Soft drinks & water review 2008 - Coke has the best of a tough year for soft drinks

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While the past 12 months have been difficult for many soft drinks companies, notably in North America, the last year has seen continued development in better-for-you categories, notably enhanced waters and healthy colas. Ben Cooper takes a look back at 2008.

In looking for issues which have dominated the soft drinks pages over the last year, one need really go no further than the state of the global economy. Like all consumer markets, the soft drinks sector has not been immune from the harsh economic conditions.

During the last 12 months, a number of prominent names have suffered declining financial fortunes, particularly in North America. Early in the year, Canadian private-label specialist Cott reported disappointing 2007 fourth-quarter results, announced it was expecting significant space reduction at its biggest customer, Wal-Mart, and had to cope with the departure of CEO Brent Willis. Recently, the company posted a net loss of $87.6m for the third quarter. Meanwhile, Jones Soda reported a net loss of US$5.3m for the third quarter. In November, the company announced it planned to cut 38% of its workforce.

Coca-Cola Enterprises (CCE) also saw a drop in third-quarter profits, and cut its full-year earnings per share guidance in October. CCE outlined a new business strategy, to include closing two of its six units in the US. Amid the doom, however, there was some better news recently, as CCE raised its full-year target again on the back of better-than-anticipated volumes in North America towards the end of the year.

The health of the soft drinks sector tends quite understandably to be measured by the progress of Coca-Cola and PepsiCo. Both have endured declining sales in their North American strongholds. However, third-quarter results suggested Coke was faring better. PepsiCo's third-quarter earnings fell to $1.58bn from $1.74bn, while Coke reported a 14% rise in net income to US$1.9bn.

Indeed, 2008 appears to have represented something of a reversal of fortunes in the battle of the giants. As little as three years ago, analysts were praising PepsiCo's diversification strategy, and had little good to say about Coke. But 2008 seems to have marked the culmination of Coke's rehabilitation, with the company receiving plaudits for its fresh marketing strategies and a greater focus on innovation. Coke also arguably made the most of the marketing bonanza represented by the Beijing 2008 Olympic Games as one of the event's major sponsors.

In spite of economic woes in many markets, certain upward trends have continued in the soft drinks market in 2008, not least the sustained growth in better-for-you products.

Indeed, this year has seen some interesting better-for-you developments in what is arguably the core soft drinks category of colas. While both PepsiCo and Coke have continued to develop their respective Pepsi Max and Coke Zero brands, Reed's launched its Virgil's Diet Real Cola in March, while Health Cola was introduced by US drugstore chain Walgreen.

Arguably the most fascinating launch in this sub-sector was the introduction of Simply Cola by energy drink market leader Red Bull. But while Red Bull was making health claims for its new cola, 2008 saw continued controversy over the possible adverse health effects of energy drinks. Research carried out at the Henry Ford Hospital in Detroit and published in August showed that subjects' heart rates and systolic blood pressure rose after consuming two cans of energy drinks over a seven-day period.

Within the broad category of better-for-you products, the enhanced water sector appears to have fared particularly well. This year saw the UK launch of Glaceau and Coca-Cola Great Britain was upbeat about its initial success. The brand has also been launched this year in Australia, New Zealand, Canada and Mexico.

The past year has also seen the launch of the Charlie's enhanced water brand in New Zealand, and Defence in Australia. In the US, the American National Beverage Corporation unveiled its EnVitamin Enhanced Water, while in the UK the Extreme Group introduced its 'Ex' Aqua Vitamin Natural mineral water.

However, for all its healthy properties, bottled water has not been immune from controversy. While the product's health credentials are hard to argue against, bottled water companies have found themselves under pressure from environmental campaigners.

Such has been the growing pressure this year that in September the three largest bottled water groups in the UK, Danone, Highland Spring and Nestlé, formed the Natural Hydration Council (NHC), which aims to "research and promote the environmental, health and other sustainable benefits of natural bottled water".

In addition to continued pressure on soft drinks brands regarding rising rates of overweight and obesity, the past year has also seen heightened debate over the use in soft drinks of additives linked with hyperactivity in children, following the publication of new research in the UK in late 2007.

In April, the UK's Food Standards Agency (FSA) announced that it would push for the voluntary withdrawal of certain food colourings by 2009, and European legislation to ban them entirely. This represented a significant change from its initial response to the research, which had revealed the strongest evidence to date of a link between certain colourings, in combination with the preservative sodium benzoate, and hyperactivity in children. The FSA April announcement also diverged significantly from the response of the European Food Safety Authority (EFSA), published in March.

For its part, the British Soft Drinks Association (BSDA) had welcomed EFSA's view that the study did not warrant any change to the Acceptable Daily Intake (ADI) of the additives concerned. Not surprisingly, the BSDA was less enthusiastic about the FSA's position in April.

In July, the European Parliament passed a measure to introduce mandatory labels on food and drink products containing the additives in question across the EU, warning of a possible link between the additives and hyperactivity in children. While there have been no significant developments since then, the debate could be ignited once more when EFSA publishes a further and wide-ranging review of the safety of food additives.

So with issues over additives apparently unresolved, continued discussion over the environmental impacts of bottled water and the ongoing pressure on soft drinks manufacturers regarding childhood obesity, 2009 is likely to prove an absorbing year in terms of debate and a busy one for industry advocates, even if economic conditions result in a somewhat downbeat year in terms of sales and profitability.

This article is based on extracts from the just-drinks Review of 2008, published as part of the monthly management briefing series. To download the review in full or for more information on just-drinks' management briefings, go to

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