Carbonated Soft Drinks Give up Ground to Bottled Water in the Beverage Wars

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New York, NY, May 3, 2000: US consumers didn't drink much more in 1999 than they did in 1998, but their tastes are definitely changing. That's the word from a new report issued by Beverage Marketing Corporation of New York, The Multiple Beverage Marketplace in the US The total volume of US beverage sales increased by only 0.9% in 1999, forcing the various categories in the industry to slug it out for a share of the pie.

The most aggressive player in that contest is clearly the bottled water industry, which sold 4.3 billion gallons in 1999. The bottled water juggernaut has increased its rate of growth in each of the last four years, reaching a dizzying 12.8% in 1999. That translated into an increase of nearly two gallons per capita, from 13.9 to 15.6 gallons. Historically, this represents a tripling of consumption since 1985.

Bottled water's extraordinary performance contrasts strongly with the carbonated soft drink (CSD) industry, which languished in 1999. CSDs remained the largest beverage category in 1999, selling nearly 15.3 billion gallons. But that translated into a mere 0.6% growth over 1998. Indeed, for the first time in recent memory, per capita consumption of carbonated soft drinks actually dropped, from 56.1 gallons to 55.9. Despite sluggish sales, wholesale dollars reached $43.0 billion in 1999, a 3.0% that was more than five times the growth rate for volume. But that is rather cold comfort for the makers of CSDs. After all, bottled water prices also increased in 1999, but the volume of sales actually picked up rather than slowed down. Wholesale dollars from bottled water reached $4.9 billion in 1999, an increase of 14.0%.

Of course, in absolute terms, bottled water still has a long way to go before it really starts to encroach on CSD territory. CSDs made up an impressive 29.1% of the US beverage market in 1999, slightly less than the share they held in 1998. Bottled water on the other hand accounted for only 8.1%. But that is an increase of 0.8 percentage points over 1998. And the constant upward trend of the youthful bottled water industry has given pause to more than a few heads in the maturing CSD world. The two cola giants have both placed successful entries in the burgeoning bottled water market. Pepsi's Aquafina has succeeded in becoming the largest single brand of PET bottled water in just a few years, while Coke's Dasani cut an impressive figure in its debut performance. But Coke and Pepsi face formidable opposition from already well-established bottled water companies like Perrier and Danone. The latter may prove to be a particularly strong competitor. Its diversified food holdings give it deep resources and it has recently fortified its bottled water operations with the acquisition of McKesson's bottled water business.

It would be a mistake to reduce the beverage industry in the US to the dueling of the long-established CSD segment and the upstart bottled water companies. The extended US economic boom has boosted consumers' expendable income and given them a taste for higher-end products. This becomes noticeable when comparing changes in volume of sales with changes in dollars of sales. For example, in terms of dollars, beer producers' sales were up 3.5% in 1999, compared to a volume increase of only 1.6%. Tea producers' sales were up 4.2% in terms of dollars, compared to a mere 1.9% increase in volume. Wine, a drink typically granted high prestige (and relatively high prices) in the US is even more indicative of the effects of prosperity on US drinking habits. In terms of wholesale dollars, sales of wine increased by 8.0% in 1999, nearly three times the 3.0% rate at which volume grew. The upward turn in price margins was even more impressive in the fruit beverage category, which grew wholesale dollars by 5.0% on increased volume of 1.6%. But the most startling sign that US consumers were willing to spend more for less on beverages was the "all others" category, which includes high priced New Age beverages. This category saw a 20.4% increase in wholesale dollars in 1999, even though its actual volume declined by 7.1%.

The only categories not to see greater increases in dollar sales than in actual volume of sales were coffee and milk. With 1.8% volume growth, coffee had an especially good year in 1999, and even saw an increase in per capita consumption. But depressed international prices proved to be a drag on wholesale dollar figures, which grew by only 1.7%. Milk also had a relatively good year in 1999, with 1.0% increased volume, but downward pricing pressures actually lowered wholesale dollars by 0.8%.

Every year, Beverage Marketing Corporation, the leading supplier of research, consulting and financial services to the global beverage industries, releases more than 25 reports on various segments of the US and world beverage industry. The Multiple Beverage Marketplace in the US surveys nine essential beverage segments: beer, bottled water, carbonated soft drinks, coffee, distilled spirits, fruit beverages, milk, tea and wine. Each chapter includes a summary of the major trends driving the category and analysis of the latest volume and growth statistics. The final chapter contains projections for the beverage market as a whole as well as the outlook for each segment.

Volume, Share & Growth by Category
1998 - 1999

Millions of Gallons
Share of Volume
% Change
Per Capita
Beer 5,992.3 6,088.4 11.5% 11.6% 1.6% 22.3
Bottled Water 3,771.9 4,255.0 7.3% 8.1% 12.8% 15.6
CSDs 15,160.6 15,251.6 29.2% 29.1% 0.6% 55.9
Coffee 5,892.0 5,999.2 11.4% 11.5% 1.8% 22.0
Distilled Spirits 334.2 338.7 0.6% 0.6% 1.3% 1.2
Fruit Beverages 4,066.2 4,130.0 7.8% 7.9% 1.6% 15.2
Milk 6,381.1 6,444.9 12.3% 12.3% 1.0% 23.6
Tea 2,548.2 2,595.5 4.9% 5.0% 1.9% 9.5
Wine 515.3 530.6 1.0% 1.0% 3.0% 1.9
Subtotal 44,661.8 45,633.9 86.1% 87.2% 2.2% 167.3
Others 7,235.8 6,724.5 13.9% 12.8% -7.1% 24.7
TOTAL 51,897.6 52,358.4 100.0% 100.0% 0.9% 192.0
Source: Beverage Marketing Corporation

Companies: PepsiCo, Groupe Danone

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