Drought conditions have made the last few years tough for Australian wine producers. But while one might have expected the extended hot and dry conditions to be a fillip for the soft drinks sector, figures from Canadean suggest they have made little impact. That said, there are some notable growth areas. Richard Corbett of Canadean assesses current trends.

As observers of the wine category will know only too well, Australia has been subject to severe drought for some years. While this has clearly been bad news for wine producers and farmers in general, one would at least have expected the soft drinks market to have done well during such parched times.

However, Canadean figures reveal there has been no notable change in Australian soft drink demand over the last few years. Sales of soft drinks increased by around 1% in 2007 but per capita consumption remained roughly static at a little over 210 litres, a level that has not changed significantly during the years of drought.

Indeed, in spite of its consistently hot climate, Australia does not have particularly high per capita soft drinks consumption. On average Western Europeans drink almost forty litres more soft drinks than Australians each year.

Much of this variance can be traced to the fact that Australians have a limited tradition of packaged water consumption. This is changing, however. Consumption of packaged waters has doubled since the beginning of the century, but still remains between four and five times lower than the Western European average.

Nevertheless, there are as many as 1,000 water brands on the market, though sales are concentrated around a few brands, the leader being Coke-owned Mount Franklin. There are limited opportunities away from the Horeca channel for carbonated waters; Australia is a still water stronghold. Demand for still waters is being driven by consumption on-the-move, obesity awareness and other health issues prompting consumers to opt for a bottle of water in convenience outlets rather than a carbonated soft drink. Prospects look good for packaged waters in Australia.

While losing some share to water, carbonates still account for more than 1 in every 2 litres of soft drinks sold and the category continues to grow, albeit slowly. The carbonates sector has had to adapt to evolving consumer needs. Low-calorie carbonates now account for almost a third of sales. Adapting to new demands is not limited to just reducing the calorie content of products; recently, drinks with added high juice content, such as Mixt 50% juice, Fuze 99% juice and Spring Spa 55% juice, have begun to establish a presence in the market. These products tick more of the boxes of the modern Australian drinker than traditional carbonated soft drinks.

With the spotlight on wellness, one might imagine juice and nectars would be prospering but actually sales of juice and nectars, which make up more than 15% of soft drinks volumes, fell by between 3% and 4% last year. Not-from-concentrate products make up only a small part of juice and nectar volumes and it would seem that high global concentrate prices may have contributed to the first fall in juice sales this decade. Nectar sales have been dropping since 2002. Chilled juices, however, increased their market share so it may be that Australians are upgrading to better-quality products at the expense of quantity. Certainly value sales outperformed volume sales in 2007.

Australians are among the highest consumers of juice and nectars in the world - they drink around 10 litres more per person than West Europeans - and it might also be concluded that it is simply harder and harder to get Aussies to drink more juice.

Sports drinks growth slowed last year, but this is probably linked to the high profile re-launch of PowerAde (as Isotonic) in 2006. The level of investment in the brand was not maintained through 2007 and consequently sports sales growth slowed to 3% from 18% in 2006. The Australian love of sport - not to mention its consistent success in international sports competitions - bodes well for the long-term potential of the sports category, which also benefits from significant investment from Coca-Cola and Pepsi, who between them account for 9 out of 10 litres of sports drinks sales.

Like sports drinks, energy drinks have fared well in recent years, jumping by nearly 30% last year. Interestingly, it is the V energy brand, owned by Frucor Beverages, part of Danone, rather than Red Bull, that leads the market, although the gap is narrowing. Increased retail listings, innovation and the low calorie segment should ensure future prosperity for the category.

However, the energy drink sector is not the most dynamic category in the marketplace: that accolade goes to iced tea. The category saw growth last year of 33%, while volumes have more than doubled in the past four years. Australia's large Asian population is a key factor behind soaring sales, coupled with the good reputation that green tea enjoys among increasingly health-conscious consumers. Long-term growth is anticipated.

Iced teas are still relatively new but iced coffee consumption is well established and is enjoying growth but at a more restrained level. At 5 litres each, Australians are the fourth biggest consumers of iced coffee in the world. As with iced teas there is probably an Asian influence but the high level of consumption is also down to the popularity of coffee-flavoured milk which, under Canadean definitions, falls into the iced coffee category. As a result, almost all iced coffees have less than 2% coffee content. Farmers Union from National Foods is by far the biggest selling iced coffee milk brand in Australia. First launched in 1977, the brand has iconic status in South Australia and is now available almost nationwide.

There are broad opportunities in the Australian soft drinks market, with waters, still drinks, iced teas and coffees and sports and energy drinks enjoying varying levels healthy of growth but the overall expansion of the soft drinks sector will always be handicapped by the slow performance of the biggest category, carbonates, and the maturity and long-term decline of the second biggest category, squash, which has shrunk by a fifth in the last ten years.

The potential in Australia lies in recruiting drinkers leaving these two big categories. The limited movement in the soft drinks sector has meant that the commercial beverages market has remained remarkably stagnant over the last decade and, overall, Australians can be said still to have a beer and coffee drinking culture.

For more information, go to www.softdrinksinternational.com