Since the collapse of the Soviet Union, Eastern European markets have offered considerable development potential for soft drinks brands. Richard Corbett of market analysts Canadean assesses the pace of development in Eastern European countries and examines how consumption patterns are changing.

Amazingly it is now more than18 years since the dramatic scenes of November 1989 when Germans from East and West tore down the Berlin Wall, the catalyst for the fall of the Iron Curtain and the dismantling of the Soviet Union. Today the process of integration is at an advanced stage with ten former Eastern Bloc countries now part of the European Union.

The cultural boundaries between East and West are becoming less pronounced, but how is this reflected in their drinking habits?

Not surprisingly, West Europeans drink more soft drinks than East Europeans, according to Canadean research. While East European soft drinks per capita consumption broke through the 100 litre barrier in 2006, West European consumption was as high as 250 litres. What is interesting is that the per capita gap has only really started to close in the last three years and is still not significantly different from that of ten years ago.

As the wealth spreads from West to East the difference in consumption will reduce further but ultimately the cooler climate in the East means East Europeans will have a far lower saturation point. There is slack in the East European market but one cannot assume demand will ever reach the levels in West Europe.

However, the cooler climate also means that consumption of hot drinks is higher in the East than in the West. At more than 190 litres of hot drinks, East Europeans drink 70 litres more per capita than West Europeans. Tea consumption is very much a feature of Eastern European cultures and continues to rise. The difference between Eastern and Western hot drink consumption is widening, with West Europeans drinking less but better quality hot drinks.

One of the more evident differences between East and West is found in water consumption. West Europeans drink more than three times as much bottled water as their East European counterparts but in the East six in every ten litres sold is carbonated, compared to four in every ten litres in the West.

Carbonated waters were often enjoyed as a low-cost alternative to traditional carbonates during the Soviet era and there has always been a bias towards sparkling water, which was also seen as having medicinal qualities. Still waters are making ground, however, with demand likely to be driven more by consumer concerns over the quality of municipal supplies than refreshment.

As in West Europe, the carbonated soft drinks (CSD) category is losing share but unlike West Europe demand for CSDs is a long way off maturing. The market has expanded by well over a quarter since 2002, in contrast to West Europe where sales of carbonated soft drinks have recorded a modest 1% increase. The engine room is Russia, which accounts for nearly 30% of the region's CSD sales. Russia is estimated to have contributed 1.7bn litres of extra volume to the region between 2002 and 2007. With West European per capita consumption at around 75 litres, prospects must be good for the East, where consumption is currently less than 50 litres.

The obesity debate is less significant in the East, reflected by the limited penetration of the 'light' segment. These products make up just 5% overall, and in the leading Russian market they account for less than 2% of sales. This is changing, however, and in some of the more westernised markets, like the Czech Republic and Hungary, levels are notably higher. It will, however, be a long time before they reach the market share in Western European of over 20%.

Only North Americans drink more juice and nectars than West Europeans but East Europeans are catching up. In fact, East Europe is enjoying the highest growth rates in juice and nectars of any region in the world, with Canadean forecasting a compound annual growth rate (CAGR) approaching 8% between 2008 and 2010, against just 0.5% in West Europe.

West Europeans are trading up to premium juices and nectars, reflected in the shift towards the more expensive chilled segment. Price remains an important factor in the East and nectars are normally consumed as a low-cost alternative to juice. As a result, nectars make up in excess of half of all products sold in the region, compared to just 33% in the West. With juice and nectars being less weather sensitive, one might expect East Europeans to come relatively close to reaching the West's consumption levels in the very long term.

Price sensitivity helps to explain the poor take-up of sports and energy drinks in Eastern Europe. Consumption in the region does not even reach 200m litres, between seven and eight times less than Western Europe. It is not that the concept of sports and energy drinks will not work in the East; it is that mainstream consumers are deterred by the price. Greater affluence will inevitably result in these drinks gaining more prominence.

Perhaps surprisingly given the cooler climates, iced teas seem to be faring well in East Europe. The category remains small but iced teas are present in varying levels in all East European markets, with an average per capita consumption currently standing at around 2.1 litres. The market almost quadrupled between 2003 and 2007. The growth is all the more impressive given that the iced tea concept only really arrived in the region in 1995.

Growth has been particularly strong in Russia where demand jumped by 69% in 2006. Iced tea is perceived as a healthy drink with natural ingredients by Russian middle-class consumers. In 2006, Russia accounted for almost a third of the region's iced tea sales, compared with less than 1% in 2002.

Overall in 2006, the East's growth rate outperformed the West's in every soft drinks category with the exception of still drinks. Although in absolute volume terms the East added only marginally more volume than the West in 2006, slower growth rates in the West in the future will mean that the soft drinks industry must increasingly look to the East for growth.

In the West, there will be more focus on encouraging drinkers to increase the value of the drinks they consume. The figures suggest that although the East remains a long way behind the West and drinking patterns will never be identical, consumers are adopting similar drinking habits to their neighbours in the West.

Source: Soft Drinks International

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