ESSAY: In New Year, Cherchez les Niches    Tho everyone’s hoping for return to economic growth in 2010, the betting is that it will be sluggish at best, with capital remaining tuff to procure and consumers – at least for now – continuing to seek real added value before they splurge on above-premium brands.  That augurs for a continuation of key trend we saw in 09, in which brands at both ends of spectrum – premium and value – seemed to fare well, while those in great muddy middle – lacking either excitement/innovation or blatant appeal to pocketbook – often languished.  That in turn suggests that new and existing brands that find the right niches to play in can do well in new year, using that as foothold from which to gradually expand in scope, riding economic recovery as it becomes more pronounced.

Take tea.  To some, that’s a seriously oversaturated category, with likes of Lipton and Nestea duking it out in groceries and brands like organic Honest Tea and Sweet Leaf Tea increasingly entering mainstream via powerful distribution partners.  But that’s not to say there aren’t opportunities in the right niches.  Value segment dominated by AriZona’s 23-oz cans prepriced at 99 cents has been crying out for greater competition, which it’s now getting via Peace tea, Monster Energy-devised brand heading into bottling network of its distribution ally Coca-Cola.  Other brands, such as Xingtea and Cintron, are targeting similar opportunities, as is 16-oz canned Snapple line prepriced at 79 cents.  At other end of spectrum, there may be room for more high-end players: expanding array of kombucha players, from small local players (like NY’s BK KB – Brooklyn Kombucha) to national ones like GT’s Synergy, all enjoying brisk growth, even as brands like Honest Tea and Carpe Diem push into segment.  Some entrepreneurs are taking different tack at hi end of tea biz, experimenting with ideas like refrigerated fresh teas.  Latter approach received endorsement of sorts when Coca-Cola Consolidated’s BYB Brands unit recently took stake in Seattle-based Cha Dao.  Similar dynamics are likely to play out in other segments, as entrepreneurs ransack globe for intriguing ingredients – from coconut water to hibiscus to borojo fruit – with compelling nutrition story and, ideally, scientific research to back it up.

In capital-constrained period, niche launches have advantage of requiring less in way of startup resources: after all, they’re going for specialized retail footprint and, hopefully, tapping into community of interest that can shoulder some of burden of developing awareness.  That certainly was true of coconut water’s early foray into yoga studios, hitting retail network that was unexploited by majors and reaching consumers with vibrant word-of-mouth channel.  Lotsa smaller marketers also are discovering that entrée into foodservice operations at thought-leading cos like Apple and Google are way to generate brisk word-of-mouth and spark interest among local retailers, even while avoiding dogfight occurring in more conventional retail channels dominated by major bevcos and their distribution networks.

In most parts of country, these entrepreneurs have access to experienced DSD network that’s looking to expand in NAs, as with many beer houses, or to replace brands lost to larger systems.  Tho Coca-Cola and Pepsi Bottling Group in particular have adopted sophisticated strategy that calls for patience in transitioning young brands very gradually to bottling system, there’s little question that even their stated hands-off approach, as with their respective recent investments in Zico and ONE coconut waters, prompt the brand’s existing distributors to start beating bushes for potential replacements.  After all, distributors all feel they’ve seen this movie before, whether at 24 frames per second or 300 fps.  That dynamic could offer lift to current players not tied to major network, such as Vita Coco, or open door to new entrants.

Bottom line: on innovation side, we may see another year in which blockbuster landgrab launches are few and far between, but should see lotsa interesting niche plays percolating thru the channel.