Review of the Year 2009 - Soft Drinks & Water
It would appear that, beyond the shadow of one major transaction, the soft drinks and water categories had a year of innovation and controversy. A colourful 12 months for the sector, then, as Ben Cooper reports.
There is little doubt that the story of 2009 in the soft drinks and water categories was the takeover by PepsiCo of its two major bottlers, PepsiAmericas and Pepsi Bottling Group (PBG). And having sealed the US$7.8bn deal in early August, the company last week paid another $700bn deal to acquire manufacturing and distribution rights for certain Dr Pepper Snapple drinks previously held by the two bottlers.
While PepsiCo already owned 33% of PBG and 43% of PepsiAmericas, the move to integrate the bottlers into their business represents a significant shift in strategy for PepsiCo.
For many years PepsiCo, like The Coca-Cola Co, has operated separately from its principal bottling companies, the idea being that the separation maximised efficiencies and left them free to concentrate on brand-building.
The thinking has now clearly changed. PepsiCo believes the move will help it to "bring innovative products and packages to market faster, streamline our manufacturing and distribution systems and react more quickly to changes in the marketplace". It says the integrated model will be better able to cope with shifting consumer demands, fragmentation and the growing number of niche brands on offer in the soft drinks market.
Coca-Cola was reported to be thinking along similar lines but for time being the Atlanta-based company appears to be addressing the competition of successful niche operators in the rather more conventional manner.
Coca-Cola announced in April that it had acquired a minority stake, of between 10% and 20%, in UK smoothie maker Innocent for $44.5m. It also announced in September that it had acquired a 20% stake in US coconut water specialist Zico Beverages.
However, Coca-Cola was less successful in a markedly larger and higher-profile takeover bid this year.
In March, the firm's $2.4bn takeover bid for China's largest soft drinks maker, Huiyuan Juice Group, was blocked by the country's Ministry of Commerce for having an "unfavourable impact on competition" in China. The decision was seen as a serious blow to Coca-Cola's plans for China but analysts believe the company could still opt to take a minority stake in Huiyuan.
While conditions remained challenging throughout the year, the improving economic climate was reflected in better financial results from soft drinks companies in the latter part of 2009. Among the companies reporting improved performances were Cott Corporation, Britvic, Jamba Juice, Danone, PepsiCo, Coca-Cola Amatil and Dr Pepper Snapple.
In spite of the tough economic environment, soft drinks companies continued to innovate in 2009.
PepsiCo expanded its SoBe water range, while Coca-Cola launched a flavoured extension to its Dasani brand. In the UK, Britvic launched a juice drink addition to its Drench spring water brand in February. Meanwhile, Coca-Cola quite literally made the dairy sector fizz in July when it began piloting its Vio fizzy milk drink in New York.
The year began with companies being given permission by the Food and Drug Administration to launch products in the US containing the natural sweetener Stevia. PepsiCo launched a stevia-sweetened variant of its Tropicana brand at the end of March. Coca-Cola France announced this month that it is to launch a version of its Fanta Still drink made with stevia early next year, while Coca-Cola is also planning to launch calorie-free versions of its Vitaminwater brand containing stevia in early 2010.
Underlining the increasing attention consumers goods companies are paying to sustainability issues, the year saw a number of new environmentally-friendly packaging concepts come to market. A further eco-friendly innovation came in December when Coca-Cola announced it was switching to greener vending machines.
Inevitably, 2009 was not without its contentious issues. A number of companies ran into hot water over their advertising during the year. Coca-Cola was forced to remove three poster adverts for its VitaminWater brand after the UK's advertising watchdog, the Advertising Standards Authority (ASA), ruled that health claims, intended to be humorous, might mislead consumers.
At the beginning of the year in the US, a group of lawyers with the consumer advocacy group the Center for Science in the Public Interest (CSPI) filed a lawsuit against Coca-Cola alleging deceptive marketing of the VitaminWater drink. An ad for Coke's Powerade brand was at the centre of a legal tussle between Coca-Cola and PepsiCo, with PepsiCo-controlled firm Stokely-Van Camp suing Coca-Cola on the grounds that it had disparaged its brand, Gatorade.
Britvic was cleared after allegations in November that its Tango ads were "offensive". The three poster adverts, with taglines such as "Too much Tango made me shave my nan", escaped a ban despite attracting 82 complaints.
Staying with sexual politics, PepsiCo was forced to apologise after it was accused of stereotyping women with an iPhone application for its Amp energy drink in the US, offering advice on how to pick up women. The company issued its apology on Twitter.
In October, the ASA banned an ad for Danone's Actimel drinking yoghurt brand because the evidence Danone provided did not support the claim made in the ad that Actimel "was scientifically proven to support the defences of normal, healthy school-aged children against common, every-day childhood infections".
The ASA ruling followed the settlement in September of a 2008 lawsuit against Dannon, Danone's US subsidiary, over the advertising of its Activia and DanActive yoghurts, also accusing the company of overstating the products' health attributes.
In spite of measures taken in Europe and the US over the years, the issue of the vending of sweetened carbonated drinks in schools appears not to have gone away. In November, the Center for Science in the Public Interest (CSPI) sent an open letter to Coca-Cola, criticising it for making misleading claims about withdrawing full-calorie drinks from schools in North America.
Coca-Cola said in an advert that it had removed full-calorie drinks from schools in North America, but CSPI said the firm had not done so in Mexico. The company said its regional organisation placed Mexico in its Latin America division.
However, the threat of a special tax being levied on CSDs in the US, to raise money for President Obama's health reforms, receded as the year progressed, with the industry lobbying hard against such a measure. In March plans to levy a tax on CSDs in New York had been scrapped.
One enduring bone of contention which was finally laid to rest this year is the long-running legal wrangle between Danone and its erstwhile Chinese partner Wahaha. Danone announced in September that it had agreed to sell its 51% stake in a joint venture with Wahaha, bringing to an end their long-running dispute.
While the sector appears to have lost one of its major talking-points of recent years, the volume of litigation, controversy and debate seen in 2009 suggests the soft drinks sector will provide plenty to talk about in the coming year.
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