Heady growth but carbonates fail to fizz
Eastern European soft drinks markets are growing strongly, but some categories are growing faster than others. Zora Milenkovic looks at the CSD sector across a range of markets, which in spite of inward investment from international groups is showing the same signs of saturation seen in more developed markets.
It has been over a decade since Eastern Europe emerged from the consumer fog of Communism and the development of products in the soft drinks market has been enormous. Growth over the past five years has accordingly been dynamic, particularly in emerging sectors such as functional bottled water and juices, according to research by global market analyst, Euromonitor International.
However, Euromonitor's research also indicates that overall growth for carbonates was the lowest in the market, with only low-calorie colas registering any significant development.
Overall, the region's soft drinks industry has achieved growth of over 60% in volume terms since 1997, with the highest growth within the less mature markets such as Ukraine, Romania and Bulgaria (all between 100-123% period volume growth), chiefly from a low base. More mature markets such as Poland, the Czech Republic, Hungary and Slovakia saw more modest growth as products are better established and the market reaches saturation.
The behemoth amongst them, Russia, the largest soft drinks market in the region in volume terms, lay somewhere between the two groups, with growth of over 60%, although its per capita sales of total soft drinks (both on- and off-trade) languished at the bottom of the group.
Despite the discrepancy in maturity of the different markets, similar trends were reflected in each. The largest sector, carbonates, saw comparatively muted growth, as consumers switched to healthier drinks such as fruit/vegetable juices and bottled water.
The trend towards healthier lifestyles was evident in all countries, with the launch of numerous fortified brands of fruit/vegetable juices and bottled waters. The most dynamic growth was reserved for niche products, such as functional drinks (energy & sports) and RTD tea which grew from a low base and are present with any significant sales only in the mature markets.
The largest market, Russia, with a total of 5.7billion litres of soft drinks sold in 2003, saw faster on-trade than off-trade growth as consumer spending power grew. On-trade sales of soft drinks in Russia are still undeveloped, with the channel accounting for barely 3% of total sales, although this share is expected to increase over the next five years. Although the Russian market has fully recovered since the 1998 financial crisis and consumer expenditure is up, consumers remain price-sensitive; accordingly, value growth did not keep pace with volume growth in the same way it has in the more mature regional markets where consumers have been trading up to premium products.
Low-calorie cola enjoyed tremendous growth across Eastern Europe, albeit from a low consumer base. It largely outperformed standard cola in Bulgaria, the Czech Republic and Russia. Sales of diet products took off towards the end of the review period thanks to heavy promotion by major manufacturers. Overall levels of consumption of low-calorie cola remain low in Eastern Europe and this low consumer base signals considerable potential for growth.
The Coca-Cola Company's promotion of Coca-Cola Light under the tagline 'Silver Temptation', underpinned growing interest in 'light' cola products throughout 2003 and the growth momentum of low-calorie cola is expected to continue for the foreseeable future in line with the growing health trend.
Non-cola carbonates are also popular in Eastern Europe, with a number of local generic products such as kofola in the Czech and Slovak Republics and kvas in Russia and Ukraine enjoying a renaissance. In Russia, sales of the fermented drink, kvas, and the berry drink, mors, returned to pre-Soviet levels. To meet new consumer demands multinationals also launched a range of healthy drinks or began bottling local products. Even though Westernisation is increasingly affecting the younger generation, the average Russian consumer remains loyal to locally produced drinks, assuming them to be healthier and without artificial additives.
The overall East European off-trade soft drinks market was dominated by Coca-Cola and PepsiCo, with nearly 15% and 10% of volume sales respectively, according to research by Euromonitor. The duo owed its position chiefly to unsurpassed marketing clout, strong penetration and the acquisition of local companies. The remainder of the market, including multinationals such as Nestlé and Danone, along with a myriad local players, was very fragmented, with the third largest overall player, Wimm Bill Dann, registering just under 3% of volume sales.
Euromonitor expects volume growth of the East European soft drinks market over the next five years to reach almost 40%. Less mature markets such as Ukraine and Russia will lead the region, with the latter exhibiting overall growth of just under 60%. Russia's per capita consumption of soft drinks is expected to nearly double over the forecast period, leaping from just over 39 litres in 2003 to over 64 litres in 2008. However, overall carbonates are likely to see limited growth, and even then, it will come from low-calorie and non-cola variants.
Next week, the second feature in this series will examine the growing non-carbonated soft drinks sectors in Eastern Europe.
For more on Soft Drinks International, visit www.softdrinksjournal.com
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