Research in Focus - Carbonates, Tapping the Growth Potential

In this briefing, Euromonitor International focuses on opportunities for growing global carbonates category volume. As part of the report, Euromonitor International looks to identify growth opportunities based on the three regional groups - Untapped Markets (Asia Pacific, and Middle East and Africa), Developing Markets (Latin America and Eastern Europe) and Developed Markets (North America, Western Europe and Australasia).

The report provides insights into strategies that provide opportunities to increase carbonates’ global share of soft drinks. Which CSD categories and brands have the greatest opportunity to drive future growth? 

Key findings

CSDs is losing volume share of total soft drinks. Globally, from 2004 to 2009 total soft drinks grew three times faster than carbonates. Also, CSD volume growth lagged total soft drinks in every region. Over 2004 to 2009, CSDs posted a CAGR of 1.5% vs. 4.0% for fruit/vegetable juice and 6.9% for bottled water. Over the forecast period, CSDs is projected to post a 1.1% CAGR vs. 5.2% for fruit/vegetable juice and 3.9% for bottled water. This growth pattern holds true for all the market groups.

Developing and untapped markets have growth potential. Not surprisingly, due to the underlying macroeconomic trends, the categories experiencing the fastest growth, both historically and forecast up to 2014, are in the untapped markets followed by the developing markets. However, CSDs is losing share of throat in these regions since both bottled water and fruit/vegetable juice are growing at faster rates. In fact, the only CSD category in these two areas outpacing soft drinks growth is the smallest category in the developing markets, namely low calorie colas.  If CSDs had grown at the same rate as total soft drinks over 2004 to 2009, then the category would have realised an incremental 2.9bn litres of growth in both Untapped and Developing markets. Untapped markets’ faster growth rate is offset by Developing markets‘ larger size.

Untapped markets have a flavour preference for lemonade/lime.  The countries driving this taste preference are China, India, Indonesia, the Philippines, Vietnam, Algeria, Egypt, Morocco, Saudi Arabia and UAE. The developing markets of Eastern Europe and Latin America tend to be skewed towards regular colas. The countries with the most significant sales of regular colas are Chile, Ecuador, Mexico and Peru.

Beverage giants have a head start in untapped markets. Both The Coca-Cola Co and PepsiCo have a higher volume share of CSDs in the untapped markets than their global shares. While both beverage giants have taken the lead in CSDs in untapped markets, the category is not keeping pace with soft drinks growth. This may present an opportunity for second-tier beverage companies to capture volume for CSDs by stimulating category growth at the same pace as soft drinks growth. Over 2004 to 2009, soft drinks grew by 41% in volume terms while CSDs only grew by 21%.

There may be a branded opportunity in Latin America. Big Cola, a low-priced brand, performs well where it is distributed. Big Cola has a low share because it is only distributed in Colombia, Mexico and Venezuela. Its share challenges Pepsi in Mexico and Venezuela. Big Cola is about half the average retail price per litre of Coca-Cola and Pepsi and is gaining share. There may be significant volume opportunity in the future from CSDs capturing its fair share of incremental packaged drinks consumption as increasingly affluent consumers drink less tap water.

Although people consume about the same amount of packaged drinks in Latin America and Eastern Europe, the competition in these markets is very different. Eastern Europe’s competition is relatively diffuse. Coca-Cola has 24pp less volume share of CSDs in Eastern Europe vs. Latin America and virtually all of Coca-Cola’s lower share in Eastern Europe is due to the relative strength of local companies. PepsiCo’s volume share in Eastern Europe is about the same as it is in Latin America (17% in Eastern Europe and 14% in Latin America). Pepsi has experienced long-term volume share gains that have come at the expense of the other local brands. Local companies in Eastern Europe have over a 40% volume share.

Developed markets appear to be saturated. Soft drinks’ share of total beverage consumption has levelled off and is projected to decline to 2014 as tap water consumption grows. Similar to the other regional market groups, CSDs is not keeping pace with soft drinks. However, key macro factors are different in developed markets from both untapped and developing markets. The developed markets appear to be saturated in their packaged drinks volume and the key CSD teen demographic is declining. Given these macro trends, it seems unlikely that CSDs will be able to maintain its share of soft drinks as new products geared towards an ageing demographic are introduced. The opportunity may be to grow carbonates value through value-added products, perhaps appealing to the ageing demographic by adding functional enhancements.