Why PepsiCo and Dr Pepper Snapple Are Snapping Up Indie Beverage Brands

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Bai Brands

Even as the US carbonated soft drink industry admits that it could do a more effective job of steering Americans to healthier lifestyles while enjoying a choice of beverage options, a couple of key players have responded to the category’s biggest challenge by making huge acquisitions of better-for-you drink lines.

Well, huge by the startups’ standards, anyway. Dr Pepper Snapple Group announced it will pay $1.7 billion for Bai Brands, which makes low-calorie drinks based on coffee-fruit extract and expects revenues to roughly double this year to $230 million. PepsiCo, meanwhile, has agreed to pay more than $200 million for KeVita, a maker of fermented probiotic and kombucha beverages.

Taken together, the purchases are another huge sign that the major soda makers recognize that the best days for Coca-Cola, Pepsi and Dr Pepper are behind them. All the giants have been snapping up healthy beverage brands over the past several years, of course, including enhanced water, coconut water and juice startups.

But the fact that Bai and KeVita have made it to the big leagues of beverage company lineups means that the better-for-you trend has reached a whole new level that wasn’t foreseen even a few years ago.

KeVita

Take KeVita, for example. Until about a decade ago, kombucha was only the strangest-of-strange healthy beverages, consumed by a fringe group of foodies who were so serious about going after the purported nutritional and even  medicinal benefits of fermented drinks that they were willing to slug down the “mother” that lurks in most kombucha drinks—floating globs of cellulose that are reputed to be where most of the healthy bacteria lurk.

Bill Moses, CEO of the Oxnard, Calif.-based company, told brandchannel earlier this year that the notion that most of the healthy flora resides in the mother is a “misunderstanding.” That’s important to KeVita because its own kombucha products take out the mother.

“Our texture and flavor are more mainstream,” Moses explained. “They translate more to the mainstream.”

And how: Earlier this year Moses said that KeVita was on a trajectory to reach about $100 million in sales by 2018 after it roughly doubled its revenue in the past year, to about $60 million.

Meanwhile, Bai sales have exploded, starting with an original line that boasted coffee-fruit extract as a “natural” provider of caffeine. Over the past few years, the brand has added extensions such as Bubbles, a sparkling-water line meant to compete with Sparkling Ice.

“The world is waiting for an iconic, new-age beverage that has the same power and relevance that Coke and Pepsi did 50 years ago,” Bai CMO Michael Simon told brandchannel last year. “The market is ripe for the taking, and we have the proposition and brand that is right where consumers are right now.”

Interestingly, however, it’s possible that the decline in consumption of carbonated soft drinks is losing some of its momentum, especially in diet soda brands. At least that’s one conclusion that can be drawn from the fact that the industry admitted this week that its efforts to cut beverage calories in the American diet by 20 percent over a decade are off to a slow start, the Wall Street Journal said.

US beverage calories per person declined by only 0.2 percent in 2015, according to the study, which was funded by the American Beverage Association. “Calorie reduction momentum has stalled,” the report said.

Soda makers spent $38 million to defeat election season proposals to impose taxes on sugary drinks in four cities: San Francisco, Oakland and Albany in California, and Boulder, Colo. But the companies lost all those fights, the New York Times noted, and now seven cities around the country have a soda tax.

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