Episode 122 - The Next Phase of the Smoothie Wars

Disclaimer: I am an advisor to Once Upon a Farm, which produces smoothies for tiny kids  but do not hold equity in the company

The battle for the freshly blended home smoothie is on. You would think this is something for bagged produce, but it's the latest packaged food competition. Daily Harvest appeared online in 2015 to challenge Dole fruit’s near monopoly on frozen smoothie kits and fruit for the home blender.  Where is all this going? And what can we learn from this new category?

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Transcript

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The founding of Smoothie King by Steve Kuhnau in 1973 was the historical origin of commercially available blended whole fruit drinks in America. A good argument for the real origin of the smoothie in world history, though,  is that Punjabi speaking North Indians invented it first, way back in 1000 B.C. It is known locally as the lassi (whole fruit blended with milk and flavorings). And it’s yummy, yes. And very not vegan. Punjabi lassis use water buffalo milk yogurt. The highest fat content milk in the livestock world.

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There is something very compelling about drinking an ice cold smoothie when living in a hot, arid desert like the Punjab. I unconsciously started consuming them daily when I moved to Tucson. Go figure. 

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But, here’s what happened to the American smoothie - the version that got going in the LA health food scene in the 1970s. It became ultra-processed shit. Today, for example, the Smoothie King sells you fiber-less drinks made from juice and purees, not blended whole fruit. The result is a sugar bomb with no prebiotic or digestive health benefit at all. The calorie load, though, is still far better than any Starbucks drink of comparable size. Interesting. 

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The second-mover smoothie chain - Tropical Smoothie has an average 4.8 g of fiber in each product (smallest size assumed). Not bad. And the third mover - Jamba Juice has an average 3 g of fiber in each small smoothie serving.

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But, wait, ALL of these foodservice smoothies are delivering sugar bombs to the tune of 50-65 g of sugar, mostly from fruit juice. Still. They’re all crazy high in sugar. They all feel like 1980s concepts for a more naive, low obesity era.

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Getting a vegetable heavy, high fiber, low sugar smoothie is pretty hard in these chains. It’s not what the menu is promoting. It’s not what sells. 

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Yet, we know demand is there. Daily Harvest scaled to over $200M online in a niche of re-ordering customers.

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Well, we know that the low sugar, kale-heavy,  authentic, fresh-blended smoothie still happens either at Erewhon or Whole Foods. These custom made smoothies never left the health food channel. But how do they get into your kitchen? Are you or I going to shop for all that produce in a disciplined manner, wash it and fine tune our own recipe?

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I had an employee once who made a banana and greens smoothie with some whey protein powder every morning. It was like 40 ounces. Crazy big. He brought it to work and finished it there at his desk most days. He was a vegan runner. It’s a serious commitment to eat lots of protein as a vegan, a creative shopping commitment to pull this off. If you’re a vegan runner, you can’t just eat chili three times a day. Or a pound of trail mix.

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Look, today’s frozen smoothie brand wars are happening because a daily routine of a custom made veggie-heavy smoothie made from raw produce is just not realistic for the average person otherwise interested in a low-sugar, fruit and veggie fiber hit each morning. 

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This is normally an area where packaged foods gets involved - making food ready-to-eat or more convenient to make. 

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Getting a convenient, high-quality, reasonably priced packaged smoothie product into American homes has taken a long while. Dole probably thinks they did it first, they were really only first to do it in the frozen aisle and in bulk for pantry-stocking. And they’re probably right. But, to date, Dole has not been able (or willing) to offer an organic product line. Nor one heavy in vegetable matter. Not yet at least. 

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The vegetable-heavy smoothie is understandably a problem for packaged food companies…it costs more to make anything with veggies, even when you’re operating at the scale of Dole. After all, Dole’s supply chain is pegged to fruit crops (originally the Hawaiian pineapple), not to kale or avocado. 

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And although “organic” is the largest organic ‘category’ out there in the American grocery retailing system, organic smoothie product innovation has been left to startups. Not even the foodservice chains want to take this one on.

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The demand for the LA health-food store standard of veggie-heavy smoothies combined with the 21st century standard of organic purity is building. This is the standard of the folks who make veggie-heavy smoothies at home every day with their jet-engine flaring Ninja blenders.

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The rise of high-quality, rapid home blenders like Vitamix and Ninja have spread the infrastructure necessary for consumers to blend frozen produce quickly and simply on their kitchen counters. Yet, it’s not clear how many actually do this. I have not come across any data in the public domain. I suspect it’s in the low single digits of household penetration at best. 

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High quality, veggie products for the home smoothie maker is where the new smoothie wars are occurring. And there are several lessons here. But, first, let’s survey the competitors in this 21-st century segment.

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Until Dole and others launched their products in the freezer aisle in the 2000s, the freshly made smoothie was a foodservice category. Consumers did have access to Odwalla, Bolthouse and Naked ready to drink juice products labeled ‘smoothie’ as early as the 2000s, but culturally, these were more “juice” than “thick, fibrous” smoothie. 

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Today, the highest fiber packaged smoothie I could find is Bolthouse’s newish Breakfast smoothie line, but only because they pump loads of dextrin into each 15 ounce serving in order to get 12-14g of fiber, way more than a small foodservice smoothie.

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Unnatural nutrition loads come naturally to the modern food industry. But, again, with crazy amounts of sugar. 44g for the Bolthouse Strawberry breakfast smoothie? And loads of additives.

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Trying to find a naturally high fiber, veggie-heavy, low sugar smoothie for the home blender is not easy. I believe Daily Harvest was the first in 2015. 

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So, an early leader in the frozen smoothie segment, Dole, is now offering conventional produce smoothie packets with 130-150 calories each under its Crafted line for as low as $2.37 per 16 oz finished serving. These packets have 5g of fiber and less than 15g of sugar per serving and yield a decent 16 ounce smoothie, depending on how much liquid you add. Honestly, the only thing missing is the organic purity marker. And more veggies.

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Daily Harvest was the first to sell organic, veggie heavy smoothie cups with a similar finished size, but did it online for $8.95! Their in-store price is also $8.95. That’s a 3X price premium for organic. Yikes. I’m not sure the organic symbol is that powerful anymore.

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But now there is a new player in town - Fresh Start Smoothie Blends, the frozen brand you’ve never heard of, sold at Costco right now in the frozen fruit section. The brand’s parent company has managed to produce a six packet smoothie product that is 100% organic at $2.50 per packet. Even in their veggie-laced tropical UPC. You read that right. They more or less eliminated the typical organic price premium in their apparently exclusive Costco item. 

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They can do this because the manufacturer in question is a produce distributor with Individually Quick Frozen plants (and the required packaging lines). Oregon Potato Company uses its own organic produce from its own farms and buys other fruit directly from organic farms at prices most likely lower than Dole, which would have to buy through wholesalers or distributors at marked up raw ingredient prices. 

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The big lesson here is how placement in the value chain drastically affects pricing power and the ability to tap into unmet mainstream demand such as organic, freshly made smoothies.

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So, in just the past decade, we’ve seen multiple brands (Bolthouse, Dole, Daily Harvest and Fresh Start) appear to get into the sacred home blender with pre-portioned, dump-and-blend smoothie options. Canadian startup Blender Bites, as well as Pitaya, Kencko and Evive are additional premium brands all chasing a similar audience who want to ‘make’ their smoothie at home without any of the thinking involved in shopping ahead for 5-7 kinds of produce. 

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The smoothie wars have morphed from a battle in quick service cafes to a war for the kitchen blender, a largely untapped pocket of growth in packaged food. It reminds me of the emergence of Duncan Hines baking mixes in the 1950s and meal kits in the 2000s. There will always be potential for risk-eliminating brands for the aspirational food maker at home.  

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In the smoothie wars, produce wholesalers will continue to have an enormous market advantage over venture backed brands like Daily Harvest. Even self-manufacturing brands generally have to purchase from produce distributors not directly from farms, which reduces their gross margins and increases their retail pricing.

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The fresher and less processed your food becomes, the more at risk you are in being undercut on price by a later move early in the value chain. 

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This is also a reminder that, as a brand owner in food, if you want an infectious CPG brand, if you are working in formulations that are easily copied by an ambitious ingredient wholesaler.

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It is branding and marketing that these folks do not generally understand. So, this must be your key weapon early on, almost like a beverage company.