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Reeds -- >>> Kombucha article with comments from Chris Reed -



>>> Soaring sales in the West for another super-premium Asian drink


Thursday, 08 November 2012


http://foodstuffsa.co.za/food-trends-mainmenu-119/new-nutrition-business-mainmenu-121/2510-soaring-sales-in-the-west-for-another-super-premium-asian-drink



Sales of Kombucha, a traditional Asian fermented beverage, are surging, both in its original form and in formats that have been modified to better suit Western tastes. Despite a weak economic backdrop and super-premium pricing, US sales of kombucha leapt by 22% to $327 million (€270 million) in the year to April 2012, driven by the positive health halo around anything that has “live and active” bacteria, largely resulting from the dairy industry’s marketing of yoghurt. Could kombucha be the next coconut water, asks New Nutrition Business.

As so often with innovative new categories, surging sales of kombucha drinks are being driven not by a major beverage company but by an entrepreneurial start-up, which holds a 50% share of the category.

“Kombucha has been one of the fastest growing segments in beverages for several years,” said Rafael Bratman, a product analyst at SPINS. “They’re perceived as a healthier alternative to sodas and juices, with more eclectic and unusual flavour options than other beverage options provide.”

In fact, beverages with kombucha as the primary ingredient enjoyed a 39% jump in sales in US supermarkets and natural-food outlets combined for the 52 weeks ended April 14, up to about $65 million (€54 million) from nearly $47 million (€39 million) a year ago, according to SPINS, a San Francisco-based tracker of sales data in the better-for-you market.

Encompassing a broader category of beverages that combine fruit juices and kombucha, US sales were up by about 22% over the same period, to more than $400 million (€330 million) from about $326 million (€270 million) a year earlier.

Reflecting the ever-broadening appeal of kombucha beverages and the efforts of beverage brands to reach mainstream American consumers, sales even grew strongly in conventional supermarkets, drug stores and mass merchants measured by SPINS – by 56% during the period for the narrow category of kombucha drinks, and by 21% for the wider definition. Both categories grew by 31% over the period in the natural-foods channel.

The pioneer brand in the kombucha business is Synergy Drinks, based in Beverly Hills, California. It was founded in the mid-90s by GT Dave after he credited a home-brewed kombucha beverage with halting his mother’s advanced breast cancer.

Today Synergy makes 17 different varieties of kombucha, maintains close to a monopoly on the ready-to-drink kombucha trade in the natural foods channel – and has reached annual revenues that industry sources estimate at more than $150 million (€124 million) a year.

No other brand comes close, especially after both Coca-Cola’s Honest Tea unit and Hain Celestial briefly experimented with the kombucha trade and then dropped out. Either brand would have had the wherewithal to challenge Synergy Drinks, an independent, over the long haul. As it is now, a number of startups, including Reed’s Inc and Clearly Kombucha, are scrambling to establish themselves as the number two in the market.

“The obvious opportunity right now is to just grow the category and have the number 2 or number 3 position,” Caleb Kargle, president of Top Shelf Beverages, owner of the Clearly Kombucha brand, told New Nutrition Business. “But then you look at the entire beverage industry and what coconut waters and enhanced waters have done, and this is just the tip of the iceberg. Even Synergy isn’t really that big a company yet.”

What is kombucha?

Kombucha originated in north-east Asia and parts of Russia, where the cultured-tea drink is a traditional and fairly widely-consumed beverage. Kombucha is typically produced by fermenting a culture in a sweetened tea (usually black tea, but green tea is also used). Kombucha may be fermented with many different sugar sources, including refined white sugar, evaporated cane juice, brown sugar, glucose/fructose syrups, but it cannot be fermented with stevia, xylitol, lactose or any artificial sweetener.

Kombucha is a symbiotic culture of bacteria and yeasts, which ferments the alcohols produced by the yeast into acetic acid. It has what Bratman called “a refreshing sweet-sour balance” that can be flavoured with fruit juices or spices to add layers of taste complexity. It’s often sold as a fermented-tea product, raw and unpasteurized, and also has some currency as a cocktail mixer, providing subtle flavouring and carbonation to drinks.

Surging sales of kombucha drinks are made all the more impressive by the absence of any human clinical studies to support any claims of health benefits for kombucha.

All sorts of specific health benefits are alleged for kombucha, some with research documentation, some based on folk understandings, some of unknown origin. Among claims made for kombucha are:

• probiotic effects

• energy-boosting properties

• detoxification

• boosting mental clarity

• helping shed or keep off weight

• fortifying the immune system

• liver-detoxifying effects – which make it a popular alcohol-recovery drink.

And while Dave, the founder of Synergy Drinks, tells the story on his company’s website crediting heavy kombucha consumption for his mother’s recovery from breast cancer, the company doesn’t currently claim cancer-mitigation properties for its products. “Still, that is stuck in the public’s mind,” said Chris Reed, CEO of Reed’s Inc, a new-age soda company that has just plunged into the kombucha market with Reed’s Culture Club.

Many health claims made for kombucha have focused on the alleged presence of glucuronic acid, a compound used by the liver for detoxifi cation. However, more recent and thorough analysis of kombucha found no evidence of glucuronic acid.

Instead, the active component is thought to be glucaric acid, which helps eliminate the glucuronic acid conjugates produced by the liver. When these conjugates are excreted, normal gut bacteria can break them up using a bacterial form of the enzyme beta-glucuronidase. Glucaric acid is an inhibitor of this bacterial enzyme, so the waste stored in the glucuronic acid conjugates is properly eliminated
the first time, rather than being reabsorbed and detoxifi ed over and over.

Glucaric acid is commonly found in fruits and vegetables.

WESTERNISED VERSION OUTSELLS THE AUTHENTICALLY ASIAN

The kombucha market has evolved into a couple of different segments mainly because of how strongly Americans feel about drinking full-effect kombucha.

There are what Angela Medearis, a food expert for online supplement retailer Vitcost, called “purists” who are willing to pay for kombucha, often imported from Germany, which includes some of the “mother” culture; purchasing dry kombucha tea is an alternative for this cohort, as are supplement pills.

But many in the consumer mainstream instead prefer a diluted kombucha consumption experience in a beverage that mixes the cultured tea with fruit juices.

“One reason people prefer these fruit-based drinks, like Synergy, is that the purer forms taste sort of like drinking apple-cider vinegar,” Medearis said. “And also some people are just as passionate about the fruit-juice form of kombucha.”

One factor that remains murky about kombucha is whether it’s an alcoholic beverage or not. Some early kombuchas skirted federal regulations which call for any drink above 0.5% alcohol to be marketed and retailed as an alcoholic beverage. Kombucha easily can fall just on either side of that threshold – either intentionally or accidentally, because of poor controls on the activity of the living culture in the drink.

“If you control your process,” said Reed, who has a handful of chemical and industrial engineers on the staff of his company, “you don’t have to have a lot of alcohol formed. A lot of times it’s Amateur Day in the kombucha field. You just have to pay your dues and spend time to develop a good system for keeping stuff non-alcoholic. We spent our time and brewed a phenomenal number of variations so that we could do just that.”

“It’s a naturally energizing beverage, very refreshing, and you definitely get a sense of wellbeing as well as general excitement and energy from it,” Kargle said. “It’s not like taking caffeine or coffee where you become jittery; the buzz people talk about getting from kombucha is from the organic acids and nutrients that are detoxifying your body. It’s also breaking down the antioxidants in the tea and making them available to your body. Once people get a taste of kombucha they want more – they want that feeling again.”

Kargle said that the need to control the alcohol factor was the main reason that his startup company decided to invest in building its own expensive processing plant for kombucha rather than have its products co-packed by a microbrewery or winery, of which there are plenty around Top Shelf ’s headquarters in Fairfield, Calif.

“We found that if you’re truly going to make non-alcoholic kombucha, you need to build your own facility,” Kargle said. “You must be able to have the product do the entire fermentation before it goes into the bottle, otherwise you’re risking secondary fermentation. That’s when you have an alcohol problem.”

The alcohol-formation challenge was enough to trip up Honest Tea despite its own expertise and, potentially, the resources of Coca-Cola behind its kombucha initiative. Honest Tea launched a new kombucha line in January 2010 and “it was very popular,” said Dan Forman, a spokesman for the Coca-Cola-owned company.

But “after a rash of confusion about the alcohol level in kombucha products across the category,” he said, and an “evolving regulatory environment”, Honest Tea concluded that it “could not be a part of the exciting but ultimately challenging category”. It ceased production of kombucha late in 2010.

Synergy’s product line includes 100% raw and organic kombucha, its regular line, in 16oz bottles that retail for about $3.50 (€2.89) apiece, as well as its Enlightened line that includes 5% fruit juices. Executives of Synergy declined requests for an interview for this story.

Reed’s and Clearly Kombucha are two of the companies with credible shots at grabbing on to the No. 2 position – far behind Synergy, at this point. “But we’re actually going after the No 1 spot,” Reed insisted. “We think we do a better job of kombucha than the No. 1 guy.”

Reed’s bravado is based in part on his assertion that “we have more skill in the area of brewing”. He noted that “it’s a very diffi cult project” to set up a kombucha-brewing operation. That’s a good reason a lot of people haven’t jumped in. “We ourselves had a big gamble with it because the technical details of what we were doing weren’t solved until a month before we launched.”

His Los Angeles-based company is a fast-growing, stock market-quoted company, founded in 1992, that has been built on its Reed’s and Virgil’s brands of “natural” sodas and a variety of ginger-based products including candy and ice cream. First-quarter corporate sales rose by 27%, to $6.5 million (€5.36 million).

Despite its challenges, Reed told analysts recently that he was attracted to the kombucha category in part because he believes it can become a much larger category than specialty sodas and, while it costs no more to make than the company’s core ginger-based brews, it can be sold for twice the price.

COMMENT: MAKING INNOVATION WORK

It seems that we always need risk-taking entrepreneurs to show us how to innovate - because most directors at major corporates simply aren’t up to the task of innovation.

The idea of taking a difficult-tasting, odd-smelling traditional Asian cultured beverage - one with which 99% of western consumers have no familiarity - and bringing it to the west to create a new category would have been rejected by most established companies. Indeed any employee who strongly advocated such a course of action could expect to it jeopardise their career.

Yet this is exactly what an entrepreneur has done with kombucha. Over many years, he has created a new category and a new business, called Synergy Drinks, with $150 million in retail sales.

It’s worth remembering that probiotic dairy drinks (Yakult) and energy drinks (Red Bull) were also once both strange, odd-tasting Asian beverages which successfully transitioned to western markets and created some of the most successful - and profitable - categories in the history of food and beverage.

And it was an Indian-born entrepreneur who brought another Asian idea - an energy drink in a 110ml shot - to the west and created the 5-Hour Energy brand which today holds a 70% share of a category worth over $1.2 billion - and earns its owner around $500 million a year in operating profits, making it one of the most successful and profitable innovations in the history of our industry. Every year the senior managements of big companies kill tens, even hundreds of similar concepts.

Senior management at most established companies is too fearful and too lacking in skills to take entrepreneurial risks - which is the type of risk-taking you must follow if you are to make any innovation succeed. Unless established businesses can change their cultures, then the biggest prizes will always go only to the brave new category creators.

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