Just add water…
Healthier options like bottled water, fruit-based and still drinks are the main drivers of growth in the soft drinks sector, but carbonates still have plenty of fizz, says Patrick Schmitt
IT SEEMS the UK’s thirst for soft drinks is unquenchable. Whether it’s water, colas or fruit juice, demand is increasing, meaning this maturing market is now worth over £5 billion in the off-trade, having grown some 11% in value during 2003.
This is an increase of almost £500m; an impressive feat considering the alcoholic drinks market, which is almost double the size of soft drinks, increased during the same period by £400m.
Furthermore, this surge in soft drinks consumption during 2003 and into 2004 is not simply a result of the weather. A growing interest in healthy living, as well as a willingness to spend more on drinks, and regularly, is driving the category.
Still drinks have now outgrown carbonated by value, but only by a single percentage point, stealing the show with a 51% share. This has mostly been fuelled by the massive growth in bottled water sales, but also because there is a growing feeling that fizzy drinks aren’t good for you.
Innovation has, of course, also helped both categories, with brand owners devising ever more imaginative products and increasingly user-friendly packaging. The future’s certainly bright, and clear, as well as still and naturallysourced.
But despite the fact that carbonated drinks may not be famed for their healthgiving properties, and still drinks have overtaken them in market share – by value only – colas are still the biggest sector of the UK market.
The category is worth £1.2 billion and grew 10% in value and 5% in volume in 2003. This helped drive an overall 9% increase in carbonates over the same period taking the sector to just under £2.5bn, although an uplift in demand for fruitbased fizz, not just colas, was also an important contributing factor.
Within the cola category, Diet Coke showed the greatest increase, growing by some £58m in 2003, which was in fact the largest value leap of any soft drink in the UK market. Regular Coke was hardly lagging, however, with a £47m increase, while new cola variants such as Vanilla Coke (launched in March 2003), Diet Coke with Lemon or Pepsi Twist boosted the category further.
And it is Coca Cola’s vanilla version that has proved the most popular, selling some 10m cases in its first year, which amounts to £60m worth of sales (ACNielsen MAT total coverage to March 2004).
The health of the cola category can partly be explained by innovation, but also by the widespread use of promotional tools such as bogofs and multi-savers. The Coca Cola brand is now worth almost £900m, making it not only the largest soft drink brand, but also the biggest grocery brand in the UK.
The overall growth in sales of carbonates also conceals a declining sector, one known as "uniques", which includes those hard-to-place drink styles such as Dr Pepper, Vimto, Tizer and Irn- Bru.
This was the only category to show any decline out of the 14 categories that Britvic defines in its Soft Drinks Report 2004, but these drinks account for only 3% of the total £5.03 billion off-trade market.
It is non-carbonated drinks that, as a sector, have really performed. In fact, 2003 was the third year running that still drinks grew faster than carbonates, growing at 13% compared to the latter’s 9%, meaning the still drinks market is now worth £2.57 billion.
Fruit drinks and squashes increased by 5% and 6% respectively, but it’s bottled water which is the main driver, showing a rise of 20% in value in 2003 (offtrade) and 18% in volume. And while Diet Coke may have earned the greatest value increase of any single soft drink, bottled water is the fastest growing sector of Britain’s soft drinks market.
As Sally Stanley, marketing manager at The Highland Spring Group, says: "Certainly water is at the forefront of soft drinks growth." Although she does admit that 2003 was an unusual year for bottled water.
In fact, exceptionally, there were three drivers of growth for the category that year. She explains: "There was underlying organic growth, combined with a very long hot summer, and added to that, in March, the government started suggesting that UK householders might want to stock up on water in the event of a terrorist attack – it had a huge impact on sales in March and April.
For instance, Highland Spring grew by 80% in March 2003. "Without the same threat this year, and a "rotten" summer, Stanley is forecasting a 9% increase for the Highland Spring Group, compared to its 28% rise in 2003.
Nevertheless, there is still plenty of potential for the sector to grow, not least because, as Stanley reports, 47% of adults don’t drink bottled water in Britain, while only 10% of those that do, would be deemed to drink heavily, which is more than eight glasses a day.
Aside from water, adult soft drinks and smoothies contributed to the impressive performance of still drinks. Both achieved a 30% value growth, a result which is in keeping with the increasing consumer interest in drinks that are natural and deliver health benefits, even if they are relatively expensive.
For instance, Peverel Manners, managing director of Belvoir Fruit Farms, producers of a range of adult soft drinks (a category which is defined by Britvic as comprising the brands Amé, Aqualibra, Appletiser, Belvoir, Bottle Green, Grapetise and Shloer) believes these drinks "are flying out the door despite the poor weather because they are natural and contain real fruit, and people want something fresh".
And interestingly, Matthew Clark has just taken on these fruit drinks. "They looked at us as though we were nuts five years ago, but this year they practically bit our hand off." Mintel, which includes brands like Oasis and Britvic’s J20 in the category "premium adult soft drinks", values the category at £534m in 2003, and suggests it’s J20 that’s taken premium drinks’ share of the entire adult category from 23% up to 35% between 2001 and 2003.
J20, a mixture of concentrated fruit juice and water, has exceeded the £100m barrier, most of which was achieved through the on-trade.
Manners believes this success is due to distribution and the fact that the brand looks just like a nonalcoholic Bacardi Breezer. As for the growth in smoothie sales, this could be because "more and more people are interested in healthy drinks," according to Manners, who also notes that relative newcomer, Innocent Drinks, has now surpassed PJs (Pete and Johnny’s) in terms of sales, possibly because the former uses only fresh juice, the latter some concentrate.
Furthermore, the category "pure juice" has also shown massive growth, primarily driven by Tropicana and Copella, while functional drinks, which include energy giving drinks, increased by 10% during 2003.
Fruit squashes remain popular, despite the demand for fresh fruit drinks, and actually increased in value and volume by 6%, according to ACNielsen, and now account for £463m of the off-trade.
To scan the performance of the soft drinks market by brand, rather than category, it appears, according to Britvic, that the top brands, Coca-Cola, Robinsons and Pepsi have held onto their positions, while Ribena has dropped from the top five, giving way to Lucozade and Fanta. Coca-Cola, as mentioned, has benefited from brand extensions, while Robinsons has been significantly boosted by the introduction of the hugely successful Fruit Shoot.
Sponsorships and promotions have helped Pepsi, while Ribena’s slip could be related to its Toothkind failing to recruit health-conscious consumers. Overall, it seems trends in the soft drinks market are connected with the drive towards healthier drinks by consumers, which explains why still drinks have overtaken carbonated versions.
In fact, it is now highly apparent that Coca- Cola Enterprises, whose brands account for some £899m of the UK off-trade, needs a water in its UK product portfolio after the Dasani disaster, such is the importance of this category.
Rumour has it the company is planning a comeback next year.