LA Libations CEO: It used to be just about taste and refreshment, now consumers want it all

“For 100 hundred years it was about taste and refreshment, and then we saw this really interesting phenomenon, starting with Red Bull (launched in the US in 1997), where consumers said, ‘Ok, what can this beverage do for me?’,”​ Stepper said.

“And that opened the door to a lot of functional, terrible-tasting beverages. Now what’s happening is consumers want it all, they want functionality and they want it to taste great.”​

Luckily, taste has caught up with functionality in the beverage space with technology and sweetener systems playing a huge role and nimble smaller players taking share from long-standing category leaders.

This is where LA Libations comes in. Launched in 2009 as an early-stage incubator for beverage brands, the firm works with entrepreneurs behind early stage companies with annual revenues of up to $2m.

According to Stepper, one of LA Libations' first big breaks was when it became involved with Zico when it was roughly $3m in revenue, but before the coconut water brand hit the mainstream.

“We find trends that are beginning and at very early stages and we try to make them as mainstream as possible,”​ Stepper said.

Beverage landscape ‘wrought with failure’​

In order to claim it’s “an emerging beverage category captain”​ (a title Kroger bestowed it in 2013); Stepper said that his team takes every meeting that comes its way. In the past year alone, LA Libations met with nearly 250 young beverage entrepreneurs to identify compelling beverage trends.

“The bottom line is if you’re a beverage entrepreneur, it’s a very difficult environment; the landscape is wrought with failure,”​ Stepper cautioned.

“The good news is a tremendous amount of the growth is coming from brands and categories that did not exist five years ago.”​

According to Mintel director of insights and innovation, Lynn Dornblaser, across major food and beverage categories it is the smaller companies that have outperformed the category average in almost every instance including functional beverages. 

"It’s the small companies that are nimbler, that are closely connected to consumers and that’s why we see that growth being higher for them than for the category average,"​ Dornblaser pointed out. 

"It’s those little guys who really romance the consumer, who get the consumer really engaged and attached to the brand and that’s absolutely essential."​

Stepper added that small companies should use their small size to their advantage as time is of the essence when getting a new beverage product to the market and it is crucial to achieve velocity as quickly as possible. 

“Being fast in this game is really critical especially if you’re a beverage entrepreneur because time is money and you’re burning through cash – the faster you can do things and the less mistakes that you make is very important,” ​Stepper said.

LA Libations employed this rapid go-to-market practice with its own sparking aloe water brand, Aloe Gloe, that went from product concept to on-shelf availability at Costco stores in less than six months.

“It’s no longer the big eat the small, it’s the fast eat the slow.”​

Potential of CBD is 'massive'​

While the FDA tussles with how it will regulate CBD (cannabidiol), the non-psychoactive component of hemp, Stepper foresees beverage brands that are incorporating CBD into their products as big winners a few years down the road.

“CBD, in my opinion, will be the largest health and wellness trend of our generation if the government goes a long and lets it play its course,”​ he said. 

The hemp-derived hemp market is projected to be a billion-dollar market within three years registering a 55% annual growth grate, according to Brightfield Group.

“Essentially everyone is trying to do hemp, but only a handful are doing it well. It's seen as easy because it can be sold online but, with restrictions on traditional marketing, it is very difficult to connect with your core consumer and even communicate why they need your product​," Bethany Gomez, director of research at Brightfield Group, commented.

The research behind the health benefits of CBD such as its possible anti-inflammatory properties and stress relief, is beginning to catch up with consumers’ interest in products containing the hemp-based ingredient.

“The health benefits [of CBD] are just starting to be understood,”​ he said.

Brands like Hemp Hydrate, and Endo Water are using CBD in their formulations and creating a buzz with consumers despite the currently regulatory grey area.

However, CBD’s more controversial relative, THC, has a much longer road ahead it before it becomes a common part of beverage formulations, according to Stepper.

Outside of the obvious roadblock surrounding the federal legalization of cannabis, Stepper sees “a lot of problems with the THC beverages mainly around dosage.”​