The Breeze With Beverage Digest
The Breeze With Beverage Digest
Episode 33: The Beverage Consumer Reality Check
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Beverage Digest Editor & Publisher Duane Stanford and industry expert John Sicher bring Wall Street beverage analyst Kaumil Gajrawala of Jefferies into the room to separate consumer reality from consumer headlines. They pressure-test what “value” really means across today’s beverage aisle and dig into why energy drinks keep winning, how Coke’s price/mix strategy works, and where protein and non-alcoholic beer could steal the next occasion.
Also:
• How Jefferies tracks consumer health using delinquencies, auto loans, and payment data
• Why “the consumer is weak” becomes an easy excuse for poor portfolio performance
• Value equation vs affordability, and why breaking trust on price is hard to fix
• The ladder behind energy drink growth: new consumers, new occasions, foodservice, and innovation
• Why energy looks cheaper versus coffee over the last five years
• Why carbonated soft drinks handle price-per-ounce variation better than most categories
• What revenue growth management changes mean for Coca-Cola and bottlers...and more.
Welcome And Knicks Small Talk
SPEAKER_03This is the breeze. I'm your host, Dwayne Stanford, the editor and publisher of Beverage Digest. The Breeze is where we bring you into the kinds of industry conversations we have every day at Beverage Digest. We dissect what's happened and connect the dots and ask the most important question: what does this mean? I'm joined by industry expert John Sitcher, who is a former editor and publisher of Beverage Digest, and in recent years has consulted for companies ranging from Coca-Cola to Pure Circle. Today we have a very special guest. Kamil Gajrawala is a managing director at Jeffries, where he leads coverage of beverages, consumer products, and health and wellness. He also has a particular interest in companies in what he and others call the Halo sector, which stands for Healthy Active Lifestyle Outdoor. Carmill, welcome to the breeze.
SPEAKER_01Thank you, Dwayne. Good to talk to you again.
SPEAKER_03And how long have you covered Coca-Cola? You covered Coca-Cola, Pepsi, Dr. Pepper, Monster for years. How long has that been?
SPEAKER_01Uh well, I think Coke's 125 years old or something like that. Almost 20% of its history.
SPEAKER_03Yeah, nice. Good.
SPEAKER_01Yeah, we which by the way, compared to John, is like just coming around, just arriving.
SPEAKER_00Thanks, Camille. He's got us both clipped.
SPEAKER_03Camille, we've known each other ever since I've been covering the industry, and I think it was around the same time that you kind of came in as well. So uh it's been a long time.
SPEAKER_01I remember you and I buzzing around trying to get people to pay attention to us.
SPEAKER_03That's right. And analyst meetings and all that good stuff uh with Coke and Pepsi and everybody else. So you two, you guys are both based in New York. Uh anything in sports happening around New York these days? Anything exciting?
SPEAKER_00Not a thing, Dwayne. I'm just boring up here.
SPEAKER_01Yeah, 9:30 was a little early to record this after last night.
SPEAKER_03Yeah. Are you a Knicks fan, Cumbell, or a basketball fan?
SPEAKER_01I th I'm a Lakers fan and a basketball fan, but I am everybody here is universally, it feels like, Knicks fans. It almost feels I don't know if this is true, but it almost feels like it's happening broadly in the country. Because the these these comebacks, the way that they've played this year, it feels like you we sometimes in beverages watch trends arrive on the coast and move their way around, but like New York's never been sort of loved for much. And this is uh it just feels different. I'm probably wrong. Maybe I'm just I'm here and that's why I feel that way, but it does feel different.
SPEAKER_00Yeah, the Knicks have had such a long, long string of bad records, disappointing seasons. It's just, you know, I'm not a huge basketball fan, but it's just great for New York and great to see what's going on with the Knicks this year.
SPEAKER_03It is kind of interesting. I I don't pay a lot of attention to pro basketball, but it's like hard not to pay attention to this. There's just something kind of infectious about it. Maybe it's because it's New York. I mean, we all have kind of a connection in New York, of course. Uh, but it's just it's it is just a lot of fun to see them kind of come back and the city kind of come alive around it, you know?
SPEAKER_01It could be kind of like the Cubs some years ago when they had their first one, and kind of everybody was just really sort of rooting for them to finally have their moment.
SPEAKER_03Yeah, it really does feel like that. You're so right. And uh and the team, I don't I don't know, people love this team too, you know. They've got these, you know, some great players, some good personalities, so it's it's cool. Very cool.
SPEAKER_00It sort of looked like it's the it's the birthplace of Snapple versus the birthplace of Dr. Pepper.
unknownThat's right.
SPEAKER_01That's right. Who knew that the two of them would end up at the same organization eventually?
SPEAKER_03That's right. So uh,
Is The Consumer Actually Struggling
SPEAKER_03you know, Comel, let's uh let's talk about. I mean, look, there's a tremendous amount of things to talk about right now. Uh in the first one, uh, you know, let's get into the consumer, because you know, as these companies constantly say, it's all about the consumer. Um so I'm wondering, uh, I'm sure you, I mean, you and your team do a good bit of research into what's happening almost minute by minute, I would assume. Uh, what are you seeing right now in terms of this consumer pressure and specifically how it's showing up within beverages and and uh when it comes to the sale of beverages, pricing, et cetera?
SPEAKER_01Yeah. Uh well, thank thanks. First, we we do do a boatload of research. In fact, we have our own index, our own consumer health index, which looks much more broadly at things, including you know, delinquencies, auto loans, those are like a lots of different metrics that go into it. And the where we are, and you mentioned right now, because we're we're all very sort of worried about the future, but in terms of right now, the consumer is actually in pretty decent shape. Because if you look more broadly, if you listen to the MasterCards and the visas and the you know payment processors or some of the banks, including like a synchrony financial, which lends to subprime, you know, because I know we'll probably talk about K-shape at some stage. If you when you put this all together, you actually find it's almost 50-50 between companies that are saying the consumer's fine and companies that are saying consumers not fine. Now, I think we're in one of those moments where there's enough evidence or enough statistics that one can find that if their business is underperforming, you can blame the consumer, not yourself. But when one's running around talking about K-shape, they probably don't have a great argument for why energy drinks are booming. They probably don't have a great argument, and like so we can get into why some of that is, but it should be, it's very important to know that the biggest driver still is always on employment, and then there's wages, and then that versus inflation. Now the unemployment continues to be really strong. Uh wage inflation's decent, wage inflation has been there. Inflation itself is coming to get them. So the right now versus later might be different. But if you look at, and actually we did a chart, Duane, after this, I can send you many of the data that if you like. But you know, we did a chart, for example, of how many minutes one has to work in order to afford a gallon of gas. And so if you look at the price of gas, obviously it's spiked. If you look at it in the context of minutes worked, it's actually um way down from where we were in 2023, 2024. Kind of tells you it's easy to say it's unaffordable, it's easy to say all those other types of things. But maybe there's a broader portfolio thing going on. Maybe they took too much pricing, which broke the value equation as opposed to an affordability equation, which I think is maybe one of the bigger things uh really across CPG, and to some degree in beverages, not as much, but across CPG is they broke the value equations, not necessarily affordability.
SPEAKER_03Yeah, you know, that's interesting. But you know, we talk a lot about consumer sentiment, and of course, we know that there's uh a recency bias when it comes to consumers. Um, you know, they may not remember that gas was that expensive, but you know, they know that right now suddenly the gas spiked up and they have a cause that they can see for it, which is, you know, uh what's going on in Iran and the Middle East. How does that factor into that?
SPEAKER_01Yeah, I mean, if you look at the math between the amount the amount of uh miles driven between Memorial Day and Labor Day and the increase in the price of gas, it's around 1%. But that doesn't mean when you go and you fill your tank, sorry, it's around 1% change or impact, negative impact on discretionary, uh, on discretionary income. Okay. That does not mean that when you go and you fill your tank and you see that move, you know, you don't want to figure out how to be more efficient about it. So there's a little bit of that, but we're not seeing broad-based pullbacks in spending. In almost every instance, when you look at the organizations that have talked about that, there's something bigger going on as well as it relates to the portfolio. Or maybe it's the category and not the it might not be market share, it might be category. But that doesn't mean the category issue is consumer.
SPEAKER_03It's like some version of years ago when they were talking about the weather and they've learned not to do that anymore.
SPEAKER_01Yeah, I mean, if you never look at the retail folks, the weather was never perfect. It was either too hot and they had too many winter coats, or it was too cold and the winter coats didn't arrive on time. Like the weather was never actually optimal for when you sell the most amount of product.
unknownTrevor Burrus, Jr.
SPEAKER_03Carmel,
Why Energy Drinks Keep Growing
SPEAKER_03you talked about uh energy drinks in the K-shaped economy. I wanted to go back to one thing you said about, you know, do they even have a good uh story as to why are energy drinks doing good in this environment? Um one of the things I've thought about lately is that you know you've had this kind of uh shift on the energy drink side to professionals and female consumers and kind of this new user group that's attributed, you know, that's that's basically created some of this growth. And I can see a scenario where uh if you've got uh some consumers that are struggling maybe with gas prices, maybe they're uh going to the gas station, but they're skipping the trip inside. Uh you might still see energy drinks growing because of that other consumer set that's replacing coffee with energy drinks. What do you see in that regard in terms of like what is the re what is the reason in your mind why energy drinks are you know still doing good?
SPEAKER_01I mean, they're they're quite brilliantly set up because it's multiple things, but I'll go over that ladder of things. I mean, we first start with what you mentioned is it's becoming you if you think about the job of a Procter and Gamble or a Coca-Cola, their job is to increase occasions and add new consumers. It's sort of very simple in the grand scheme of things. Energy drinks have gone from Red Bull and vodka to late-night gamers to late-night studying to blue-collar workers, to white-collar workers, to female. Now they're opening up food service. You know, the floodgates are wide open on food service now with the Red Bull McDonald's deal sort of indicating that there's something to be done there. That's just one component. The next component, then, is energy drinks are up over the last five years, around 15% in price, and coffee has doubled, and carbonate soft drinks are up 40%. So the actual value equation, the favorability value equation, has also improved over that period of time. And then the innovation is great. You know, these are some of the best performing uh or some of the best executing companies uh in the world, really. And so you've had a lot of excitement, a lot of innovation. The innovation is incremental, incremental in the context of bringing new people in, bringing in new occasions, going after segments of the population that was underserved before. All those things that are actually the core of what the job is for all of CPG seem to be aligning really well. Have an appropriately priced product where the value equation is very positive, find incrementality, have innovation that's um innovation that's exciting and that works. It's all sort of working, which is why you see this category that technically, if you were an economist and you were looking at its current population and you were looking at maybe gas prices, or you really believe in K-shape, you would conclude that they should be under the most amount of pressure. As many of us were, by the way, in 2024. 2024, there's a slowdown in energy.
SPEAKER_00Let me ask you a question, Camille. So when you walk around New York over the last year or two, in the morning you see uh you know construction workers basically getting ready to go in for their uh their workplace for the day, and nearly all of them have uh energy drinks. Uh, a few have sports drinks, almost no carbonated soft drinks. Do you have any idea um the how the demographics uh work out for energy drink consumption between higher income consumers and lower income consumers? Because I mean, what we're seeing right now is gonna I mean, the Wall Street Journal, I think, had an article this morning about how inflation now is basically eating up workers' pay raises. So I would think that unless something automatically, unless the inflation automatically quickly reverses, miraculously reverses, that the energy consump the energy drink consumption by lower income workers is gonna get hit uh and I would think pretty badly and pretty soon. Uh do you have any uh do you have any thoughts on that?
SPEAKER_01I think it comes much later than a lot of other categories. So if you're gonna go through the list of priorities inside of, let's say, a convenience store, uh it starts with nicotine, you know, whether it's cigarettes or nicotine pouches or whatever it happens to be. Uh you roll down into lotto beer if it's a beer occasion, then you get to the sort of coffee energy stimulus zone, then you get into snacks, then you get into confectionary. Um, and so as there's more and more pressure. Now, look, if inflation continues, eventually inflation will get everybody, right? If it continues. But um, from where we are right now, especially given the low unemployment, um, we're at the very beginning of inflation beating wage growth, but it had we haven't been there yet. And so I think it's still some time. Now, again, it's very hard to predict if oil goes to 150 or 50, given the environment that we're in. But where we're in right now, the consumers are actually in reasonable shape and they will they will pay for what they want. Especially you see a lot of this on the discretionary side. Um, even with um, I can't remember what it was called, is a Hontavirus or whatever it is, you can still see cruise bookings are off the charts. Many of the um vacation companies are saying typically when we go into higher price, including the cruise lines of uh which are often lower priced uh trips, they often say that people wait later to do their booking as there's more and more economic pressure. That's not really happened yet. So you were just not seeing it. But if you are in one of those categories that's struggling, it is very, very easy to immediately conclude it's a consumer issue. We could use snacks as an example. You know, the snacks industry is struggling, and many would say, oh, the consumer's really under pressure, they're not buying snacks. Now, maybe on that hierarchy of convenience store sales I gave you, it's on its way up, so confectioner, then you get to snacks. Or maybe they broke the value equation in 2024. And once you lose a customer because your prices are too high, that customer is very, very hard to get back. You can't just push your prices back and assume that customers arrived. That consumer might just be skipping the snacks aisle and going straight to the energy aisle. So is there a risk, of course, especially when there's inflation, but we're just we just don't seem to be there yet.
SPEAKER_03Yeah, and so are you so you're not saying so are are you basically saying that you don't think the K-shaped economy thing is really all that relevant here necessarily, that what's happening on the lower end of the consumer really has more to do with that broken value equation, as you called it?
SPEAKER_01Yeah, I think the K-shaped economy has been around since the Romans, probably way earlier. And it was probably a phrase invented by some MBA with a spreadsheet figuring things out. But uh, as people who are on the bottom of the cade, they would be like, Yeah, this has always sucked. This is just life. Like, it's okay. And they get by and they're the most resilient consumers you'll ever find. They know how to maneuver and they make decisions. And often those decisions, and remember, the first move is often the value move as opposed to a spend less money move. What is what that I'm spending money on do I actually feel is worth it in my life? And where you fit in answering that question is how resilient you are. There's tons of volatility around their income, but where you fit in how important you are in their life is the resilience. And that's why some categories look so much better than others.
SPEAKER_03So it's more like a company needs to have kind of a K-shaped mentality, deal with the consumers that can afford your products, but make sure you're also uh giving a good value equation to that lower-end consumer that's always scrapping and always figuring out how to be efficient with their spending.
SPEAKER_01I like to think of it as regardless of the price, when you're purchasing this product, you feel like you're getting more than your money's worth.
SPEAKER_03Yeah.
SPEAKER_01And if that is where you end up, and this the doubling of the price of coffee made energy drinks start to look a lot more favorable. Um, the morning consult numbers will show that to you in terms of value favorability for energy drinks, it's been up sort of every year for five years. Um, the value favorability for coffee has done the opposite.
Soft Drink Pricing And Value Perception
SPEAKER_03And so and do you think carbonated soft drinks, do you think the soft drink value equation is broken at this point? I mean, what are your thoughts there?
SPEAKER_01I don't think so as much for a particular reason. Is carbonated soft drinks are one of the few industries that is they're so broad where the consumer is completely comfortable and understands that the price per ounce or price per liter for your international listeners is dramatically different and can be dramatically different on the same day. So if I have a a Coca-Cola at lunch, and then I have a Coca-Cola um at lunch in New York from some sandwich shop, and then I have a Coca-Cola that I bought at a Walmart at night, my price per liter is massively different. But it's cool. We get that. We get it between cold versus not cold, we get it between large pack, small pack. We and I think the you know, this is obviously we all know led by FEMSA. They started this 30 years ago, but this revenue growth management concept, what data allows you to do in that with that reality of what the in how the industry has always been is so powerful. So I do think it's probably not looked at as the cheapest thing in the store, massive foot track driver, foot traffic driver that maybe it used to be 20 years ago. That's a good thing, like as a from as a from a business perspective. You want to go revenue over that volume sort of story used to be. Um, so I don't think it's broken, uh, but I think it's not as favorable as where energy is.
SPEAKER_03Let's
Beverage Digest Newsletter And Resources
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Can Coke Keep Price Mix Rolling
SPEAKER_00So, Camille, let me ask you a question. If you look at the data in the U.S. and you look at some other recent data, I mean carbonated soft drink volume in the U.S. has been down pretty continuously for about 25 years. Per capita consumption has been down a lot more than that. Um down hugely, several hundred servings a year per person. Um Coke last year, uh 2025 reported flat global volume and negative volume in North America. Population continues to grow, which means per capita consumption continues down. If you look at the report you you you issued recently uh looking at the revenue growth of both the Coke and its bottlers, almost all of it's coming from price mix. I remember a Coke bottler telling me quite a while ago when price when the company started raising raising pricing, he said to me, John, just just remember the consumer is not going to pay five dollars for a thimble full of coke. Um don't you start I mean I don't see and I don't see much in the Wall Street analyst reports about concerns about per capita consumption going down, uh concerns about how how much longer uh the soft print companies can basically keep uh keep keep increasing price mix. Can you talk about that a little bit?
SPEAKER_01Yeah, well, yeah, so the goal is, and no one ever actually hits goal, the pendulum never sort of stops right in the center. But the goal generally, for example, we use a Coca-Cola, is to be a six on top line with two on price, two on volume, and two on mix. That's your general sort of that's sort of like your perfect scenario. But the pendulum seems to swing in both directions. You're right about sort of per cap consumption, has bled for a long time, but keep it like and you will be more familiar on this than than anybody else's how hard volume was being pushed when we went through the 90s and then dealing with the beginning of sort of the role of full sugar. And so you're coming off of this sort of like world of cola wars, focus on volume three liters, to the arrival of bottled water, which we all sort of in the early two thousands were looking at as a um as like this new sort of big volume risk. To ev like all of the things we've seen subsequently in terms of concerns about sugar, concerns about artificial sweetener, all of that. The idea to switch to revenue growth management, which is not necessarily just price, so price and mix is often very different, like very difficult to sort of parse through one versus the other. In fact, the way we've been talking about it is if the 2000s was about Brazil, Russia, India, China, brick expansion, and if the 2010s was zero-based budgeting, uh the 2020s is really about RGM, and that's not really just about price. In some of the numbers that you're seeing, though, we do have to remember we have gone through really wild times over the last five years between COVID, between reopen, between the supply chain issues, between rampant inflation, and then particularly in the Coke numbers, there was hyperinflation in many of the emerging markets that pushes into the price. So it's price, but not really price in real terms. So there was a lot that's going on in there. I guess suppose these days we have to get used to the fact that there's always going to be a lot going on. But I do think the the goal of the two plus two plus two is still very much intact. It may not be, though, all carbonated soft drinks. You know, like in that time period of the last 10 years, you think about um you think about Fair Life as an example of something that's really sort of come and taken a lot of share. You think about energy drinks have come and taken a lot of share. These are large amounts of volume, and not all of it is coming from CSTs, which is of course why I don't know how many years ago it was, but um of course why James Quincy was like, we better, we better be total beverage.
Bottler Costs Inflation And Retail Pushback
SPEAKER_03Comel, I'd you know, on this uh on this same subject, uh, you know, when it comes to you know the Sphinxa led uh change in the last couple of decades, when it comes to how Coca-Cola and its bottlers interact, um, pricing, et cetera, revenue growth management, everything that's allowed, all that. Um one of the things I wrote you know last month about uh you know bottlers and what they're dealing with now in terms of the cost side and fuel prices going up, transportation that flows into things like PET, all their costs are going up. One bottler talked about fuel price prices up 50%, another 30-something percent. They're all starting to feel that squeeze. Um what are you seeing in that regard? How do you see that playing out when it comes to uh you know the profitability of these companies? And and more importantly, since you cover the big public companies, um, to what extent are they gonna have to sort of share some of that pain with the uh with their bottling networks, with their distributors who bear the brunt of those cost increases? I mean, we just saw the producer price increase, uh it's rated it's been at more than you know three years, so there's clearly a pinch happening here.
SPEAKER_01Yeah. No, you're getting we're we're we're starting to see it. Surcharges are going through, you know, you're hearing we're seeing plenty of it at this very beginning, sort of stages of inflation. What's a little bit different about this time versus a couple of years ago is it felt more permanent a couple of years ago. Uh, I think that's why so much pricing was put in place. I think that's why the retailers allowed it to be put in place, is it just felt like, and then still nobody could really, we didn't really have our legs underneath us from all the reverb coming from COVID. And so it felt more permanent, and I think that's why big price increases and things were put in place. In this instance, we sort of know it's linked to an event, and we don't know how long the event is going to last. And I think that makes it even trickier. Because do you make bigger fundamental changes in order to live in a new reality at this at these prices? Do you take price to do it? Can the consumer deal with this price given what we know about inflation? Um, is harder to do when there's a chance that all of a sudden oil drops by 30% when things are resolved. So I think we're in a bit more difficult situation than we were some years ago. But I also think the retailer position is not nearly as flexible on allowing pricing through as it was a few years ago. I think they're looking and saying, not this time. Like you did enough, and this time it's not, you're not going again. So the push on volume, the push on operating leverage via volume to offset it in terms of actual dollar returns will be the key area of focus and who can win and who can lose. That you start fighting. You know, you start you fight that fight a little bit harder than we were uh than we were before. Then you have industries like energy that still has latent pricing power because of how little they took last time. So there'll be some moves from them that you know that end up coming.
SPEAKER_00Come here, let me ask you a question. Give uh you mentioned the 222 um model, which you know, I agree with, I've heard it, I've heard that a lot over the years. If you look at your recent report on Coke bottler organic organic sales growth, for 2024 you had it at about 13%, 12.8%, 2% was volume, and about 13% was price mix. What happens to bother economics if that 13% goes down to 4%? 2% volume, 2% price, 2% mix? What what if that 11% goes down to 4%?
SPEAKER_01I think there's a reason why those bottlers are trading at the highest multiples than they've had in sort of most of their history is because they have been crushing it. They've been doing really, really well. And um, you know, if you actually look uh in that note, we show uh such a substantial increase in the valuations of the bottlers, but coke kind of hanging in there. You know, coke also over 10 years increased its earnings by around 50%, and the bottlers grew nicely. They grew better, they grew faster. Um but the multiples move much more substantially in the bottlers because their results have been so much better. Um, that's probably not forever. Uh now keep in mind for bottlers, I that 222 is kind of a coke thing. Bottlers, at least the public bottlers, uh, many of them have a lot more emerging market exposure, especially CCH, FEMSA, some of them. So very different sort of growth dynamics, they're very different inflation dynamics as well. Other thing for the bottlers, very important, is their economics on energy drinks contributes a lot more to their PLs than the economics of how matcha contributes to Coca-Cola Company. And so you have just a couple of things there that are unique uh in comparison to the system.
SPEAKER_00So in 2024 for Coke, for Coke's organic sales growth, you had again about 2% on volume and about 10.5% on price mix. Is that sustainable going into the future, do you think?
SPEAKER_01No, that number is going to be a mid-single-digit number. Assuming we don't have wild inflation in emerging markets or something like that, it's more of a uh mid-single digits is is the rate of growth for Coke. I don't think it'll be. I should probably say mid to high, like kind of a six-seven. Um their guy, their I'll go is four to six. I'd probably say it should be a five to seven.
SPEAKER_03All right,
Protein Boom And What Sticks
SPEAKER_03let's change gears now before we wrap up. We've got a couple of uh quick things we want to run by you. Really curious your take on uh the protein trend for one. I mean, look, we're hearing tons about it. I I sort of feel like maybe it's jumped the shark. I mean, we've got Pop Tarts with protein now. Uh you know, who would have ever thought we'd see that a few years ago? Um what's your take on protein right now?
SPEAKER_01Uh well, I agree. It is the biggest, hottest thing. But uh let's think about the building blocks to what got us there. Health and wellness today is very different from what we looked at as health and wellness 10 years ago. Ten years ago, it used to be about restricting behavior and removing things from your daily sort of consumption habits. So less sodium, less trans fat, less fat, less carbs, less it was all less that have less of everything. Today's world, the healthy consumer, the consumer who wants to be healthier, is trying to figure out how much they can ingest, how much they can consume in order to live a healthier lifestyle. How do I get as many electrolytes as possible? How do I get as many grams of protein as possible? How do I have as much fiber as possible? This is things that you can, you know, uh the nutrients that come in ju juices, especially cold pressed juices. You know, how do you how do I have as much of this as possible? From a business perspective, that's the best thing that you want. You don't want a consumer who's trying to have less things, you want a consumer who's trying to have more things. And and we could actually, it's pretty easy to sort of identify what those trends are. Protein specifically has a few things going on. Um, and you probably saw our protein report is the first is that um it's become it's becoming more and more clear that uh we all need more protein. That's maybe the first piece. The second piece is the amount of people delivering that message has been very, very broad, uh, including the government itself, which changed its recommended daily allowance for protein. Who actually listens to the government when it comes to what they eat? It turns out a lot of people, because the same thing happened with vitamin D some years ago. And when they increased their recommended daily allowance of vitamin D, vitamin D exploded.
SPEAKER_03Yeah.
SPEAKER_01The problem with protein is traditional protein is an expensive and convenient calorie. You know, you can't just go gorilla salmon at lunch in the middle of a workday. You know, these things are hard to do. So this easy protein category, which um which would be protein shakes, of course, protein bars, of course, but even cottage cheese is on a tear. Great yogurt's back, you know, like the e the deliverables of easy protein are doing really, really, really, really well. So of course all of CP manufacturing CPG is chasing it with Pop Tarts and Cheerios and all these other types of things. They're gonna and Doritos. Uh and Doritos are so they're gonna they're gonna overdo it. Some will work, some will not. Um I think the incrementality for those mega brands with protein uh equivalents are uh is is is gonna be very marginal.
SPEAKER_03Yeah.
SPEAKER_01But I do think if you're if you're in the almost like what we're seeing in alcohol, so we know that ready-to-drink canned cocktails are taking off. In almost every instance, though, it needs to be an authentic brand for that category. It's very hard to have even even the most iconic of them all, Jack and Coke, is only just kind of doing okay. But like if you look at the version with Crown Royal, if you look at all these other, it's not doing anywhere near what a surfside or a high noon or a cutwater or any of these sort of like new to world versions are. And I think protein is the same. You kind of have to be in this very authentic to that category as a protein deliverable. You can't just add it to your your Cheerios, your Doritos, or your Pop Tarts or whatever it is. Um, but I didn't honestly didn't know about the Pop Tarts, and if they're delicious, like I'll give it a go.
SPEAKER_03Rock it, baby.
SPEAKER_01As long as they have it in the cinnamon. As long as it's in the cinnamon flavor.
SPEAKER_03I've seen it in fruit flavors, but yeah, they better have cinnamon. You're right. Or brown sugar.
SPEAKER_01Brown sugar, you're right. Brown sugar.
SPEAKER_03Real quick, um, so does that what what does that mean for Coke Fairlife? If everyone's racing into protein and giving consumers all these options, does that lift Fairlife even further, or does that somehow cut into people doing shakes instead of Pop Tarts, et cetera? Just real quick.
SPEAKER_01No, I think it, I think it, I think it, I think it it lifts the whole, it lifts the whole category forward. Fairlife as given their size, given they're the leader, given their support, will probably be the biggest beneficiary. It also means there's going to be tons of competition as we're already seeing start to emerge. And the problem with protein is a little bit like the problem we have with craft beer, which is when there is so much of a chase of something that's kind of complicated to really get right, you start to get a lot of bad product. And I don't know if you ever tasted a not very good protein shake. Like it is, you really don't want it. Yeah. And so we're gonna have to have to watch. You know what happens, you know what happens there.
SPEAKER_00Camille,
Non Alcoholic Beer And Distribution Convergence
SPEAKER_00let me ask you a question about non-alcoholic beer. At least in at least in New York restaurants, I've seen it go from a few years ago to don't have it, never heard of it, to yes, we have three different varieties. Uh, is this growing strongly? How big is it in terms of you know a share of the beer industry? And do you think this cuts into, given they they're they're they're refreshing and they're relatively low in calories and they're not marketed as diet, do you think uh non-alcoholic beer begins to cut into soft drinks?
SPEAKER_01Um so I do think non-alcoholic uh everything is is a real category with tons of growth. I do also think that the we're about a year away or a year ago was kind of peak when it was cool to talk about how you don't drink. You know, it's just like the the sort of anti-drinking culture, dry January interest plummeted this year versus the new.
SPEAKER_00I never thought that was cool, Camille.
SPEAKER_01But well, you're you're our generation, like it's it's confusing. You know, it has always been confusing to us. But you know, it you know, if you think about the the last days of the Biden administration, you had the surgeon surgeon general come out and saying alcohol causes cancer. And then a year later you have the government coming out and saying drinking in moderation is fine, and has confirmed the J curve, which has been confirmed a million times over 50 years, which it shows that moderate amount of consumption of alcohol actually increases lifespan, not the opposite. Not in a biological perspective, but from a social perspective, I guess those people are more social. Which actually seems to be happening is we went through a very weird social experiment with COVID, and it cracked what was a very sort of reliable trend in terms of how much people consume and how much they socialize based on what their age is. Now we're getting further and further away to see people start to revert back to where that how they always sort of consumed. So it's just, you know, COVID wasn't a moment of time. It was a moment of time where the you know you drop the rock in the lake and the reverb was for a while, and I think the reverb was a lot of it. Also, we drank a lot during COVID, so maybe it was just a massive hangover for the entirety of the country. But the emergence of non-alk in that time period has actually, and I will answer your question on is it a threat to soft drinks? The answer is absolutely yes, because it's a new occasion. Uh, World Cup starts today. The amount of non-alcoholic beer that's going to be consumed at 3 o'clock East Coast time of people sneaking out of their offices, popping into a bar in New York to watch the game for 90 minutes, is going to be quite like very, very substantial compared to what it would have been 10 years ago. And I'm sure it would have been, I don't know the number, twice as much as it might have been four years ago at the last World Cup. So would people have gone in there and had just as much, just as many soft drinks? I don't know, probably not, but certainly there's some cannibalization there.
SPEAKER_03So do you think we're gonna see beer and soft drinks on the same trucks? Is that gonna be an increasingly so? Are we is it inevitable? Or, you know, Ray's has said they're not doing it. Um, and they're one of the biggest beer distributors around and seemingly buying everything in sight. Where do you come down on that?
SPEAKER_01It's definitely gonna happen. It's probably gonna take longer than to it takes it's going to take. I mean, I'll pause and then we go.
SPEAKER_03Yeah, go.
SPEAKER_01It's definitely going to happen, but it's going to take a long time, and it's going to be piece by piece, state by state. And the licensing is complicated, obviously, but it's a lot less complicated putting the soft drinks in the beer on the beer licenses than the opposite. So I think once Reyes would be a good example of once the real footprint, you know, right now we're building a footprint, then you have the footprint, you figure out how to make it efficient, and then the next move becomes how do you put these things together? And this could be decades of before we get there. But we're going to get there. You know, I think there's the if you just think about how uh even from a the context of logistics, what technology is providing or offering logistics companies today is so much more substantial than it used to be. You'll have far fewer idle trucks, you will have there's just you can do so much more with so much less. You know, what if it's the same truck that on one route is all soft drinks and then on the next route that same truck is all beer? Is that considered co-mingled? Is it is it not? How does the licensing work? Those things become complicated, but also what if nobody was driving that truck? So you know you could see how this stuff, you can see where it's going. It's just hard, very hard to know uh how long it's gonna take to get there.
SPEAKER_03Yeah, it's almost like we know where it's going, but where it actually ends up and exactly what configuration, we'll see, right? Exactly. Yeah. Yeah. What do you see when it comes to beer convergence? Buffalo Rock just, I mean, released a beer that is a collaboration with a Belgian brewery uh, you know, to basically produce this beer. They co-cl uh they they co-created it. Uh that's that's new and interesting, kind of a next step in this whole convergence. What are you seeing there?
SPEAKER_01There is so you can see the pockets of growth in beer. Bushlight is doing spectacular. Not because it's low priced, because it's authentic hiking, fishing, hunting, outdoor, blue-collar lifestyle, romance. That it's been authentic its whole its whole history, and that's really resonating with today's consumer. Bushlight's doing great. Mikelobultra's doing great. Very authentic on the healthy lifestyle, fitness that they have very authentic as it relates to their lane. Mexican imports were doing better, but that's got complicated in recent years for, I guess, obvious reasons. So there are these very strong lanes of growth within beer, but your traditional domestic mainstream light beer, which is still a huge amount of the category, uh, continues to seed share, continues to have very substantial negative volume. Uh, and so that's something for everyone else to sort of feed off of. But then this emergence of ready-to-drink, spirits-based cocktails, if the best way to think about it is like a fourth category. Like it's for our whole lives, there's been beer, wine, and spirits, now there's beer, wine, and spirits and ready to drink. These things are spirits-based, but they kind of walk and talk and act like a beer in a can, move in boxes that make sort of sense that they would move around a beer. Beer distributors are getting more involved in it. The consumer will purchase it in sort of a similar cycle versus buying a handle of Tito's and then working through it over some period of time. So that's really changed buying habits within beverage alcohol. And um, and actually, if you you see it, I mean the spirits industry is trying to figure it out. It's a struggle for them. The beer industry is trying to figure it out, it's a struggle for them. Most of the top 10 are brands that didn't exist five to seven years ago in earnest. Many of them are not owned or were recently acquired by the big companies. Uh, so it just shows you that within beverage alcohol, things are just are just shifting. And uh they seem to be shifting. You know, we've seen these types of shifts before, by the way. In the year 2000 was around when Sex in the City was taking off, Grey Goose had an unbelievable advertising campaign, and young people for the first time were entering the alcohol market with spirits. Now young people are entering the alcohol market with ready to drink. So you're going through another one of these sort of generational shifts of what is uh long-term consumption.
Final Takeaways And Sign Off
SPEAKER_03Yeah. Kamil, great to have you. Thank you so much, John. Great to be with you again. Looking forward to another next time, guys.
SPEAKER_02Welcome to this. Take care, Duane. The breeze is produced by Beverage Digest. Visit our website to learn more about our products and subscribe to our newsletter. That's www.beverage digest.com.