I’ve just spent a few weeks travelling around the US visiting many of the kombucha industries leading brands & beverage industry experts. I'm in a lucky and unique position to be able to be able to sit down with these industries insiders who really know what is going on and are at the coal face of the kombucha market everyday. Each insightful conversation over a glass of booch gives me a unique perspective and insights into where things are at & more importantly where they are going.
Personally i’m always looking for the next big opportunity and right now in the kombucha world i can see endless runway for innovative & exciting new brands that want to come in and shake up this market. Its a really exciting time!
I thought it might be helpful to share some of my main takeaways & thoughts from my trip so maybe it can help inform & inspire others to take advantage of the opportunities in this ever evolving kombucha market.
Here are some of my takeaways & thoughts:
Changing Consumer behaviour
Covid-19 had a significant impact on the kombucha market in the USA. The pandemic has led to a shift in consumer behaviour towards more online sales and away from traditional brick-and-mortar stores, with some brands seeing huge growth in their online sales. However, this shift in behaviour has created big challenges for kombucha brands that only serve raw living unpasteurised kombucha in glass bottles. In online deliveries for example this creates challenges when raw products can spend considerable amounts of time outside the fridge, which leads to explosive bottles & excessive levels of alcoholic due to the ongoing fermentation in the bottle that can easily happen on a warm day. Glass bottles also do not travel well and leads to a lot of breakages which is not ideal. The big opportunity here is for innovative brands that have ambient stable kombucha that ships in more durable and lightweight cans. A good example of this is Remedy Kombucha who has really been shaking up this part of the market.
Is it time for kombucha to get out of the fridge?
There is a big problem that is holding back the growth of the kombucha market: most of the current leading kombucha brands that are raw & unpasteurised are only found in the chilled refrigerated section of stores. This limits the potential market for kombucha and makes it difficult for kombucha brands to expand beyond their current consumer base. Let me explain.
Firstly, refrigeration limits the potential market for kombucha. Many consumers are still not even aware of kombucha or do not actively seek it out in the refrigerated section. By creating ambient shelf stable products, brands can make kombucha more accessible to a much wider audience and explode the growth of the category. These products can be placed on the shelves alongside other main stream beverages, making them much more visible and increasing the purchased by consumers who might not otherwise have considered kombucha before.
Secondly, refrigeration is an added cost for brands. Refrigerated products require additional storage and transportation costs, which can be a significant financial burden for smaller brands. By creating shelf-stable products, brands can reduce these costs and make their products more affordable for consumers.
Thirdly, shelf-stable products have a longer shelf life than refrigerated products. This means that they can be sold in more locations and for longer periods of time, reducing waste and increasing profitability for brands.
Finally, creating ambient shelf-stable products & getting kombucha out of the fridge can help to grow the kombucha market overall. By making kombucha more accessible and affordable, more consumers will be able to try it and discover its amazing qualities.
Kombucha too expensive for the average American consumer
Despite its growing popularity, kombucha remains very expensive in the United States, with many of the leading brands priced at $3.99 per bottle…ouch! This high cost is a significant barrier to entry for many consumers, and it is preventing the category from growing and competing with big beverage.
Kombucha's high cost is due to several factors, including the cost of premium raw materials, production, and distribution. Hot infusing loose leaf tea is typically more expensive than the fast formulation methods of other beverages like soda. Additionally, kombucha requires a lengthy fermentation process, which can increase production costs. Finally, chilled distribution costs are also high due to the perishable nature of the product, which requires refrigeration and careful supply chain management.
However at $3.99 per bottle, kombucha is seen as luxury item that is out of reach for many consumers. This high cost is stopping the category from growing, and it is preventing the American kombucha industry from entering the mainstream market and competing with the likes of like Coca-Cola and PepsiCo.
But the whole kombucha category does not need to be this way, I see so much opportunity for clever more mainstream optimised brands to enter the better for you kombucha category.
The European kombucha market has already figured this out with many of the leading kombucha brands being much more mainstream in their flavour profiles, formulation and regularly priced at below 2 euros. Needless to say the European market is growing at a much faster pace, while off a lower base number of course.
If the cost of kombucha could be reduced to $2 per serving, the total addressable market for kombucha would explode. Consumers would be more willing to try the drink at a lower price point, and the lower cost would make it easier for retailers to stock the product. As a result, the market for kombucha would significantly grow.
Other retail beverage data supports the idea that lowering prices can significantly increase the total addressable market (TAM) for kombucha. For example, in 2008, the energy drink market was valued at $8 billion, with prices ranging from $2 to $4 per can. However, in 2018, the market was valued at $63.5 billion, with prices as low as $0.99 per can. It unarguably that lower prices made energy drinks more accessible to consumers, leading to explosive market growth.
Which of you is going to take on this opportunity for the kombucha market?
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Kombucha has a quality problem
The kombucha market has significant quality issues, even among the market leading brands. Consumers are experiencing issues such as excessively high alcohol levels, short shelf life, inconsistency from batch to batch, and of course off flavours from poor control over the fermentation processes. Brands that solve these problems have the potential to really excel in the market and gain more market share.
One of the most significant quality issues is the presence of high alcohol levels in some kombucha brands. Kombucha is a naturally fermented drink, and as such, it can contain trace amounts of alcohol. However, the Alcohol and Tobacco Tax and Trade Bureau (TTB) has set a limit of 0.5% alcohol by volume (ABV) for non-alcoholic beverages which is a reasonably common global standard. Some brands have been found to exceed this limit, some at >3% ABV causing taxation issues in some states & concern among consumers who may be sensitive to alcohol or those who are avoiding it altogether. I don’t think this image is helping the category especially in a beverage world moving more towards low and no alcohol products.
Another quality issue that both retailers & consumers are experiencing is the short shelf life of kombucha. Because much of the kombucha in the market is a live and active drink, kombucha can continue to ferment and change over time, leading to changes in flavor & aroma and not in a positive way.
Inconsistency from batch to batch is also a significant quality issue in the kombucha market. Due to the nature of fermentation, each batch of kombucha can vary in flavor & aroma. While the hardcore purist will tell you that’s just how kombucha is, it is however extremely hard to build any brands when every experience the customer has is different.
Brands that solve these quality issues have the potential to excel in the American kombucha market. By ensuring that their products meet the TTB's 0.5% ABV limit, brands can offer peace & confidence to consumers. Extending the shelf life of their products can reduce waste and increase customer satisfaction. Implementing consistent quality control processes can ensure that each batch of kombucha has the same high quality, which can lead to brand loyalty and repeat business. Finally, having better control over the fermentation process can result in a delicious and refreshing drink that keeps consumers coming back for more.
Consumers think the calories & caffeine in kombucha is too high
As consumer awareness of the negatives impacts of a high sugar diet increases, so does the growing demand for low-sugar, Low-calorie and sugar-free beverages. This can be seen clearly in a huge surge in seltzers and health soda alternatives like Poppi in recent years. Consumer trends are changing and there is now a huge opportunity for new innovative kombucha brands that offer mainstream delicious low-sugar or sugar-free options. We are already seeing some brands offering “kombucha light” and I thiink this trend will continue.
The sugar content in traditional style kombucha can vary widely, with some brands containing upwards of 10 grams of sugar per 100ml and the consumer is now all too aware of this. As consumers become more health-conscious, there is a growing demand for low-sugar or sugar-free beverages. According to a study by the International Food Information Council (IFIC), 76% of consumers are actively trying to limit or avoid sugar in their diets. Additionally, the same study found that 60% of consumers are trying to limit or avoid artificial sweeteners.
In response to this demand, some kombucha brands are now offering low-sugar or sugar-free options. These brands are using alternative healthier sweeteners such as stevia, monk fruit, or erythritol to sweeten their products. Some brands are also using fruits and vegetables to add natural sweetness to their kombucha.
These low-sugar or sugar-free kombucha options are not only appealing to health-conscious consumers, but they also offer a mainstream appeal, again broadening the market for kombucha. By offering delicious, low-sugar or sugar-free options, kombucha brands can attract a wider audience who may have been hesitant to try kombucha in the past due to its high sugar content.
Hard Kombucha is growing
The alcoholic hard kombucha market experienced a massive growth during the COVID-19 pandemic. As more people turned to at-home drinking and healthier options, hard kombucha became a popular choice.
According to industry reports, the hard kombucha market saw a 200% increase in sales in 2020. This growth is expected to continue in the future, with new brands entering the market to meet the demand. The market is forecasted to reach $1.5 billion by 2027, with a CAGR of 24.8% from 2020 to 2027.
One of the main reasons for the growth of the hard kombucha market is the changing drinking habits of consumers. With the pandemic, people are more health-conscious and are seeking out beverages that offer health benefits.
The growth of the hard kombucha market has also led to an increase in competition, with many new brands entering the market, but it looks like there is space for a lot more since hard kombucha today only makes up such a tiny part of the overall alcoholic beverage market.
These leading brands are offering flavor forward where the flavouring of the product is much more dominant that that kombucha flavour, some feel this could be leading to more consumer adoption..
The rise of health-conscious drinking habits, the popularity of kombucha, and the increasing competition are all contributing to the market's growth. With the entrance of new brands and innovative flavors, the hard kombucha market is poised for continued success in the years to come.
Is the kombucha market too focused on Percieved health benefits and probiotics?
Many leading kombucha brands have marketed their products primarily as a health drink, touting the benefits of its probiotics, antioxidants, and other nutrients. However, maybe this narrow focus on health could be limiting the potential of kombucha as simply a tasty and enjoyable beverage.
While the health benefits of kombucha are certainly noteworthy and is the main reason I was originally drawn into this industry, it is important not to overlook the other reasons why people might enjoy drinking it. Kombucha has a unique and complex flavor profile that can range from tart and sour to sweet and fruity. It is also naturally carbonated, giving it a refreshing effervescence that many people find appealing. These qualities make kombucha a great alternative to soda or other sugary beverages, especially for those who are looking for a healthier option.
By focusing solely on the health benefits of kombucha, many brands are missing out on the opportunity to appeal to a much broader range of consumers & create exciting brands for those just looking for a delicious and enjoyable beverage that fits into their overall healthy lifestyle.
Kombucha is and can be much more than just a health drink. Its unique flavor profile and versatility make it a great alternative to alcohol, soda and a fun and enjoyable beverage.
In conclusion
While this article may at times seem critical and pessimist, I am however at my core and optimist. I see such huge opportunity for innovative and open minded entrepreneurs who can look objectively at the kombucha market, not as it is but what it could be.
The American kombucha market is facing some big challenges it needs to overcome but this offers some significant opportunities for transformational growth into the mainstream. The brands that solve the big issues and make kombucha more accessible, affordable, and visible may very well take the lion's share of the market in the years ahead as it goes more and more mainstream.
It really is an exciting time for this industry!