Herb-spiced beverages popular sellers, but controversial

NEW YORK (Reuters) -- Don Vultaggio says he was struck by his big idea while his Russian masseuse was pounding on his back nearly six years ago.

Why not make bottled iced tea spiked with ginseng, the root long used in Asia as a mild aphrodisiac and energy booster, the beer wholesaler thought while listening to the masseuse singing the praises of the herb. His idea -- considered far-fetched by some at the time -- was to sell this exotic concoction on store shelves nationwide alongside Coke and Pepsi.

It was a brainstorm that paid off. Vultaggio's AriZona Beverages was one of the first to introduce the now-popular ginseng tea in late 1994.

MESSAGE BOARD Do you think herb-spiced beverages live up to the promises made by their manufacturers?     TRANSCRIPT CNN's Linda Ciampa discusses 'functional' foods

AriZona is just one of dozens of companies that have sprung up in the United States in recent years to produce "functional" beverages, a new $400 million market segment that includes all-natural juices and teas laced with a cornucopia of herbs and ingredients ranging from algae to kava kava.

Promising to help consumers relax, rejuvenate the spirit and even increase sexual desire, these "New Age" beverage makers are enjoying healthy growth in a competitive industry dominated by super-marketers Coca-Cola and PepsiCo.

Functional beverages accounted for only $2.1 million in revenues in 1996, but growth has been exponential, with New Age beverage makers raking in $286 million last year, almost three times revenues of about $100 million a year earlier, reports Beverage Marketing Corp., a beverage industry research firm. Revenues are expected to top $400 million this year.

"People are looking for a change in pace and this fits the bill perfectly," Michael Bellas, chief executive of Beverage Marketing, said. "They have an added value: They're generally perceived as having a halo of healthiness."

So much so that corner delis and supermarket shelves, once stocked with only cola cans, are now also bulging with electric red and mellow pink drinks in tall glass bottles, complete with exotic names such as "Lightning" and "Karma."

That, of course, is not to say that they are pushing Coke and Pepsi, which are billon-dollar businesses, off the shelves.

"They're growing dramatically, but from very small bases," said John Sicher, editor of Beverage Digest, a trade newsletter. "It has definitely attracted consumer interest, (but) they're still a pin dot in the beverage universe."

Still, if performance keeps up its current pace, it is the sort of thing even Coca-Cola and PepsiCo would not want to miss out on. Those companies need gains in the noncarbonated premium beverage market to achieve their long-term growth targets, according to ING Barings beverage analyst Manny Goldman.

While some of the herbal drinks appeared on store shelves in the early 1990s, the race to capture the new-age beverage market heated up only in the last year or two after the industry took note of the splash that sports drinks such as Quaker Oats Co.'s Gatorade and other non-herbal fruit drinks had made.

Now frequent introductions of new lines of functional beverages, each with their own funky names or other attention-grabbing characteristics, are the order of the day.

Snapple Beverage Corp. introduced its "Elements" line of fruit drinks spiced with ingredients such as bee pollen and yerba mate last spring, selling more than 4 million cases in nine months and adding two new flavors this spring.

Triarc followed with a line of vitamin-added fruit drinks called Mistic Zotics this summer, boasting of such ingredients as West Indian berries and Brazilian fruit.

AriZona -- which expects 14 to 15 percent growth in total shipments from last year -- rolled out its Rx Enhanced Elixirs line this year. And South Beach Beverage Co., the maker of SoBe drinks with its trademark green lizard logo, reported a 175 percent increase in case volumes in 1999 and added more products to its own line of juices and "elixirs."

The trend is not lost on companies outside the United States. Brazil's AmBev plans to introduce worldwide a local favorite made from the guarana berry, a stimulant that grows in Amazon rain forests.

How do these relative no-namers appear from the wilderness and in a few years invade grocery stores and consumer wallets?

Unconventional marketing. SoBe sent a fleet of "Lizard Love Buses" across the country and colorful packaging with Indian chiefs and squiggly reptiles has helped, making up for minuscule advertising budgets compared with Coca-Cola's and Pepsi's.

"We as a small marketing company realized the only shot we had was our own packaging," said Vultaggio, who with his wife sketches some of the images on AriZona bottles. "Whether they like it or not, consumers thought it was different. It stood out from the traditional reds and blues."

The desire to be different and reflect the image of the health-conscious and trendy New Age consumer is such that SoBe, despite being based in Norwalk, Connecticut, was named after Miami's South Beach, a neighborhood known for its hip Cuban restaurants, discos and Art Deco buildings.

Not everyone, however, is pleased with the perception of herb-spiked drinks as particularly healthful.

"New Age beverages are little more than 21st century quackery," said Bruce Silverglade, a spokesman for the Center for Science in the Public Interest consumer food watchdog group. "They're exploiting consumer interest in alternative medicine."

Often the herbal ingredients in these drinks are useless or are not infused in sufficient quantities to produce any healthful benefits, thereby misleading consumers, he said.

The Food and Drug Administration says it is concerned about functional foods and has in the past taken action against some of their makers. Among others, the FDA has written to SoBe and AriZona in recent months warning them that some of their product labels made unauthorized claims. It is currently evaluating the CSPI's complaints to ensure that the herbal ingredients used are safe and the labels accurate, a spokesman said.

"The general concern we have is that there be a distinction between products you consume as a beverage and something you use as a medicine," FDA spokesman Brad Stone said. "Our concern is when that line is blurred."

At the end of the day, SoBe Chief Executive John Bello responds, taste, fun and refreshment are what matter. "No one suggests that this is a magic drink," he said. "It's a lot more than the alternative, which tends to be sweetened water."

Copyright 2000 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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