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When Drinks Start Losing Their Fizz
BY LUCIEN JOPPEN, EUROPE CORRESPONDENT
Carbonated drinks are under pressure from their non-carbonated rivals. They’re losing market share, and cola fatigue and health worries seem to be to blame. So what’s happening to the world beverage market?
1 May 2005
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Nevertheless, cola remains the world’s number one soft drink. Globally, retailers sold more than 70 billion litres in 2002. That’s the same as 33 cans for every person in the world.
First the good news for cola makers: worldwide sales have been rising for the past few years. The bad news? Colas are losing their market share in the carbonated-beverage market. And they’re facing increasing competition from drinks without bubbles.
The carbonates market in general has been growing in volume. According to the market researchers Euromonitor, roughly 123 billion litres were consumed in 1998. That rose to 136.2 billion litres in 2003. But since 2001, growth has been slowing down. Euromonitor says the healthy eating and drink trends are to blame for the lagging growth rates. That’s stimulated sales of bottled water, fruit and vegetable juices and functional drinks.
In the United States, consumers drink vast amounts of cola—about one-third of carbonated drink sales are cola. But Euromonitor says cola fatigue seems to be setting in.
Hispanic consumers—a growing segment—seem to favour fruitier carbonate drinks. That’s good news for brands like lemon-and-lime 7Up and orange Fanta, as well as more exotic varieties.
Just as in 1998-2003, the real action for carbonates will take place outside the North America. In the US, the carbonates market is expected to grind almost to a halt with a annual growth of 0.3 per cent for 2003-2008. Euromonitor’s rival, Datamonitor, agrees. In its report The Global Soft Drinks Market To 2007, Datamonitor expects annual volume sales of cola to drop below two per cent worldwide. ‘With developed markets showing a distinct change in their consumption habits and turning increasingly to alternative products, the growth potential for the cola brands now seems likely to come from developing markets,’ says Datamonitor.
The Asia-Pacific region has emerged as the main battleground for soft-drinks producers. It has the best prospects for organic growth. Urbanisation is boosting carbonate sales, thanks to better retail infrastructure. Not surprisingly, China has been and will be the most promising market. Both Coca-Cola and Pepsi have invested heavily in this market.
 |  The regions to watch will be—in order of importance—Asia-Pacific, Latin America, and Africa and the Middle East. Markets with lots of people such as China, India, Indonesia and Thailand are expected to deliver solid growth rates. The emergence of obesity as an issue in Third-World countries such as India and Pakistan will probably help sales of diet carbonates and non-carbonates, such as juice and iced tea. Latin America—the second largest market for carbonates—is also expected to perform well. Euromonitor says that is thanks to economic recovery in some countries, notably Argentina. The large young population in this region will help consumption to grow. In Mexico, the biggest carbonates market in Latin America, colas are under pressure but the competition comes mainly from within: noncola carbonates in lemonade/lime flavours. Bottled water has also emerged as a serious competitor for carbonates in Latin America’s fizzy market. Diet variants have save the cola market from being in worse shape. Diet Coke and Diet Pepsi have become, respectively, the third- and seventh-largest brands in the US soft-drinks market. Diet versions of other non-cola carbonates have also outperformed their regular counterparts. |
Coca-Cola and Pepsi’s attempts may be cosmetic. Both brands have been revamped to refresh their images. They’ve launched new flavours, such as lime and vanilla, have been launched for regular and diet colas.
Nevertheless, cola remains the world’s number one soft drink. Globally, retailers sold more than 70 billion litres—the equivalent of 33 cans for every person in the world.
In Western Europe still or mildly carbonated drinks have stolen the show from carbonates, says Euromonitor.
The research agency blames this on two things: the rapid development of newer high-profile functional drinks such as Red Bull; and increased consumption of NFC (not-for -concentrate) juice and bottled water to drink on-the-go—which women seem to like a lot.
As for non-cola fizzy drinks, hybrid drinks—juice-based carbonates— have emerged in the UK (for example Schloer) and Germany. All in all, the soft drinks market has shifted towards healthier, less sugary and less fizzy alternatives, especially among adult consumers.
You might expect that carbonates would be booking in Eastern Europe. After all, the soft drinks market is relatively immature. However, between 1998 and 2003 volume growth was slow compared to Asia-Pacific.
Many Eastern European consumers find CocaCola and Pepsi are relatively expensive— and sales have lagged. Plus, worries about health have boosted sales of non-carbonates such as fruit juices and bottled water. As for the next few years: Euromonitor says it expects tough times for carbonates in Western Europe up to 2008. It predicts the compound annual growth rate (CAGR) will fall to 1.8 per cent, compared to 2.5 percent in 1998-2003.
The emergence of non-fizzy drinks—smoothies, yoghurt drinks, flavoured waters, and so on—as well as and public-health worries, such as childhood obesity, are expected to depress sales of carbonates. Euromonitor still sees incremental value growth in niche markets, such as premium non-cola carbonates, which are marketed by the likes of Schloer or Shorle. Expect similar products with sophisticated flavours on the market.
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