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Last year proved to be an exciting time for the soft drinks industry. But while the industry thrived on so much activity there was always the fear that something was going to get left behind and cola proved to be the sector to suffer. Sarah Diston reports on what the experts say about the future of the cola sector.

Rival popstars for rival brands!

The colas of the industry, particularly the flagship brands of the two giants Pepsi and Coca-Cola have dominated the CSD sector and industry for longer than many care to remember. But innovation and new product development have become so key to driving growth within the industry that this old stalwart is losing its gloss.

Indeed, some industry experts are forecasting that the soft drinks industry is heading towards what is likely to be the most fundamental change in its entire history and the outlook for colas is looking far from positive.

Even the world's most famous company Coca-Cola, which spends some £80m ($114m) a year on global advertising, has been struggling to re-organise its marketing and advertising arrangements over the past 12 months. And its former CEO, Jack Stahl admitted recently that the company is disappointed with its marketing efforts, particularly in the US and Germany.

Coca-Cola and Pepsi continue to dominate the category with their cola brands

Although the US remains the world's largest carbonates market in per capita terms at 197 litres (followed by Mexico, Australia and Norway) and Coca-Cola and Pepsi continue to dominate the category with their cola brands, which represent more than six in every 10 litres sold (source: Canadean Strategic Outlook for Soft Drinks 2010), limited innovation in carbonates and an increase in prices has seen demand flatten.

But whether it be a true opinion or Pepsi's "official" line, Pepsi remains positive about its future. "In the US, even though non-carbonates are growing faster than CSD's there is still a huge market for cola," says Charles Nicolas, spokesman for Pepsi.

"If Pepsi-Cola North America can grow the Pepsi brand at just 1%, that would still account for a 60m case uptick. So while it isn't the fastest growing piece of our portfolio, it is still the largest piece of our business.

Pepsi Man Advert - Japan

"And outside the US there are still opportunities for cola sector growth. There is tremendous growth potential for emerging markets like China and India because of the relatively low consumption of colas (and CSD's)," he adds.

But back in the US colas are losing their fizz as consumers look for healthier alternatives and new age beverages snatch market share away from cola. And, Pepsi was quick to point out: "We've made it very clear that we want to be a total beverage company, so we are playing in all areas."

Even Coca-Cola, the world's number one soft drinks company, is aware of the need to change with the times: "We recognise that the proliferation of individual tastes and lifestyles in today's world means that consumers also want a variety of beverages," says Natalie Rule, spokeswoman Coca-Cola Corporate.

Awareness of a changing market is one thing, but like Pepsi, Coke's core brand is still what made the giant what it is today and no one is hitting any panic buttons yet. As Rule explains the future of the company still rests with the power of its core brand, Coca-Cola, which, along with its other carbonated beverages, accounts for 90% of its worldwide business.

Coca-Cola Railroad Advert

"Brand Coca-Cola is driving our growth around the world. Last year, total unit case volume in Brazil grew 7% spurred by brand Coca-Cola growth of 6%. The story is also similar in Mexico and Europe.

"With brand Coca-Cola serving as our driving growth force, our opportunities in the carbonated soft drink industry remain enormous. Leading edge countries like the US and Mexico, which represent only 7% of the [world's] population, today contributes 45% of our volume."

She continues: "And today less than 9% of our volume comes from emerging countries such as China, India and Yugoslavia and these countries represent 70% of the world's population. The growth potential is tremendous."

That may be so, but commenting on Coca-Cola's 1999 annual report, Douglas Daft was reported as saying: "Variety is the spice of business. The more choice we offer, the more we're in the beverage of choice." Next came Coke's new approach to business: "Think local, act local." An approach, says Coke, which is working well, very well.

"The theme of rapid change is certainly coming to the fore"

And this latest approach according to the Canadean Strategic Outlook 2010 report could prove to be the only way forward: "As both multinational and local soft drinks companies adjust to the new competitive environment, the corporate picture is likely to change substantially. Owners of some of the world's best-known brands will need to seek new ways in which to energise these brands and their businesses, to adapt to quickly changing consumer demands and the transforming competitive landscape. The theme of rapid change is certainly coming to the fore."

Innovation has almost become a cliché in regards to soft drinks. But it is without doubt a major factor in the marketing of products and has even been described by some as "critical". Yet it appears to have remained relatively insignificant to the cola sector.

Pepsi 2L - Russia

"Internationally and in the US, we are always exploring packaging innovations for basically all CSD's. To a degree, international packaging innovations are driven more by local market conditions and the competition," says Pepsi's Nicolas.

He continues: "In those market, be it PET, returnable PET, glass or cans the strategy remains to be cost effective in your sourcing and beating the competition to market to gain the advantage."

But whether this is true innovation is questionable. And, most of the new volume has only been driven by packaging and some brand extension and sub-branding, particularly in the diet segment.

But according to Canadean, innovation is essential to keep up with consumers. Nowhere is this more obvious than in the water segment, which, thanks to the introduction of the 50cl resealable PET bottle, has been transformed into a fashion statement. And this says Canadean has not just been seen in the more developed European markets, but also in the emerging markets such as China.

Coca-Cola logos - Worldwide

Another worry is devaluation of brands. With so many new products and categories entering the market Coca-Cola, for example, will have to take care not to over play Daft's "Think Local Act Local" strategy and devalue the Coca-Cola brand by developing too many local brands.

Pepsi needs to heed the same warnings although its diverse portfolio, including snacks and now Gatorade, leaves it less open to the slowing carbonated market. It may now well look towards Tropicana as a way to push growth, possibly through a Britvic acquisition.

And with its acquisition last year of So-Be and Quaker Oats (currently waiting for approval from the Federal Trade Commission) the likelihood is, Pepsi will be seen more primarily as a snack company with the added bonus of a wide range of strong beverage brands.

To find out more about Canadean's "Strategic Outlook for the Soft Drinks Industry in 2010", visit:

Companies: PepsiCo, Tropicana

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