In spite of new legislation and adverse publicity, the UK soft drinks market continued to grow in 2005. And while concerns over childhood obesity may have impacted on carbonated drinks sales, those same concerns have undoubtedly created opportunities for other products, such as smoothies, fruit juices and waters. Annette Farr reports.

Last year, the UK soft drinks industry had to cope with new legislation on nutritional labelling, a ban on vending certain soft drinks in schools, new rules on advertising to children along with rising public concerns over obesity, especially among children. And yet, despite the changes in legislation and a demanding marketplace, 2005 has been a year of ongoing growth.

Speaking at this month's launch of the Britvic Soft Drinks Category Report 2006, Paul Moody, Britvic's CEO, declared 2005 to have been a "watershed year for the entire soft drinks industry as it underwent significant change and development".

Statistics compiled by AC Nielsen reveal that soft drinks value sales rose by 5% in 2005 to GBP7.8bn. More than 14bn litres of soft drinks were drunk with the average annual soft drink consumption per head rising to 242 litres - an increase of 1% over 2004.

"Innovation was at the heart of this growth and it will remain vital in expanding the category," Moody said. "Consumers want to see a product that is naturally good for them and manufacturers are responding by evolving and developing product lines which fulfil their needs."

Further good news is that in the grocery sector, soft drinks outperformed all other fmcg categories with the exception of yoghurt. In 'on premise', soft drinks grew ahead of beer and spirits as consumers opted for the healthier juice drinks and mineral waters. Changes in law have led to extended licensing hours and children being allowed in pubs offering family dining; both situations present a significant opportunity for soft drinks. So, who are the winners and losers?

Smooth operators claim Take Home prize

If there were a soft drink 'Oscar 'then the winner would undoubtedly be the 'niche' smoothie. This drink, which is difficult to categorise and seems to sit somewhere between a juice and a drinking yoghurt, grew by 73% in value as volumes almost doubled. Innocent is the clear leader with growth of more than 200%. It is now a GBP39m brand.

The dairy probiotic drink would have been a close contender. This category grew by 26% last year to GBP377m. Yakult, Actimel and Müller lead the market, with Yakult and Actimel growing by 25% in value.

Runners-up are those drinks which are perceived to be "better for you", namely those with no added sugar, additives or colourings and those which include healthy ingredients such as vitamins and minerals. Many of these come under the adult soft drink umbrella - RTD tea, coffee, herbal fruit-based drinks targeted at adults - which grew by 21%.

Pure juice performed well with 7% growth. Within the category, Tropicana had another strong year, up 14% in value at GBP202m. Britvic's hugely successful J20 juice drink continued its rise in 2005, up 68% in value to GBP39m. Fruit drinks generally rose 6% with a category value in 2005 of GBP486m.

Again on the health and hydration platform, bottled water grew by 9%, to GBP580m, the star performer being Highland Spring, up 24% to GBP51m. Volvic and Evian saw value growth of 18% and 14% respectively.

Carbonates, fast becoming the bete noire of soft drinks, had its own winners and losers. Diet and low-calorie variants were up an impressive 7% whilst regular colas stagnated and fruit-flavoured carbonates, the likes of Fanta and Tango, experienced a decline (-12%). Coca-Cola Enterprises and Britvic continue to lead the market with more than 50% of all value sales. Both companies have introduced successful range extensions - Pepsi Max Twist and Diet Coke with Lime - which now have a combined worth of more than GBP40m.

In the energy and sports sector, GlaxoSmithKline's Lucozade grew 10% in value to GBP253m and Red Bull experienced 13% growth to GBP124m. Elsewhere, squashes fell back 2%, lemonades experienced a decline of 4% and mixers were down1%.

Premium growth in on-trade

On-premise soft drinks volumes grew by 2%. This was on a par with the growth in the beer sector, but ahead of the 1% growth seen in spirits. Britvic believes soft drinks are on track to overtake the spirits category in value terms.

Carbonates continued to account for a 75% value share of the market and cola remains the most popular consumer choice, with Coca-Cola and Pepsi the leading brands. R. Whites is still the top performing lemonade. Red Bull led the way in the growing energy drink sector with value growth of 14%.

However, 2005 saw a significant rise in the demand for premium soft drinks. Fruit drinks led value growth with a 20% increase to GBP196m whilst the energy drinks category saw a 10% rise in value terms. Hydration, too, proved a key selling factor and thanks largely to the warmer weather, the demand for bottled water rose by 13% in value to GBP62m.

Packaged soft drinks grew by 8%, increasing their value share to 48%, steadily catching up with draught. Still drinks rose by 10% in value and 7% in volume, outperforming carbonated drinks, which were up 4% in value and 1% in volume.