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September 2, 2011

Round-Up with Russell – The Week in Soft Drinks

It has been the talk of the soft drinks industry in the US for some time, but the tax debate has now moved to France, where ministers have sanctioned a four-fold VAT increase on sweetened soft drinks.

It has been the talk of the soft drinks industry in the US for some time, but the tax debate has now moved to France, where ministers have sanctioned a four-fold VAT increase on sweetened soft drinks.

VAT on soft drinks with added sugar will rise from 5.5% to 19.6% from 1 January 2012, in a bid to generate additional revenue of EUR120m (US$173m) for France’s social security services. The move has understandably caused quite a stir in the industry, particularly among analysts this week, who believe the increase is bad news for manufacturers operating in an already stagnant soft drinks market.

Continuing the theme of bad news for the week, Norweigan bottled water firm Isklar appears to be in financial difficulty. The firm confirmed to just-drinks yesterday (1 September) that it is seeking third-party investment after a court in Norway appointed an administrator to help restructure its debt. It is no secret that the bottled water industry has suffered in the last few years. The onset of the recession slowed growth, with many consumers turning to tap water as a cheaper alternative. Couple that with rising raw material costs, in particular PET resin, and it has made for challenging times, particularly for the smaller players.

There was brighter news this week in emerging markets. The giants of the soft drinks industry are far from immune to the challenges facing the industry, but PepsiCo and Coca-Cola FEMSA are ploughing ahead with their expansion plans. PepsiCo Russia talked to just-drinks this week about its discussions to build a soft drinks production facility and logistics centre in the Russian city of Novosibirsk. The firm is keen to build on the investment it has already made in northern Russia with the purchase of Wimm-Bill-Dann earlier this year, and Novosibirsk drinks manufacturer Sobol-Aqua in 2008. Coca-Cola FEMSA also has its eye on growth with a $200m soft drinks factory planned for Cundinamarca, Colombia – the second build announcement for the firm in the last month.

Innovation is continuing, too, with PepsiCo’s mini cans making their debut this week. The soft drinks giant and its UK bottler, Britvic, have introduced the smaller 25cl cans for the Pepsi Max, Diet Pepsi and Pepsi brands. It will be the first time 25cl soft drinks cans have been available in the UK and will no doubt set a precedence. And finally, also in the UK, GlaxoSmithKline launched a cherry variant of its Lucozade Sport Lite range this week. It will join the existing Lemon & Lime and Orange flavours.

Until next time.

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