Comment - Soft Drinks & Water - Moving Forwards By Going Backwards

Despite the small 2% increase in value sales and 1% in volume recorded in last week's publication of the Britvic Soft Drinks Report 2010, the results for 2009 show there has been a sea change in the UK soft drinks landscape. Along with legislative challenges, argues Annette Farr, this presents a worrying picture.

The soft drinks industry has gone back in time. Those brands and categories that shone in 2009 have been around for decades – the highlights were drinks that were quaffed by previous generations. Categories that performed well were squashes (sales increased 7%), lemonades (up 4%) , and fruit carbonates (up 4%). Tango was up 18% and Vimto an amazing 27%. Brand loyalty was also in evidence, indicated by Irn Bru, AG Barr's venerable carbonate, which saw value sales rise by 4% year-on-year to reach GBP95.3m (US$144.7m), while  Coca-Cola and Pepsi value sales rose by 4% and 5% respectively.

As consumer's tightened their purse strings, out went the premium buys. Smoothies had another poor year, with sales dropping 27%, as did 100% pure juices, down 4%. Apparently, smoothie consumers are trading down to 100% juice drinks whilst pure juice consumers are switching to juice-based drinks. Many are turning to low calorie colas as a feel-good factor drink which doesn't pile on the calories. Meanwhile, sports drinks had a poor year, with sales down 2%, whilst bottled water sales were flat.

It was telling that the report made no mention whatsoever of the weather in the UK last year; this a subject which preoccupied the nation's minds throughout 2009, with a record-breaking wet summer and the cold winter of 2009/2010, which even now continues to plague some parts of the UK.

When challenged on this, Paul Moody, Britvic's chief executive, simply said the economy proved more important than the climate and weather, for once, was not considered a key factor.

A soft drink report not referring to the impact of weather on sales is virtually unprecedented and Moody's remarks illustrate just how dramatic the effects of the recession have been on the soft drinks landscape.

Last year's figures are in stark contrast to those in pre-credit crunch times. When the going gets tough, it's the cheap and cheerful, tried and trusted brand that consumers buy, despite the fact that over the last decade - in response to the more health-savvy drinker - there has been a plethora of new product innovation embracing functionality and health and wellness issues.

What are the implications, then, of 2009's step back in time for this year and beyond? Has the recession neatly coincided with a necessary period of consolidation, especially regarding niche categories, with innovation ready to bounce back when the good times truly return?

One would naturally hope so, for what any industry wants is progress. For that to happen, however, soft drink producers are going to have to overcome some considerable challenges, which have nothing to do with consumer spending power.

First, there are continuing government initiatives regarding obesity. The latest is the UK's Food Standards Agency's call for small portion sizes - 250ml – and a reduction in sugar levels for soft drinks. The smaller pack size will involve considerable changes in canning and bottling lines, which the British Soft Drinks Association estimates will cost the industry upwards of GBP10m.

Further, the voluntary cut in added sugar could result in a greater use of artificial sweeteners to get the taste and level of sweetness right. Yet the use of artificial sweeteners does not chime with the current trend for using ingredients that are 'all-natural'. (Incidentally, it would help all soft drinks producers if the EU approved the all-natural sweetener stevia sooner rather than later). In any event, reformulation does not come without costs.

Which brings us neatly on to the approval of functional ingredients, with the European Food Safety Authority's (EFSA)  health claims legislation proving to be a complicated and daunting task for many.

Then, there is the minefield of nutritional labelling. Against the backdrop of a new EU-wide front of pack labelling scheme currently being scrutinised in Brussels - the aim being to make labels clearer with key nutritional information being displayed more prominently on front of pack - the FSA is advocating a combination of 'traffic lights' (red: high in fat saturated fat, sugar and salt; amber: medium levels; green: low), guidance daily amounts and the words 'high' 'medium' and 'low'.

Surely this is a case of too many chiefs and not enough indians? What is needed is a simple, readable (get the type size right) label which displays nutritional information in a format instantly recognisable by consumers throughout the EU. Too much information will only serve to confuse. Indeed, do we really need a combination of all three devices: traffic lights, GDA's and the words 'high', 'medium' and 'low'?

As we emerge from the recession at a seemingly snail's pace, the question being asked is whether consumers will return to their pre-recession spending habits. If not, the industry, as Britvic's report points out, will be challenged to continue meeting their needs for taste and enjoyment at an affordable price.

If, on the other hand, purse strings are loosened, then the consumer will be looking for new, exotic, healthy, hydrating, flavoursome innovation – which comes at a premium. Sadly the indicators are that this will be thin on the ground.

And that's a retrograde step for an industry which has always prided itself on evolving and innovating.