Research - Human fluid need reveals untapped opportunities

Euromonitor International's series of new global briefings on global drinking habits reveal striking regional disparities in the importance of branded packaged drinks to man's daily need for fluid. Crucially, data from the emerging markets exposes a pool of untapped opportunity. Rob Walker, senior drinks analyst at Euromonitor International, reports.

How the world drinks

The quantity of liquid required to sustain human hydration is not an exact science. Rather, it can fluctuate depending on age, activity, climate and dietary health. Women also tend to require less fluid than men, except during pregnancy when recommended intake can double. What we can say is that an average human in average conditions will typically need a minimum of 2.2 litres of non-alcoholic liquid a day, of which water would normally be the dominant ingredient.

By taking this tally of 803 litres a year as a conservative estimate of a human's recommended liquid intake, we can start to build up a picture of how the world drinks, past, present and future. And, most importantly, we can track the contribution of branded packaged beverages as a share of total liquid consumption. This is a valuable exercise in strategic planning because it sheds more light on what, in effect, is the degree of opportunity for growth in commercialised soft, hot and dairy drinks, in different regions around the world.

The saturated zone

In the world's saturated zone, defined as those countries in North America, Western Europe and Australasia, total per capita consumption of packaged non-alcoholic drinks, comprising hot (RTD equivalent), soft and liquid dairy, was equivalent to over a litre a day in 2009, according to data from Euromonitor International's new global briefing 'Share of the Global Throat and Wallet' - the first report in the series on global drinking habits. We can assume, therefore, that unpackaged drinks, above all tap water, fuelled the balance of over a litre. The key finding, however, is how the gap between packaged and unpackaged drinks has narrowed over the past decade and how it is set to stabilise going forward.

The first point to consider is that data for the saturated zone shows commercialised packaged non-alcoholic drinks accounting for 61% of recommended liquid intake in 1998, rising to 64% in 2003 and over 66% in 2008. Increased consumption of bottled water, as a replacement for tap, is identified as an important driver of this gain in participation. It is also indicative of a significant amplification in the range of branded packaged beverages available, with a number of niche categories having risen to the fore over the past decade, such as RTD tea, drinking yoghurt and functional drinks.

However, by 2013 the share of recommended liquid intake held by packaged drinks in the saturated zone is forecast to slip back to 65.5%, marking the first loss of ground over a five year cycle since Euromonitor International's beverage tracking began. One of the obvious explanations is that consumers' spending power has been weakened by the worst global financial crisis in decades. And while it is true that some of the world's largest economies are now coming out of recession, notably the US, Germany and France, this is mainly down to government stimulus packages. Quite simply, further setbacks should not be ruled out over the next five years. Another reason for a projected loss of share by packaged drinks is that environmentally conscious consumers are rejecting throwaway plastic bottles and returning to tap water.

There is, however, a wider significance to the flattening out of participation. Specifically, irrespective of macro-economic and environmental conditions, it seems entirely realistic that 66%, roughly two thirds, is as far as packaged drinks can climb in their combined contribution to man's total fluid need. Tap water and freshly squeezed juice, for example, will never be wholly replaced by branded packaged alternatives and, if anything, are more likely to regain some of the ground they lost over the preceding decade. We can define this 66% as, in effect, a commercial ceiling on total share of throat. This also sheds light on the strategic implications of a saturated zone, namely as a region where growth in packaged drinks is going to be determined increasingly by portfolio diversity and market share.

Saturated Zone: Total human fluid Intake, packaged vs. unpackaged drinks

Source: Euromonitor International
Note: Saturated zone = North America, Western Europe, Australasia
Packaged drinks = non-alcoholic packaged drinks only

The maturing and untapped zones

Using these findings from the saturated zone as a benchmark, it is possible to project the depth of opportunity for branded drinks in the world's emerging markets, defined in Euromonitor International's 'Share of Global Throat and Wallet' briefing as the maturing zone (Latin America and Eastern Europe) and the untapped zone (Asia Pacific, Middle East & Africa). These are the regions where all the major multinational beverage players are looking to strengthen their positions.

In the maturing zone, comprising Latin America and Eastern Europe, packaged non-alcoholic drinks raised their collective share of human liquid intake from 16% in 1998 to over 22% in 2008, according to the information in global drinking habits series. This is a significant leap over ten years and is testimony to the rapid development of modern retail consumption culture as well as a burgeoning and aspirational middle class. Crucially, this maturing zone has far from reached saturation point, with packaged drinks forecast to raise their share of throat to 25% by 2013. Looking beyond 2013, based on data from the saturated zone, per capita annual consumption of branded packaged drinks has potential to climb further.

The forecast opportunity is even more enticing in the untapped zone, comprising Asia Pacific, Africa and the Middle East. Here, branded packaged non-alcoholic drinks accounted for only 10% of recommended liquid intake in 2008, according to the new report. In this instance, we can use the maturing zone as a viable benchmark and project that per capita annual consumption has potential to increase significantly over the medium to long term. With the size of the total combined population in this region estimated at around 5bn people, this implies a colossal potential windfall of new commercial beverage consumption.

Maturing and Untapped Zones: The contribution of packaged drinks to total human fluid Intake

Source: Euromonitor International
Note: Maturing zone = Latin America, Eastern Europe
Untapped zone = Asia Pacific, Middle East & Africa
Packaged drinks = non-alcoholic packaged drinks only

The crux of the opportunity

While an exact volume for required human fluid intake remains elusive, it seems clear that packaged drinks continue to fuel a minority share of throat in key developing regions around the world. Turning this level of participation into a majority is the crux of the opportunity for the drinks industries into the medium- and long-term.

Both in the maturing and untapped zones, the potential volume dividend over the next ten years is vast, especially if disposable spending power grows and if, as is widely expected, broader cross-sections of the population are brought into mainstream retail consumption culture.

By contrast, packaged drinks have largely done their work in the saturated markets and there will be limited new ground to win from unpackaged liquid going forward. This, of course, throws up a whole new set of challenges. In those markets, competition across drinks sectors and industries is likely to grow in intensity. Share of throat within commercially packaged beverages will, in short, be ever more critical.