Management Briefing

Preview of the Year - 2011 – Part V: Soft Drinks & Water I

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As our first management briefing of 2011 comes to a close, Euromonitor International turns its attention to soft drinks and water. Considering the size of this sector, we're splitting the coverage into two parts. Here's part one.


Global soft drinks volume forecast

According to Euromonitor International, in global total volume terms, the soft drinks industry was expected to grow in 2010 and 2011 by 4.4% and 3.8%, respectively. However, total value growth for soft drinks will be below volume growth and is forecast to grow between 1% and 2% in both years. These growth rates, particularly for total volume, are beginning to recover from the depths of the financial crisis. But, while the trends are positive, growth rates are not quite back to pre-crisis levels.

The lower value growth rate is driven largely by bottled water total volume growing at a fast rate with a relatively low average unit price. On a global basis, the average unit price of bottled water is about ½ that of carbonates, the next largest category based on total volume.

In percentage terms, based on total volume, the fastest growing category form 2010-2011 is expected to be RTD tea. This continues the rapid growth trend of the past. RTD tea has the highest growth rate over the past five years; growing by 50% in volume terms from 2005 to 2010. However, due to limited geographic presence, RTD tea may find it tough to continue on the same trajectory in the medium-term.

Concentrates seems to be the soft drinks category that has benefited most from the global financial crisis due to its low price. From 2007 to 2009, the volume growth rate for concentrates RTDs was actually higher than in previous years. As the world is emerging from the depths of the crisis, concentrates RTD volume growth is projected to continue at pre-crisis levels.

Emerging markets are expected to remain the fastest growing. Although sales growth will be slow compared to that expected previously, at least developments will be positive, a state of affairs that soft drinks manufacturers whose core markets are within developed North American and Western European are unlikely to enjoy. Interestingly, on a percentage growth basis, while Asia-Pacific is projected to lead in RTD volume growth, Latin America is projected to lead in value growth.

Attractive investment returns driven by both youthful demographics and income growth

Growth in key emerging markets seems to be driven by both youthful demographics and disposable income growth. China is amongst the fastest growth-rate soft drinks markets, with 2010 to 2011 total volume growth for soft drinks projected to be in excess of 10%. However, it also has one of the lowest proportions of the key under-15 demographic group. Significantly, China’s per capita disposable income is projected to increase at the fastest rate of any country between 2010 and 2015, by an impressive 56%.

Contrasting with China is Russia, where the total volume growth rate for soft drinks is still forecast to be greater than 5% from 2010-2011. Russia’s proportion of population under 15 is similar to China’s but disposable income is projected to grow at about half the rate of China.

Markets that meet the sweet spot of high disposable income growth rates and a large proportion of the population under 15 should have long-term growth potential and they are all developing markets. These markets are tend to be located in Asia-Pacific and Mid-East/Africa (with the exception of Brazil and Chile). Falling into this long-term high growth potential category are Vietnam, Indonesia, India, Algeria, Saudi Arabia, Brazil and Chile. These markets all have under 15’s accounting for at least 25% of the population (except Chile with 23%) and disposable incomes (on a constant basis) projected to grow by at least 20% from 2010-2015.

In carbonates, the US is recovering but developing markets remain critical

Growth prospects look good for carbonates, the industry’s biggest category based on value, with value growth projected to show steady recovery through 2011. The all-important US market is showing recovery from the depths of the recession with carbonates projected to return to growth on a constant value basis. This demonstrates that, while carbonates will be under pressure from other soft drinks categories with a healthier image, the sector still has plenty of life.

In absolute constant value growth terms, the fastest growing markets are Brazil, Mexico and the recovering US.

This is not to say that developing markets will not continue to gain importance in growing carbonates value. Russia, Nigeria, India and Indonesia are among the fastest growth rate markets. Russian growth is driven by recovering disposable incomes while Nigerian growth is driven by favourable demographics. Both India and Indonesia have the double benefit of strong disposable income growth coupled with a large youthful population.

China is projected to drive world juice growth

Despite having the stigma of high sugar content, juice drinks and fruit-flavoured drinks are projected to be the fastest growing juice types in 2011 in RTD volume terms. Their lower cost attracts consumers looking to save money on juice purchases while their appeal with children makes them the most popular formats in emerging markets like Mexico and China.

China surpassed the US as the world leader in juice volumes in 2009. While the US is still by far the world leader in value, with more than twice the value sales of China, by 2015 China will also challenge the US in value.

Russia is also forecast to be a high growth market in 2011. But, here, growth is in the healthier and more expensive 100% juice. This growth is being driven by the economic recovery in the Russian market.

Developing markets continue to pace bottled water volume growth

Bottled water became the biggest-selling soft drinks category by volume in 2008. Not only has it continued to grow its lead over carbonates in 2010, it is projected to do so once again in 2011. Demand is projected to stabilise in some of the larger developed markets like the US, France, and Italy, though, as developed economies stabilise from the depths of the economic crisis. Continued negative media coverage of the environmental impact of bottled water packaging will serve to have a mitigating effect on demand.

In the emerging markets of Latin America, Mid-East/Africa, and Asia Pacific, bottled water sales have been consistently strong, driven by a lack of clean drinking water. Water’s appeal as a cheaper, healthier alternative to other beverages also makes this a popular choice across different demographics. The fastest growing markets in total volume for 2011 are projected to be Iran, India, Vietnam and Egypt.

Sports drinks recover - Energy drinks growth slows as US market matures

Sports and energy drinks are at the premium end of soft drinks, and had suffered during the recent economic downturn, especially sports drinks and PepsiCo's Gatorade brand. Gatorade fared better in 2010 as its repositioning gained traction and consumers had more money to spend. Sports drinks are expected to continue to improve in 2011 though not at the same pace as in 2010. Although sales of sports drinks are dominated by the US, accounting for almost half of global volume, the category has gained traction in Indonesia where over half of global volume growth is projected to occur in 2011.

Energy drinks, however, put up a relatively strong performance, with single-digit total volume growth in 2009. The category continued the trend in 2010 and is projected to record single-digit growth in 2011. Importantly, the growth curve in the US has been slowing year-on-year since 2004. On-trade is an important driver of energy drinks globally, due largely to mixer trends in spirits, but that activity is likely to be weaker over the short term in both developed and emerging markets.

Concentrates opportunity in geographic expansion to value-minded consumers

Powder formats accounted for 63% of global RTD concentrates volumes in 2010, but are marked by an over-dependence on a handful of emerging markets, namely China, the Philippines, Brazil, Indonesia and Mexico. Collectively, these nations drive over half of the world's total volume.

Overall growth in these markets is already beginning to slow. Only the Philippines and Indonesia are among the projected top five growth markets for 2011. Manufacturers are faced with a great opportunity to expand into newly-emerging growth markets such as Argentina, Mexico, and Venezuela, which offer a consumer demographic both familiar with powder concentrate use and receptive to the value-for-money advantage they offer over other drinks.

Some of the greatest potential in saturated markets could come from expansion of functional versions of powder concentrates, something that has already been leveraged to great effect in fruit/vegetable juices.

RTD tea is increasingly dependent on China

China is by far the global market leader in RTD tea sales and, along with Japan, Indonesia and the US, accounts for more than 75% of all global demand. China is also predicted to account for nearly 90% of absolute sales growth in the category for 2011.

Expansion to new markets represents future potential for this category. Efforts in this regard are constrained by the unfamiliarity of RTD tea flavours to regions outside Asia-Pacific. This could be countered with a greater emphasis on functional benefits and the use of products to target specific health concerns. Combinations with local juice varieties and flavours have proven successful in markets like the US and parts of Latin America.


While total soft drinks volume growth was affected by the global economic downturn, it has recovered faster than expected in 2010, almost returning to pre-crisis levels.

According to Euromonitor International, soft drinks value growth will lag volume growth. This is due to the relatively low-priced bottled water category gaining volume share at the expense of the relatively high-priced carbonates category. The challenge for manufacturers will be to take advantage of increasing health and environmental concerns to expand value-added product offerings in an improving economic environment.

Sectors: Soft drinks, Water

Companies: PepsiCo

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