The search for the perfect coffee bean keeps Alton McEwen travelling around the world for nearly four months a year. McEwen, president of Second Cup Ltd., one of Canada’s largest specialty coffee retailers, went to Costa Rica four times in the past year alone. This month, he has introduced his latest find to Edmonton, a city where surveys have shown that customers prefer a stronger tasting coffee than their eastern counterparts. The new brew being test-marketed is a rare bean called Vista Alegre, from an estate in southern Brazil of the same name. If it proves popular, McEwen said, it will soon be available at all 177 Second Cup outlets across Canada. McEwen, a former food company executive, says that he never expected to have to go to such lengths when he bought Second Cup five years ago. But he added that it is now necessary to stay ahead in the intensely competitive $4-billion Canadian beverage market.
Lured by the chance to earn even a small share of that huge market, manufacturers
now offer consumers not only rare and exotic coffees and teas, but a bewildering array of clear colas, private-label soft drinks, bottled mineral waters from around the world, low-alcohol beers and so-called New Age juice-based drinks. The beverage industry has also become increasingly segmented—some analysts would even say fragmented—as it tries to come to grips with consumers’ conflicting demands that their drinks be healthy, convenient, affordable and provide a little variety in their lives. “People are questing for change,” said Tom Pirko, president of Bevmark Inc., a Los Angeles-based beverage industry consulting firm. He added, “And that’s true, whether it’s a new prime minister, a new president or a new soft drink.” As a result, Pirko said, the competition this summer, traditionally the busiest season for the beverage industry, will be particularly aggressive. “It all comes to the table this year,” he said. ‘This selling season is the most important in the past generation.”
Few beverage companies will have more
at stake this summer than Coca-Cola Co. of Atlanta, Ga., and PepsiCo Inc., based in Purchase, N.Y., along with their Canadian subsidiaries. As the world’s two largest soft-drink companies, they dominate the market for non-alcoholic beverages. But every new beverage manufacturer tends to take a chunk of their market. Low-alcohol beers, for one, with less than one per cent alcohol, have made dramatic gains since they first appeared on grocery store shelves in 1990. Said Ian Osier, an industry analyst with'Torontobased Sprott Securities Ltd.: “Their share has to come out of somewhere— tea, coffee or, most likely, soft drinks.”
Still, it has been private-
label or store brands of soft
drinks, including the highly successful President’s Choice cola at Loblaw Companies Ltd., that have cut most deeply into the industry leaders’ shares. Beverage industry analysts estimate that retailers’ own brands of soft drinks, which they frequently sell for up to $3 less a case than major brands, now account for 20 per cent of the Canadian market, up from five per cent just three years ago. In the United States, private-label soft drinks account for nine per cent of the $60-billion carbonated beverage business. That has been particularly good news for Cott Beverages Ltd., a company based in Mississauga, Ont., that, among other brands, makes President’s Choice as well as soft drinks for 40 major U.S. retailers. As a result, Cott, which had $265 million in sales last year, has become North America’s leading maker of privatelabel drinks.
Partly as a result of the increased competition, the Canadian bottler of Coke, CocaCola Beverages Ltd., lost $45 million in 1992, its first loss since going public she years ago. The flagging fortunes of Coke and other once-dominant brands has prompted some analysts to declare that the power of brand names is declining. But John Hulland, a marketing professor with the school of business administration at the University of Western Ontario in London, said that private-label brands have, in effect, become brand names. Said Hulland: “A company like Loblaw has spent a lot of money and time building up its President’s Choice brand name.”
Pepsi is so certain of the value of its name that it recently added two new products to its roster. In December, the company launched a lighter-tasting cola drink, Crystal Pepsi, in Western Canada and, in January, in the rest of Canada and the United States. It also introduced Crystal Pepsi Diet, bringing to six the number of soft drinks carrying the Pepsi name. By using the word Pepsi in the name, analysts say that the company may have confused some customers who expected the lesssweet pop to taste like the regular soft drink. Roger Baranowski, group marketing director
of Toronto-based Pepsi Cola Canada Ltd., acknowledges that some customers may have been disappointed. But he added that the ad-
vantages of using the Pepsi name far outweighed the disadvantages. Said Baranowski: “Line extensions give you high profile and instant credibility.”
In launching Crystal Pepsi, the company also joined a growing list of manufacturers trying to differentiate their products through color, or lack of it.
Baranowski said that the clear color is a signal that the new drink is different.
He added: “It’s not supposed to taste like Pepsi, it is a new soft drink. We’re looking for it to take over a new niche.” Meanwhile,
Coca-Cola has launched Tab Clear, a clear version of its diet cola drink, in the United States and the
United Kingdom, and is test-marketing Nordic Mist, its first entrant into the New Age category, in the United States. According to Dave Sanderson, vice-president of marketing for Coca-Cola’s Canadian subsidiary, Toronto-
based Coca-Cola Ltd., there is still room to expand the market for soft drinks in Canada. “Canadians still don’t drink as many soft drinks as Americans do, even those in the northern states where the climate is comparable,” he said. As a result, the company plans to make Coke available in a greater variety of locations, including gas stations, schools and
5.:.~TE.I.EPiE D M NUMBER.~~~S
AMOUNT CANADIANS SPENT ON BEVERAGES IN 1992: $4 BILLION
• Amount of tea Canadians drink each year: 7 billion cups
• Amount of tea imported: 30 million pounds
• Average cost of a cup of tea: two cents
•Amount of carbonated soft drinks consumed by the
average American in 1992: 182 litres.
•Consumed by the average Canadian: 102 litres.
•Consumed by the average Japanese: 25 litres 4
• Amount of coffee Canada imports
annually: 150 million pounds
• Percentage of Canadians who
drink at least one cup of coffee a week: 59
• Number of cups the average coffee drinker
consumes each day: 2.94
0 Fastest growing beverage last year:
Percentage increase over 1991: 81
Sources: Tea Council of Canada, Coffee Association Soft Drink Association, Nielsen Marketing Research
an increased number of vending machines. Said Sanderson: ‘We plan to make sure our products are always within arm’s reach—just as they are in the United States.”
In the realm of hot drinks, the tea industry
is trying to move tea drinking out of the home, where 80 per cent of all tea is consumed, by making their products more convenient. Said Alf Robinson, president of Lyons Tetley Canada Ltd.: “The fact is, many people just don’t take the time to brew a pot of tea.” As a result, the company introduced Tetley Freeze Dried Instant Tea
in Canada last month.
While earlier attempts at instant tea proved disappointing, Robinson said that new technology has resulted in the company and some of its competitors producing a far superior product. Tea companies are also trying to increase Canadians’ consumption of cold tea. Liptons and Nestea have signed joint-venture agreements with PepsiCola and Coca-Cola, respectively, to distribute canned iced tea to stores and vending machines across the country.
At the same time, Second Cup’s McEwen and other specialty coffee retailers are trying to halt the decline in overall coffee consumption and convince Canadians to
try their premium-priced brews. “If you give people good-quality coffee they will you give them the regular drink it,” McEwen said. “If
stuff, they prefer pop.” And in today’s competitive beverage industry, quenching thirsts is just one desire that must be satisfied.
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