The View from A Farr – Carbonates set to sparkle again

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Among soft drinks categories, it is the carbonated sector that has suffered the most as consumer preferences have changed and health concerns have risen. However, writes Annette Farr, the carbonated category is fighting back with new product innovation.

It is no secret that CSDs have been having a tough time. Sales first dropped in North America (the category's largest market) in 2005 and have continued to decline. They are now stagnating in other developed markets. Indeed, such has been the stigma surrounding carbonates that, early in 2007, Coca-Cola dropped the word from its corporate vocabulary in favour of 'sparkling'.

Yet, amid the somewhat gloomy scenario, it is easy to forget the power and size of the category. It is huge and there is much to celebrate with growth in emerging markets and innovation in new product development.

Beverage analyst Canadean's recently published 2008 Global Carbonates report reminds us that almost four in every ten litres of soft drinks consumed around the world are carbonates. By the end of 2008, it is predicted that per capita global consumption will be 31 litres, in a total market expected to reach 208bn litres.

Americans remain by far the biggest per capita consumers of carbonates in the world, drinking 130 litres a year more than the average global consumer. Declining sales have, however, pulled down the global CSD category. Take North America out of the equation and the global carbonates growth rate would double, according to Canadean.
At the same time, it is likely that North America will lose its No. 1 position as the biggest market for carbonates to Central and South America.

In this topsy-turvy year, the report says high oil prices in the first half, which pushed up petrol prices, adversely affected sales of carbonates in garage forecourts as consumers stayed at home. Similarly, on-premise sales suffered a decline.

But it is not all doom and gloom. Canadean predicts volume growth of between 1% and 2% for the global carbonates category despite the dire economic climate. Developing countries are more than compensating for declines in mature markets. MENA (Middle East & North Africa) and Asia are both expected to enjoy an 8% expansion of the carbonates category in 2008. Also, the relative buoyancy of the Chinese economy in the first half of this year has been a factor in the 12% jump in the country and has boosted the overall Asian performance. Canadean concludes that "stakeholders in the category look better placed than most to ride the economic storm".

One such stakeholder, Pepsi-Cola North American Beverages, is undergoing a rebranding exercise - part of a multi-year reinvestment in CSDs. The campaign is underway, with a new look for the trademark Pepsi packaging now appearing on shelves across the US.

Pepsi says that, despite all the economic and employment woes, research undertaken by StrategyOne on its behalf showed that four out of five 'millennials' (those born between 1980 and 1990) remain confident and optimistic about the future as the New Year approaches. This optimism is central to the season's new advertising campaign. "Our new brand identity campaign reflects that optimism like never before - on shelf and in advertising," says David Burwick, Pepsi's chief marketing officer.

There is further good news on the carbonate front from Britvic Soft Drinks in the UK. Announcing its preliminary results for the year to the end of September, the company reported that the cola market was up 3.7% in volume for the period, with Pepsi performing particularly well with an 8.1% volume increase. The brand is enjoying its highest market position for five years, with 23.1% volume and 19.1% value shares. Britvic says Pepsi's success has been driven by strong promotional execution and the successful Pepsi Max Kicks campaign. At the same time, Britvic has launched Pepsi's natural cola, Raw, into take home channels and announced a new campaign for its Tango brand.

Injecting further confidence into the carbonates category is ongoing new product development, some of which is particularly aimed at the festive season. The UK's Feel Good Drinks Company has extended its range of sparkling juice drinks with the launch of a white grape & peach variant; comparing the drink to non-alcoholic sparkling wine, the company views it as perfect for the holiday season. Meanwhile, another British company, Bottlegreen, has added an orange and mango variant to its range of sparkling pressé drinks.

In the US, Sayan Health has launched a 'healthy' soda in time for the Christmas season. Called ChaGa, the drink is made from a herb which is a concentrated source of antioxidants. And celebrating the Festival of Lights is Jones Soda with its special four-pack of Jones Soda Chanukah flavours. Each pack comprises a bottle of Latke, Apple Sauce, Chocolate Coins and Jelly Doughnut flavours.

The carbonated category looks set to hold its own in these difficult economic times. Let's not forget; there's nothing like a few bubbles to add sparkle to the festive season.

Sectors: Soft drinks, Water

Companies: PepsiCo

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