C.S.D. market remains flat

by Ray Rowlands
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One in four of all carbonated soft drinks (C.S.D.s) bought around the world is consumed in the United States. For a country supporting a population of 300 million people, that is the equivalent of over 42.3 gallons per year per capita. In other words, on average each American consumes more than 0.8 gallons of soft drinks every week.

As the C.S.D. market has expanded over time so have low-calorie drinks taken on share. Thirty per cent of C.S.D. volume in the United States now is represented by low-calorie drinks. This is a rise of 6% in the past 10 years. Indeed, the U.S. soft drink industry is a key user of low-calorie sweeteners. Producers also are responding to health and obesity concerns with new product formulations, looking at the options for replacing high-fructose corn syrup with pure cane sugar or natural sweeteners like stevia or Reb-A. In 2008, for example, The Coca-Cola Co., Atlanta, launched Sprite Green, naturally sweetened with Truvia, a Reb-A-based sweetener.

Both regular and low-calorie soft drinks have declined lately. The overall U.S. C.S.D. market has seen no growth at all since 2003 and the mood has not been helped by the onset of recession in 2008. The year 2009 saw no let up in market pressure. The latest research from Canadean indicates a 2% volume decline in 2009 despite the economy showing signs of improvement.

Not only has there been a move away from regular to low-calorie C.S.D.s, but flavor tastes are changing as well. Flavor is an important method of product differentiation in a saturated and developed market such as the United States. Cola still represents over half the C.S.D. market but has been losing share to non-colas.

Cocktail mixes, for example, grew by more than 1% to 10.5% of total volume between 2005 and 2008 and pepper from 8.8% to 9.4%. Most of the Dr Pepper Snapple Group, Plano, Texas, flagship brands are non-cola flavors; the company, which lies third behind Coca-Cola and PepsiCo, Inc., Purchase, N.Y., has been revamping its portfolio. Sunkist was relaunched in November 2008 while A&W root beer was set to be made more retro by reformulating it with aged vanilla.

The success and continuing momentum of Canada Dry green tea ginger ale launched in mid-2007 also may encourage more producers to blend C.S.D.s with other soft drinks. Clear C.S.D.s (flavored

water containing sweeteners) remain a tiny segment, but carbonated juice is emerging, with brands such as Apple & Eve’s Fizz Ed, SkylarHaley’s Essn, Izze sparkling juice (70% juice), and Switch Beverage 100% sparkling juice starting to gain traction.

The economic slowdown has forced soft drink companies to re-think strategies and reduce costs via redundancies, streamlined distribution and reduced marketing. Competition remains as keen as ever. The two leading players, Coca-Cola and PepsiCo, responsible for over three quarters of volume, continue to battle on many fronts in an attempt to gain or at least maintain share in a declining market. This includes brand innovation, bottler strategy, supply chain, price/pack architecture and food service initiatives. Interestingly, private label, with its built-in price advantage, was only making a modest contribution in 2008 but an increasing switch from branded drinks was in progress last year.

According to research conducted by Canadean, almost half of all C.S.D. volume in the United States is presented in a can, generally the 12-oz option. One in three liters is sold in the more versatile PET bottle — predominantly 20-oz bottles. On-premise channels, which have suffered above the norm in the economic downturn, support post-mix. Glass barely features. The current packaging landscape may be set to change.

In the face of falling demand virtually all large C.S.D. producers have been reviewing their price/pack architecture to provide consumers with the right mix of price and pack size for each channel, to match the economic realities that consumers are currently facing and to provide a better fit with consumption needs.

One of the first companies to undertake a price-pack review, PepsiAmericas converted traditional multipacks from 12 to 24 and from 8 to 18 toward the end of 2007. In mid-2008, Coca-Cola Enterprises implemented a diversified pack mix, including multipacks of 18 and 20 and the expansion of low price entry level single-serve formats. In 2009, Coca-Cola introduced a new 90 calorie, 7.5-oz mini can to give consumers a better way to manage calories and developed its contour bottle as a value offering.

But will all these moves be enough to overcome the apparent saturation in C.S.D. demand? That remains the multi-billion dollar question, for the value of the C.S.D. category really does run into many billions of dollars. Currently prospects do not look favorable.

The U.S. market remains challenging for beverage manufacturers. As the outlook for job creation remains mixed, U.S. consumers are still very hesitant to spend money, with on-premise sales suffering most. On top of that, the C.S.D. category continues to battle against growing health consciousness, changing consumer tastes and the growing availability of alternative beverages. These challenges will no doubt persist in 2010 with a further fall in demand currently predicted. Whether C.S.D. consumption will remain in constant free fall is questionable given its importance to the overall soft drink industry.

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