Ray Rowlands of Drinksinfo looks at the European soft drinks landscape as the region continues to suffer the aftershock of global recession.

While pockets of consumer optimism are appearing across Europe, many inhabitants are still cautiously counting the coins in their pockets before deciding where, when and what to buy.

A catalogue of concerns, including weakened job security, inflated prices and tough austerity measures are hitting beverages, along with numerous other non-essentials. This is causing, or at least accelerating, fundamental changes in the structure and operation of the region’s soft drinks industry.

Economic adversity has intensified price sensitivity and reduced brand loyalty. More and more consumers are making buying decisions based purely on value for money.

As a result, soft drink brand owners are being forced into a situation where price deals and discounts are becoming the norm, rather than occasional devices to heighten consumer awareness and raise product loyalty.

At the same time, the price gap between brands and private labels is shrinking. This, of course, has the potentially lethal effect of devaluing brands and turning soft drinks into mere commodities, while certainly eroding market value. Yet, without such forceful marketing activities private labels would be having a bigger field day than they already are. Meanwhile, for many retailers, promoting their own soft drink lines has become the only way to achieve meaningful sales growth.

The balance of power between producer and retailer is continually shifting as the strength of retail chains builds and the traditional role of the small independent store is curtailed.

With their elevated bargaining power modern retailers are forever compressing producer margins while aggressively delisting under-performing brands and replacing them with private label alternatives. Furthermore, there is no doubt that private label offerings are increasing in sophistication as retailers try to emulate branded offerings. 

But the level of private label acceptance is certainly diverse. In the UK, for example, the second largest soft drinks market in Western Europe after Germany, these products have been a permanent fixture of the landscape for many years.

But, of late, their low prices have not resulted in higher volumes. Here consumers have either succumbed to the effect of branded promotional campaigns, or have shifted their purchases across to cheaper brands. UK inhabitants may be wary of their dire economic and financial circumstances, but they still tend to opt for brands where possible. 

The private label segment of the soft drinks market is not so developed in Eastern Europe, but it is growing. French retailer Leclerc aims to increase the share of private labels in its Polish stores to 40-60% of total turnover from a current level of 18%. Carrefour Romania currently sells about 1,400 own label products which already represent 13% of the retailer’s sales.

But, own label products are still relatively new in a number of East European countries and their quality is still often treated with suspicion. Czech consumers, for example, are more interested in buying discounted brands and will shop around for offers or simply curtail purchases altogether.

Many discounters exclusively stock their own products and in Europe the recession and its lingering aftermath have created the perfect environment for them to thrive. They are widening their networks in response to the growing number of cash stricken consumers. In recent months the German discounter Lidl, which already has a presence in most European countries, has opened new stores in Bulgaria, Croatia, Hungary, Romania and the UK, to mention but a few. It now has more than 10,000 stores across the region. Other discounters, including arch rival Aldi, already with well over European 7,000 stores, are similarly following an expansion trail. 

In respect of producers, besides reducing prices, another recession-busting strategy has been to “down size” i.e. introducing slightly smaller sized packs to keep prices low without relying on discounts. Examples of this practice can be found in the vast Russian market where several juice drink suppliers, including both Coca-Cola and PepsiCo, have introduced new family packs.

These are a few centilitres smaller than the standard size -  95cl cartons instead of one litre). Whether this is more for the benefit of the producer or consumer is open to debate. On a related note, despite the associated high cost per litre, there has been no obvious European shift away from single-serve packs since the start of the recession. The impulse and school lunch box market seems to have remained largely intact. 

Another selective producer ploy, particularly in the face of higher concentrate costs, has been to reduce juice content. Thus, a pure juice becomes a juice-based drink, while products that already contain water are further diluted. The brand name, however, remains intact.

This works because a portion of consumers are more concerned about the presence of natural fruit in the product rather than the exact juice content, while others are not even aware of the difference between pure juice and juice drinks. This may appear to be a devious practice, but in such trying times cost savings of this nature may be all that stands between continued production and bankruptcy.

As to soft drinks themselves, the recession and its aftermath seems to have had a limited impact in respect of category preference or trends. Energy drinks and iced tea have continued to sky-rocket, while carbonated soft drinks have struggled to take on share, trends that were well embedded long before 2007/8. The decline in the juice market, however, does appear to have accelerated. A combination of factors are at fault here, including increased concentrate costs and health issues, such as the high sugar content of juice.

But this movement has been partially compensated for by a shifting in producer and consumer preference towards cheaper juice based drinks, in combination with some transfer of brands between categories.

Moreover, the European soft drinks market overall has tended to grow, if only modestly. All in all, the industry has managed to stay positive in this post-recessionary era, if not totally unscathed.