Health concerns continue to plague soft drinks

Health concerns continue to plague soft drinks

In the second part of just-drinks' review of 2012, Andy Morton looks at how the soft drinks category has fared in the past 12 months.

There is always one company in the soft drinks industry that endures a rollercoaster of a year. In 2012, however, there appear to have been two.

Step forward Britvic and Monster Beverage Corp, one of which started with a farce and ended in a fresh start, while the other plunged dramatically before slowly climbing back to its feet.

Let's begin with farce, which must mean Britvic and the hoopla surrounding its Fruit Shoot recall in July. The recall was the last thing the company needed at the time as bad weather in Europe squeezed demand, especially in the UK. So when a complaint over a possible choking hazard for the brand's new cap design turned into a full-scale product recall estimated to cost the company GBP25m (US$40m), it was a seismic shock, albeit one that lent an unintentionally sinister air to plans to market the drink at children's parties. Fast forward three months and Britvic announced that it was in talks with fellow UK soft drinks maker AG Barr over a possible merger. Britvic denied that the recall troubles drove it to the table, but nevertheless analysts later branded the talks a “reverse takeover”. The deal was signed in November and is expected to complete next year, however, the new company, Barr Britvic Soft Drinks, is already being talked of as a possible acquisition target for Japanese firm Suntory.

Monster's year took an even more abrupt turn than Britvic's - it's not every company that finds its products cited in the deaths of five people, as the energy drink maker did in October.

The news, backed by a rapidly-falling share price sparked by slower demand, put paid to rumours that the company was about to be swallowed up by The Coca-Cola Co. Monster was also sued in the US by the mother of a 14-year-old girl over allegations that her daughter's consumption of its products contributed to her death, while two US senators targeted the energy drinks market as a whole with a letter to the Federal Drug Administration (FDA) calling for greater scrutiny. By the end of November, however, Monster was back on a more even keel as the FDA's reply to the senators suggested the US government might not be too keen to crack down on the industry. Monster's share price has since rebounded, but whether Coca-Cola will target the company in the future will be something to keep an eye on in 2013.

Health concerns were not the exclusive hang-out of the energy drinks market in 2012 as lawmakers in the US continued trying to get to grips with rising obesity levels by targeting sugar levels in soft drinks. The biggest battleground - dubbed 'Big Soda versus the Big Apple' - was in New York, where mayor Michael Bloomberg laid out plans to ban the sale of high-sugar drinks in containers larger than 16oz in the city's restaurants, stadiums and cinemas. It was perhaps a mark that the mayor is nearing the end of his term that he pushed hard against public pressure and managed to impose the ban, due to come into effect in March. Those fighting the law have not given up yet and are tackling the issue in New York's courts

One of the main effects of Bloomberg's action, however, may have already been felt, as other cities and states across the US took note. PepsiCo Americas Beverages CEO Al Carey even said the threat of soda taxes is “one of the things that keeps me up at night”.

In China there were also signals health concerns may impact soda sales and a UK report in May showed that more than a third of CSD consumption in the country is now diet, low calorie or no-added sugar.

Sugar was on the minds of soft drinks executives in other areas too, as a rise in prices bit into margins. However, some of the bigger firms told shareholders that sugar trading for this year is already set. After poor corn harvests in the US this year, expect sugar prices to be a big talking point in 2013.

The big two, PepsiCo and Coca-Cola Co, continued to dominate the global market. PepsiCo completed its partnership with Tingyi in China and saw the first signs that the deal, which saw PepsiCo sell its bottling operations in China to Tingyi in exchange for a stake in the noodle and soft drinks maker's business, could pay off handsomely.

Analysts, meanwhile, were concerned about Coca-Cola's exposure in China, which is seeing a slowdown in demand as the economy cools. The question for next year is whether China will continue to drive profits for the two firms or start to a drag. If the latter, PepsiCo will earn muchos plaudits for its withdrawal.

New markets continued to attract both firms, including a return to Myanmar after the dropping of US sanctions. Coca-Cola, meanwhile, wriggled its way into the newest emerging market when it opened a $15m bottling plant in Somaliland, a breakaway region of Somalia. The investment was part of Coca-Cola's $12bn commitment to Africa that runs concurrent to its investment in India, which this year was upped by $3bn to $5bn. Other Coca-Cola investment commitments included $1.3bn in Chile over the next four years and $1bn in Mexico throughout 2012. PepsiCo also pledged $600m to Thailand. Meanwhile, the ongoing saga over who will replace CEO Indra Nooyi took a twist when the frontrunner upped and left to head a truck-stop and travel-centre operator in Tennessee.

There was some big spending on the M&A front from other companies in 2012. Campbell Soup paid $1.55bn for vegetable-juice maker Bolthouse Farms and brewer Asahi bought Indonesian soft drink maker PT Indofood CBP Sukses Makmur in July as Japanese firms continued to consolidate in Asia.

At the other end of the spectrum, UK soft drinks maker Sangs went into administration in January. The maker of MacB flavoured water brand, however, was saved in March when it was bought by Cott Beverages.

2012 was also the year Red Bull creator Chaleo Yoovidhya died. The businessman left behind a $5bn fortune and a product that continues to thrive. Chaleo was fittingly commemorated by Red Bull's biggest advertising coup so far when Austrian skydiver Felix Baumgartner performed the ultimate leap of faith. Watched by millions, the Red Bull-sponsored Baumgartner stepped out of his balloon 24 miles above the earth and broke the sound barrier on his return to the Nevada desert.

Coca-Cola continued its 84-year sponsorship of the Olympics as London hosted a successful games, though it did have to defend itself against health campaigners. PepsiCo, meanwhile, strengthened its relationship with the NFL, sponsoring the Super Bowl half-time show

New products came with their usual regularity, though some were more surprising than others. Coca-Cola joined the liquid flavour enhancer sector with its zero-calorie Dasani Drops and even suggested bigger things to come in the dairy market after investing in a new company that distributes Core Power protein milk shake in the US. Perhaps the oddest launch was in November, when PepsiCo's Japanese unit unveiled Pepsi Special, which claims to aid slimming by reducing fat intake from foods.

This next product also raised eyebrows – a self-chilling beverage can from Joseph Co International. Next year may augur well for soft drinks, but the fridge industry could harbour one or two concerns.