On-trade drives value in soft-drinks market
New research says soft drink producers must exploit the ever-increasing importance of the on-trade to the sector as it continues to drive value growth. Sarah Diston reviews the data to discover the drivers and potential pitfalls.
An apparent contradiction in the UK on-trade is the latest source for growth in the soft drink industry as more people visit the pub but the amount of alcohol consumed continues to fall, according to the latest research.
A report by UK-based drinks analysts Mintel (On-Trade Soft Drinks) says the trend has seen a boom in the volumes of soft drinks sold in the sector, driven by the increase in food sales in pubs, tough drink driving laws and greater awareness of health issues.
Food now plays such an important role in traditional pub-life that it comprises as much as 55% to 60% to their turnover but importantly offers an enhanced opportunity for soft drink sales to accompany meals.
Related to this is the idea of the family pub, where the experience extends beyond the days of the beer-swigging group of males. Most UK pubs are now offering something in the way of a family experience and many are also catering for children - providing another great opportunity for the soft drink sector.
The flip side of this coin is the need for the trade to continue to develop the idea of the soft drink as something more than just a child's beverage. Persuading adults to continue consuming such drinks will become increasingly important over the next five years, with innovation and more exciting adult-orientated soft drinks vital to the sector, Mintel said.
Healthier lifestyles have also forced companies to look seriously at alternatives to carbonates, a trend many have already addressed, trailed and launched. Last year carbonated soft drinks accounted for some 63% of on-trade volumes, compared to 20% for bottled water, 15% for fruit juices and 3% for energy/adult drinks. But, the report claims that carbonates have been losing share to bottled water and, to a lesser extent, energy and adult drinks.
"Bottled water has gained a massive following among young people in particular, among whom it is almost a fashion accessory, it is also popularly ordered alongside wine to accompany a meal out."
Just under a quarter of all bottled water, by volume, is now consumed in licensed premises. Club culture has been a major influence, with many younger consumers aware of the need to prevent dehydration while dancing.
"Volume sales of bottled water grew by 66% and volume share by 5% over the review period. This reflects the overall UK bottled water market, in which sales continue to gather pace with volumes more than doubling over the period 1996-2000," says Mintel.
But there are on-trade concerns about the take-off of flavoured water sales in the retail market. Trade opinion is divided as to whether there is much scope for such products in the on-trade.
Meanwhile the issue of drink driving sees soft drinks also fairing well. The UK has the best drink-drive record in Europe and since 1967 drink-drive deaths have fallen by 67% despite a doubling of private car ownership. Some 7% of adults interviewed say that the issue of drink-driving was limiting their alcohol intake. Three in ten interviewed say that they only buy soft drinks when driving.
Combining the government's annual tough drink-drive campaign, which is due to hit the message home to the nation once more, and the annual round of festive fast approaching, soft drink sales look set to thrive further over the coming months.
Mintel expects sales of soft drinks in the on-trade to be worth just under £5.2bn (US$7.5bn) at current prices this year, with volume sales standing at some 1.7bn litres. The on-trade sector is expected to account for almost 18% of total soft drinks volumes, but over half of the market value.
This discrepancy in volumes compared to value is hardly surprising given the high prices of soft drinks in the on-trade. And despite the high margins gained, producers and retailers need to be watchful of the trend because as many as 36% of those interviewed by Mintel felt that on-trade soft drinks were too expensive.
"There have been allegations that pubs are ripping off their customers through soft-drink pricing. Indeed, some reports have suggested that some pubs are charging nine times more than supermarkets (when there is in fact little difference in cost price) and that the price of soft drinks in pubs has outpaced inflation for 20 years," says Mintel.
"In the wake of allegations that prices in the on-trade are too high, it is likely that consumers are well aware of the price differentials in the marketplace."
However an investigation into the pricing issue by the Office of Fair Trading some time ago decided not to take any action, after listening to arguments about licensees' overheads. But while the majority of soft drinks still hold a premium price, some in the trade have started to respond to the investigation voluntarily.
"Some people in the on-trade have responded off their own back by offering free unlimited refills for anyone drinking large glasses of Coca-Cola or Diet Coke," said Mintel's Rob Church.
When asked by just-drinks.com if he thinks soft drink prices in the on-trade could fall, French replied: "It all depends how well the individual product is doing and it is up to the individual company to respond how they see fit really."
And though producers should heed the warning of the volume data, it is possible they are prepared to pay the premium for soft drinks, with the volume discrepancy instead down to the number of soft drinks consumers limit themselves to at the pub. As Mintel explains: "It is possible, however, that restricted volumes illustrate that there is only so much soft drink that a person can drink in one sitting."
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