Analysis

Bottled water drives Mediterranean soft drinks growth

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Of all the soft drinks categories, it is bottled water which is driving growth in the southern European markets of Italy, Spain, Portugal, Greece and Turkey. In the first of two features, Hope Lee of industry analysts, Euromonitor International, looks at soft drinks developments in these key Mediterranean markets.

Non-carbonated drinks, notably bottled water, are driving soft drinks growth in the prime southern European markets of Italy, Spain, Portugal, Greece and Turkey, according to market analysts, Euromonitor International. Total volume sales of soft drinks within these five Mediterranean countries amounted to 36.67 billion litres (off-trade and foodservice) in 2003, according to Euromonitor, which attributes rapid growth in these markets to increasing demand for healthier drinks such as bottled water and juice, as well as the 2003 heat wave.

Traditionally, bottled water is the most popular soft drink. Research by Euromonitor International shows that volume sales of bottled water exceeds carbonates in Italy, Portugal, Spain and Turkey. Italy has the third largest bottled water sales in the world, with total volume sales reaching around 10,268m litres in 2003. Between 1997 and 2003, Spain experienced the fastest growth in demand for bottled water, with sales growing by 74%. In 2003, the heat wave further boosted the sales of bottled water in all major Mediterranean markets.

The growing interest in health and wellness by consumers is the main factor driving sales of bottled water. Mediterranean consumers are slowly moving away from carbonates and choosing healthier alternatives. In Spain, for example, where water is traditionally drunk during the course of a meal, a growing number of consumers have started to buy packaged water. This trend is the result of a number of factors, including concerns over the quality of tap water, the pursuit of healthier lifestyles and the fact that drinking bottled water is considered fashionable. The bottled water "to go" concept was first launched by Danone under the brand Font Vella at the end of 2001. This concept has become very popular among young professionals, especially women. Most bottled water brands are now available in 33cl and 50cl bottles with sports caps designed for out-of-home consumption.

Bottled water manufacturers also increased their marketing spend on campaigns to promote consumption. Turkey is a fast growing soft drinks market in the Mediterranean and has attracted growing investment from multinationals. In Turkey, the recovery of the economy has encouraged new entrants to the bottled water category. PepsiCo entered the market with Aquafina in 2003, and Coca-Cola started to produce its Turkuaz brand in a 19-litre format. This larger format has enjoyed increasing importance as a growing number of households have begun to use bottled water for cooking in the face of concerns over the quality of tap water. Turkuaz claimed a victory in Turkey's bottled water category by controlling, in just over a year after its launch, an 8% share of the market in 2002. Nestlé's Pure Life also reported strong sales in Turkey.

Most bottled water consumed in the Mediterranean region is still. Sparkling and flavoured water remain niche products, although consumption of both these products is growing. Among still water, natural mineral water dominates the volume sales in both Spain and Italy. Functional water is also emerging with PepsiCo's Propel Aqua Fitness water making its debut in April 2004 in Italy.

On the Home and Office Delivery (HOD) front, the Mediterranean region has a less developed water cooler business compared with that in the UK, France and central Europe. In Italy, penetration of water coolers in institutions remains limited. The bottled water sector in Italy is heavily regulated, with rules stipulating that mineral water cannot be sold in anything larger than 2-litre bottles. This acts to undermine consumer confidence in bulk water, as it may be perceived to be low quality processed water rather than mineral water.

With regard to other non-carbs, Mediterranean countries have a low level of consumption of fruit/vegetable juice in comparison with other European countries. This is chiefly due to the diet pattern in the region, where there is an ample supply of cheap fruits and vegetables. Mediterranean consumers tend to opt for fresh produce instead of a commercially packaged version.

However, changing lifestyles and the increasing interest in health and wellness, has resulted in a growing demand for commercially packaged fruit/vegetable juice. This is highlighted by the fact that all five major Mediterranean countries saw strong growth in volume sales of juice between 1997 and 2003. Portugal recorded the most dynamic growth at 112% in total volume sales (off-trade and foodservice). Many consumers are finding that they no longer have the time to prepare home made juice and stability or even a decline in the price of juices has encouraged consumption. major manufacturers may work together with large supermarkets to promote the concept of NFC together with a healthy lifestyle.
Additionally, the launch of exotic and mixed flavours has facilitated further appeal. The launch of green apple and red orange flavours in Italy proved very successful in 2003.

As things stand, consumers - especially health conscious parents - are seeking juice drinks as a healthy alternative to carbonates for their children. In Spain, Coca-Cola launched Mickey's Adventures in 2003, with the introduction of orange and pineapple-flavoured drinks. The drinks have added vitamins to appeal to parents who demand drinks offering good nutritional value. Italy, Portugal and Turkey also experienced strong growth in sales of juice drinks between 1997 and 2003, with volume growth at 345%, 320% and 218% respectively.

Functional drinks, concentrates, RTD tea and RTD coffee are all niche products and have a very limited presence in the Mediterranean region. However, most have enjoyed a steady demand in the past few years. Energy drinks saw exceptionally strong growth in sales in the first few years of initial launch. In the late 1990s, spectacular growth was recorded across the region as a whole. However, Euromonitor believes that the craze for energy drinks has been noticeably cooling in recent years, although it is still bullish in Italy, Spain and Turkey. Red Bull dominates volume sales of energy drinks in Spain, Italy and Portugal.

By contrast, sports drinks have not fully managed to capture consumers' interests, despite major events such as the European Cup in Portugal and the 2004 Olympics in Greece, and with established brands such as Isostar, Gatorade, Powerade and Lucozade available on the market. Nevertheless, sports drinks increased their presence and volume sales in most major Mediterranean markets. In Spain, for example, consumption levels doubled between 1997 and 2003, reaching 2.5 litres per head in 2003.

Euromonitor International forecasts that the total soft drinks market in the region will show healthy growth between 2003 and 2008. Bottled water is expected to continue as the market driver in the soft drinks market. Functional water is expected to do well and may pose a threat to sports drinks.

For further information on Soft Drinks International, go to www.softdrinksjournal.com


Sectors: Water

Companies: Groupe Danone, Aqua, Red Bull

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