The View from A Farr – Majors must keep innovating
The soft drinks sector has been kept energised by a wealth of product innovation in recent years, particularly from entrepreneurs and smaller companies, but the global downturn threatens to stem the flow of creative thinking. Annette Farr believes it is the responsibility of the major players to take on the risk of developing new drinks concepts and keep the tradition of innovation alive.
In recent years, the soft drinks industry has arguably been the most innovative of all FMCG sectors, with a constant stream of new beverages developed and launched by young entrepreneurs. In the UK think of Innocent, The Feel Good Drinks company, Firefly, V Water, Juice Doctor and more.
It's much the same globally, with the likes of New Zealand's Charlie's and US brands glaceau vitaminwater and Nantucket Nectars blazing a trail. Soft drinks firms of all sizes have spearheaded the development of healthy, nutritional drinking, have discovered superfruits and other exotics to challenge taste buds and have brought refreshment, flavour and intrigue to jaded consumers' palates.
But now, as we hunker down to ride out a global recession, budding entrepreneurs face an uphill struggle to develop and launch their beverage concepts. On top of rising costs and the lack of bank lending and equity investment, the market has become fiercely competitive as brands and retailers promote their beverages on a 'value for money' basis.
Indeed, all the evidence suggests that consumers have changed their buying habits. Out has gone the luxury retail shop and premium brand buy and in has come the discount store and own-label basic purchase. Aldi reports that in September and October such sales increased by 36% and 33% respectively. "We are continuing to grab more business and I think it will be very difficult to wrestle it away from us," says Paul Foley, managing director of Aldi UK.
Mintel confirms UK consumers are making dramatic changes to the way they shop. Its research shows that over the past year 41% of shoppers have switched to cheaper brands and three in ten have cut down on buying premium ranges. "It is clear that shoppers are now really feeling the pinch and beginning to trade down when out buying food," says Richard Perks, director of retail research at Mintel.
According to Mintel, two-thirds of us now look for the promotions and deals more often than we did a year ago, while 29% of us spend more time comparing prices in the supermarket. Some 31% of adults go to discounters more often than they used to.
Further research carried out on behalf of Sainsbury's reveals that nearly two-thirds of shoppers say they are more likely to buy supermarket own brand now than a year ago and 29% said they would never switch back to the big brands.
These findings have prompted Sainsbury's to launch a multi-million pound campaign - called Switch & Save - encouraging people to try out more of the supermarket's 15,000 own-label products. This emerging new breed of shopper has been dubbed the 'Darwinist' consumer, somebody who thinks that supermarket own brands are every bit as good as 'named' brands, with one in five claiming it outdated to assume that household names will always be better. As many as 73% say they are perfectly happy to buy own-brand goods.
Shopping habits have also changed in the US. Last month, the results of The 2008 Hormel Hunger Survey, conducted by Hormel Foods Corporation, were published. This revealed that nearly six out of ten Americans say they have had to cut back on the quantity or quality of food they buy because of increasing prices. More than half of the 800 adults interviewed are taking steps to reduce food costs, such as using coupons and buying more generic or store brands.
The survey follows an analysis published by Nielsen which shows private label products in the US are growing faster in convenience stores and represent a tremendous growth opportunity for the convenience channel. Nielsen's research indicates that over the past year sales of private label products in convenience stores rose by nearly 20% to US$826m, compared to a 15% increase in drug stores and just under 10% in supermarkets.
Further evidence of the growing impact of own label comes from Morgan Stanley analyst Bill Pecoriello. He reports that US beverage sales declined in the third quarter of 2008 (carbonates by 7.8%, sports drinks down 0.7% and bottled water 1%) yet private label brands gained a 1.6% share on the overall beverage market.
Against this backdrop what does the future hold for soft drinks? Can brands survive competition from own label? Will there be another generation of soft drink entrepreneurs? In these difficult times, it is the responsibility of the major players, who historically have acquired innovative young companies to broaden their portfolios - particularly on the health and wellness front - to take on the risk of developing new soft drinks. They must keep the tradition of innovation alive and maintain brand integrity.
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