Soft but strong: soft drinks are bubbling again

Acombination of several poor summers and consumers watching the pennies caused the soft drinks market to be a little flat during the past couple of years, but 2010 could be a different story.

According to data analysts SalesOut, in the year to April 2, 2010, soft drinks through independent stores saw a 9.3% increase in sales, with similar levels of growth recorded for both impulse and take-home packs.

The 2010 Britvic Soft Drinks Report also recorded positive, albeit more conservative, figures for the category. It shows that the overall take-home market grew 2% in value sales in 2009. This was largely driven by the grocery channel with c-stores seeing a market equalling 2% increase in sales for the period.

GSK category controller Mark Sterratt says that the soft drinks market has recovered from its slump and won't slide back into decline anytime soon. "The market is back in growth and with the World Cup looming this is going to be a big year for soft drinks," he predicts.

Aside from the spike in sales that the football will bring, Sterratt has high hopes for it being a warm summer, too. "There's no doubt that soft drinks perform better when the temperature rises," he says. "Just a 1°C increase in temperature leads to a 3.5% increase in soft drinks sales and considering that the last couple of summers have been quite poor, we're due a decent one this year."

Britvic business unit director Murray Harris says that consumers looking for value for money have helped the market thrive. "For the second year in a row, the soft drinks category has proven that the secret to resilience is providing good old-fashioned value for money, but not ignoring the fact enjoyment is still a huge motivational factor," says Harris. "The big question now is that as the economy improves will consumers return to their pre-recession spending habits, or is the budget mindset here to stay?"

Even though overall market sales have increased, Coca-Cola Enterprises (CCE) is aiming to grow the category further. The number-one soft drinks brand believes there is potential for an additional £1.4bn category growth over the next five years.

Coca-Cola managing director Simon Baldry says: "In Great Britain our per capita soft drinks consumption is currently behind countries like Ireland, Belgium and Norway, so we know there is strong potential for growth here."

Under its 'Open More Business' initiative, the company is offering advice to retailers to suit their particular location. Independent retailers fall under the 'neighbourhood' category and are given guidance on areas including proper placement of chillers, the importance of availability and how to use meal deals to boost category sales as well as increasing basket spend.

Helping hand

This advice couldn't come at a better time for some retailers as, according to the Britvic Soft Drinks Report, local and high street newsagents saw a drop of 20% in soft drinks value sales. The report attributes this to consumers being more concerned about saving money than retailer loyalty.

Harris says that consumers are gravitating towards multiples for their soft drink shopping and newsagents are feeling the pinch.

"High street footfall is down generally and that's had a knock-on effect for newsagents," says Harris.

He advises retailers affected by this slump to concentrate on what they are best at in order to try to turn around the decline.

"The best way for local newsagents to turn this around is to focus on their point of difference, which is customer engagement," he adds. "Nobody at a supermarket checkout is going to know their customers like a local retailer does so they should be using their knowledge of their customers to up-sell or even create special offers that they know will suit their particular market."

Vimto head of marketing Neil Gibson says that to grow sales of soft drinks, store owners need to be smart about their stocking habits. "Given that the average basket spend in a store is £5.10 as opposed to £55.18 for the weekly shop in a supermarket (HIM 2009), it's clear that shoppers are 'dropping in' to buy items and retailers have to understand their own impulse business to capitalise on sales by stocking the formats that suit the on-the-go market," he says.

"Research by HIM also identifies that the top-selling items in stores are newspapers, bread, cigarettes and milk," he adds. "Retailers can use this knowledge to create a profitable layout by positioning other products such as soft drinks next to these 'destination items' to encourage impulse sales."

According to Hancocks purchasing director Jonathan Summerley, 500ml on-the-go style bottles have been more popular of late, especially in the convenience channel. "Individual bottles are generally being purchased to drink on the go, perhaps throughout the day, perhaps in the car," he says. "The 500ml bottle is a clear winner for convenience stores and due to a higher retail price puts more cash in the till."

CCE trade communications manager Selena Taylor agrees that c-stores and local newsagents should be capitalising on the impulse shopper.

"Where possible locate a soft drinks chiller near the front of the store," she says. "This makes it visible from the street and will attract impulse shoppers, who view both speed and convenience as essential. Most on-the-go shoppers are buying soft drinks to consume either immediately or within a couple of hours, therefore it's crucial to keep them cold. Perhaps most importantly, retailers should tune into their customer base and ensure they are stocked with the best-sellers."

Ups and downs

Cola is still the top sub-category in soft drinks. It saw a value growth of 4% compared with the previous year and sales grew to £1.35bn (Nielsen Scantrack, MAT December 26, 2009). According to Britvic chief executive Paul Moody, cola's continued growth can be attributed to shoppers switching from higher-priced sub-categories such as smoothies and juices. Those who switched also preferred lower-calorie variants, he explains.

Taylor says that reason the cola sector is thriving is that consumers are looking for an inexpensive treat and are gravitating to brand names that they recognise and trust.

The energy and stimulant sector was again the top-performing sub-category in the market with a 7% increase in sales in 2009. The level of growth has slowed compared with 2008, but it is still the third largest sub-category in soft drinks. The market saw several new brands jump on the bandwagon in the past year, but it was established brands such as Monster and Relentless that accounted for the majority of the growth.

Red Bull trade communications manager Tom Smith says that belt-tightening hasn't affected the energy drinks market and that consumers are still flocking to brand names in the sector. "Sports and energy drinks are products which are bought for their functional benefits," he says. "When looking at energy shoppers, it's clear that they have heavy reliance on branded products."

Smith adds: "Although there has been a slight increase in the number of own label products in the category, 82% of energy products purchased are branded versus 18% of own label. Compare this with overall soft drinks, where own label accounts for 35.8% of purchases, and it's clear that when it comes to this sub-category, shoppers look to brands they trust."

While the energy and stimulant market powers on, its sister sub-category, sports, is running out of puff. After three years of growth, value sales fell 2% to £164m. The only two brands to see growth were Gatorade and the Euroshopper Isotonic drink, the latter attracting value-conscious customers.

The dark horse of the soft drinks sector, non-fruit carbonates, experienced one of the fastest growth rates of 2009. The sub-category grew by 6%, up to £158m, putting it close to overtaking the sports sector.

The market was driven by Irn-Bru, which saw sales of £95.3m over the period. D&G Jamaica and Barr also saw growth of 13% and 6% respectively.

Irn-Bru is hugely popular in Scotland, and manufacturer AG Barr's head of marketing Adrian Troy attributed the brand's growth to its increasing success in England too. "Sales in England have increased by 18%, making the ratio between there and Scotland more even," he says.

Irn-Bru is hoping to further this growth by investing £15m on a national TV campaign and sponsorship of Sky Sports' coverage of the Rugby Super League.

Although the summer of 2009 may not have seemed that great weather-wise, slightly higher temperatures helped the squash sub-category see value growth of 7% over the year.

It wasn't such a sunny story for smoothies, though, which had a tough year. Sales for the sub-category dropped 27% in 2009 to £127m. This comes after a 20% drop in 2008. Its continued decline has been attributed to consumers switching to lower-priced pure juices instead.

According to Gibson, other sub-categories have declined due to a combination of own-brand competition and increased marketing in other areas. "Sectors such as pure juices and sports drinks are experiencing decline and this is driven by an increase in own-brand products available to consumers in the multiple channel and greater promotional activity on brand names in other sub-categories," he says.

Returning favourites

Several categories saw growth in 2009 after some time in the doldrums. Fruit-flavoured carbonates turned around a 1% decline in 2008 to show a 4% growth in 2009. Vimto and Tango were the stars of this sub-category, showing a 27% and 18% growth respectively. Fanta and Lilt went against the market with losses of 4% and 1%.

For the first time in three years 'water plus' saw an increase. In 2009 the sub-category had value sales growth of 4% and while the majority of the market (96%) is made up of flavoured water, functional products have started to make some impact. Glaceau Vitamin Water and V Water were the two main drivers in this area.

Plain water halted the decline of the previous two years with flat value sales for 2009. Nestlé's Pure Life brand saw the most sales growth, with Highland Spring and Buxton also performing well.

Juice drinks saw a 3% growth in value sales for the year after a 1% decline in 2008. This turnaround was mostly driven by Rubicon, which was up a massive 54% in sales. Capri Sun followed at a distance with 11% growth. Private label juices witnessed a 15% increase compared with the previous year, which may be an indication of the future of the soft drinks category.

SalesOut says that own label soft drinks products had a 31.1% growth in like-for-like sales in the past year (52 weeks to April 2, 2010) suggesting that consumers are choosing lower-price goods in the soft drinks category to save money.

Summerley says that stocking economy variants is a key way for retailers to grow soft drinks sales. "Core brands such as Coca-Cola and Lucozade maintain a loyal following and are justified as a cheap treat, but there is a real opportunity for independent retailers to stock a good selection of 'economy' drinks," he says.

Health issues

The subject of health has come up several times in relation to soft drinks, in particular energy drinks. Several countries have issued guidance on who should and should not be buying certain drinks and what warnings manufacturers should place on their products. The British Soft Drinks Association (BSDA) has followed suit and is releasing a code of practice for retailers when it comes to the sale of energy drinks.

BSDA public affairs director Richard Laming says that the code will help retailers who are confused over energy drinks. "Energy drinks are safe and play an important role for many people, but the industry believes that soft drinks high in caffeine are not suitable for children because of their stimulant effects," he says. "This code will support those parents, schools and retailers who wish to restrict the consumption of high-caffeine content soft drinks by children."

The code is designed to give retailers and consumers an official industry stance on energy drinks. Any drink that contains more than 150mg of caffeine per litre must carry the warning 'Not suitable for children, pregnant women and persons sensitive to caffeine'. Any company websites where the product is featured must also carry the warning.

Manufacturers such as Coca-Cola, Britvic and GSK have all agreed to sign the code; the only major energy brand not to do so is Red Bull.

The company's Smith says: "We have not been involved in the development of the BSDA code because we were not a member when it was developed. However, we are actively engaged in the development of a European Code of Practice for the labelling and marketing of energy drinks. We are confident that the BSDA will align their code with the European one once it is finalised."

One area the code of practice will not apply to is energy shots, as some manufacturers classify these as food supplements rather than soft drinks. Most brands carry a similar warning to that of the BSDA's code, however, until the code is changed to include these products, such warnings are voluntary.

Some manufacturers believe that education is still needed when it comes to the sale of energy shots. Rob McCormack, director of international business development at leading US manufacturer 5-hour Energy, says that UK retailers need to be taught how to stock the product properly and who they should be selling to. "It's an ambient product yet I've seen it stocked in fridges; it should be at the till point as an impulse item," says McCormack. "Not only does there need to be retailer education on the sector, but consumer as well. They need to realise that energy shots are not meant to refresh or hydrate, but are used to combat fatigue and therefore not meant for children.

"There has been talk about the high price of energy shots and how they are bad value compared with a can of energy drink, but they serve a different function," adds McCormack. "They're a premium product and consumers in the UK need to realise that."

Energy drinks and shots are not the only areas of the category to be scrutinised on health issues. Last year the UK Food Standards Agency called on food and drink manufacturers to remove six controversial colourings, which have been linked with hyperactivity in children. Any products that still contain any of these colourings should display a warning label, according to the European Union.

The EU also issued its draft Food Information Regulation, which seeks to introduce a minimum font size to help consumers locate nutritional information of products more easily.

According to Food and Drink Federation spokesman Julian Hunt, manufacturers have been working hard to improve their products. "In responding to complex debates such as obesity, the UK industry is now widely acknowledged to be leading the way through its efforts around nutrition labelling, reformulation and new product development all of which are making a difference for consumers."

Marielle de Jong, marketing director at FrieslandCampina, says manufacturers have had to take responsibility for their products. "Parents are now increasingly checking ingredients lists and sugar levels to ensure that their children are benefiting from a more balanced and considered diet," she says. "This change in attitude has been emerging for some time and, as a result, manufacturers have generally been cleaning up their act, removing artificial colours and moving towards more natural ingredients."

GSK's Sterratt believes that manufacturers have made some great progress in making their products healthier for consumers. "All manufacturers in the market have added healthier variants to their range," he says. "We're all getting wise to the fact that we have a responsibility to offer our consumers an alternative that suits their needs."

He adds that despite government and EU intervention when it comes to health, it's no longer the main priority for consumers.

"Health as a priority has slightly diminished over the past couple of years," he says. "It's still important to people, but just not as much. Consumers are more focused on getting value for money.

"Health is a relative concept for consumers," he adds. "While one person may see a low-sugar carbonate as a healthy option, another may only consider plain or functional waters as healthy soft drinks. The best way that a retailer can cater for all of the different views on healthy drinking is to make sure they have a range that suits their customer base."

Bottlegreen managing director Simon Speers says that consumers want to focus on health, but cost often overrides this. "This is one of the most talked-about concerns for customers," he says. "However, even though they are citing this as a big concern, the reality of it is that they are more often won over by special offers and price differences. Cost is still a fundamental element and people will buy healthy products, but no longer at any expense."