The primary reason the big players waited to get into this niche business? When the natural/organic food niche was experiencing 20% annual growth and the mass market went flat, that might have been incentive enough to jump in at that point. Also: billions of dollars in food/beverage sales were being made at higher profit margins in the natural food biz than in the conventional markets--and which company out there doesn't like to add to its bottom line? Thanks for weighing in guys. I appreciate it.

Ted, let me be a bit more specific. I wonder if marketing is falling down on the job.

I see the attractiveness of the markets (after the fact), but what about marketing anticipating new niches and building organic brands when they could be built (in my opinion much more cheaply) than thru M&A?

Interesting question, Paul. Some grocery chains are trying to do just that. Example: the Nature's Promise brand was developed by Ahold for its U.S. Stop & Shop and Giant Food Stores outlets. Safeway offers Safeway Select; Kroger has the Naturally Preferred brand. With forced distribution into hundreds of outlets, these large chains can get into the game. But it takes time to gain brand recognition and acceptance all the same. . .and these brands were only developed quite recently. So what does that say about getting out in front of a developing trend? It many cases, while costly to purchase an existing brand, conglomerates know that a market exists--a very loyal one--for the brand already. For example, in spite of the myriad cereal choices in supermarkets, Kashi has always been a strong seller. With additional distribution, and attractive profit margins, I'll bet the investment is seen as pretty worthwhile when purchasing brands like Burt's Bees. And another benefit is that the conglomerate gets the kinds of insights it might take some time to research if they went it alone. It kind of helps to have the insider view of things when dealing with real niche product lines, I think. . .Thanks, Paul, for a great conversation.

Here's my take Ted: As we continue to divide into a two-tier society, with a greater gap between rich and poor, it's clear that the natural/healthy/green products are the products of choice of those on the upper end of the spectrum.

Who drinks full-sugar Coke these days? Honest Tea is so much more posh. Ditto Kashi cereal and Stonyfield Farms yogurt. The idea that these are "small, gourmet" brands (and I shared Ann's misperceptions until reading this) also contributes to their upscale feeling.

It's just an attempt to capture the upper end of the marketplace.

Ted and Paul: You both raised some great points in your exchange, and please let me add my two cents' worth.

I feel as Ann does: Stonyfield Farm is one of my favorite brands and I consume their yogurt every day. Danone's purchase of SF might have been a boon to the French food giant. I wonder whether their new Activia line was developed based on the probiotic information Danone received as a benefit of working with SF. Sure smacks of it to me. Activia is a success in the marketplace, I hear. . .

Kashi cereal is another great example. Has anyone noticed that Kellogg's has recently begun to offer whole grains? Could that be an illustration of another benefit derived from the company's purchase of Kashi? Let's just say this: there seem to be numerous benefits mainstream conglomerates can gain from their purchases of niche brands. What value can we place on these acquisitions--other than their purchase cost--in light of getting cleaner, more nutritious foods in the entire marketplace? That's my question.

In actuality, Toad, natural and organic foods used to account for about 6% of the total U.S. food/beverage spend, and it's a bit more than that now, but most of the nation's food dollars are still being spent on mainstream brands in mainstream outlets.

It's funny how things change. Natural/organic foods used to be fodder for hippies a generation ago. . .now they appeal to educated consumers in a more broad-based way. I think growing public awareness about food growing practices and scares about Chinese imports, among other things, might be contributing more to consumers' new food choices more than anything. Sure, it costs more to buy these products, but more and more people are doing it. As far as being upscale goes, we could argue that Whole Foods' markets are positioned in upscale areas, as are other more expensive specialty food retailers. Then there are operations like Trader Joe's that cater to this customer with excellent prices, as well. From my perspective, this hasn't much to do with class structure more than any other kinds of consumer goods. . .Thanks for weighing in, Toad.

I think Honest Tea will suffer a bit of brand dissonance from this deal, among core consumers who buy the tea because it represents everything that Coke does not. That is why on the company's blog the founders went to great lengths to explain the Coke partnership and called it an "Honest Deal." They will alientate some core customers with this deal but more than make up for them with the new ones they gain.

Good point, Sam. Some hard core Honest Tea drinkers may not approve of the deal and stop drinking it. On the other hand, with improved distribution, Coca-Cola will likely pick up more users for the products than ever before. If disgruntled HT afficionados want a "purer brand", they will find alternatives out there. . .they exist. That's what encourages new entrepreneurs into a crowded marketplace every day. Thanks for your insights, Sam. I appreciate it.

Interesting perspective, Claire. One that a former industry insider might have a gut feeling about with some validity. I'm sure many of us never entertained the idea that conglomerates might benefit from their purchases of natural or organic brands and use some of that product knowledge, ingredients, etc to position more nutritional products within mainstream brands. That's a terrific idea if that's what they're doing. . .and as you point out, the cost vs the value derived from that might not be so significant. Thanks for the insight! I appreciate it.

I strongly disagree Ted.
There have been countless books (BoBos in Paradise) and studies done on the bifurcation of our society and the appeal of upscaled 1960s style brands to the upper classes.

Your Whole Foods analogy makes no sense-- of course they locate in upscale areas- who else could afford to shop at the store nicknamed "Whole Paycheck?"

Kraft and Danone's variations are (rightly) perceived as second rate imitations by the BoBos. (Bourgeouis Bohemeians, e.g. blue state affluents) These people would no sooner drink a plain old coke as they would a Budweiser.

Yes, it's just under 10% of the market. But that correlates pretty closely to the percentage of the US population for this class.

Taste is often set from the top down. The food industry is just the latest example.

You can "strongly disagree", Toad. That's what this forum allows everyone to do. Thanks for sharing your opinions with us.

The idea that this food only appeals to high-income consumers is a myth.

Whole Foods has consistently said it does not base stores based on income levels. Its real estate strategy is based on education levels.

I discuss this in more detail in my book Organic Inc. but the Hartman Group has found no correlation between income levels and purchases of organic and sustainable products.

A more accurate concept may be the one proposed in Trading Up. That people spend disproportionately more for brands and products they highly value, whether its Nike sneakers, iPods, or organic food, and trade down to commodity prices for things they value less, and this approach transcends class.

In my experience, consumers will pay a premium price for those products and brands they place a high value on. I agree with our assessment on that, Sam. Due to nutritional quality concerns as well as food safety issues, organic and natural products are also more attractive to many consumers now than ever before. Consumers are more educated than ever before and that is another factor in their "trading up" to more expensive food choices as well. Thanks for adding more dimension to my earlier comments on this issue, Sam. Very articulately stated and most appreciated.

And just how does the Hartman group define "organic and sustainable products," Sam?

Because I'd bet that the more expensive, better packaged ones (e.g. Kashi) wind up in upper income homes far more frequently than lower income ones while the more obscure "hippie" products do transcend class barriers.

As for Whole Foods and their real estate strategy, can you explain the difference between income level and education level with a straight face? Or better yet show me any communities with a preponderance of people with graduate degrees but low incomes? Or vice versa-- a community that's upper income, but filled with high school graduates?

I've never said Whole Food style organics are ONLY purchased by upper end consumers. But they're the ones who can best afford it and it's become a cultural touchstone and as valid a class marker as anything. Whether that's money or education is irrelevant-- these tend to be the same people. I mean hedge fund managers and big firm lawyers tend not to be community college graduates. And these products are standard issue in any upper middle class blue state burb. Which again, does not mean that no one else buys them. But it's an interesting cultural development.

And as with all things that first become popular with the educated and more affluent, there's a trickle down affect as the rest of America tries to get a piece of it as well. Hence the more mass market "organics" which are also more reasonably priced.

"And as with all things that first become popular with the educated and more affluent, there's a trickle down affect as the rest of America tries to get a piece of it as well. Hence the more mass market "organics" which are also more reasonably priced."

Exactly, Toad. That's why the supermarket chains are getting into the act now. There is real money to be made since consumer demand is growing for healthier, cleaner food. As I mentioned to Paul earlier, every major chain has organic private label brands now. Due to their huge purchasing power, these products are well-priced for mass consumption.

Thanks for your input.

Just one other point I'd like to add: consumers are better educated today than ever. And what most of us are also alluding to is that consumers are better informed, as well. The Internet makes information widely available and research proves that consumers are availing themselves of this information to become better informed about product and brand choices. Consumers have also proven they are willing to pony up more money for those products/brands they place a high value on, as Sam pointed out.

Organics and sustainable can be measured by label or source: ie, organic, fair trade, bought at farmers' market. And yes, wealthier people tend to be better educated but not all better educated people are wealthy. That's why organic food does very well in college towns - among the highest penetration and higher than suburbs. Visit Eugene, OR.

Hartman found in the late 1990s that the median income of someone buying organic food was within $2,000 of the national median. They still find this today.

How can this be since organic food is more expensive?

Because most people today buy organic food very discretely - paying up for product categories that they value and trading down for others. Which is why milk, baby food, produce are leading categories but penetration falls way down in grocery. That may change though as organic prices come down and availability increases.

Middle-income people are smart about what they want, and how they shop. And I will be very interested to see how the current economic slowdown and culture of chic frugality will change this.

Very articulately made points, Sam. Thanks for sharing more of Hartman Group's research with me and with Daily Fix readers. I appreciate the input very much.

Here is a perfect example of a new company thats about to explode just got their product on the shelf and they have Major Star power check it out! Press Release Source: Hall of Fame Beverages

Hall of Fame Beverages' HydroPower and Atomic Dogg Grammy Weekend
Thursday February 14, 2:20 pm ET

HOLLYWOOD, Calif.--(BUSINESS WIRE)--Hall of Fame Beverages (Pink Sheets: OGNA - News) reached out to the tastemakers during the Grammy’s. Consumers and tastemakers were made aware that there is a new beverage company with great-tasting products. Street teams had Hall of Fame products at various pre-Grammy and post-Grammy events. Hall of Fame Beverages' participation at the Magic DJ Retreat in Hollywood was a huge success, as DJs from across the country were able to sample three flavors of HydroPower Vitamin infused flavored water and Atomic Dogg energy drink.
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Hall of Fame Beverages also participated as a sponsor at the I.G.A. album release party for the one and only Snoop Dogg. Hall of Fame had plenty of signage and sampling at the event. Many of the DJs and the press thought that Snoop had a new energy drink of his own. The products were well received with an overall consensus that the products taste great.

It was truly an exciting weekend for Hall of Fame. Not only was Hall of Fame able to have a great branding weekend with some top radio jocks, program directors and key DJs from across the country, Hall of Fame also pick up a key retailer for distribution of the products, as Simply Wholesome retail stores and restaurants came on board. Thanks Simply Wholesome!

Check out Hall of Fame Beverages at www.halloffamebeverages.com.

Energy Drink one can of Atomic dogg on Ebay!
one can right now $51.30
unbelievable!

http://cgi.ebay.com/ATOMIC-DOGG-EXPLOSIV...

Pepsico does not own Lipton - Unilever does!

Hi Sean,

New energy drinks continue to flood the market. I suspect that the product has more cachet because it's from Snoop Dogg--so it appeals to the entertainment crowd. Kind of expensive for the rest of us, isn't it? Thanks for letting us know about it so we can check it out, Sean. Great find.

Good catch, Jocelyn. You're right. For the sake of complete accuracy, Unilever owns the Lipton brand and they have a joint venture with Pepsico to bottle ready to drink Lipton teas. http://www.pepsi.com/pepsi_brands/all_brands/index.php

Thanks for setting the record straight, Jocelyn. I appreciate it.