Focus - BRIC Markets Lift Worldwide Soft Drinks

Latest projections from beverage experts Canadean suggest that the global soft drinks market may be putting the tough economic environment of 2008 and 2009 behind it, Richard Corbett reports.

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Provisional numbers from Canadean forecast that, in 2010, the market for soft drinks will have expanded by between 3% and 4% to more than 550bn litres; global per capita consumption of soft drinks has now crossed the 80 litres mark. This represents an uplift of a little over 1% on 2009's soft drinks performance of just over 2%, but the result remains considerably down on the halcyon days of 2006 and 2007 when Canadean reported soft drinks market growth of 6% and 5%, respectively.

The news is not just positive for stakeholders in the soft drinks sector; Canadean's global forecasts point to expected growth in all commercial beverage sectors. The soft drinks sector however, tops the growth rates and is gaining share on the others. Soft drinks now make up almost a third of all commercial beverages (including bulk water). Hot drinks are expected to record a rise of 2%, while dairy drinks, bulk water and alcoholic drinks will have registered growth of around 3%
last year.

Asia remains the main driver for soft drinks; growth will not be far off double digits in 2010, buoyed by a stunning 14% surge in China and a forecasted 16% jump in India. What has also been important to the acceleration in global soft drinks demand, has been the recovery of the East European markets which, like Asia, have been driven by the largest market Russia.

Soft drinks were lifted in 2010 in both China and Russia by hot weather in the third quarter. Asia's performance now means that this region accounts for one in every four litres of soft drinks traded globally, further eroding the share of North America which has shrunk to little more than a fifth of world sales. Despite only marginal losses predicted for the year for North America in 2010, once again it has been high temperatures in the USA that have been influential in the performance.

In contrast, it was wet and cold conditions that affected the West European performance. The UK endured its coldest August since 1993, while the important German market shivered through much of the third quarter. Sales in this part of the world, which accounts for 18% of global soft drinks sales, have dropped in 2010, but by less than 1%.

The losses are disappointing, but what the volume decline conceals is the more dramatic value losses brought about by a depressed Horeca channel and the struggling premium segment of the soft drinks industry - this will be of even more concern to operators. Only West Europe and North America are expected to see a decline in soft drinks volumes in 2010.

West Europe has a similar sized soft drinks market to Latin America; the difference being that soft drinks demand is on the up in this part of the world. In this region, Brazil holds sway and accounts for 30% of the region's volumes - an upbeat performance in Brazil and the region as a whole receives a boost. Brazilian sales are expanding by 7% and consequently the region is expecting a rise of between 4% and 5%.

It is perhaps not surprising that Coca-Cola has announced that it has chosen to invest BRL2.5bn (US$3.02bn) in Brazil. The news is not all good, coming from Brazil; the orange crops have been hit by lower than average rainfall and it is anticipated that the harvest could be 10-15% lower than 2009; this will have implications for the price of orange juice in the rest of the world with inevitable repercussions on sales.

Only Asia is expanding at a quicker rate than the Middle East and Africa, but growth comes from a low base and these markets are responsible for less than 10% of worldwide volumes. If you discount the Middle East and North Africa then the rest of Africa has the lowest per capita of anywhere; almost ten litres below Asia's 35 litres and well over 50 litres less than the global average. The low per capita consumption in Asia highlights how much potential remains unexploited.

What 2010's results have illustrated has been the impact on the soft drinks performance of the so called BRIC markets of Brazil, China, India and Russia. As in other industries, people are looking to these markets to be the source of future growth.

Back at the turn of the century these four markets made up just 12% of worldwide soft drinks volumes; today this is more like 20% but by 2015 Canadean forecasts suggest these countries will sell a quarter of all soft drinks volumes. These markets will be needed to compensate for the mature West European and North American markets which made up half of soft drinks sales in 2000 and are projected to make up less than a third of sales by 2015. It is difficult to underestimate the importance to the future prospects of our industry of the BRIC markets.

In terms of category growth, Canadean predicted growth in every category last year. The juice category should return to growth after falling in 2009, while sports drinks will also register a small growth after a reversal the previous year. Energy drinks maintain their status as the star performer of the soft drinks world with growth approaching double digits. Carbonates share continues to shrink but growth has doubled to nearly 2%. Packaged water continues to catch up carbonates and has now reached almost 30% of worldwide soft drinks volumes. Packaged water is expected to have recorded a rise of more than 4% last year.

The most sluggish performance has come from iced coffee, which barely recorded growth at all last year. The category remains tiny and its high cost means that there is a bias towards the mature developed markets and not the fast growing developing countries.

In what is perhaps an indicator of how the impact of the financial crisis is waning, the only category to see growth slow last year was fruit powders. The most economical form of refreshment, fruit powders undoubtedly benefited from the downturn as consumers looked for lower cost alternatives to quenching their thirsts - now the storm has passed their growth has fallen back.

So, as the door closes on 2010, the attention shifts to 2011. Talk of double dip recessions seems to have died down now and Canadean remain optimistic for the soft drinks sector. Obviously a hot summer in certain key markets or a dramatic change in the global economic climate may have changed the prospects for the year, but the latest forecast points to another acceleration in the growth rate to around 4%.

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