Why Kombucha May Never Make It Really Big
High fructose corn syrup, the ubiquitous sugar substitute blamed for slowly killing Americans through diabetes, obesity and heart disease, has been under assault for almost 15 years. One of its biggest users—the carbonated soda ecosystem—has been shrinking in the face of public health concern and plummeting soda consumption, now at its lowest point in three decades.
Industry giants Coca-Cola Co. and PepsiCo Inc., long aware of this situation, have swallowed up sports drinks, flavored waters, juices and seltzer companies in a bid to diversify. And while they’ve seen better news from their beverage units, the search for the latest thing continues. For the past few years, that thing has been kombucha.
Along the coasts and in natural food markets, this may sound like old news. But some purveyors of this odd drink want to take the next step, into the mass market. The concept isn’t farfetched; What started as a coastal fad has morphed into a full-blown trend and may be on the cusp of something more.
Supposedly Chinese in origin, kombucha is referred to by its more enthusiastic adherents as the “tea of immortality.” Less mystically put, it’s sweetened tea combined with a symbiotic colony of bacteria and yeast that’s allowed to ferment. As a result, the lightly effervescent beverage has a slight vinegar taste. These “probiotics” are touted as key to maintaining a healthy microbiome—fancy speak for your digestive system. That healthy branding is one reason why Big Soda is so keen—regardless of whether it’s actually true. (There is some dispute, but more about that later.)
The other reason is that kombucha is crushing it. In 2018, sales are up 43 percent over all of 2017 and are on course to break $1 billion for the first time, according to Nielsen. One top seller, Brew Dr. Kombucha, said its growth this year could be as much as 75 percent. Matt Thomas, the Portland, Oregon-based company’s owner, said he will ship more than 1 million bottles a week by the end of the year.
“The carbonated soft drink market is getting hammered from all sides,” said Tom Vierhile, Innovation Insights Director at Global Data. “Consumers are going toward beverages that are organic and natural—which is where kombucha came from.”
Typically made from tea, kombucha usually has caffeine, though some makers incorporate fruit juice to make it more approachable.
Just five years ago, PepsiCo invested in KeVita, which is now No. 2 in the kombucha drink market. In 2016, the soda giant bought it outright. Becca Kerr, a senior vice president for PepsiCo’s North American Nutrition Fruit and Vegetable portfolio, said the company continues to follow trends and look for other companies to link up with or buy. Meanwhile, PepsiCo’s Naked Juice and Tropicana lines both have versions with probiotics added after pasteurization. We’ll “continue to look for easy ways consumers can incorporate it,” Kerr said.
The same year Pepsi spotted KeVita, Coca-Cola invested in Health-Ade, also one of the top five kombucha makers. Since then, Coca-Cola has acquired or taken stakes in startups such as Honest Tea and Fairlife Dairy. Another investment was in Suja Life, maker of high-pressure processed juices, kombucha and drinking vinegars.
According to Dr. Sheldon Rowan, a scientist at the Jean Mayer USDA Human Nutrition Research Center on Aging at Tufts University, “several parts of our health and well-being are connected to the health of our guts, which include the health of our gut bacteria.” But while “some studies do indicate positive effects of probiotics, [those] are usually administered in very controlled fashions. Plenty of studies fail to show any measurable benefits.”
Nevertheless, some 65 percent of American consumers believe probiotics are good for you, while 38 percent said they buy products containing them, according to consumer surveys by GlobalData. Among millennials, the percentage of probiotic buyers jumps to 66 percent.
“Millennial dietary habits stand to revolutionize a channel that has been anything but health-conscious in the past,” Euromonitor said in a recent report on convenience stores, where kombucha-style drinks are beginning to take hold.
“You’re seeing big soda shaking in their boots because market share in soda continues to decline.”
Kombucha started out as a home-brewing kit with photocopied instructions and a mason jar containing a gelatinous blob. Making the drink was labor-intensive, which opened the door to entrepreneurs. One of those was GT’s Living Foods, arguably the most famous of all kombucha purveyors and still top dog in sales, claiming about 55 percent of market share.
“You’re seeing Big Soda shaking in their boots because market share in soda continues to decline,” said George Thomas Dave, the company’s founder and chief executive officer. “They are desperate to buy the next trend.” That desperation, however, may undo what Dave has helped build over the past 20 years, he said.
“Kombucha is a live, hand-crafted offering,” he explained. “It can’t be mass-produced.” But consumer confusion about naturally grown probiotics, versus the industrial versions squirted in after pasteurization, created an opening for Big Soda. “They are throwing it in everything and slapping it on the label and creating a good-for-you halo,” Dave said.
Cans, carbonation, lab-made probiotics, concentrate—“it goes against why people are becoming fanatic about kombucha,” he said. “As soon as you strip it of its nutritious value it becomes a sparkling, lightly sweet tea.”
Kombucha Brewers International, the leading industry organization, said it has 300 members but estimates the actual number of makers being as high as 500. Hannah Crum, president of KBI, said the group wants to ensure that kombucha makers are producing a verified product that meets defined best practices. Later this year, KBI hopes to publish clear definitions of what constitutes the drink, including requirements that labels state the percentage of kombucha cultures used and whether it’s from concentrate.
Still, it might be next-to-impossible to mass-market real kombucha, given its nature as a living concoction. The “bastardization” of the drink, as Dave calls it, may be the only way Big Soda can make it a viable product.
“You’re talking about brands that have dialed-in efficiencies, but efficiencies and wild fermentation don’t go hand in hand,” said Crum. If PepsiCo wants to get KeVita “into as many hands as possible,” it will need to make adjustments—like using juice concentrate, making it a more palatable drink or creating a shelf-stable version using aluminum cans instead of glass bottles.
The critical drawback for kombucha is refrigeration. According to KBI, the raw product will continue to ferment and become sour if left out. This is why it’s traditionally been sold locally. “Probiotics are live microbes and will die over time,” said Mary Ellen Sanders of the International Scientific Association of Probiotics and Prebiotics. Even the juice versions of kombucha must be constantly refrigerated.
The kind of investment necessary for Big Soda to really take a bite out of the kombucha market seems unlikely, according to GlobalData’s Vierhile. “Kombucha sales are not big enough now to move the overall sales needle at the soft drink giants, which means sales will have to increase dramatically for this to make financial sense,” he said.
Then there’s the alcohol problem, thanks to fermentation. In the U.S., kombucha must contain less than 0.5 percent for it to be considered “non-alcoholic.” If it has more, it’s taxed as an alcoholic drink. A bipartisan bill sponsored by both Colorado U.S. senators seeks to modify how kombucha is taxed. Said Crum: “No one is reaching for kombucha to get drunk. It shouldn’t be taxed like alcohol.”
Still, kombucha is starting to show up in bars, often as a mixer, and there are kombucha-beer hybrids with a higher alcohol content. But Vierhile said that before a kombucha-beer trend can really take off, traditional kombucha will have to become more mainstream. Beer makers seem willing to take the risk—this year, Molson Coors Brewing Co. acquired California-based Clearly Kombucha for an undisclosed amount.
The path to the mainstream runs through convenience stores, where 53 percent of shoppers go to quench their thirst, said Jeff Lenard, spokesperson for the National Association of Convenience Stores. For kombucha to break in, “all it needs is a few people saying it’s cool” on social media, he said. One of the biggest stores, 7-Eleven Inc., is already taking a gulp. In 2016, the chain tested selling Living Foods GT’s Kombucha in 350 locations throughout the Northwest and Southwest U.S. Currently, Southern California and Oregon lead in sales. While promising, Lenard said a stronger showing is needed to get kombucha everywhere. “Convenience stores aren’t accordions,” he said. “If kombucha comes in, then something needs to go out.”
Dave, the Living Foods CEO, said the leap is beginning. “We’ve identified Minnesota as a huge market for us. We’re sold at Winco, Piggly Wiggly, Walmart,” he said. “You’re seeing kombucha break through niche markets to a broader audience.”
The longer-term question about kombucha is whether it has the ability to persuade more buyers in places like the Midwest. “Non-alcoholic beverages are like the fashion industry,” said Vierhele. “Stuff comes into favor, then falls out of favor—it’s very accommodating to entrepreneurs who have hustle.”