In the second part of just-drinks' review of 2011, Michelle Russell looks at how the soft drinks category has fared in the last 12 months.

The year began and ended in China for the soft drinks sector, with the emerging market proving to be the centre of activity for many beverage firms throughout 2011.

In January, things kicked off with creation of a joint-venture between Kirin Holdings and China Resources Enterprise. After spending a year securing a broader foothold in Asia Pacific's beer market, the deal, which saw Kirin spend US$400m on a 40% stake in the venture, highlighted the Japanese company's designs in soft drinks also.

Fast forward to the end of the year and PepsiCo announced the sale of its bottling operations in China to Tingyi (Cayman Islands) Holding Corp in exchange for a stake in the noodle and soft drinks maker's business. While, on the face of it, the disposal appeared to leave a major hole in PepsiCo's operations in the country, the bottling plants were seen as a non-core asset for the firm. PepsiCo will be hoping, then, that trading the facilities for a stake in Tingyi will prove beneficial in the long run.

Other PepsiCo announcements this year included a number of senior executive appointments in September, the formation of a global marketing unit, and more controversially, the formation of a 'council' to combine its food and drinks units. All have led to a wealth of speculation that a potential split of the business is not very far away.

The Coca-Cola Co also shone its gaze on this year, by pledging a $4bn investment with its bottling partners in the market over the next three years. A further investment of $2bn, this time in India, followed two months later.

The firm also laid claim to producing its first "billion-dollar brand" from an emerging market – China - with its Minute Maid Pulpy juice drink in February. A month later and another of Coca-Cola's brands - Diet Coke – achieved another boastful success, superseding Pepsi as the second most popular CSD in the US in 2010.  

Back in the Asia Pacific region, M&A was the name of the game: In April, Nestle purchased a controlling stake in Chinese food and drink maker Yinlu Foods Group, Asahi Beverages New Zealand acquired 90% of Charlie's Group, and Asahi Group bought P&N Beverages for JPY16.3bn (US$202m).  

Away from Asia Pacific, and the merger between Embotelladoras Arca and Mexican rival Grupo Continental (Contal) signalled the start of what was to become further consolidation in the Latin America soft drinks market in 2011. 

The deal, which created the second largest bottler in Latin America, was followed five months later by a similar merger agreement between Coca-Cola FEMSA and the bottling division of privately-held Mexican conglomerate Grupo Tampico. Coca-Cola FEMSA followed this up, four months later, with the acquisition of fellow Mexican Coca-Cola bottler Grupo CIMSA in September, in a deal worth MXN11bn (US$834m).

According to analysts, Coca-Cola FEMSA and Arca-Continental have manouevred themselves into prime M&A positions in Mexico, and may seek to consolidate the eight smaller bottlers in Mexico going forward.

Like all other soft drinks players, however, the two will need to be cautious about rising global commodity prices heading into 2012, after a tumultuous 12 months of soaring costs. In February, UK soft drinks firm Britvic issued an impromptu warning that higher-than-expected input costs would hit profits in its current fiscal year.

At the start of the year, agricultural commodity prices were almost 50% higher than in January 2010, resulting in a higher price tag for many soft drinks companies. The situation doesn't look likely to dissipate any time soon. According to a report by Consultancy McKinsey & Co in November, commodity prices have risen by 147% in real terms in the last ten years, with tight supply and demand likely to create volatility in commodity markets over the next 20 years.

Another hurdle came into play this year, with the proposed introduction of a soft drinks tax in France. In October, the country's General Assembly voted in favour of a tax hike on added sugar soft drinks and a lesser rise on drinks containing sweeteners. Coca-Cola Enterprises (CCE), which this year started its secondary listing on the NYSE Euronext in Paris, slammed the tax as "unjust, unfair and not the best way to proceed".

France isn't the only country to have considered the use of tax to tackle the issue of obesity. In September, the Health Ministry of Ireland said it was in discussions about the possibility of making a similar move.

Taxes have not been the only weapon used to attempt to tackle rising obesity levels. In the US in July, food and drinks manufacturers including Coca-Cola, Nestle and PepsiCo published their own uniform guidelines on the nutritional content of products advertised to children in the country, in an attempt to regain the initiative over the issue from the government.

A number of schools in the US have also attempted to take the matter in hand. In April, the state of Boston banned the sale and promotion of sugar-sweetened beverages and CSDs on all city property. A study later in the year however, found the ban to be relatively ineffective.

Soft drinks companies have continued to ramp up the health agenda with the launch of low-calorie variants. This approach will benefit from the approval of the alternative sweetener, stevia, in Europe in November.

Products containing stevia have been on sale in France for two years, and in the US since 2008, but suppliers had been waiting for the EU to approve the ingredient's use across the entire bloc. As a result, producers including Coca-Cola and AG Barr are now looking at using stevia across a number of drinks categories within Europe. 

The innovation arena was dominated by pack sizes this year, with many companies launching smaller or 'skinny' cans. In February, PepsiCo launched a slimmer can for Diet Pepsi in the US, designed to "connect better with the cola's core female market". The UK also received a taste of smaller packaging with the launch of 25cl cans for the Pepsi Max, Diet Pepsi and Pepsi brands.

Coca-Cola was hot on PepsiCo's heels, launching a 12.5oz Coke bottle in the US in September. The move followed the launch of its 16oz bottle last year. Analysts suggested that the differing sizes were attempts to not only please the health lobby and keep cash-strapped consumers onside, but also to improve profit margins.

Innovation also stretched to sustainability with the introduction of Coca-Cola's fully recyclable 'PlantBottle' across its Dasani and Odwalla beverages in the US in April. The bottle, made from a blend of petroleum-based materials and up to 30% plant-based materials, was launched in the UK five months later

As the year's end drew nearer, rumours of a PepsiCo split returned, with the news that Nelson Peltz's Trian Fund Management investment fund had purchased $146m of its stock. Days later, Peltz offloaded the shares, having claimed to have made the purchase solely “for a trade”.

Is that the end of the road for the 'PepsiCo split' speculators? Bring on 2012.