- Big beverage appears to be watching the new calorie-burning category very closely.
- Nestle's new product will most likely be only as good as the science behind it.
- The beverage industry is asking, "Why stop at zero calories?"
The giant international food & beverage company has employed a team of eight scientists to develop a beverage that, if successful, would stimulate the raising of a body's metabolism in the same way that moderate exercise does,Bloomberg News Service reports. It is expected that the product will be in development for at least two years.
It will be interesting to see if Nestle's move, into this category, will be followed by similar moves on the part of Coca-Cola (NYSE:KO), PepsiCo (NYSE:PEP) and Dr Pepper Snapple Group (NYSE:DPS).
There has been growing concern in the C-suites of these companies over the slowing sales of traditional soft drinks that contain high-fructose corn syrup and other ingredients. Increasingly, these traditional beverages, the foundation of many big beverage portfolios, are now coming under scrutiny by consumers, and regulators, who are concerned about the health effects of these products.
At the same time, there has been tremendous growth in the non-traditional beverage category, including such products as enhanced waters, specialty teas, energy drinks, coconut waters, sports drinks and functional products that target a variety of consumer interests including relaxation, mental focus, digestive health, hangover recovery, relief from stiff bones and joints, etc. The size and scope of the functional beverage market has been estimated to be approximately $60 billion, according to Euromonitor.
Subsequent investigations into the product's assertions yielded the conclusion that the Enviga product did not have substantial proof, on a scientific basis, to validate its marketing claims of being a calorie-burning beverage. An agreement between Coca-Cola and Nestle, along with 27 State Attorney Generals, was eventually reached to resolve the dispute over false advertising, promotion and marketing. The two companies also agreed to pay a total of $650,000 in fines to settle the matter.
It's nice to know that despite their previous setback, Nestle (OTCPK:NSRGY) continues to work on the development of a calorie-burning beverage. It seems to show their confidence that the calorie-burning, or negative-calorie beverage category does have a promising future.
The launch of Celsius, the world's first and only calorie-burning beverage, came in 2005, almost two years before the introduction of Coca-Cola and Nestle's Enviga product. What set the Celsius product apart, and ultimately differentiated the product from Enviga, was the fact that prior to bringing the product to market, the company conducted clinical studies to validate the efficacy of its calorie-burning properties.
The importance of these clinical studies cannot be emphasized enough. The scientific evidence to support the advertising and marketing claims by Celsius also helped the company to prevail in the California Courts when a class-action lawsuit was brought by a disgruntled consumer.
We believe that it is exactly the kind of publicity that we saw last week in Nestle's announcement that could act as a catalyst to finally create awareness of Celsius Holdings, Inc. and their products. Here is a company that not only has been successful in a new beverage category, which they pioneered, but they have accomplished something that two of the most prominent beverage industry giants could not do effectively, and yet nobody knows about them.
The ramifications for investors appears to be that many of the most exciting, and profitable, investment opportunities may come from smaller, lesser known brands that are attracting the attention, not only of consumers, but also of the big beverage companies.
Following these new beverage trends, and the products behind them, requires keeping a close watch on many of the smaller entrepreneurial type companies that have not only developed exciting new products, but have demonstrated success in their branding and marketing to consumers.
It is within these smaller companies where the impact of a newly-created and successful brand will be most keenly felt. The contribution, of a fast-growing brand, to a small company's top-line could be meaningful, whereas it would barely be noticeable on the financial statements of a beverage industry behemoth.
With revenues through the first nine months of FY 2014 amounting to just over $10 million, we are of the opinion that the progress being made by Celsius is being watched closely by beverage industry executives.
The beverage industry landscape is littered with small entrepreneurial companies that have failed, but the likelihood of success increases exponentially if a smaller brand can carve out a unique and exciting new niche, where they can attract a consumer following, and experience enough "sell-through" to carry the brand across the chasm.
While it may still be too early to ascertain the long-term appeal of calorie-burning or negative-calorie beverages to consumers, preliminary results compiled from Amazon's web site regarding reviews of Celsius products show that many of those consumers who try the products like them; for taste, for increased energy and for better stamina during exercise and workouts.
While Celsius has yet to reach the mainstream consumer, Nestle's reemergence in the calorie-burning space, makes it hard to argue that the marketing executives over in Switzerland don't see the future value of this beverage category. As the Bloomberg article points out "You can't be 100 percent certain of the outcome. It's expensive. If anyone is to explore it, it would be a company like Nestle."
We will continue watching this space very closely for any additional insights, updates or new developments. It will be interesting to see the reaction to this news, if any, by the big beverage giants Coca-Cola, PepsiCo and Dr. Pepper-Snapple Group. Other smaller companies in the food & beverage space such as Bebida Beverage Company (BBDA), High Performance Beverage Company (TBEV) and Creative Edge Nutrition, Inc. (FITX) should also benefit from the recent consumer trend in new age functional beverages.
Disclaimer: The opinions expressed herein are exclusively those of Altitrade Partners. We do not provide investment advice, and do not offer buy and sell recommendations on any securities mentioned in our reports. For additional information, including our full disclaimer, we invite you to visit the Altitrade Partners website at www.altitradepartners.com