Research in Focus - The Duality of Concentrates

The concentrates market remains in rude health, with both developed and emerging markets for soft drinks offering great rewards. Here, Jonas Feliciano from Euromonitor takes a closer look at the category.

As examined in Euromonitor's report, “More than Meets the Eye: The World of Concentrates”, this beverage category is of extreme importance to low-income emerging market consumers as well as value-conscious consumers everywhere. The recent success of Mondelez International’s MiO product in the US has increased the spotlight on liquid and powder concentrates. With products thriving in key emerging regions such as Latin America and Asia, as well as the premium and functional opportunities for concentrates in developed markets, the potential remains high. But, understanding consumer habits is still vital for success.

Global overview

In ready-to-drink volume terms, concentrates rank fourth in the world with over 45bn litres sold in 2012, ahead of RTD tea and sports/energy drinks. This is a reflection of both the category’s global scale as well as strong volume growth among low-income consumers transitioning to packaged soft drinks. The majority of this growth comes from powder concentrates, which combine light tonnage with compact packaging, making them ideal for emerging markets where transport infrastructure remains underdeveloped and retail environments highly fragmented. 

The savings in supply chain also allow concentrates to remain the low-cost leader amongst all soft drinks. On a global level, concentrates averaged a price of US$0.40 per RTD litre, whereas carbonates were US$1.10 in 2012. This gives the category an obvious advantage in emerging markets, as many consumers cannot afford the convenience of most fully-constituted, packaged beverages. However, in developed markets, concentrates have also been successful as low-cost add-ons to water. Retail price points are still high enough to give distributors impressive margins, combined with the added convenience of taking up less shelf space – a key concern, as beverage brands continue to emerge from every soft drink category.

Mondelez in emerging markets

With price concerns such an important aspect of growing a product in emerging markets, concentrates are the ideal beverage to reach new consumers switching from traditional, home-crafted beverages to packaged products. No company has been better in penetrating this market than Mondelez International, formerly known as Kraft Foods. Mondelez leads all global brand owners with 22.6% of off-trade RTD volume share in 2012. In Latin America, the company's Tang brand is the market leader with 18.5% share. The brand is equally strong amongst emerging markets in Asia Pacific and the Middle East & Africa, leading all concentrates with 16.4% and 7.4% market share, respectively.

Mondelez has leveraged its considerable marketing/distribution muscle to penetrate emerging markets while embracing an ambitious, detailed programme of localisation. Mondelez manufacturers have incorporated local flavours and textures to better create a product with a traditional feel. This includes extensions of Tang made with real fruit pulp or adjusting the ingredients to give the reconstituted beverage a thicker texture. Tang’s flavours are also mindful of local fruits, such as mango in the Philippines or tamarind in Mexico. The company has even incorporated more exotic flavours such as barley/cinnamon in some Central American markets. The hope is that, by combining preferred local flavours and textures with the convenience and flexibility of concentrates, Tang can drive customer loyalty and sales in a category highly correlated with economic conditions.

Mondelez is also buoyed by one of the world’s strongest distribution networks. While much of the discussion regarding the Kraft-Cadbury merger of 2010 focused on the addition of Cadbury’s brands, equally important was Cadbury’s distribution footprint, which gave Kraft access to markets and channels (as well as parts of the store, such as areas near cash registers) that it previously lacked. This is especially important given the prominence of independent small grocers and traditional retailers in the shopping habits of emerging consumers. Warungs in Indonesia, sari sari in the Philippines and kiranas in India are still central to life in many cities, towns, and villages. Given the low costs, relatively simpler distribution, and small spaces taken by concentrates, the products are ideal for these smaller channels that are vital in reaching low-income consumers.

Liquid gold

While powder concentrates such as Tang lead overall RTD volume consumption, liquids lead in terms of total value sales with almost US$9.6bn in 2012 compared to $8.9bn for powder. Western Europe dominates liquid concentrates with $3.9bn compared to Latin America’s US$2.1bn. This underscores a premium aspect to liquid concentrates that powder markets do not command, which is evidenced by high-income markets such as France, Germany and the UK all supporting strong value consumption.

Both liquid and powder concentrates serve a core need of substitution for higher-priced soft drinks such as carbonates and juices. But, liquids continue to lead in terms of versatility, serving as a premium alterative to carbonates in markets like France, while also gaining ground (alongside powder) as a “flavour enhancer” for water, particularly bottled water consumed on-the-go. This premiumisation is what drives growth for the liquid category.

In the UK, economic turmoil continues to lead consumers to look to comforting, nostalgic products at an affordable price. British liquid concentrates, traditionally called cordials or squashes, fit this bill. Still cheaper than many RTD products, many brands have moved aggressively upmarket, with products such as Bottlegreen and Belvoir enjoying brisk sales growth thanks to a message of high quality and unique traditional flavours, such as elderflower. Category leader Robinson’s has also benefited from the successful launch of a super-concentrated line that requires less product, as well as utilising innovative packaging with easy-pour spouts. Family sales remain key, but smaller brands are also finding success with more “adult” positioning, selling through on-trade channels to target consumers seeking alternatives to alcoholic beverages.

Perhaps the most surprising - and most lauded - liquid concentrate launch has been Mondelez’s MiO. Off-trade value sales of the product broke the $100m mark in 2011 and followed with an even more impressive growth to over $250m last year. The on-the-go convenience of the product, which is packaged in a squeezable plastic bottle smaller than most cellular phones, combined with the ease-of-use and ability to customise flavour strength depending on how much product is used, appeals to many Americans seeking zero-calorie beverages tailored to their own tastes. Mondelez has fortified its position by introducing an “energy” sub-brand in 2012 (fortified with B-vitamins, caffeine as well as several ingredients contained in energy drinks) and a “fit” brand in 2013 (featuring added electrolytes and B-vitamins for sports drink enthusiasts). This addition of functionality to the line continues to show the innovations and possibilities with liquid concentrates – all while maintaining the lowered costs and easier distribution that benefit the category to begin with.  Other manufacturers have taken note. Coca-Cola Co entered the North American concentrate market with Dasani Drops in 2012, and Mondelez extended the Crystal Light brand to Crystal Light liquid in 2013. 

As demonstrated, the world of concentrates is rife with potential. While manufacturers have been enamoured with the beverage’s inherent advantages in terms of margins and supply-chain, innovations at both economy and premium levels have created a wealth of opportunity. However, the key to product success extends far beyond profit potential; the importance of understanding local preferences markets, whether in flavours and textures in emerging markets, or the customisation and functionality in developed ones, cannot be diluted.