Good Prospects For FlavourCompounds In West European Soft Drinks Market Into The Year 2000

From a recent quantitative analysis of boththe non-alcoholic beverage and flavour compound market we conclude that flavour companiescan continue to benefit from the many changes taking place in this sector. In our study welinked the Canadean country brand volume figures for soft drinks with the flavourinformation data gathered via our Brand*Pak database. Brand*Pak contains all the on-packinformation of over 6,000 soft drinks in Europe including declared juice content and otherflavour data. This allows us not only to keep track of ingredient formulation changestwice per year, but also to either analyse the products or estimate dosage rates for eachindividual soft drink brand. Using this brand level or "ground up" approach wehave calculated the use of individual flavor compounds not only by brand but also bycompany, by soft drinks category, by flavour and so on. We share some of our majorconclusions here with you.

Although population in West Europe grewmarginally in the past decade the shifts in age groups are significant. The traditionallyheavy soft drinks users category (10-24 years) declined by 11 million, whereas the 55+ agegroup increased by 10 million people. These population trends - which are expected tocontinue into the next decade - have led to: increase in packaged water consumption;growth of still/lower carbonated products; preference of natural (juice/nectars) andjuice-containing beverages and also the rapid growth of iced tea and sports & energydrinks. Driven by increasing competition between the major international soft drinkscompanies, the need for higher A&P expenditure and the more active role of retailersthe impact of all this on growth of all commercial beverages has been even more striking.

Per capita consumption of non-alcoholicbeverages (carbonates, still drinks, juices/nectars, mineral water, iced tea, dilutables,sports & energy drinks, powders) has increased with consumption of all othercommercial beverages (milk, tea, coffee, beer and other alcoholic beverages) falling.

However, the room for growth of commercialbeverages is still enormous. Comparing the present average daily per capita consumption ofall commercial beverages in Western Europe i.e. 1.5 litres with the average daily liquidneed of the human body of about 2.0 litres, the growth potential is 0.5 litres per day orabout 182 litres per capita per annum. With a projected 390 million inhabitants in WestEurope in 2007 this means a potential growth of 71 billion litres of commercial beverages.Assuming continuation of the trends in the last decade 40% of this volume would beflavoured soft drinks and that represents not only a lot of soft drinks, but also a vastquantity of flavours. In fact it would nearly double the existing consumption of flavoursin the total non-alcoholic beverage market.

Although we look at total consumption ofcarbonates, still drinks, iced tea, dilutables, sports & energy drinks, powders andflavoured mineral water, we focus for flavours on the attainable potential of theready-made compounds. Our study shows that in this so-called untied segmentjuice-containing flavours outgun non-juice containing in quantity in a ratio of 9 to 1,but in value not even 3 to 1. Also juice-based compounds grew faster (+3.3%) thannon-juice-based compounds (+1.9%) over the period 1991-1997. We distinguish over 50different flavour compounds although only 7 juice-based and 10 non-juice based have ashare of more than 0.2%. Peach, lemon and other fruit are the flavours growing fastestamong the juice-based segment with cola, lemon-lime and other fruit doing likewise in thenon-juice based compounds.

Of the seven major countries of West Europethe flavour business grew fastest in quantity in Spain, Netherlands, Italy and UK. Flavourcompound business in the other major markets: Germany and France - which stillaccount together for nearly half the European total - has been increasing below average.

Looking at the Flavour compound business inthe various beverage categories in quantity terms: not surprisingly iced tea (+63.7%) andsports & energy drinks (+5.7%) grew faster than the other categories. NeverthelessCarbonates still takes more than half of all Flavour Compounds while Still Drinks takesnearly one third and Dilutables about 15%.

The top 60 bottlers in West Europe not onlyaccount for nearly two thirds of the total flavour compound market in tonnage, but alsoincreased their share over the period 1991-1997. The leader has a 6.3% share and only thetop 17 bottlers have a share exceeding 1%.

This illustrates just how highly fragmentedthis market is and that it still offers opportunities both for smaller and specializedsuppliers. Bottlers have been put under increasing pressure on one side by consumers whowant a greater variety in products, flavour and package and on the other side by retailerssqueezing the bottlers brands between their cheap own label products and A-brands. Thiscombined with ever shorter product lifecycles has forced a lot of bottlers to close down,sell off or merge their companies into bigger, more viable operations. In this wholeprocess we should not overlook the underlying battle between independent and franchisebottlers as well as non-traditional competition arising from the dairy, pharmaceutical,coffee and tea industries. It cannot even be called foresight to predict that thisconcentration tendency is bound to continue.

The multiplier effect of the above changesfor the flavour industry being at the beginning of the supply chain should not beunderestimated. It has accelerated the "shake-out" process in the flavourbusiness over the last decade and this has yet to come to an end. The growing competitionbetween A-brand retailers and hard discounters has forced this industry into a continuoussearch for greater efficiency and lower costs. In turn they push their suppliers tocontribute more and more of the A&P costs. This compels the manufacturers to increasetheir efficiency and so forces the ingredient suppliers to take more responsibility fornew product development and R&D and to increase their overall level of service.A-brand producers increasingly expect ingredient suppliers to provide a full product lineon a global basis.

Finally, scrutinizing the average flavourcompound cost and market volume development together with our forecast we definitely seepositive trends into the future. So in spite of the increasing pressures on soft drinkmanufacturers and their suppliers the West European soft drink market still offerssignificant opportunities for those who are adaptable, creative and flexible.

Untied Flavour compound market W.Europe*/Soft Drinks

total value by soft drinks category

Category % share value % Aarog
1991 1997 1991-1997
Carbonates 56.7 51.6 1.3
Still Drinks 20.8 17.8 0.3
Dilutables 19.2 17.8 1.7
Iced Tea 0.7 10.3 62.2
Sports Drinks 2.3 2.3 2.8
Powders 0.3 0.2 - 10.3
Total 100.0 100.0 2.9


Untied Flavour compound market W.Europe/Soft Drinks

total value by country

Country % share value % Aarog
1991 1997 1991-1997
Germany 31.5 31.1 2.8
UK 15.4 17.5 5.2
France 22.2 16.5 -2.0
Italy 14.5 17.0 5.7
Netherlands 10.5 11.3 4.2
Spain 3.1 3.6 5.3
Belgium 2.9 3.0 3.7
Total 100.0 100.0 2.9