Mental wellbeing and alcohol moderation will drive the next phase of growth in functional beverages, predicts Recess CEO
Recess launched in 2018 with CBD-infused beverages, and says it remains “the clear leader in the CBD beverage category” with distribution in CBD-friendly states across the country.
However, founder and CEO Ben Witte has been clear from the start that he is “building a brand, not marketing an ingredient,” and says the CBD-free Recess Mood line – launched in 2020 – now accounts for 40% of the business and is on course to generate “well over 50% of sales” by the end of 2022.
‘We see this as a broader relaxation category with multiple subcategories for us to play in’
Speaking to FoodNavigator-USA after launching three new Recess Mood flavors and picking up distribution at 1,000 Albertsons stores under multiple banners including Safeway, Albertsons, Pavillions, Shaw’s, and Kings, Witte said he had also secured additional listings in CVS, and struck deals with Fresh Thyme and the airport channel via OTG, with additional authorizations expected.
The new Mood flavors - which come with a reduced retail price of $3.49 (down from $3.99) – will hit shelves in October, said Witte, who said the brand taps into the key trends of “mental wellbeing and alcohol moderation… we see this as a broader relaxation category with multiple subcategories for us to play in.
“Instead of positioning ourselves as a CBD beverage brand, we focused on establishing the usage occasion of ‘taking a Recess’ and developing a leading lifestyle brand focused on marketing a feeling: calm, cool, collected.”
As for the pricing reduction, he said: “We’ve done a lot of work on COGS (cost of goods sold) optimization while still maintaining quality, so we’ve moved to larger co-packers and we’ve got economies of scale. Transportation costs and tolling fees have also stabilized a bit.”
‘We’re developing a leading lifestyle brand focused on marketing a feeling: calm, cool, collected’
He added: “When we talk to retailers, they see alcohol moderation as this mega trend and see the trend of consumers prioritizing their mental wellness, which is going to impact many parts of the store in many categories.
“We're seeing velocities for Recess Mood on par if not stronger than our CBD line, and it's filling a consumer need for retailers that can't bring in CBD. There are also multiple ingredients here that we can utilize around mood and relaxation, whether it's CBD magnesium, adaptogens, nootropics and so on, and these functional ingredients are going to be combined in different ways.”
Recess products typically sit in the functional beverage sets along with kombucha and other gut health drinks, energy drinks and other better-for-your beverages, said Witte: “Kombucha is over-spaced, so we see drinks like Recess that are offering a proposition around mental wellness are taking space from kombucha, although every retailer is different.”
Formulation: ‘Not tired, not wired…’
Depending on the flavor, the Recess Mood line contains combinations of magnesium-l-threonate* and botanicals such as l-theanine, lemon balm, and American ginseng, which are all associated in consumers’ minds with calm and relaxation, said Witte, who says fans of the brand cite multiple usage occasions from a morning beverage to start the day on the right note, an afternoon moment of calm, after work to decompress, or as an alcohol alternative.
Recess – which is careful not to make any hard claims on pack, and uses fairly woolly phrases such as “to get you to the place you want to be” and "adaptogens to help maintain balance” – does not list the amounts of magnesium or botanicals in its Recess Mood line, but Witte insists it is using meaningful amounts that deliver a discernable effect for most consumers.
“We’re not just sprinkling it in as we think it's very important that people are able to feel something when they drink our products and we have 1,000s of testimonials to support that, although people react to functional ingredients differently."
CBD: ‘You're operating in a constrained addressable market with a patchwork of state-based regulations’
The original Recess products – infused with a combination of botanicals and 10mg of CBD from a broad spectrum hemp extract – are continuing to do well, although the regulatory uncertainty at a federal level has held back many major retailers from entering the market, said Witte.
“We see both product lines coexisting, and we do see a lot of momentum on the CBD side of the business. We now have 24 states that have passed state-based regulations of some kind [permitting the sale of CBD-infused foods or supplements] and that is causing some mainstream retailers like Sprouts and Wegmans to build out the category.
“Large alcohol distributors like Southern Glazer's, Breakthru Beverage Group and RNDC have gotten into the space over the past year, but it’s definitely an unusual business situation to navigate because you're operating in a constrained addressable market with a patchwork of state-based regulations and I do think you will see a lot of brands not be able to make it to the other side, and I think we're still some time away from Target, Whole foods or Walmart from carrying CBD beverages."
Asked about the CBD beverage landscape, he said: “It’s been pretty wild. Since we launched, there's probably been 100 CBD beverage brands that have launched, but not very many have built a very geographically distributed footprint. If you look at just measured channels, we're 50% bigger than the number two brand, and that doesn't take into account independent accounts such as New York City bodegas and liquor stores where we have a really large business, as well as our e-commerce business.”
'We’re not competing with LaCroix’
Quizzed about the challenges of selling premium beverages to consumers with constrained budgets in a period of rampant inflation, beverages such as Recess “are not competing with LaCroix,” pointed out Witte.
“When people drink a can of Recess they're drinking it instead of alcohol or cold brew coffee or kombucha, and interest in the proposition that CBD offers – helping people feel calm and balanced and relaxed – is only accelerating, if anything.”
‘There was this kind of Gold Rush mentality and everyone became a hemp farmer and a CBD extractor’
So what is happening on the supply side?
When the 2018 Farm Bill passed, which removed industrial hemp from Schedule I of the Controlled Substances Act but did not suddenly make CBD and other cannabinoids legal in foods, beverages and supplements, “there was this kind of Gold Rush mentality and everyone became a hemp farmer and a CBD extractor,” says Witte.
“And basically the supply got ahead of the retail addressable market and prices came down.”
Looking ahead, he added: “We continue to see a lot of activity in Congress, which is fed up with the FDA’s inaction in creating a national regulatory framework as you can see in a recent letter written to the FDA by the sponsors of the CBD Product Safety and Standardization Act. We still believe it’s a question of when, not if, the FDA acts.”
*Some animal studies show magnesium-l-threonate is more effective at increasing magnesium ions in the brain and improving cognitive function than magnesium sulfate.