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EXCERPT FROM THE DIGITAL IQ INDEX®: BEVERAGES 2014 TO ACCESS THE FULL REPORT, CONTACT [email protected]

DIGITAL IQ INDEX®

BEVERAGES

September 29, 2014 EXCERPT FROM THE DIGITAL IQ INDEX®: BEVERAGES 2014 TO ACCESS THE FULL REPORT, CONTACT [email protected]

DIGITAL IQ INDEX® BEVERAGES

Fizzle Beverages: Annual Per Capita Consumption by Category The “sugar water” business is going from bad to worse. U.S., 1987–2013 In 1998, the average American drank more than 50 gallons of soda per year.1 Fifteen years later, consumption 50 is down nearly 20 percent—with “diet” drinks declining 42.2 faster than any other beverage category due to increased 40 Soft Drinks scrutiny of aspartame and other artificial sweeteners.2 Although cola conglomerates have attempted triage by 30 launching anti-obesity campaigns, testing stevia-based GALLONS PER CAPITA Bottled Water 22.1 reformulations (e.g., Coca-Cola Life, Pepsi NEXT), and 20 20.1 doubling down on marketing expenditures—nothing can Beer 3,4 stem the tide. Last April, Coca-Cola announced its 10 Juices first global dip in soda volume since 1999, signaling the 6.9 4.3 5 spread of the disease beyond the United States. 0 Sports Drinks 1990 2000 2010 Source: Beverages Digest, July 2014. Too Little, Too Late? As reality sets in, beverage titans are slowly rethinking business Beverages: Change in Per Capital Consumption by Category fundamentals. In 2007, Coca-Cola embarked on a diversification U.S., 2003–2013 binge (e.g., Glacéau, Honest Tea, Zico)—culminating in a $2 billion investment in Monster Energy last August.6,7 In 2013, the company Sports Drinks reversed course by selling costly distribution operations it acquired +40% Bottled as recently as 2010.8 In September, Coca-Cola experimented with its Water first exclusive distribution deal with Amazon (see page 48). Although Wine Distilled Spirits such investments signal a positive shift away from denial, analysts +20% Tea 1. “Soda Losing Its Grip on America,” Jim Avilia & Serena Marshall, ABC News, April 2, 2014. 2. “Diet Sodas’ Glass Is Half Empty,” Mike Esterl, The Wall Street Journal, December 8, 2013. 3. “Pepsi and Coke’s new cola war challenger? Zevia.” Phil Wahba, Fortune, June 27, 2014. 4. “Coca-Cola Maintains Marketing Spend Amid Sluggish Demand,” Natalie Zmuda, Ad Age, July 22, 2014. 0% 5. “Coke Under Pressure as Sales Abroad Weaken,” Mike Esterl, The Wall Street Journal, July 30, 2014. Coffee 6. “Coke Confronts Its Big Fat Problem,” Claire Suddath & Duane Stanford, Bloomberg Beer Businessweek, July 31, 2014. Milk 7. “Coke to Buy Stake in Monster Beverage for $2.15 Billion,” David Gelles, The New York Times, -20% August 14, 2014. Juices Soft Powdered 8. “Coca-Cola to return some distribution to U.S. franchisers,” Martinne Geller, Reuters, April 16, 2013. Drinks Drinks

Source: Beverage Information Group, July 2014. September 29, 2014 2

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DIGITAL IQ INDEX® BEVERAGES

are asking if they are too little, too late.9 Representing only $1 in every $100 dollars spent in supermarkets, online Beverages: Online Grocery Sales grocery remains in its infancy.10 However, future winners U.S., 2009–2018E ■ Annual Revenue ■ Annual Change and losers on Amazon Fresh, Walmart Grocery, and Google Shopping Express are being determined now. Four of the $12,000 +14% 10 top-selling soda brands (Mountain Dew, Dr Pepper, Diet $10,000 +10% Pepsi, and Diet Mountain Dew) are not present among the $8,000 +6%

20 best-selling soft drinks on Amazon—displaced by Zevia, IN MILLIONS $6,000 Fever Tree, and Hansen’s.11 +2% $4,000 With food and beverages products demonstrating the lowest $2,000 -2% customer loyalty of any category measured (approximately $0 -6% 40 percent of buyers identify as “not loyal”), it is imperative that 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E beverage brands reassess their online visibility and explore how 2013 Size 2008–2013 CAGR 2013–2018E CAGR 12 digital properties reward frequent buyers. Online $6.5 Billion +3% +9.2% Ofﬂine $574 Billion +1.5% +0.7% Digital IQ = Shareholder Value Source: IBISWorld. This study attempts to quantify the digital competence of 54 beverage brands in the U.S. market. Our aim is to provide a robust tool to diagnose digital strengths and weaknesses, Beverages: Online vs. Offline Grocery Product Segmentation helping managers achieve greater return on incremental U.S., 2013 investment. Like the medium we are assessing, our approach is dynamic. Please reach out with comments that improve our methodology and findings. $ Regards, Beverages Fruits and Meat, Fish, Dairy Other Food Frozen Delivery Other L2 (Including Vegetables and Poultry Products Items Foods Charges Nonfood Alcohol) Items 5% 5% Online $6.5 Billion 9% 15% 14% 11% 11% 30%

2% 0% 9. “Coke, Pepsi...These guys aren’t cracking beverage innovation,” Ben Bouckley, Ofﬂine 19% 8% 12% 32% 11% 15% Beverage Daily, May 16, 2014. $574 Billion 10. “How E-Commerce Is Finally Disrupting The $600 Billion-A-Year Grocery Industry,” Cooper Smith, Business Insider, September 10, 2014. Source: IBISWorld. 11. “Special Issue: U.S. Beverage Results for 2013,” Beverage-Digest, March 31, 2014. 12. “84 Percent of Global Respondents More Likely to Visit Retailers That Offer a Loyalty Program,” Press Release, Nielsen, November 12, 2013.

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DIGITAL IQ INDEX® BEVERAGES

GENIUS GENIUS GIFTED AVERAGE Red Bull Bud Light

RANK BRAND DIGITAL IQ GIFTED RANK BRAND DIGITAL IQ RANK BRAND DIGITAL IQ Coca-Cola Budweiser Gatorade Pepsi Monster Energy 1 151 3 139 10 115 Mountain Dew Heineken Red Bull The Coca-Cola Co. The Coca-Cola Co. Diet Coke Samuel Adams Sprite Lipton Stella Artois 2 143 4 138 11 113 Dr Pepper AVERAGE Anheuser-Busch InBev Anheuser-Busch InBev The Boston Beer Co. Coca-Cola Zero Rockstar Powerade Coors Light Corona Extra 5 11 113 Miller Lite 137 Sierra Nevada Shock Top PepsiCo The Coca-Cola Co. 5-Hour Energy Snapple Guinness Michelob Ultra Vitamin Water 6 131 13 112 NOS Vitacoco PepsiCo Unilever Group Zico CHALLENGED Fanta 7-Up Arizona 7 129 13 112 Schweppes Fuze Nestea Monster Beverage Corp. Anheuser-Busch InBev FEEBLE Amstel Busch SoBe 8 128 15 111 Sierra Mist Hoegaarden Leffe PepsiCo Dr Pepper Snapple Group Natural Shasta Keystone Light AMP Canada Dry 9 127 16 109 Foster’s Modelo Heineken The Coca-Cola Co. Beck’s Kronenbourg Miller Genuine Draft Full Throttle

September 29, 2014 4

DIGITAL IQ INDEX® BEVERAGES

GENIUS AVERAGE CHALLENGED Red Bull Bud Light

RANK BRAND DIGITAL IQ GIFTED RANK BRAND DIGITAL IQ RANK BRAND DIGITAL IQ Coca-Cola Budweiser Gatorade Pepsi Monster Energy 17 108 24 95 29 91 Mountain Dew Heineken Rockstar Living Essentials The Coca-Cola Co. Diet Coke Samuel Adams Sprite Lipton Stella Artois 18 106 24 95 32 89 Dr Pepper AVERAGE The Coca-Cola Co. Dr Pepper Snapple Group The Coca-Cola Co. Coca-Cola Zero Rockstar Powerade Coors Light Corona Extra 19 105 33 Miller Lite 26 93 88 Sierra Nevada Shock Top Molson Coors Brewing Co. Diageo Dr Pepper Snapple Group 5-Hour Energy Snapple Guinness Michelob Ultra Vitamin Water 20 99 27 92 34 85 NOS Vitacoco Zico Constellation Brands Anheuser-Busch InBev AriZona Beverage Co. CHALLENGED Fanta 7-Up Arizona 20 99 27 92 35 81 Schweppes Fuze Nestea SABMiller The Coca-Cola Co. Suntory Holdings FEEBLE Amstel Busch SoBe 22 98 29 91 36 79 Sierra Mist Hoegaarden Leffe Sierra Nevada Brewing Co. The Coca-Cola Co. The Coca-Cola Co. Natural Shasta Keystone Light AMP Canada Dry 23 96 29 91 37 72 Foster’s Modelo Anheuser-Busch InBev Nestlé Beck’s All Market Kronenbourg Miller Genuine Draft Full Throttle

September 29, 2014 5

DIGITAL IQ INDEX® BEVERAGES

GENIUS FEEBLE Red Bull Bud Light GIFTED RANK BRAND DIGITAL IQ RANK BRAND DIGITAL IQ RANK BRAND DIGITAL IQ Coca-Cola Budweiser Gatorade Pepsi Monster Energy 38 67 45 56 51 49 Mountain Dew Heineken Heineken National Beverage Corp. Carlsberg Group Diet Coke Samuel Adams Sprite Lipton Stella Artois 38 67 46 53 53 42 Dr Pepper AVERAGE Anheuser-Busch InBev Molson Coors Brewing Co. SABMiller Coca-Cola Zero Rockstar Powerade Coors Light Corona Extra 47 54 Miller Lite 38 67 52 17 Sierra Nevada Shock Top PepsiCo PepsiCo The Coca-Cola Co. 5-Hour Energy Snapple Guinness Michelob Ultra Vitamin Water 41 63 48 51 NOS Vitacoco Zico PepsiCo Dr Pepper Snapple Group CHALLENGED Fanta 7-Up Arizona 42 61 49 50 Schweppes Fuze Nestea Anheuser-Busch InBev SABMiller FEEBLE Amstel Busch SoBe 43 49 50 Sierra Mist 57 Hoegaarden Leffe Anheuser-Busch InBev Constellation Brands Natural Shasta Keystone Light AMP Canada Dry 43 57 51 49 Foster’s Modelo Anheuser-Busch InBev Beck’s Anheuser-Busch InBev Kronenbourg Miller Genuine Draft Full Throttle

September 29, 2014 6

DIGITAL IQ INDEX® BEVERAGES

Loyalty Beverages: Site Account Features Across 16 categories of products, Food Percent of Brands Incorporating the Following & Beverage registers the lowest level September 2014, n=17 of customer loyalty recorded—with approximately 40 percent of global 100% consumers indicating their likelihood to switch brands across both alcoholic and carbonated beverages.13 Beverage brands would be wise to take a cue from peers in the Retail sector, where 23 percent of consumers indicate their loyalty to a brand increased due to an adherence program.14 Despite evidence for how to combat a Facebook Connect persistent problem, less than one in three 35% beverage brands are leveraging customer relationship management (CRM) capabilities Stella Artois’ La Société offers participants a range of member benefits, including to enable user-specific accounts. Of these, discounts on apparel and special events. only a third encourage purchases via Transactional Loyalty Program transactional loyalty programs (e.g., bottle 35% cap code redemption programs). Several brands, including Budweiser and Dr Pepper, offer account creation with no clear incentive for users to volunteer personal information. This stands in stark Mailing Address Capture contrast to Stella Artois’ “La Société” 24% initiative, which offers various discounts to lifestyle brands in line with the pilsner. Listing Ofﬂine Events 18%

13. “Nielsen Survey: 84 Percent of Global Respondents More Likely Mobile Alert Opt-In to Visit Retailers That Offer A Loyalty Program,” Nielsen, Pepsi’s answer to My Coke Rewards (see page 18) is November 12, 2013. Pepsi Experience Points, which can be acquired by 12% 14. “How Seamless are You?” Consumer Research Results, Accenture, interacting with brand’s digital properties. March 24, 2014. Product Preference Capture September 29, 2014 7

DIGITAL IQ INDEX® BEVERAGES

Retailers: Online Grocery Beverages: Brand Visibility on Retailer.com The food and beverage industry may be the last industry September 2014 ■ Stocks Brand ■ Brand Appears on First Page of Category Search to be disrupted by e-commerce, with only 1 percent of the $600 billion in sales attributed to online purchases.15 Locations selected, when necessary: Amazon Fresh- Seattle, Fresh Direct- Manhattan, Peapod- Chicago,Instacart- Washington D.C., Safeway- Washington D.C., Walmart To Go- Philadelphia. *Note: Instacart does not support purchases of alcohol. However, while most brands know where and how their 89% 87% 83%63% 76% 72%26% 57% N/A 48% 35% 28%26% 22%0% products are stocked on physical store shelves, location 80% 2% 80% 33% and prominence online is much murkier and proves largely immune to brand influence (for now). Amazon.com remains in prime position to own the online grocery market because of its physical distribution network, 20-million-strong Prime membership program, Amazon Fresh expansion, and as of April, Amazon Prime Pantry offering for household staples.

N/A N/A N/A N/A N/A Walmart Amazon Fresh Instacart- Instacart- Instacart- Amazon Instacart- 15. “How E-Commerce Is Finally Disrupting The $600 Billion-A-Year Grocery Industry,” Target Safeway To Go BevMo! Fresh Peapod Direct Safeway* Harris CostCo* Prime Whole Cooper Smith, Business Insider, September 10, 2014. Teeter* Pantry Foods*

Beverages: Online Pricing of Diet Coke September 2014

Retailer Safeway Harris Teeter

Price, 12 Pack, 12 oz. $6.59 $4.38 $7.49 $4.12 $4.00 $4.99 $7.39 $8.29 $4.89 Cans

Standard Shipping $12.95 $9.99 Variable $9.99 $9.95 $5.99 $7.99 $7.99 $5.99 Cost

September 29, 2014 8

DIGITAL IQ INDEX® BEVERAGES

Email Beverages: Email Marketing Efforts Much like the Beer industry, the wider Beverages September 2014 category is consistently underinvested in email marketing, despite evidence that 14 to 28 percent of shoppers conduct digital research food purchases prior to shopping.16 While seven in ten brands offer 70% 39% 31% 7% 6% email sign up, only half of those followed up with even a single message. The category averages just 0.27 messages per week—ahead of the Beer OPT-IN n=54 industry’s 0.07 and Spirits’ 0.04, but behind the Food industry’s 0.40. All three industries significantly Brands Offers Solicits Date Solicits Mailing Requires Conﬁrmation Offers Express trail e-commerce heavy brands in sectors such as Email Sign Up of Birth Address of Sign Up 1-Field Sign Up Specialty Retail, which send between three and four emails per week.

50% 39% 26% 26% 18%

FOLLOW-UP n=38

Message More Than One Welcome Promotes Promotes New/ Sent Message Sent Note Sent Events Seasonal Products

2.0 2.0 2.0 WEEKLY 1.4 1.1 FREQUENCY Top 5 Coca-Cola Coca-Cola Zero Diet Coke Pepsi Red Bull

16. “What Happens Online Before a Consumer Ever Walks into a Grocery Store?” eMarketer, August 28, 2014.

September 29, 2014 9

DIGITAL IQ INDEX® BEVERAGES

Social Media Beverages: Social Media Adoption Beverage brands are heavily invested in social Percentage of Brands with Official Presence by Platform platforms as the digital media of choice. All but one September 2014, n=54 (Full Throttle) has a Facebook page. Only one brand (Canada Dry) fails to maintain a YouTube channel. All 98% 98% 94% but three are active on Twitter—and all but four have 89% profiles on Instagram. While eight in 10 brands are 79% on Google+, only three have communities exceeding 67% a million followers (Coca-Cola, Pepsi, and Red Bull). 50% 41% Consistent across all categories L2 tracks, Tumblr 33% continues to trail in terms of traction and significance. Facebook delivers the largest average community size across competing social platforms, but Facebook YouTube Twitter Instagram Google+ Vine Pinterest Tumblr BuzzFeed Instagram continues to differentiate itself with an average engagement rate 35 times that of its (big) sister platform. On Pinterest, Coca-Cola is the only brand that has attracted more than 4,500 followers. Beverages: Social Platform Performance by Size, Growth, and Engagement June–September 2014

2.50%

FACEBOOK 1.50% INSTAGRAM Size: 6,820,357 Size: 96,927 PINTEREST Growth: +12% GOOGLE+ Growth: +43% Size: 683 Engagement: 0.05% Growth: +4% Size: 127,849 Engagement: 1.79% TWITTER Growth: +28% AVERAGE ENGAGEMENT RATE AVERAGE Engagement: 0.23% 0.50% Size: 362,698 Engagement: 0.10% Growth: +15% Engagement: 0.08% 0% 10% 20% 30% 40% 50%

AVERAGE GROWTH IN COMMUNITY SIZE

September 29, 2014 10

DIGITAL IQ INDEX® BEVERAGES

Mobile & Tablet Although 70 percent of consumers prefer mobile devices for tasks tied to grocery Overreliance on desktop sites compounds errors rates on the tablet form factor. shopping, an explicit preference for smartphones versus tablets varies by activity A third of brand sites feature broken or buggy elements, with one in 10 requiring type.17 For example, nearly three times as many consumers prefer smartphones Adobe Flash to load select pages. The severity of these errors can range from to tablets for managing shopping lists, but nearly twice as many consumers dead landing pages (DrinkArizona.com) to diminished interactivity on multimedia- prefer tablets for browsing recipes. Usage is similar on both devices when it rich destinations (Fanta). comes to looking up nutritional information. The consumer’s propensity to switch Across mobile sites, brands demonstrate little effort to rethink feature devices leading up to purchase requires Beverage brands to ensure broad site implementation beyond navigational elements. Although “availability in-store” compatibility while optimizing select features to conform to user behavior. ranks among the top five influencers to add a CPG product to shopping lists,18 Sixty-three percent of Beverage brands have adopted mobile-optimized sites, only 41 percent of Beverage brands support retail finders on the small screen. Of but only 17 percent have implemented UI/UX templates distinct to the tablet. these, less than 1-in-4 take advantage of geolocation. Gatorade provides a prime example of rethinking “Where to Buy” for mobile users. 17. “Mobile Audience Q3 2013 Insight Report,” CPG Research & Purchase Behaviors, Ninth Decimal, September 2013. 18. Ibid.

Beverages: Site Configuration on Mobile and Tablet Devices September 2014, n=54

No Mobile Responsive Unique Mobile No Site Loads Unique Tablet Loads No Site Optimization Design Domain Presence Desktop Site UI/UX Mobile Site Presence

Smartphone Tablet 33% 48% 15% 4% 68% 17% 11% 4%

September 29, 2014 11

DIGITAL IQ INDEX® BEVERAGES

5 METHODOLOGY SITE MOBILE 15 Site Features 36 Mobile & Tablet 6 DIGITAL IQ RANKINGS 17 Loyalty 37 SPOTLIGHT: Gatorade’s Where to Buy 6 Genius 18 SPOTLIGHT: MyCokeRewards.com Mobile Apps 8 Gifted 19 Retailers: Online Grocery 38 8 Average 21 SPOTLIGHT: Walmart Grocery 39 FLASH OF GENIUS 10 Challenged 39 Mountain Dew: Baja or Bust 10 Feeble DIGITAL MARKETING 22 Search 40 Monster Energy: CoD Ghost Giveaway 12 KEY FINDINGS 24 Email 41 Heineken: @WhereNext 12 Distribution 42 Budweiser & Bud Light: Social Gifting SOCIAL MEDIA 13 Enterprise Effects 43 Sprite: #ChangeTheGame 26 Social Media 44 Gatorade: #WinFromWithin 27 Facebook 45 Lipton: #ExtraSUNday 29 YouTube 46 Coca-Cola: Happiness Flag 31 Twitter 47 Surge: Amazon Exclusive 33 SPOTLIGHT: Cola Wars on Twitter 34 Instagram 48 L2 TEAM 35 Vine 49 ABOUT L2

September 29, 2014 12

DIGITAL IQ INDEX® BEVERAGES

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