Millennium Products Inc. has so dominated the market for kombucha, the fermented tea drink, for 21 years that it is said to account for 70 percent of the $600 million carbonated ready-to-drink tea business in the United States.

It’s a market that shows no sign of fizzling out, and that has drawn a flood of challengers large and small into an industry centered in and around Los Angeles.

The latest, biggest entrant is PepsiCo. Inc., the soft drink behemoth that last month bought Oxnard’s KeVita Inc. for a reported $200 million. That deal came just as L.A.’s No. 2 kombucha player opened a plant in Torrance that is expected to boost its production capability tenfold.

Secure in its market lead, Millennium, founded and run by GT Dave, has moved to diversify its product line by adding a fermented coconut milk product called kefir.

The move, Dave said, is not a reaction to fear of an eroding market share for his core product but rather a natural progression of the lifestyle represented by the commercial U.S. kombucha movement, which he is credited with starting in 1995 with the launch of his drink.

“Kombucha just happened to be this thing that came into my life at a certain time,” said Dave. “It’s clearly not the only thing I’m passionate about. There are definitely other foods that haven’t been discovered.”

Indeed, Millennium’s lead is so great that even Pepsi’s entrance into the market is not seen as an existential threat.

“I think other companies are starting to encroach on GT,” said Virginia Lee, senior beverages analyst for London-based market research firm Euromonitor International. “But GT has such a head start, it will be hard to catch up.”

Still Dave, 36, worries more that deals such as Pepsi’s acquisition of KeVita, a maker of kombucha and other probiotic drinks, will result in the beverage losing its authenticity. He attributes the health benefits of the tea, which originated thousands of years ago in Asia, to helping his mother when she had breast cancer.

“It’s always risky when any big company steps into a market and does their version of something,” said Dave.

The drink’s rise has coincided with the decline in the consumption of soda, which hit a 30-year low last year, according to industry research firm Beverage Digest. Meanwhile, Lee estimates that the market for carbonated, ready-to-drink teas will reach $1.5 billion by 2020.

“My view is that the American consumer wants flavor and sparkle, but is moving away from sodas, which are perceived as unhealthy,” she said. “Kombuchas and probiotics, with their health benefits, reassure consumers that they’re tasty and good for them.”

From seed

Dave started brewing kombucha in his parents’ kitchen at 15 in 1995 while a student at Beverly Hills High School.

Not a great student, he was given a wake-up call from a blunt college counselor and he realized he needed to get his life on track. He dropped out of high school, enrolled at Santa Monica City College, and devoted his life to making the hand-crafted drink, which he makes from Indian tea, fruit juice, and a bacteria culture.

“From day one, I treated it like giving birth,” he said. “I realized early on that I was doing something special. Kombucha was all I could do. I couldn’t hang out with friends or go to school. It was a complete sacrifice.”

At first he sold only to nearby health food stores, transporting the glass bottles in his mother’s car.

As his operation began to scale up, he took a $10,000 loan from his mother – the only debt or investment he’s taken on since starting his brand, and which he said he repaid within six months – and bought a labeler so he didn’t have to make labels by hand.

In 2011, Safeway sought him out. Dave overcame initial reluctance – he was concerned the store would place his drink next to soda or that customers wouldn’t go for it – and agreed to have his drink sold in its first mainstream store.

Now his brands, GT’s Kombucha and Synergy, are sold across the country in stores including Kroger, Whole Foods, Wal-Mart, and Costco.

He still makes the drink, which sells online for almost $6 a bottle, with the same recipe and size batches that he did in his parents’ kitchen, only now it is brewed in a 100,000-square-foot plant in Vernon.

New product

The kombucha production and distribution network will help move out the kefir products, which joined the product line when he acquired CocoKefir, a Minnesota company, earlier this year.

The addition of the product line has not been without controversy.

CocoKefir has been hit with allegations that its claims that the product in some way mitigated certain autism-related disorders are unfounded and a suit alleging that because its product was made with coconut and not dairy customers might have been misled about its properties.

Yet even the well-established kombucha has had bumps in the road.

The fermented tea has been the subject of many scares, said Hannah Crum, president of Kombucha Brewers International, a trade association founded in Los Angeles in 2014.

Millennium has faced a lawsuit, now in settlement discussions, alleging that kombucha bottles exploded because of the gas buildup inside.

In 2010, Whole Foods pulled all brands of the product from its shelves after some were found to contain more than the legal amount of alcohol. The costly recall led a couple of brands to shut down, but the majority of the companies simply reformulated their products.

“Unlike other industries, where it could have been the death knell, it bounced back more than expected,” said Crum.

The industry since then has grown at a 30 percent year-over-year rate in natural food stores and 50 percent in conventional stores, she said.

Competition brewing

While the trade group counts about 250 kombucha makers across the United States, most are small-scale operations. Los Angeles is home to eight producers – led by Millennium – which together account for about 80 percent of U.S. output.

The second-largest kombucha maker in Los Angeles, Health-Ade Kombucha, has received investment from First Beverage Group, an L.A. private equity firm, and CAVU Ventures, a New York venture capital firm specializing in “better-for-you” products. CAVU invested $7 million in May for a minority stake in Health-Ade.

The drink company moved into a 50,000-square-foot plant in Torrance last month, after having been unable to meet demand for its product for the previous six months, said Chief Executive Daina Trout.

“We’ve received orders this week for five times what we can deliver on,” said Trout, who began making the drink in a closet in 2012.

Demand is such, she said, that Health-Ade is considering adding another plant in January.

The trade association’s Crum said she could see kombucha becoming as big as yogurt in the next few years.

She compared the drink’s trajectory to the dairy product, which used to be made by people at home and now is made on an industrial scale.

Just as with yogurt, kombucha contains cultures and because it is not pasteurized it must be refrigerated at all times, making distribution difficult. That’s where Pepsi may have an advantage, said Crum.

Dave said he worries kombucha products will get watered down with big money coming in.

“I personally don’t think that kombucha should be under the Pepsi umbrella,” he said. “On the other hand, you could honestly salute and admire Pepsi being open to exploring certain products. The perk is with their resources they can make it more accessible to more people. The jury is still out.”

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