Analyst Richard Corbett takes a look at the strong performance of the carbonates category, which has been suffering in other regions.

The 550m consumers in Latin America make up a little over 8% of the world's population but they consume an impressive 18% of the global soft drinks. In terms of per capita, this equates to nearly 170 litres of soft drinks per year. The region is an important piece of the overall global soft drinks jigsaw and demand continues to rise; volumes increased by between 3% and 4% in 2008 in spite of the changing financial environment.

Within the soft drinks share of throat, it is the region's carbonates consumption that stands out. More than 58% of all drinks traded in the region fall into the carbonates category, compared to a global average of 40%. Every consumer enjoys around 90 litres annually; 60 litres more than the average global consumer. Only Antipodeans and North Americans consume more CSDs each than Latin Americans. In terms of market size, Canadean's Wisdom database shows that the region has now overtaken North America as the biggest global marketplace for carbonates, accounting for a quarter of worldwide sales.

Consumption growth
The Latin American markets of Honduras, Chile, and Argentina can be found in Canadean's top ten worldwide per capita consumers of carbonates, while the marketplace can boast being home to the number two consumers, the Mexicans. Only consumers in the US drank more carbonates than the 160 litres enjoyed last year by the Mexicans. Canadean's Latin American team believe there remains further potential in the Mexican market in the longer term, despite a small reverse in 2008 and 2009 being affected by the high profile emergence of swine flu and the subsequent disruption to tourism and Horeca sales.

Mexico is obviously the most significant source of the region's carbonates volume, making up close to a third of overall sales but the Brazilian market accounts for up to 27% of the 50bn plus litres sold - if you add in Argentina then you have accounted for seven of every ten litres sold. While Brazil and Argentina may be the smaller markets, they are closing the gap on Mexico; Brazil grew by 4% and Argentina by 5% in 2008. In Argentina the market has been boosted by the clear carbonates segment (flavoured water containing sugar or artificial sweetener); high profile regional players have now been drawn to the segment, notably Danone, PepsiCo, Pritty, Coca-Cola, and Ivess. In Brazil, latest Canadean projections predict the Brazilian carbonates market will grow by between 1% and 2% this year, despite the Government's decision to amend the tax policy for carbonates (introduced in January), helping the lower priced B brands make ground at the expense of the premium products penalised by the new policy.

Between the turn of the century and 2008, Argentina has seen its carbonates market expand by more than 50%, a figure that is all the more impressive when you consider that the market fell back by 15% during the economic turbulence of 2002. Yet this market has by no means been the fastest growing market in the region during this period; Honduras, Nicaragua, Bolivia, Venezuela and Paraguay have all seen bigger jumps. Paraguay can lay claim to being the fastest growing market since 2000 and sales here have doubled in just eight years. Like Argentina, Paraguay also saw a big drop in demand in 2002 but subsequently bounced back. Paraguayan per capita remains between 20 and 30 litres below the regional average and consequently is expected to see further healthy growth rates into the future.

Sugar debate less of an issue
What has stunted the carbonates category growth rates of the more developed parts of the world has been the often ferocious debate over obesity. The high profile debate has fuelled the interest in low calorie drinks and these products have boomed in the more wealthy parts of the globe. In Australasia and North America, low calorie drinks now account for three in every ten litres of carbonates consumed. But the issue of sugar content is far less pronounced in Latin America and this is reflected in the limited penetration of the low calorie segment, which, at the end of 2008, remained well under 10% compared to the global average of nearer 15%.

The 'diet' or 'light' segment has made gains across the region in recent years and the big players have invested heavily in 'light' new product development. Low calorie share varies significantly across the marketplace from 2% in Guatemala to as much as 16% in Chile. 2008 was not a vintage year for the low calorie segment and demand was plagued by bad publicity in a number of countries.

Interestingly, in Argentina consumer surveys indicate that lower and middle income groups dislike beverages with artificial sweeteners - these consumers are a key target audience. 2008 saw light products lose share in Argentina, Chile, Mexico, Peru and Venezuela, while in the key Brazilian market they held their share.

It seems that 2009 will probably determine the fortunes of 'diet' drinks in Latin America and whether in the long term they will ever climb to the levels seen in other parts of the world.

PET favourite
One feature of the carbonates market in this part of the world is the strength of PET as a choice of packaging format and the absence of cans. The region is split between glass (17%) and PET (75%); between them glass and PET make up over 90% of volumes while cans make up just 6%. There is little domestic production of cans, with most being imported.

The high cost of materials makes the can relatively expensive and Latin America is undoubtedly a price sensitive market; this trend can also be seen in East Europe where consumers are also more conscious of cost than other countries. There is also little demand for bag-in-box or postmix, something that is borne out by the small on-premise share of just 17% - every market in the region records a lower on-premise share than the global average of 30%. Consumers are reluctant to pay a premium price to drink the fizzy drinks in Horeca outlets.

Further growth anticipated
The economic crisis may have muddied the waters but Canadean anticipates that there is plenty of slack in the marketplace and that going forward, Latin America's importance to the global soft drinks arena will strengthen as North American consumption falls.

Canadean forecast that every country in the region will have seen its carbonates market expand over the next five years. In the near future it also seems inevitable that Mexicans will overtake their American neighbours as the leading drinkers of carbonated soft drinks.

Richard Corbett is a strategic analyst at UK-based Canadean, the global beverage research consultants.

This feature originally appeared in last month's issue of Soft Drinks International.