Eastern Europeans eager for energy boost
The overall functional drinks market in Eastern Europe is underdeveloped in comparison with Western Europe with a low consumption base and a lack of product awareness. However, the long-term prospects for functional drinks in the region are promising.
Total volume sales for sports drinks stood at 15.3m litres in 2004, reflecting lower penetration than that for energy drinks. At present, a number of countries such as Russia, Romania, and Ukraine record no sizeable volume sales of sport drinks mainly due to a lack of investment from manufacturers and low consumer awareness. In fact, across the whole region, consumers lack product awareness of sports drinks and many do not differentiate between sports drinks and energy drinks.
Energy drinks represents a larger niche in the Eastern European soft drinks market, with total volume sales amounting to 62m litres in 2004. Growth in total volume sales of energy drinks (+327%) outperformed sports drinks (+256%) on the back of higher investment.
Energy drinks are now found in most of the major Eastern European markets, although the level of market development varies. Euromonitor's latest research shows that Russia and Poland are the largest energy drinks markets by value, together accounting for over 40% of regional sales.
The higher margins offered by energy drinks has attracted rising levels of investment from local players and multinationals. Increased marketing and promotional activities have contributed to improved consumers awareness and increased demand, one notable example being the Polish brand, Tiger, which was launched by local manufacturer, Gellwe Sp zoo, in spring 2004. It swiftly gained a sizeable market share thanks to the successful use of a local boxing champion in marketing campaigns.
Energy drinks sales are also rising through the foodservice channel. As manufacturers such as Red Bull GmbH have increased their marketing activities in night-clubs. Russia saw the fastest growth in volume sales of energy drinks in the foodservice channel in recent years, up by 33% between 2003 and 2004.
Discounting has been used to boost consumption frequency and attract new consumers. Eastern European consumers remain largely price sensitive especially towards novelty products and the price drop can potentially work as an incentive for impulse purchase. In Poland, the average retail price for a litre of energy drinks was PLN16.7 in 1999, compared with PLN 15.4 in 2004.
In order to reduce production costs and ultimately retail prices, local manufacturers have introduced flexible packaging formats. Cans are no longer the only packaging format available. Various sizes of plastic bottles are on the rise. The brand Tiger is available in both the ready-to-drink liquid format packaged in can and the powdered format packaged in small paper bags.
International groups are more active in sports drinks but local players are starting challenging international brands, chiefly on price. The multinationals' hold over the sports drinks arena is reflected in the steady gain in market shares of brands such as Novartise's Isostar, the Coca-Cola Company's Powerade and PepsiCo's Gatorade over the past five years.
However, competition within the energy drinks category is intensifying. Although Red Bull maintained its leadership in retail volume sales in 2004, its regional market share has been eroded by both multinational and local brands for the past five years. International brands Adrenaline Rush (owned by South Beach Beverage Co Inc), Red Devil (owned by Red Devil NV) and Burn (owned by the Coca-Cola Company) are the serious challengers to Red Bull.
Local copycats constitute an underlying threat to mainstream brands. Some local manufacturers tend to market their products under similar names. Examples include Red Diablo (owned by Eko Vit Sp zoo) and Red Bat (owned by WNWM Ustronianka), competing on price with the better known brands. The price difference can be substantial. Red Bull retails at as much as PLN10 for a 0.25 litre can, while Red Diablo costs about PLN 5.19 for the pack size.
Multinationals may have to work harder to market their own brands in order to avoid losing sales to local copycats. This problem may potentially increase the costs of market entry and the marketing spends for multinationals. Copycats are also active in sports drinks although to a lesser degree than for energy drinks.
Functional drinks are considered niche products and there remains ample room for further development in the next few years. Euromonitor forecasts that total volume sales of functional drinks in Eastern Europe will grow by 95% in the coming few years. Positive macroeconomic factors such as the possible reduction in corporation tax and incentives for attracting inward investment are likely to contribute to market development.
Currently, the consumption of functional drinks is concentrated within urban areas across all major markets. The potential increase in disposable income and further price reductions for functional drinks should allow brands to reach a critical mass in the long term.
Both energy drinks and sports drinks are predicted to continue growing although energy drinks are likely to outperform sports drinks in the years to come. However, in Russia volume sales of sports drinks may become sizeable in the next few years. The Coke-owned brand, Powerade, reportedly saw strong growth in Russia in 2004 and this may encourage other functional drinks marketers to enter the sports drinks market there.
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