It's a multi-million dollar market and there's no indication that the bubble will burst. Apart from poor weather, it seems that nothing will stop the European soft drinks industry from growing further and faster.

In 1998 alone, retail sales were worth in excess of US$44.6m, up 12.5% since 1994 according to Euromonitor International's report, The Market for Soft Drinks in Western Europe. Retail volume reached 57,642m litres, a 15% rise during the same period.

If the hotel, restaurant and catering trades are added, the total rises to US$77.5m (up 7.8%), and 73,434.9m litres (+14%) respectively.

By far the largest market is Germany, whose population purchased almost 13,000m litres through the retail trade in 1998. France, Italy and the UK follow, consuming 7,000-9,500m litres each, annually.

Reuters Business Insight's Growth Strategies in Soft Drinks report, estimates the figures to be higher, taking into account total consumption. It considers the level for Germany is over 21,500m litres, with Italy taking second place to France and the UK, whose levels range between 10,000 and 13,500m litres.

However, most growth, according to Datamonitor in Reuters Business Insight's New Profit Opportunities in European Drinks report, will come from smaller markets such as the Netherlands, Spain and Belgium.

The report predicts that their value growth rates between 1997 and 2002 will have risen 7%-10% compared to Germany's 5% and Italy's 3%.
Of course, value growth can be attributed to a number of factors, including inflation, and need not necessarily reflect profit potential, but the research indicates that, whichever the European country, the growth opportunities in most soft drinks sectors will come from new, premium segments.

In emerging areas such as functional drinks, consumer sensitivity to higher prices does not appear to be adversely affecting growth. But even if manufacturers have what they consider the right functional product, the way ahead can still be difficult as Red Bull found out when it launched its stimulation drink in the 1980s.

Daniel Schwalb, marketing manager at Red Bull told just-drinks.com that when the company tried to launch the brand throughout Europe it was the laws governing food and drink that kept the barriers to entry firmly closed. One of the main problems regarding the product, which was eventually to establish a new segment, was its high caffeine content. Austria, in 1987, was the first to open its doors to Red Bull.

Schwalb says: "The problem was that this was a new category, falling outside the usual soft drinks formula. We had to provide a lot of research to back our product claims from which others later benefited."

Having cracked Austria, consumer pressure led to the gates of Germany and Switzerland being opened, but this paved the way for the copycats. "At one time, in Germany, we had 200 competitors," says Schwalb.

But jumping on the bandwagon also doesn't guarantee success. "If companies are going to move into a market they have got to be serious about it or they can lose a lot of money," he says. That's a hard lesson learnt by plenty of soft drink firms in Germany. That level of 200 has now dropped to just 10.

Furthermore, consumer uptake in some European countries does not necessarily result in success elsewhere. While the new age beverages and energy/sports drinks sectors have benefited from innovation and seen sales success in France, Germany, Spain and the UK, they have met mixed fortunes in Italy where sales have been declining.

But as competition intensifies, companies are forced to look at global strategies. This presents the problem of adapting to the differences between various countries. Simon Lowden, Pepsi-Cola's marketing director for Europe, says: "For sheer economies of scale it is vital that we are consistent in our communication and methods of approach. We cannot reinvent ourselves in different countries, but we can be flexible in our strategies at a local level."

Interestingly, the message to come from Coca-Cola's chairman in an interview with the UK's Financial Times this week attacked the issue from another angle. Douglas Daft's unofficial catchphrase it seems has become "Think local, act local".

In the interview, Daft says that where Coke has gone wrong recently has been in its policy of moving towards greater centralisation at a time when anti-globalisation is taking place.

"Where I think we missed the heartbeat a bit over the last two or three years was that through the desire to centralise we ended up with a definition of a global consumer. We were looking at similarities, not differences, and we didn't stand for anything in particular for the individual," Daft told the paper. In Europe, Coke has now replaced almost all senior US executives with local managers.

But despite the differing approaches, Pepsi and Coca-Cola both have the advantage that their core audience is interested in similar things regardless of culture - sport, music and fun - which play a major part of their promotional activities. Other strategies depend on the market's level of development. The no sugar cola market in the UK, for example, is the largest in Europe with 45% of carbonates sold being in this variety. In Spain, Italy and Portugal it is 10% and growing; Scandinavia and Germany is at 20%-25% but at a plateau; and in Hungary and Poland the concept has not taken off yet.

Lowden says: "Trends like low calorie drinks are consumer driven, but some trends are predominantly industry driven."

He refers particularly to single packs, especially the 500ml PET size, which is currently the fastest growing pack across Europe. Here, the importance is on availability - getting distribution and penetration. In so doing, it is building the habit of drinking on the go.

Lowden says: "The growth of single packs is good for the whole industry. It's building penetration and it comes at a time when promotional deals on multiple purchases are commonplace in the supermarkets. It's regenerating profit within the industry."

Reuters Business Insight's New Profit Opportunities in European Drinks report estimates that private label penetration will reach 30% across Europe by 2002. In 1997 it was 22%. Ivor Harrison, business development director of Cott Beverages says: "Penetration will increase as retailers recognise the value that private label can contribute to their overall profitability."

He believes that the levels will also rise as retailers consolidate across the continent and within countries. He went on: "Given the complexities faced by retailers in managing so many product categories, it is inevitable that they will look to their key suppliers for support."

But Ludo Bammens, vice-president public affairs at Coca-Cola Enterprises, Europe Group warns that however well developed private label becomes, and whatever new categories emerge, major brands will always be vital for market growth.

He said: "Consumer pull is extremely important to the soft drinks industry. The market needs investment. It needs to advertise and to talk to the consumer. Without premium brands to do this there would be no consumer pull and the market would simply become a commodity."

Sue Barnard

For further information on the Reuters Business Insight publications mentioned in this article please contact: Andrea Marshall (Publisher) or Celine Delasalle (Press Department) on: Tel: (+44) 171 675 0990 Fax: (+44) 171 675 0991 Or at: press@rbi-reports.com

For further information on the Euromonitor report, please visit www.euromonitor.com
Our online Knowledge Store also has the following publications, which may be of interest:

"International market for alternative drinks" http://just-drinks.com/store/products_detail.asp?art=10064

"UK Food and Drinks report" http://just-drinks.com/store/products_detail.asp?art=10058

"Soft drinks" http://just-drinks.com/store/products_detail.asp?art=10195