Soft drink shakeup stalls Coke plant in Howard

August 06, 1994|By Jay Hancock and James M. Coram | Jay Hancock and James M. Coram,Sun Staff Writers

Soft drinks aren't just cola, Seven-Up or ginger ale anymore. Arizona, Fruitopia, Tropicana Twister, PowerAde, All Sport, Clearly Canadian and other upstart brands are stirring up the beverage trade.

Smaller operators, such as Snapple, are trying to take fizz out of the soft-drink superpowers. Coca-Cola Co. and Pepsico Inc. have responded with "alternative" fruit drinks, teas, sport beverages and bottled waters of their own. Stores, wholesalers, factories and market

researchers have trouble keeping track of it all.

The ferment hit Maryland yesterday, as Coca-Cola Enterprises confirmed earlier reports that it would delay construction of a $200 million production and warehouse complex on property it owns in Howard County. The reason: Soft-drink distribution operations are becoming just as cluttered as the store beverage shelves they supply.

When Coca-Cola engineers designed the high-tech Howard vTC warehouse, they counted on handling Coke, Diet Coke, Sprite and other mainstay brands. Now that PowerAde, ready-to-drink Nestea, Fruitopia and Naya water have been added to the Coca-Cola lineup, the designers must recheck the blueprints.

"Those are all product lines that have been introduced since the 1992 announcement of that facility," said Katherine Whiting, a spokeswoman for Coca-Cola Enterprises. "Putting those orders together in a reasonable amount of time and space would have been very complicated."

It's not just the distribution center that's on hold. A Coca-Cola Enterprises bottling plant and syrup-concentrate factory to be operated by Coca-Cola USA are also delayed, Mrs. Whiting said, but only because their layouts will depend on the warehouse setup.

Officials said they could not estimate when construction will proceed on the site, which Coca-Cola Enterprises bought for $15 million two years ago. But the company said it "firmly believes that Maryland, and specifically Howard County, provides the right business climate for the location of this facility."

It's possible that Coke's new brands could even expand the operation, a fact that was not lost on local officials. As previously envisioned, the complex would generate 500 jobs.

A larger facility "would be a pleasant problem to have," said Richard W. Story, executive director of the Howard County Economic Development Authority.

Bigger sales are clearly what Coca-Cola Co. had in mind when it started adding brands in recent years.

It set up a joint venture with Swiss food giant Nestle to produce ready-to-drink Nestea. In March, Coke introduced Fruitopia juice-based drinks. And this summer it went nationwide with PowerAde, a competitor to Quaker Oats Co.'s Gatorade that had previously been sold only regionally.

Coke's moves are as defensive as they are aggressive, industry analysts said. Its motive: Americans are changing their minds about the best way to quench a thirst.

For years, people have been drinking less liquor and beer. More recently, cola's piece of the country's 12.7 billion gallon annual soft-drink consumption, estimated by consultants Beverage Marketing Corp. to be about 68 percent, has been shrinking.

Instead, "people are drinking more and more of the new-age beverages, such as ready-made teas, juices and bottled water," said Hank Behar, editor of Beverage Aisle, a monthly trade magazine for drink

No operator demonstrates the trend better than Snapple Beverage Corp., the Valley Stream, N.Y., company that went public in 1992 and sold $516 million worth of all-natural ice teas and fruit drinks last year.

Industry obsession with alternative drinks "basically all started with the phenomenal success of Snapple and its ice teas," said Hellen Berry, vice president of market research for Beverage Marketing Corp., based in New York. "Once there was such great interest in Snapple, Coke and Pepsi got on the bandwagon."

Pepsi now has alliances with Lipton and Ocean Spray to sell tea

and fruit drinks. It, too, has introduced a sport drink: All Sport.

Demand for alternative drinks will continue to bubble, experts said. Ready-to-drink tea sales should grow at an annual compound rate of nearly 20 percent through 1998, Beverage Marketing Corp. believes. Noncarbonated fruit-drink sales will grow more than twice that fast over the same period, the firm said.

What's unclear is how much of that growth will go to Coke and Pepsi.

"I think Fruitopia is kind of late to the party," said David Presson, who follows Coca-Cola Co. for Edward D. Jones, a St. Louis-based investment house. Even if they're big hits, alternative beverages will be minor parts of Coca-Cola and Pepsi. But even small shipments of new-age products could complicate Coca-Cola Enterprises' Howard County distribution center, which officials have said will rely heavily on automated systems.

Two years ago, managers figured the warehouse would handle 130 products, as categorized by beverage type, flavor, bottle size, packaging and so forth, Mrs. Whiting said. Now the estimate is more than 300 such "stock keeping units," she said, and it could grow more.

"Every company does a retooling, a rethinking of plans," said Mr. Story, the economic development official. "While this is a delay, it is merely an extension of the planning phase. We fully expect them to implement this . . . when they've finished the planning."

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