Is 2016 boom time for soft drinks in West Europe? - Comment

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A mild start to the year in many West European markets, coupled with an earlier Easter, looks to have aided the fortunes of the region's soft drinks category in the first quarter of 2016. In its soon-to-be published Quarterly Beverage Tracker, Canadean is set to predict a marginal increase in soft drinks demand in the year so far.

Soft drinks gain fizz in Europe

Soft drinks gain fizz in Europe

West Europe may only account for around 15% of soft drinks volumes around the world but, in value terms, this is much higher and, to some extent, the welfare of the global industry hinges on what happens in this mature marketplace.

In performance terms, the soft drinks sector leads the beverage field with hot drinks and alcoholic drinks set to record smaller gains and dairy drinks bringing up the rear, with another year of decline forecast for 2016. Losses in the huge white milk category continue, despite low farm gate prices, and conceal small increases in the soft drink rivals of flavoured milk and drinking yoghurts.

Hot drinks sales are being boosted by the coffee shop culture that has made coffee fashionable again and increased its availability out of the home. Alcoholic drinks, meanwhile, are no doubt poised to be lifted by the Summer sporting extravaganzas of both the European soccer championships and the Olympics. These events should also provide a fillip for soft drinks, because your armchair viewers do not just drink beer.

Indeed, the Olympics generally helps soft drinks more than beer and this will be reflected in the large marketing resources focussed on the biggest sporting show on earth.

The potential results for soft drinks, then, would appear to defy the constant barrage of negative publicity and talk of sugar taxes. In Belgium, where a sugar tax was implemented at the beginning of the year, the impact on soft drinks sales is said to be clearly evident.

Despite, the expectation that soft drink sales should do well this year in West Europe, this denigrating coverage is also shaping consumption patterns: The carbonated soft drinks segment is predicted to be in the red for the year. As for low-calorie soft drinks, they may be outperforming their regular counterparts, but projections point to a flat year and there looks like there is going to be no trade-off between the two segments.

Some of the big water players have been positioning themselves for a consumer shift towards flavoured waters, which are relatively immune to the negative publicity. Expectations are that the market for waters with taste will increase, but the rise will be far from spectacular. It will once again be still waters that are the engine for the progress of the overall soft drinks sector in 2016.

One side effect of the mass migration from war-torn Syria and Iraq that has dominated the news across the region is that there are simply more thirsts to quench. Packaged still water is the most basic and healthy method of achieving this. If there are 1m new consumers entering West Europe ,and they drink 100 litres each of soft drinks in 2016 - which is well below the regional per capita average - then that represents quite a shot in the arm for the industry.

Long-standing trends continue to hold sway, with the juices, nectars and still drinks categories continuing to suffer, partly as a result of evolving behavioural patterns around the important breakfast occasion. At home, juicers like the Nutribullet are also contributing to the downward trend in the same way that Sodastream and other self-carbonation machines have hit CSD demand in the past. Then, of course, there's the ongoing noise around the sugar debate.

Some still-drink consumers may be migrating to iced teas and to a lesser extent iced coffees, which are set for another year of expansion. The jump in the number of coffee shops is making the on-premise an exciting opportunity for iced coffees, with many fast-food chains now selling iced coffees as well.

Energy drinks remains in good shape and the segment's audience continues to widen. Traditional Red Bull consumers are ageing, while Monster is helping to bring younger consumers into the category. Encouragingly, the low-calorie energy drinks segment is enjoying strong growth, suggesting that more female drinkers are entering the category. Women remain under-represented here, however, and a greater appeal to females could help to maintain these healthy growth rates.

Although the UK's Brexit vote next month may trigger some financial turbulence in the region, these forecasts are made against the backdrop of a modestly-improving economic outlook. Critically, inflation and interest rates remain low. An improving economic outlook could explain a resurrection of the interest in the organic soft drink segment, which is gaining momentum in certain markets, particularly in juice. The rise of organic drinks highlights how soft drinks operators can look to add value in a market where many mainstream categories are shrinking.

The West European soft drinks industry continues to have issues to confront, but there remain plenty of opportunities to exploit in 2016.

Sectors: Soft drinks, Water

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