The launch of an energy-drink lollipop in New Zealand may have far reaching effects on the Australasian beverage industry in general as the market continues to come to terms with the boom in alternative products. David Robertson reports on the changing face of soft drinks downunder.

The emergence of an energy-drink lollipop, dubbed the epop, will herald a major change in the Australasian soft drink market this year.

The epop has been developed by two friends from Auckland who came up with the idea at a barbeque. It contains Vitamin B, guarana, taurine and caffeine and has created a predictable public furore about whether they are suitable for children.

The epop is not expected to create a boom in such novelty products but it will force regulators to tighten the rules restricting the development of this sort of item. Australia and New Zealand share the same food and drink regulatory body but that doesn't stop the two countries having different rules. New Zealand allows products to be manufactured under the loosely defined category of "therapeutic goods" and in recent years Frucor, the New Zealand company being bought by Danone, has used this loophole to produce its energy drink V.

Until the middle of 2001 drinks makers were banned from making energy drinks in Australia. But Frucor was able to circumvent the rules using the New Zealand loophole and, because of a free trade agreement, import V straight into Australia, stealing ground on rivals. Since the rule change all the major drink companies have started making their own products in Australia, but V remains in a strong position due to its early dominance.

The emergence of products like the epop has highlighted the need to bring the rules into line and the Australia New Zealand Food Authority is expected to give Australian companies the same rights as those in New Zealand within the next few months. But the changes are also expected to restrict the development of products like the epop.

"Drinks companies were concerned that because of the supplementary, or therapeutic, category, companies could develop new products in New Zealand and sell them in Australia but there was nothing similar here," said Tony Gentile, chief executive of the Australasian Soft Drink Association.

"We hope they will come up with a standard thing so what can be done in New Zealand can be done in Australia but with more restrictions to stop people abusing it like the energy drink lollipop. These are the sorts of areas the regulators will have to look at."

Gentile hopes that this rule change will prove as much of a catalyst as the energy drink exemption last year. Energy drinks, which Australian research not surprisingly shows are most popular among IT professionals, exploded in popularity last year with a raft of products appearing within a just a few months of last year's rule change. Companies like Coca-Cola Amatil and Cadbury Schweppes (which bottles Pepsi in the region) have ploughed into the segment as sales of traditional carbonated soft drinks have remained static.

"The industry, in terms of traditional carbonated drinks, is not seeing much growth at all," adds Gentile. "Growth is static following the international trend. This soft drink segment is maturing and becoming less profitable in real terms. The profit per unit is probably declining in comparison with other segments."

Energy drinks, with the flashy cans and questionable taste, are sold at premium prices and are proving considerably more profitable than the traditional colas - which explains why the major companies have invested so heavily in this niche market.

Colas are still the dominant part of the Australian soft drink market, representing about 63% of the A$6bn value in 2000. But growth slowed to less than 3% in 2000 and is expected to slow further in 2001.

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The industry enjoyed one-off sales benefits in late 2000 and early 2001 including the increased use of vending machines following the Olympics when the massive number of machines imported for the event were subsequently redistributed throughout the country. Also convenience stores changed from selling only the traditionally 275ml cans to the full range of container sizes. But the benefits of these changes have largely been worked through.

The stagnation in growth of the traditional carbonated soft drink market has forced bottlers and manufacturers to look at new drink categories. The expansion has not been confined only to energy drinks with companies now moving into bottled water, fruit juices, flavoured milks and various "new-age concepts". The move is becoming so pronounced that Gentile says his organisation is considering renaming itself the Australasian Beverage Association.