Last years wet weather dampened fortunes for UK soft drinks

Last year's wet weather dampened fortunes for UK soft drinks

Last week was a challenging one, on top of a difficult year for UK soft drinks.

On Wednesday, the long-planned merger between AG Barr and Britvic dropped off the table after UK regulators raised competition concerns, while, six days earlier, GlaxoSmithKline confirmed it was launching a review of Lucozade and Ribena in a move most people assumed was a prelude to a sale.

It was tempting to trace both stories back to last year, when a dreadful summer weather-wise in the UK helped push Britvic into talks with Barr and left Lucozade and Ribena's domestic market floundering under the rain clouds.

Add to this increasing pressures on soft drinks companies over nutrition, exemplified by yesterday's call to introduce a 20% sugar tax, and you'd be forgiven for thinking that it couldn't get much worse for the soft drinks industry in the UK.

But, you'd be wrong. It turns out that it all depends on where you look.

“The soft drinks category hasn't declined,” Vasu Majumdar, a beverage specialist at Grant Thornton UK, told just-drinks. “There are various ways to cut the statistics, but the general feeling is that, yes, it's a tough market and, while certain categories are really suffering, it depends what category you are in.”

While Nichols and AG Barr are both growing, even Britvic, which has a far worse 12 months with the costly Fruit Shoot recall, is doing “fantastically well” in some sectors, according to Majumdar. CSDs continue to face slides, but there was optimism last week from the CEO of Coca-Cola Enterprises who, despite a 3.5% volumes drop in 2012 for the segment, said he expects the sparkling category to return to growth this year. Yesterday, figures from the UK beverage can industry showed that CSD can shipments in the country increased by 0.6%.

Problems still lie ahead, however, not least the continuing rise in the price of sugar that seems to have left beverage makers as eager to get it out of their products as the anti-obesity campaigners. PepsiCo head Indra Nooyi said last week that only a fifth of the company's North American volumes are full sugar, while in a webinar on sweeteners last week, Helen Munday, the director of scientific and regulatory affairs for The Coca-Cola Co in North West Europe and the Nordics, said about a third of Coca-Cola's offerings are either low or no sugar.

With sugar prices rising by 20% to 30% in the past three years, according to Majumdar, we can expect even more innovation in the low-sugar category for 2013. The only problem is that low- and no-sugar products still don't taste as good. Munday said humans have been programmed from birth to seek out the kind of nutritious sweetness that keeps us alive. That imprint gives us the sweet tooth that has made beverage companies their fortunes and now has them struggling to find the right blend of artificial sweeteners to mimic the taste of full-sugar products.

Will this year see the end of that search? On Thursday, PepsiCo boss Nooyi dropped intriguing hints about new sweeteners and flavourings that could "alter the trajectory of the cola business" in ways not seen since the launch of diet sodas in the 1960s.

Better days, then, may be just around the corner.