Fruitful development in the East
The Eastern European soft drinks sector is developing rapidly but as in mature western markets, growth in non-carbonates is outstripping that of CSDs. In the second of two features, Zora Milenkovic reports on the growth in the bottled water and fruit/vegetable drinks categories.
As the Eastern European soft drinks market has rapidly progressed since the fall of Communism, countries have progressed at different rates but similar trends have been seen across the board. One of the most striking trends has been strong growth in the non-carbonated sector, notably waters, fruit juices and functional drinks, while CSDs showed much slower progress.
Excepting growth for niche products such as functional drinks, the fastest growing categories since 1997, according to research from Euromonitor International, have been bottled water and fruit/vegetable juice. Bottled water grew by just under 100% in volume terms in the region as a whole between 1997 and 2003, with most of this accruing from still bottled water.
The region has a long tradition of local bottled waters, almost exclusively sourced from mineral springs or naturally carbonated spa waters, explaining the dominance of carbonated bottled water which accounts for just under 80% of total bottled water sales in Russia in 2003, though this proportion is declining.
Virtually all countries have been producing carbonated bottled water brands for decades. In the Soviet era bottled water was hardly available in any form other than carbonated and was also promoted as a remedy for indigestion. To be competitive in the marketplace large players like PepsiCo and Coca-Cola kept carbonated water volumes high, though latterly still bottled water volumes have picked up.
Still bottled water has since taken on a new lease of life with its promotion as an aid to a healthier lifestyle. Nowadays, the image of a person walking in the street with a bottle of water in his/her hands has already become a picture of a healthier lifestyle as advertised and promoted by the leading manufacturers. In 2003, bottled water sales reached 1.4 billion litres and US$782m in Russia alone. Companies in Russia are purposely targeting the lower income consumer group to attract new bottled water users and are offering cheaper products or larger format packaging. Premium-class water still has limited consumption and popularity.
However, markets such as Russia are still riddled with the problem of bottled water forgeries and weak brand control. One of the most recognisable bottled water brands in Russia since the Soviet period has been Borjomi. The water was bottled in Georgia and, due to the high mineral content, was recommended as a curative treatment for digestion ailments. Unfortunately, after the Soviet Union collapsed a large amount of counterfeit Borjomi mineral water flooded the market. Although the situation has improved over time in the major cities, in the regions counterfeiting remains a problem.
Another main target for the counterfeiters is the famous brand Narzan. This water is bottled mostly in Kislovodsk in the Caucasus region, where the original spring is. However, the brand has more than one bottler, which creates opportunities to launch counterfeit products. Unlike for Borjomi there is no clearly defined Narzan ownership and no company holds the exclusive rights. The major bottler is Kavkazskiye Mineralniye Vodi OOO, but Narzan OAO and Mosimpex Service Ltd are also bottling this brand. The Essentuki brand accounts for high sales countrywide, but is also bottled by a large number of companies.
In 2003, the Russian government finally introduced its Governmental Standards definitions (GOST) for bottled water. Since January 2003, all bottlers must state the content of so-called chemical elements like calcium, magnesium, fluorine and iodine. Two categories for bottled water standardisation were defined: highest and first. According to the Hygiene Research Institute, out of 13 leading brands (both local and foreign) that were taken for sampling only three fell within the highest category.
The regional bottled water market is led by the top four multinationals, PepsiCo, Nestlé, Coca-Cola and Danone, which together account for just over 25% of total off-trade sales. Despite sales of their own brands, the companies owed their positions chiefly to acquisitions of local producers.
Growth in the fruit and vegetable juice categories was second only to bottled water between 1997 and 2003, with overall growth of just over 90% in volume terms. The consumption of fruit/vegetable juice in Eastern Europe is relatively high in comparison to other developing regions such as Asia-Pacific and Latin America, with a regional per capita of 13 litres in 2003. The more mature markets such as Hungary, Czech Republic and Poland registered between 20-30 litres per capita each in the same year. The comparatively high price of fresh fruit, especially exotic fruit, means that Eastern European consumers tend to opt for 100% juice from concentrate rather than not from concentrate (NFC), which is still a niche market owing to high unit prices. Furthermore, robust volume growth partly stemmed from the consumer shift away from carbonates to fruit juice. General economic development in the region as a whole has resulted in improvements in the retail infrastructure, which has helped penetration of juices.
The region is also characterised by the high level of consumption of 100% reconstituted juice as major manufacturers, especially Russia-based companies, import substantial quantities of concentrated juice and have the technology to produce reconstituted juice. Reconstituted juice does not require chilled storage for distribution, in contrast to such requirements for NFC. Consequently, it is able to reach a wider consumer base.
While Russian players, primarily Wimm-Bill-Dann, lead the fruit/vegetable sector in the region as a whole, multinationals are looking to exploit the profit potential in this region. To improve their competitive edge, many multinationals have entered strategic alliances with local manufacturers and some have started local production. Multinationals active in the field include Coca-Cola, PepsiCo and other leading pan-European Western players.
According to Euromonitor, non-carbonated drinks will be the prime growth area as the Eastern European soft drinks market continues to expand. Emerging sectors such as RTD tea and functional drinks will be the main drivers of growth, chiefly from a low base, followed by fruit/vegetable juice and bottled water. The latter two sectors will benefit from the increasing trend towards healthy drinks, and the continued launch of fortified fruit/vegetable juice products.
For more information on Soft Drinks International, visit: www.softdrinksjournal.com
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