The children's drinks market has changed substantially in recent years as health concerns have increased. However, writes Simon Maddrell of Euromonitor International, some companies have been quicker than others to recognise the commercial opportunities that new parental priorities offer.

Children's drinks have been around for decades and have traditionally been aimed at satisfying the sweet tooth while appealing to children's imaginations, often through sponsorship deals with cartoon characters and sporting role models. Recently, however, things have been changing with healthier and more natural drinks becoming increasingly popular.

Concern over childhood obesity has intensified in recent years, especially in developed markets and among richer sections of developing markets. The childhood 'globesity' statistics are as startling as they are worrying. The World Health Organization (WHO) estimates that globally there are 155m children of school age who are obese. In response, there has been a spate of legislation impacting on the sales of sugary carbonates, including an outright ban in UK schools in 2006 and severe restrictions in US schools.

Marketing restrictions were also introduced in certain markets, such as the ban on direct marketing to children under-12 across the EU, fully implemented in 2007. However, many campaigners remain unsatisfied with these restrictions. In 2007, a 'Global Dump Soda Campaign', spearheaded by the US-based Center for Science in the Public Interest (CSPI) and the International Association of Consumer Food Organizations, was launched, targeting Coca-Cola and PepsiCo and calling for an end to the marketing of these products to under-16s.

However, these demands are dwarfed by the impact of parental concern on the children's drinks market. Fears over obesity and ill health are driving the nature of demand in children's drinks, leading parents increasingly to reject high-calorie carbonates and favour drinks perceived as healthier, such as fruit/ vegetable juice and bottled water. These concerns also encompass demands for naturalness. For example, the latest research in the UK shows that 55% of mothers are looking for products with no added sugar and 38% for products with no artificial colourings.

The response by Coca-Cola and PepsiCo to these concerns has been fairly lacklustre. In some cases they have supported limited legislation. However, their response has been confined to individual countries and has been largely motivated by domestic political pressure.

Strategically they have attempted to appease concerns whilst carrying on business as usual. For example, at a recent CSPI press conference in Mexico City the organisation exposed an elementary school campaign sponsored by Coke portraying Coca-Cola as a hydrating beverage after physical activity. In Japan, Coca-Cola continues to promote sugary teas and other pre-sweetened beverages to children. This perceived inaction by the soft drinks giants is affecting their image globally.

It also seems to be a misguided policy per se. The fact is that increasing concerns over childhood obesity and interest in healthier beverages aimed at this social group represent huge profit opportunities for soft drinks manufacturers not just in volumes but also in value, as active health benefits allow producers to extract higher unit margins from consumers.

Nestlé has been particularly proactive and shrewd in its response to these factors. The company's approach has been to add healthier beverages to its existing lines. In the US, Nestlé launched RTD Nesquik to comply with school vending machine guidelines in 2005, and followed this in 2007 with the launch in the US and Nigeria of the Aquapod, the world's first bottled water specifically targeted at children. In France, Nestlé markets Vitalitos, another mineral water brand aimed at children.

Smaller companies have also been shrewd in their response to changes in the children's drinks market. For example, in France juice maker Eckes is directly pushing its Rea label at children. In 2007, Honest Tea launched a new line of organic, naturally fruit-flavoured, lightly sweetened drinks for kids in the US. Coca-cola has since bought 40% of Honest Tea. In 2006, Capri-Sonne launched a 100% juice range for children in a number of countries. A successful tactic has also been to combine mineral water with fruit flavours. In 2007, Poland's Kofola launched Jupik Aqua fruit-flavoured water, while in the UK Calypso has launched Calypso Aquajuice 67, which contains 67% pure fruit juice and 33% natural mineral water. Due to their natural credentials these drinks retail at prices significantly higher than average nectar prices. Waddajuice, another new lower-calorie children's drink in the US, is sold at double the sector average price.

Concern over childhood obesity will continue to grow over the next few years, intensifying in developed markets and featuring more prominently in developing markets. Global soft drinks companies have to harness and exploit these trends rather than rile against them if they are to maintain revenues and profits. The key for future growth in children's drinks is first to appeal to the parent by using healthy and natural ingredients, while secondly appealing to children through interesting flavours, exciting pack types and strong marketing campaigns. Nestlé has led the way in this regard but Coca-Cola and PepsiCo are slowly accepting the need for proactive rather than reactive strategies and are taking action to ensure they have the right product mix in their markets to ensure future profitability.

For more information, go to www.softdrinksinternational.com.