Research in Focus - Soft Drinks Global Trends and Opportunities
Global soft drinks sales proved to be somewhat recession resilient in 2009, though consumers did turn away from the premium spending that has driven the expansion of smaller categories like energy drinks and functional waters. As world economies return to growth, the soft drinks industry is faced with the challenge of mature categories in its largest markets alongside a greater potential for emerging regions, in an environment of greater M&A activity and new global challengers. Having the flexibility to find and adapt to the best opportunities for each soft drinks category at a global scale will be key to future sales growth.
Soft drinks volume sales still managed 3% growth in 2009 during the global economic downturn but this was about half what was seen during the peak years of 2006 and 2007. Affordability and value for money can still create category opportunities. In 2009, the soft drinks industry was still recovering from the effects of the global economic recession. Elixirs and 100% juice continued long-standing trends of volume decline, but were joined by well-established, high-priced categories such as carbonated bottled water and sports drinks as consumers continued to cut back on their spending.
Affordable pricing will become more important for larger categories. Carbonates in particular saw relatively flat performance in 2009 as consumers traded down to private label.
Opportunities also exist in this challenging environment. Though falling short of historical double-digit growth rates, still bottled water and energy drinks continued to register volume gains in 2009. Brands offering value for money will gain greater attention from consumers moving forward. Soft drinks categories long accustomed to promoting health benefits will find that consumers are no longer as willing to pay inflated prices. A clear message of value added elements like natural sweeteners will be needed to justify premium pricing.
More than half the world’s expenditure on soft drinks is in the highly mature markets of North America and Western Europe. Further growth in these areas often comes at the expense of existing brands, and so expansion to developing markets is needed. 2009 saw a very different picture play out between regions, as lower spending limited growth in Western Europe and North America, while Asia Pacific became the world's largest in soft drinks volume consumption. Developing markets overall have been more insulated during the recent global economic crisis.
The lingering effects of the downturn are predicted to continue to slow volume growth in more mature developed markets, and Latin America will displace North America by 2014 as the second largest soft drinks volume consumption region.
Deals last year by PepsiCo and The Coca-Cola Co to purchase their domestic bottlers should help position them for long-term growth but, in the meantime, Japanese companies and other global competitors are expanding at a faster rate. After controlling more than half of all global value sales in 2005, Coca-Cola represented slightly less than half in 2009, and PepsiCo went from a quarter to slightly less than that as well in 2009. Competition is coming from smaller players on acquisitions, such as Suntory, Kirin, and Asahi, or from organic growth in key categories, such as Red Bull, which doubled its value sales over the 2005-2009 period. Red Bull's growth is expected to come under greater challenge though, as competition from cheaper competitors such as Monster Energy draws consumers away from the brand.
Several highly saturated markets like the US, Japan, and France saw volume sales declines in 2009 while China and emerging markets like Vietnam, India, and Colombia saw the fastest soft drinks volume sales gains.
The largest categories of carbonates and bottled water face increased pressure due to the health and environmental concerns of consumers, and have already begun to turn to innovations in flavours and functionality for new sales growth. Both Coca-Cola and PepsiCo have a higher volume share of carbonates in untapped markets than their global shares. While both beverage giants have taken the lead in carbonates in untapped markets, the carbonates category is not keeping pace with soft drinks growth overall. From 2004 to 2009, soft drinks grew by 41% in volume terms while carbonates only grew by 21%. If carbonates' growth had kept pace with overall soft drinks growth over this period, this would have generated an incremental 2.9bn litres in volume sales over 2004-2009 in untapped regions.
Given the large teen population and increasing disposable incomes, there seems to be significant volume growth opportunity for carbonates. While it might be more expensive for second-tier companies to develop the infrastructure that Coca-Cola and PepsiCo have, the volume opportunity could justify that expense.
Still drinks, like fruit/vegetable juice and RTD teas, have an inherently healthy perception around them and offer great potential to offset flat growth in core categories over the next five years, especially in China.
Sports drinks and energy drinks are expected to see more than half of their future growth from markets in Western Europe and North America, and these areas also offer opportunity for second and third tier global companies looking to expand.
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