Drinkers are upgrading the tonic in their gin and tonic, and Coca-Cola wants in.
Expanding beyond the carbonated soft drinks that made it famous, Coke is looking to acquire beverages that jibe better with modern consumer preferences.
Chief Executive Officer James Quincey has said it must become bigger than its namesake brand to become a “total beverage company.” And he’s singled out a segment that looks promising: mixers.
“More consumers, most notably adults, are seeking unique and distinct products with sophisticated flavors, quality ingredients and smaller-scale craft production,” Quincey said on a call with analysts last month. “Mixers are seeing a resurgence in many parts of the world as part of this trend.”
The soda giant has introduced a line of glass-bottled mixers in Spain called Royal Bliss that are only available for purchase in bars and restaurants.
The company relaunched Schweppes in the UK and added a premium extension to the brand, called Schweppes 1783. Even so, the 131-year-old company is looking for new blood.
That bodes well for Q Drinks, a premium mixer startup laden with Coca-Cola connections. The Brooklyn-based company counts a Coke veteran as one of its executive vice presidents, while the founder of Honest Tea, which Coke bought out in 2011, is a board member.
First Beverage Group, a private equity fund that Coca-Cola invests in to connect with small upstarts, led Q Drinks’ latest $11 million fundraising round.
Investment Opportunity
Coke hasn’t made a direct investment in Q Drinks. Still, the indirect link helps, founder and CEO Jordan Silbert said.
“It’s not like anyone tricks Coke into making an investment,” Silbert said in an interview. “They look at it from an opportunity perspective, and I think there’s a pretty big opportunity out there.”
Silbert founded Q Drinks on the basis that people were drinking better spirits, but using the same low-quality mixers. He noticed the problem himself while drinking gin and tonics with friends in his backyard in Brooklyn, he said.
Now Q Drinks and London-based Fevertree Drinks, another high-end mixer brand, are filling the void. Fevertree’s shares have gained 72% this year through Friday’s close. That compares with a 9.4% rise for Coke.
Q Drinks makes seven flavors: ginger beer, tonic water, ginger ale, club soda, grapefruit soda, Indian tonic water and Kola.
“Craft mixers are exploding right now, and it makes perfect sense,” Silbert said. “More and more people are drinking premium spirits, and you want to mix that with a mixer of comparable quality and sophistication.”
Coca-Cola’s search for new growth comes after a dramatic slimdown in recent years. The company is offloading its bottling operations around the world, aiming to focus on developing drinks and selling concentrates to partners - a strategy that fits with its plan to add more mixers.
The expansion into new categories is also important as its core lineup falls out of vogue with drinkers. Per capita soda consumption in the US fell to a 31-year low in 2016, according to Beverage-Digest, a trade publication.
Eight Servings
Meanwhile, Coke is looking to push into additional drinking occasions. Every person on Earth drinks about eight 8-ounce servings of liquid a day, according to the company.
Coca-Cola products make up just half of one of those drinks, on average. That means there’s significant opportunity to grow, Quincey said in an interview in May.
“There are those eight drinks out there and they are going to be different,” he said. “Therefore, we need to think about what’s the journey through the day of each consumer.”
The benefit of moving into premium mixers is the product concept isn’t all that new or different from Coke’s core offerings - they’re still carbonated soft drinks - and people are willing to pay more for them.
Many of the beverages Coke has invested in through its Venturing and Emerging Brands group - from drinking vinegars to kombuchas to bone broths - aren’t quite so easy for consumers to understand.
“Unlike some kefir products or even kombucha, this is a product that people are drinking, have drank mixers for a hundred years and they’ll be drinking them for the next hundred,” Silbert said. “They don’t need to explain to people why to drink tonic water or ginger ale or ginger beer.”
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