Market research
Over the coming weeks, just-drinks' category commentators will share with us their thoughts on how 2019 will shape their respective sectors. First up, Richard Corbett looks at the soft drinks and bottled water categories.
What does 2019 have in store for the soft drinks category?
As in previous years, soft drinks and bottled water can expect to face more than their fair share of challenges this year. While 2019 is unlikely to be a vintage year, globally, I would expect soft drinks consumption to rise by between 2% and 3% in volume terms on 2018.
- Soft drinks start to lose their bottle
Soft drinks packaging will again be a flammable issue for the industry worldwide in 2019. In the UK, the term 'single-use' became the Collins Dictionary word of the Year in 2018, highlighting just how quickly the debate on packaging has escalated in the public eye. This concern has been replicated in markets around the world.
If you listen to some commentators, drinking out of a single-serve plastic bottle could one day be akin to turning up to the annual Vegan Society dinner dance in a fur coat. PepsiCo's deal to buy SodaStream, which closed in late last year, signalled the group's intention to take a lead on the issue of single-serve packaging. We can expect PepsiCo to be active in new product development with some potentially groundbreaking SodaStream developments later in the year.
The Coca-Cola Co had been one step ahead of PepsiCo, but landed on a snake with Keurig Kold. I can foresee a major new announcement this year indicating a new direction for Coca-Cola's at-home dispense strategy.
The industry may well look back on 2019 as the turning point for the way that consumers access their refreshment at home.
- Water in a carton?
Bottled water already competes with existing 'home dispense systems' (the tap) so will need to seek other solutions to re-establish its green credentials. Ambitious longer-term plans to "take the single out of single-use" - in the words of Nestle - are admirable, but are not a short-term remedy.
Conventional wisdom suggests that consumers like to drink their water from transparent containers, so they can be comfortable that there are no adulterations. In the Netherlands, however, the carton remains a popular format for still water sales, due to the deposit on bottles. The carton could be well-placed to take the sting out of the issue of plastic bottle use in still waters. If the carton companies get the message out, there will be plenty of listeners.
The issue of plastic bottle use might also be expected to prompt a shift from plastic to carton in the premium juice segments where bottles are the packaging of choice for many suppliers. This could be aided by regulation: In Denmark, for instance, the Government announced plans last year to include plastic juice bottles in the deposit scheme with other soft drinks.
- Legal high for cannabis drinks?
All eyes will be on Canada this year, as the drinks industry looks to monitor the progress of cannabis-infused drinks. Not surprisingly, the big alcohol players will be carefully assessing the consumer response to any new products that arrive on the market. So too will soft drinks operators.
Coca-Cola has obviously caught a whiff of the opportunities for drinks infused with cannabis extract cannabidiol (CBD) but the group's PR team is understandably treading carefully. The official line is that Coca-Cola "doesn't have plans at this stage" to get involved.
Anheuser-Busch InBev appears more convinced, closing 2018 with the creation of a big-money partnership with Canadian cannabis producer Tilray to research cannabis-infused non-alcoholic drinks.
Reports of CBD's ability to provide pain relief and restrict inflammation could trigger the emergence of a huge new segment of the soft drinks market. Indeed, functional drinks that have a palpable health impact have proved to be highly lucrative. Just look at the effect on the market that Red Bull has had since its arrival around 30 years ago, or the explosion in probiotic drinks in the last decade or more.
The marketing of any such product will not be a conventional one for a soft drink and nor will the route to market. I would expect products to start life in pharmaceutical chains to give them a sense of authenticity. Could there be a craft-style, backyard wellbeing cannabis-infused brand that emerges to steal the show?
If drinks infused with CBD do prove to have a positive effect on pain relief, then any stigma associated with the links to cannabis will melt away - so will the regulations limiting its use in markets across the world.
- Coffee shops soften
The rise of the coffee shop has been a key feature of the retail marketplace for some time now, but last summer's purchase by Coca-Cola of Costa highlighted how this fast-developing channel is very much on the radar for soft drinks players. I don't believe this is all about coffee.
Consumers often buy their lunch in them, they meet in them and, as the rapid rise in northern Europe of the Joe & The Juice chain has shown, they don't just want to buy hot drinks in them. The coffee shop is becoming an important vehicle for soft drinks sales and that's why companies want a piece of the action as their outlet numbers swell across the world.
Coffee shops also hold interest for soft drinks players because the range of soft drinks on offer is generally less conventional and more cosmopolitan than the mainstream. These outlets represent a chance to trial and test new, higher-end concepts on an audience that is more than willing to experiment with them - the coffee shop is often where the Millennial is found.
- UK headache for Fever-Tree
Among investors, Fever Tree has gained celebrity status since its IPO launch back in 2014. The share price has ballooned from its opening GBP1.34, peaking at more than GBP40 back in September. Since then, however, the markets have soured and Fever-Tree has seen its price spiral downwards.
2019 will be an influential year for the company. I expect growth levels to be downgraded from stunning to good in the UK market this year. Even Usain Bolt slows after 200m and conditions in the summer of 2018 were very favourable to sales in the UK - a cooler summer this year would dampen demand.
As a result, Fever-Tree will struggle to maintain its previous spectacular growth levels in what remains its core market.
The focus, then, will switch to the US, where the company has moved many of its chips in recent times. This year, we'll be able to gauge more accurately the level of potential the brand really has. The US has more of a dark spirits culture, which could hamper development.
Fever-Tree is fantastically well-marketed and has succeeded in relegating rival Schweppes into a B brand. For that reason, long-term success is a given. This year, however, we'll have more of an understanding of just how successful the brand will be. Ironically, a more modest year could prompt a more realistic market capitalisation, and even trigger an acquisition.
Why doesn't Diageo buy Fever-Tree? - Click here for a just-drinks analysis
Sectors: Soft drinks, Water
Companies: The Coca-Cola Company, Anheuser-Busch InBev, Nestle, PepsiCo, Red Bull
