Recession held back the soft drinks industry in Argentina in 2002 but on the back of economic growth in 2003, the market is now recovering. In the first of two features on the market, Hope Lee of Euromonitor Interntational looks at the carbonated soft drinks sector, where growth has been spearheaded by low-calorie colas.

Following a slump in 2002, the carbonated soft drinks (CSD) market in Argentina grew by 6% in volume terms in 2003, on the back of economic recovery. Interestingly, as many markets are seeing a decline in CSD consumption in favour of other soft drinks, per capita consumption of carbonates in Argentina has returned to the level recorded in the late-1990s, reaching 83 litres in 2003.

As the economy is slowly picking up, the prices of some consumer goods such as soft drinks are rising. In fact, the price of standard colas has increased slightly ahead of inflation since the second half of 2003, and this has pushed retail value sales of carbonates up 28% during 2003.

Aside from the price hike, the carbonates category has recorded an increased availability of low-priced products. Although Argentinean consumers are now more confident about the country's economy, the majority of them remain price sensitive. To this end, local manufacturers have introduced numerous low-priced products to meet the demand from price sensitive and low-income consumer groups. For example, there has been an influx of low-priced products such as orange carbonates flooding the soft drinks market and these products somewhat cushioned the drop in the overall consumption of carbonates in 2002.

Out of all carbonated drinks, the low-calorie cola sector appears to have been the most resilient category during the recession period, with both volume and value sales experiencing strong growth between 1997 and 2003. Interestingly, these products are not advertised as low-calorie and their popularity is not chiefly down to the health and wellness trend in Argentina, in contrast to developed markets such as the US and Western Europe. In fact, the increased consumption of low-calorie cola has been largely attributable to the low price of these products in Argentina, where low-income consumers constitute a large proportion of the soft drinkers. Low-calorie colas are sweetened with artificial sweeteners (which are cheaper than sugar). Manufacturers are inclined to pass on the savings from raw materials to the consumers and as things stand consumers have been very responsive to the low-priced carbonates.

In terms of the consumer profile, consumers aged over 25 years constitute the target audience for low-calorie colas. At that age, consumers begin to be concerned with weight issues. In Argentina, women are the prime target group.

The Coca-Cola Company and PepsiCo accounted for a combined share of 70% of retail carbonates sales in volume terms. Apart from continued marketing and promotional campaigns, both companies have been flexible in adjusting their brand strategies to the Argentinean market.

The Coca-Cola Company withdrew Nativa (a yerba mate-flavoured carbonate) from the market in August 2004. The initial aim of the introduction of the brand in November 2003 was to expand the consumer base for carbonates. The Coca-Cola Company has experienced a great success with carbonates infused with local flavours in other countries such as the Kuat brand in Brazil. However, Nativa failed to convince the initially targeted juice and concentrates buyers, and its weak sales have forced The Coca-Cola Company to consider reformulating and redeveloping the product. Industry sources suggested that The Coca-Cola Company might have decided to refocus its resources in promoting the Coca-Cola Light brand in order to boost its sales.

PepsiCo has also has to withdraw a product during recent years. The company's Pepsi Twist achieved some success among non-cola drinkers in the early months of the initial launch in 2002 but PepsiCo withdrew Pepsi Twist in PET bottles from the market in 2004, with only cans remaining. Industry sources commented that PepsiCo might intend to concentrate on the classic brands such as 7Up and Pepsi-Cola because of the weak demand for flavored cola variants.

Euromonitor International forecasts that the soft drinks market in Argentina will make a stronger recovery in 2004 to 2005 than in 2003, given the strong performance recorded in the first three quarters of 2004.

And it is likely to be the core CSD brands and categories that are the prime beneficiaries. While Argentina has a higher penetration of soft drinks than other developing markets such as China and Brazil, it is conventional soft drinks, such as standard carbonated water and carbonates, which dominate.

The Coca-Cola Company, for example, saw its unit case volume sales in Argentina grow by 14% in the second quarter of 2004. As the macroeconomic climate improves, consumer confidence will return. The strong predicted GDP growth - 7% in 2004 and by 4% in 2005 - is a clear indication of renewed optimism.