By David Pring-Mill
The following text has been excerpted from Sections 3.1—3.1.5 of the Policy2050 report “Opportunities and Risks in the Functional Beverage Market, 2021,” in order to serve as a product sample and fulfill Policy2050’s mission “to keep the most socially-relevant insights outside of any paywall.”
The world of beverages is quickly changing.
What is considered to be the globalization of production from a Western perspective might be the localization of production, according to perspectives held in that foreign market.
The relocation of manufacturing facilities, in some instances, isn’t really about reducing labor costs. Multinationals are avoiding tariffs and logistics expenses by bringing manufacturing closer to the very populous and increasingly middle class consumers in developing markets. These are either the markets where the manufacturing is occurring or they’re adjacent to it.
But can some of that manufacturing be brought even closer to the consumer?
What if it is miniaturized and relocated within that consumer’s own home?
Yes, the greatest market opportunity for makers of functional beverages might sound a little ironic or counterintuitive:
Empower the consumer to make their own beverages.
As established earlier in this report, consumers are interested in the processes behind functional beverages. The process can be an indicator of quality and a justifier for premium pricing. An understanding of process, and participation within it, could be a way of ultimately merging the functional beverage product into the consumer’s social identity and lifestyle.
But not everyone has the time or the patience to nurture kombucha cultures, or infuse nitrogen gas into their coffee. Still, they want the ability to make their own drinks, in their homes, in order to go out less and spend less.
The solution could be as simple as purchasing a new beverage system, inserting a beverage concentrate into the system (as a biodegradable or recyclable capsule, or as a powder), and then pushing a button. The functional beverage would be made and poured, replicating the innovation and growth of coffee systems but in a different beverage category.
This beverage industry transformation could serve the interests of public health, if sustainable practices are upheld across the product lifecycle and if low-calorie beverages with functional active ingredients are substituting sugar-sweetened beverages devoid of nutrition.
Given the social determinants of health and health inequalities, the products would also need to be affordable.
These are big ifs but the opportunity, perhaps even the inevitability, is there, with the pandemic potentially acting as a driver in multiple ways.
The Precedents in Coffee Systems
Today, a search for a single-serve, combination, or specialty coffee machine turns up an overwhelming number of options, from established appliance brands such as Nespresso, Keurig, De’Longhi, Philips, Breville, Mr. Coffee, Cuisinart, Ninja, and many others.
Some of these machines aren’t compatible with capsules and pods made by other manufacturers. There’s an obvious comparison here to Apple, with its unique connectors and “walled garden” approach that sometimes provokes frustration among consumers and developers alike.
The probable business intent here is obvious: the machine is designed to lock the consumer into loyal consumption (see “vendor lock-in”) and to protect investments made in developing the technological IP. At times, there may also be legitimate technological considerations.
But does customer loyalty really work that way?
If the capsules and pods meet a certain standard of quality, the answer may be yes. Pods have been a very high growth category. However, in some cases, consumers might not like the quality or variety of pods available to them for their chosen machines. This means that some brands might end up with resentful, not loyal, customers. Consumers may continue their consumption resentfully or regretfully, until DIY hacks inevitably emerge.
A large number of overly restrictive machines will likely end up in landfills, undermining sustainability commitments. The non-compatibility also hinders consumers from exploring the different biodegradable, recyclable, and reusable pods that have been invented. They are locked not only into one product but into one company’s idea of what “eco-friendly” looks like.
Organizationally, all of this could be seen as a fear-based move. As we all know, fears can be both rational and irrational; what is this fear doing?
It’s an admission to the consumer that in a competitive marketplace of capsules, your brand might not win. It also removes the pressure to develop a more flavorful, sustainable, convenient product, in order to win. It intensifies the conflict between short-term growth and long-term evolution.
With the huge influxes of venture capital today, there’s no stopping innovation. We will likely see a lot of change in the coming decades.
To fully explore the functional benefits that could be delivered to consumers via beverages, companies will need to reinvent their processes. And industry-leading companies might come up with inventions whereby the consumer can “own” a part of that transformed process.
As these transformations escalate, coffee shops and other on-premise points of consumption may need to find ways to reposition their own value. Technologies and pandemics will continue to recontextualize their offerings.
Due to the structuring of incentives that was well-documented in Clayton Christensen’s “The Innovator’s Dilemma,” some of these inventions will likely come from outside disruptors.
It has happened before.
For several years in the early to mid-1990s, two former college roommates turned business partners were on a mission to transform the office coffee machine. Working out of small offices in Waltham, Massachusetts, they hacked together prototype after prototype.
One of the founders was so obsessed with drinking copious amounts of coffee (his entrepreneurial fuel) that he had to go to the ER after experiencing tunnel vision.
He was John Sylvan, his partner was Peter Dragone, and the company they founded was called “Keurig.” Why that name? Because it sounded credible, and “everyone likes the Dutch.”
For a while, investors didn’t get it. Ultimately, manufacturing expertise, capital, and Green Mountain Coffee Roasters accelerated the invention’s trajectory and led to the creation of a category as well as the corporate entity Keurig Dr Pepper Inc.
But in a twist of events, John Sylvan essentially disavowed his idea.
Sylvan never envisioned the product being used outside of offices. He has expressed regrets over the environmental impact (though the matter is nuanced) and he thinks the pods are too expensive. He also partly rejects the value proposition he came up with, telling The Atlantic: “It’s not like drip coffee is tough to make.” He said this in 2015, when pod-based coffee machines had successfully entered into one of every three American homes.
The devices offer convenience and, as Sylvan originally intended, they decimated vendors of low-quality office coffee that used to sit in pots and burn.
Before turning on his own idea, Sylvan saw the appeal of pods as such: “It’s like a cigarette for coffee, a single-serve delivery mechanism for an addictive substance.”
In interviews, John Sylvan alluded to a centrifugal method that could be used instead.
“There’s other ways to do it, but they’re not exploring other ways to do it,” Sylvan told the CBC. “You can stick your head in the sand and ignore it… or you can address it from an engineering standpoint.”
“I told them how to improve it, but they don’t want to listen,” Sylvan told The Atlantic.
When asked for an explanation by public health journalist James Hamblin, he replied, “Take coffee and put it in a centrifuge, and it comes apart. Then you take the parts and combine them back when you make the coffee. So you could use something like a ketchup foil pack, and the separate parts won’t become oxidized when they’re stored and transported. Then you can combine them again at the last minute while making the coffee.”
Coffee systems have now evolved beyond K-Cups.
The latest coffee systems read barcodes on the perimeters of capsules. The decoded instructions prompt internal mechanical processes, affecting the levels of water added and foam created.
However, the environmental impact and proposed sustainability measures are still questionable.
Will the average Nespresso machine user, for example, really put their potentially molding pods in a green bag and mail them for someone else to separate at a facility, as the company now enables in many regions? Can this be fairly called eco-friendly?
There have been peaks and valleys but, overall, the coffee pod machine category escalated from 1.8 million units sold in the U.S. in 2008 to 20.7 million sold in 2018, according to Euromonitor.
As is the case across the beverage industry and consumer packaged goods, a few key players dominate the new market.
Coffee pod machine category growth has previously been driven by recession-related behaviors. Even without the social distancing and quarantines layered on top of economic downturn, consumers have viewed these machines as a way of cutting back on their spending at coffeehouses.
A 2020 survey from the National Coffee Association showed that 7 in 10 Americans drink coffee every week, and they’re increasingly less likely to prepare their coffee in a drip coffee maker. From 2015 to 2020, that traditional method is down by 24%.
Along with this growth, recycling programs have been devised for coffee pods that wouldn’t, or couldn’t, be recycled otherwise, typically due to the inclusion of different materials in their composition. Aluminum is a frequently used material, both in packaging and in pods, because it’s impervious to oxygen, which preserves the coffee and extends the shelf life.
Collection points and even return packaging with prepaid postage are meant to give the consumer recycling options.
According to 2017 figures from Halo, the producer of a compostable paper capsule for coffee machines, 39,000 capsules were being produced every minute globally. And up to 29,000 of these capsules ended up in landfills.
One counterpoint to the environmental impact-related criticisms is that capsules result in drinks being made more efficiently, which in turn reduces the impact and energy/water usage associated with coffee production and the energy/water usage associated with brewing, versus flash-heating only the amount of water that is needed, as the new machines commonly do.
Even though John Sylvan has regrets, Keurig Dr Pepper Inc. seems happy with these now ubiquitous coffee systems.
In an investor call with BofA Securities and Morgan Stanley, Keurig Dr Pepper Chairman and CEO Robert Gamgort said that he sees at least 10 years of strong growth ahead, at a time when other consumer packaged goods companies don’t have a line of sight to that kind of growth.
“Household penetration is the single biggest driver of our coffee system growth. It’s the key metric to focus on for the long-term health of this business. We last updated that, because we only do it once a year, in Q4, on our Q4 call, so it’s about 9 months old. But the number was 30 million American households. And if you look at that 30 million American household penetration number and you compare it to 2015, which is when KGM was taken private, that’s an increase of over 40%. About 9% compound annual growth rate. And there are very few if any CPG companies that can talk about that level of real growth.”
— Keurig Dr Pepper CEO Robert Gamgort, Investor Call, September 29, 2020
For many multinational corporations, setting sustainability goals and establishing sustainability programs is a way of aligning closer with the modern consumer. In public forums, companies are now unlikely to dispute the need for more sustainable practices or the occurrence of climate change itself. The tensions have shifted to whether their rhetoric is supported by action, and how that action is measured.
When the rhetoric and action is centered on “neutrality,” both in terms of “carbon neutrality” and “water neutrality,” companies are perhaps more subject to criticisms.
The intersection of accounting methods and policy creates a lot of wiggle room; in both the 2016 and 2020 presidential debates, former President Trump boasted that his tax avoidance was an indicator of his own intelligence. Accounting for externalities amid human-driven climate change, through cap and trade, carbon pricing, and international programs, opens the door to even more so-called “intelligence.”
Is there an honest way forward?
Any large company, making anything on a global scale, will consume an enormous amount of resources, while serving the needs and wants of an enormous number of people.
This is not to suggest that there aren’t qualitative and quantitative differences in the sustainability of different companies’ operations. However, the scale of production, distribution, and consumption does mean that any actual reductions, as a metric, will be less disputed than offsets. Why? The global scale not only dictates a high level of consumption; it also enables a new form of inequity related to where, and in what form, those alleged offsets occur.
For example, a beverage company could effectively drain one water basin, perhaps devastating the local farmers or community, then make a donation to a project somewhere else.
As environmental consultant William Sarni wrote in a 2009 Harvard Business Review article, investing in watershed and water use projects may be “something akin to the controversial practice of carbon offsetting,” but ultimately, “water is not carbon and the concept of offsets doesn’t translate well to water.”
An investigative report from The Verge, in partnership with The Investigative Fund at The Nation Institute, noted that The Coca-Cola Company has historically kept distribution costs low across its global operations by tapping into local water resources. The practice can be traced back to soda fountains in the late 1800s. Concerns in the early 2000s around water-stressed regions made the company a target of public ire.
Coca-Cola made strides towards water neutrality and discovered, through a 2008 assessment, that it took 35 liters of water to make every half-liter of Coke. The researcher who conducted this assessment says that the company tried to pressure him into adopting a more flattering accounting method.
The issue for food and beverage companies is that most of the total water footprint exists outside of direct production. It’s also used in the manufacturing of packaging materials and by the agricultural supply chain.
The Coca-Cola Company issued out a 3-page statement for inclusion in the reporting by The Verge, which noted that the company routinely evaluates and works to improve its sustainability performance.
What does all this mean for the potential category creation being discussed?
Bottling operations are already dispersed around the world. This is connected with the franchising model but it also localizes water usage and regionalizes logistics.
An at-home beverage system that uses a concentrated product would relocate the water usage to the ultimate consumer’s own tap, and it would eliminate the environmental impact associated with the transport of heavy glass bottles and water. It would reduce the recycling difficulties associated with the various forms of packaging that are presently being used (sometimes, unnecessarily).
It would not eliminate water and energy usage embedded in the agricultural supply chain, or any usage associated with the production of the concentrate. Such a pivot would likely place the environmental focus on the eventual fate of any capsules used and the machines themselves, mirroring what has already happened in the coffee machine category.
Reliance on tap water in the home would introduce new challenges. The variation of tap water quality, both regionally and globally, could make it harder to exercise quality control over the final beverage product. According to UNICEF and the WHO, 1 in 3 people globally do not have access to safe drinking water.
“The Soft Drinks Companion: A Technical Handbook for the Beverage Industry” (Shachman, 2004) explains that water usually accounts for 87 to 92% of the final bottled content in a carbonated soft drink. This means that the quality of the water that is treated and used will have “a critical impact on the taste of the drink, its appearance, and its physical and microbiological stability on the shelves in the store.”
The industry’s raw water, most commonly derived from the municipal water supply, may have already been treated but unique chemical characteristics and components have to be neutralized in order to standardize the quality of the soft drink and maintain the international beverage brand.
Author Maurice Shachman, a former technical manager at Schweppes South Africa, further explained that seasonal or environmental changes in the source conditions may contribute to these undesirable water characteristics. Temporary problems at municipal water treatment plants, or the absence of such facilities in underdeveloped countries, also necessitates on-site water treatment for quality control.
The hypothetical use of a new at-home functional beverage machine might also require the use of an at-home water filter or purifier, either internally within the machine or externally, as a separate system or directly on the faucet.
It is possible, but far from certain, that this category creation would advance the interests of sustainability. Companies could make sustainability more likely, or at least mitigate adverse impact, by:
- Selling the concentrate as a powder in a recyclable container, or selling it in a biodegradable capsule.
- Creating systems with vendor-neutral compatibility. This reduces the chances that a consumer will needlessly buy multiple systems in order to access the full variety of concentrated products. This also incentivizes the beverage maker to deliver a quality product that ultimately improves customer lifetime value as well as sustainability.
- Iterating rapidly through capsules and concentrates to meet consumer needs, more effectively, safely, and sustainably, while slowing down the iteration and release cycles of the machines.
- Implementing a repair and recycling/rebate program for the machines themselves.
- Designing the machines so that they can be easily taken apart and recycled.
- Owning doesn’t always mean using. This can be confirmed through a quick scan of the cobwebbed exercise equipment and various contraptions in garages and storage lockers across the United States. Companies must create a flavorful, functional, and compelling end product, or else the system will be inherently wasteful.
Electronic waste accounts for 2% of what is dumped in landfills but the breakdown of metals and chemicals is especially problematic, meaning that these trashed electronics account for 70% of the toxic waste in landfills.
This category creation is more easily justified on the basis of meeting the evolving needs of consumers.
There are many strong tailwinds to support this functional beverage machine concept.
- COVID-19 caused interest in health/wellness products to surge. When considering this as a key driver of category creation, even the supplements market size becomes a valid reference: an estimated $151.9 billion in 2021, according to one market research firm, and possibly even higher, according to others.
- The pandemic caused people to stay at home, decreasing their on-premise consumption of beverages and causing the formation of new consumer habits, including an increased reliance on technologically-facilitated commerce and consumption. D2C models, with discounts via subscriptions, is the most obvious adaptation here. However, the capsules or concentrates for these machines could also be distributed via other machines; that is, vending machines, especially in markets like Japan where that infrastructure is both pervasive and frequently used.
- Personalization is a trend and a tailwind. Personalization has already become the mantra of data-driven marketing. However, it’s possible to have a personalized ad or promotional offering for what is, ultimately, a mass-produced, standardized, or commodity product. Now personalization is gradually becoming more evident in products themselves, especially with D2C business models cutting out middlemen/extraneous distribution channel considerations and putting the focus more squarely on customer satisfaction/retention. (Most notably, D2C beauty brands are already testing and pioneering the idea of personalized formulations.)
Some new beverage machines might focus on trends and demands that are particular to certain markets. In European markets where mineral water is popular, a machine-based attempt at the on-site mineralization of water is currently being explored. The Polish company aQuality is leveraging proprietary technologies to explore this use case for large estates, factories, office buildings, fitness centers, and public institutions.
- These machines could be framed as a productivity booster. This is actually what led to the further development of espresso machines over a century ago, as well as the energy drink category in Asia. People essentially wanted or needed “fuel” to work more productively, and they wanted to consume that fuel more productively, as well.
- Coffee machines have achieved a high rate of household penetration, which in turn leads to coffee consumption and category growth at a time when other consumer goods aren’t faring especially well. The widespread familiarity with coffee machines already on the market reduces the learning curves and barriers to adoption for functional beverage machines. It also suggests that such machines could lead to increased levels of consumption within applicable functional beverage categories, potentially helping to address nutritional deficiencies that are alarmingly high in the population.
- Freshly-prepared drinks might be more “functional.” One of the key challenges facing the functional beverage categories is active ingredient deterioration in pre-mixed drinks. Not every healthy or functional ingredient is water-soluble (see Risk #2 in this report).
This has limited the functional beverages that can be delivered to consumers at the actual time of consumption, though Karma Water found a workaround through a pushdown cap that separates the active ingredients. A functional beverage machine could act as another workaround for this problem.
Currently, the unique value proposition and credibility of the functional beverage category could be gradually undermined by tests that expose active ingredient deterioration and inconsistency in the levels of both desirable and undesirable properties.
- The perception of new conveniences has historically driven innovation across consumer appliances. Today, consumers with lighter wallets and tighter home/office spaces expect to be able to do more with less. A McKinsey survey showed that Chinese consumers, who are evaluating price and value through a new lens due to the effects of COVID-19, now look for more utility in small domestic appliances. Chan et al. (2020) observed: “the share citing ‘multipurpose’ as one of the top three attributes or factors they consider when making purchasing decisions increased by ten percentage points compared with before the outbreak. That share is four times larger than the share who said low prices were a top consideration.”
That survey also indicated that Asian consumers intend to remain brand loyal during these troubled times, provided they can find a promotion, especially in the consumer durables category. This might also suggest that a consumer in this region who selects a specific functional beverage machine brand would be more inclined to purchase the concentrated beverage products from that same brand (even if it accepts “third-party” capsules/formulas).
- Consumers’ perceptions of convenience might act as both a tailwind and a headwind, and it depends largely on people’s days. While it’s convenient to be able to make a beverage in your own home, at any time, that investment in a machine and capsules or concentrates does you little good whenever you’re outside, running errands, or at work, and overcome by thirst. In these situations, bottled or canned beverages are solving the inconvenience of carrying around a bottle or thermos.
According to findings from Alliant, which provides data-driven audience optimization for consumer marketers, food and beverage delivery services and subscription boxes saw an uptick in customer acquisition during March-June 2020, with a 46% increase in the average order value per new customer and a 117% increase in total sales from new customers.
D2C tends to be most popular with younger consumers but the risks of shopping during the pandemic appears to have made subscriptions more viable with older demographics. Alliant stated that “new customers in this category are slightly older and have 8% lower income on average compared to new customers acquired in 2019.”
If the outlined conditions are met, this could be a rare opportunity to simultaneously improve both public health and sustainability.
Likewise, fundamentally transforming consumer habits in a massive, non-alcoholic drinks industry, which is expected to generate per person revenues of US$153.17 globally in 2021, would be no small feat. Success in this regard would indicate that a new level of agility is present in the industry that might continue to pay dividends, literally and figuratively, over the coming decades.
Given the attention-grabbing, rapid advancements in AI and related or directly impacted fields, the beverage industry may not seem like the most obvious space for innovation. However, another leap forward in beverages is perhaps inevitable…
- It took inventor Gail Borden Jr. three attempts in the mid-1800s to commercially manufacture sweetened condensed milk, and the American Civil War to initiate the demand.
- Nestlé’s company history states that “the 1943 US patent for Nescafé mentions using the same method to make an instant tea powder.”
- Crystal Light debuted in the early 1980s, and has since been positioned as a means of promoting hydration for female consumers specifically.
Continued advancements in domestic appliances have the potential to introduce new levels of convenience to these already familiar markets. Machines can automate processes that might be considered tedious, even if it’s simply measuring, stirring, or blending, and could also be used to ensure desirable consistencies, or to combine ingredients that need to be packaged separately.
A startup pioneering this category could test product/market fit through a crowdfunded prototype or through pre-orders.
A multinational beverage company might be more inclined to do a limited rollout in a test market. New organizational approaches and manufacturing advancements have expedited product development and reduced financial risks that previously might have deterred such testing.
In a post-COVID world, a pop-up retail strategy might be another way of testing the market and building social media buzz.
Some of the existing patents that currently apply to coffee machines, for functions such as water extraction, flow control, and foaming, would likely retain their relevance in this new beverage machine category.
Much can be learned from attempts at similar or adjacent innovation.
Already on the market:
- an extremely wide array of coffee and tea machines;
- soda machines for soda, sparkling water, and flavored sparkling water;
- an extremely wide array of juicers and blenders;
- cocktail, margarita and slush machines;
- electric milk steamers and frothers;
- increasingly compact water dispensers with heating/cooling/filtration/self-cleaning functionality;
- a machine that claims to streamline herbal infusion through the insertion and activation of “herb pods;”
- bubble tea equipment/automatic fructose dispensers;
- craft brewing/wine making kits;
- kombucha brewing kits;
The list goes on. And yet, these machines still do not match the variety of beverages that is available in a grocery store beverage aisle. It’s highly unlikely that we have already seen the end of machine-based category creation in the beverage industry.
A few specific examples may warrant further attention.
(1) The cold Keurig machine developed in partnership with Coca-Cola, and PepsiCo’s SodaStream business:
In 2014, it was announced that Coca-Cola and Green Mountain Coffee were developing a cold Keurig machine that would reduce the usage of plastic bottles and make the branded cola product. In 2018, rival PepsiCo acquired SodaStream and built on that attempted category creation. What happened to the at-home Coke machine?
It was discontinued, resulting in different business analyses as well as some residual Amazon reviews that indicate what some consumers thought.
One reviewer said that some of the pods resulted in the type of carbonation and consistency that you might get from a fast food restaurant soda machine that overly dilutes the syrup. A reviewer with a disability lamented that the system had been discontinued, as the home delivery of pods made the beverage category more accessible than the alternatives: lugging around soda bottles/cans, or CO2 cylinders for a SodaStream. (The Spärkel beverage system, currently on the market, requires small carbonator packets instead of CO2 tanks.)
Business media post-mortem analyses centered on the high price of the Keurig Kold machine, the counter clutter, the time it took, the noise it made, the lack of reliability, the lack of volume options, the risk of overheating, the perception that it couldn’t match the taste of known beverage brands despite using name-brand pods, and the decline of soda sales generally.
All of these points have relevance for any new functional beverage machines but that final point illustrates both an irony and a lesson: if consumers are less interested in a beverage category in general, why would they be exceptionally interested in making that beverage at home? As obvious as it is, new machines must align with the consumer.
The category creation made sense as an attempt to transfer strategic success with innovation in hot beverages to the cold beverages market; the latter is attractive because it has more variety, higher total sales, and higher relevance throughout the day. The technical innovation wasn’t all transferrable; new functionalities were introduced in the forms of cooling, carbonation, and sanitary dispensing.
From a consumer perspective, ease and convenience were the qualities that supported innovation in coffee pod machines but in the Keurig Kold machines, consumers saw bulkiness, noise, and a slow process, i.e. inconvenience.
Furthermore, coffee has historically been made and consumed in homes, in addition to coffee shops, whereas sodas originated in soda fountains and previously only came to homes in ready-to-drink bottles, cans, and packages. These lingering cultural associations could conceivably delay or deter category adoption, according to a take by Zacks Investment Research.
Around the same time that the Keurig Kold machine was announced, a smaller company called Lavít announced its own machines for still and sparkling beverages. However, they set their sights on the office water cooler, similar to how John Sylvan originally targeted the office coffee machine.
On December 15, 2020, Coca-Cola European Partners, a Coke bottler, completed an investment in Lavít, of an undisclosed amount. This came five years after the dual launches of Lavit and Keurig Kold, at a time when consumer behaviors have been further altered by a global pandemic.
It is perhaps fair to characterize all of this as “white space,” where the world’s largest beverage companies have sensed but not adequately addressed consumers’ unmet or unarticulated needs/wants.
PepsiCo’s characterization of its own SodaStream business as “far from its potential” doesn’t bode especially well for new innovations, either, though specific problems could be cited with their execution in the marketplace
On their Q2 2021 earnings call, PepsiCo CEO Ramon L. Laguarata commented that SodaStream has very solid penetration in some Central European markets, but the U.S. is still gaining household penetration and it’s low everywhere else.
PepsiCo has experimented with marketing techniques to boost awareness and sales, such as a limited edition, ’90s-style, colorful and semi-transparent SodaStream machine, bolstered by a celebrity-driven sweepstake that grew Instagram followers by 43.6%.
SodaStream looks more promising if it’s viewed as part of an overarching strategy that accounts for new consumption models, generates insights, and leverages other beverage brands.
Laguarata explained, “The latest thing we’re doing and it’s working quite well is putting some of our large beverage brands into the SodaStream, let’s say, consumption model. We started in Europe. In the U.S., we started with bubly.”
The bubly brand is described by PepsiCo as an unsweetened sparkling water, available in 16 different flavors. These flavorful bubly drops are “an enhancer of the SodaStream experience,” and the company is trying to actively push this combination.
On the issue of strategy, Laguarata concluded, “We continue to build the direct-to-consumer model, trying to get many more insights on consumption behaviors, and that is helping us not only to develop the SodaStream business but to develop the rest of our innovation and categories. So, a pretty good ecosystem we’re building of consumption at-home, but also insights and innovation for the broader business.”
(2) A juicer machine that, according to some perspectives, made juicing more complicated:
In 2017, multiple media outlets mocked a new beverage machine startup called Juicero, which was founded by a juice bar entrepreneur, subsequently led by a former Coca-Cola executive, and significantly backed by investors, including Alphabet Inc.
Consumers were supposed to insert relatively fresh packs of pulped fruits and vegetables into the cold-pressed juicer. But first, a WiFi connection had to be established and a QR code on each pack had to be scanned. Ostensibly, to check for expiration or recalls, but also to restrict the ecosystem, according to critics.
It’s easy to imagine the business case that had been used to solicit investments, particularly given the hype that existed around meal-kit subscription business models. In 2017, Blue Apron and HelloFresh had IPOs. Jamba Juice was finding a place in pop culture.
A Bloomberg product trial, which was videotaped, and other analyses suggested that the complicated machinery was gratuitous: customers could simply squeeze the juice packs directly into a cup. Juicero maintained that its unique value proposition was essentially reduced mess, but offered refunds.
The lesson here is clear: Don’t make your beverage machine a Rube Goldberg machine.
(3) L’Oréal’s forthcoming at-home makeup machine:
L’Oréal launched a tech incubator lab to rethink cosmetics in the age of D2C. They’re even creating a device, called Perso, which will create personalized skincare, liquid lipstick, and foundation. Users take selfies on a mobile app. Algorithms assess skin conditions and skincare goals, as well as local temperature, humidity, air pollution, and environmental factors. Then the product is formulated within a proprietary three-cartridge system, right on the consumer’s counter. The formulations can even be color-matched with the outfit of the day.
It remains to be seen whether these technologies can truly personalize cosmetics in a way that isn’t already achieved through the abundant variety of beauty products already on the market. For example, in the U.K., H&M’s assortment of beauty products increased by 94.8% from 2018 to 2019… but perhaps that isn’t the point.
Provided the cartridge-created formulation matches or exceeds that standard of quality, the consumer might be won over by this technological wizardry. On the flip side, what if the process that is being streamlined, the search for new cosmetics, is a fundamental aspect of the category’s appeal? Either way, this is another attempt at category creation, which would usher in a new era of micro-scale “manufacturing,” inside a device, inside the consumer’s own home.
For category creation to succeed, category creators sometimes need to enlist the support of early adopters or change-makers. In beauty/lifestyle categories and noisy channels, influencers are trying to stand out by creating original, lifestyle-related social media content that essentially positions them as trendsetters. Perso naturally aligns with those ambitions, and so an influencer marketing strategy could propel growth.
With functional beverages sometimes centered on the same health/wellness/lifestyle imagery as beauty products, there are lessons to be gleaned from the imminent launch of this L’Oréal product.
Will underinvestment hinder this type of category creation, or cause companies to prematurely mark these attempted pivots as failures? What are the limits of personalization in a product, or in a product that essentially creates other products? Even personalized medicine and nutrition are now in the works. It seems we are on the cusp of fundamental changes in consumption.
The full report “Opportunities and Risks in the Functional Beverage Market, 2021” is now available for purchase on Policy2050.com.