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Superfood trends in soft drinks
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Market size and growth
EU15 consumption of all beverages (as defined) reached 94.7 billion litres in 2006, this equals an average of 670 millilitres (equivalent in size to a bottle of wine) per person per day. Consumer expenditure totalled some €71 billion. Not surprisingly, the largest markets by consumption were Germany, Italy (dominated by bottled water), the UK, France and Spain. In fact, when measured by expenditure the UK is the largest market, mainly because consumer prices are so high, especially as such a high proportion of soft drinks are purchased out-of-home. This contrasts to Germany where the majority is consumed in-home and purchased in bulk (at lower prices) at supermarkets and at heavy discount stores.
Although the overall performance of beverages during the past five years has been much better than the relatively static food market, performances have been both variable and showed signs of slowing growth. Although annual average value growth was 2.7% between 2001 and 2006, volumes grew by just 2.2% per year. Volume growth in some countries actually declined during this period (Sweden and Denmark) whilst others barely grew at all (Austria, Ireland, Netherlands). The highest average annual growth rates were enjoyed by Spain (+4.3%), and Portugal (+3.2%). The UK was the only other country to see above average growth at 2.6% in volume per year, compared to the EU’s 2.2%.
Health factors
As in most food markets today, you are never far from the influences of the “health” trend in beverages. Not so long ago “health” drinks meant low sugar or low calorie alternatives. Today, the influences of “healthiness” are much broader:
• Fresh (freshly-squeezed) juices and smoothies (contributing to “5 portions a day”);
• Organic juices;
• Fortified (vitamins, calcium, Omega-3, “ACE”)
• Energy drinks
• Sports drinks
• Decaffeinated
• Superfoods
• Functional (alertness, cardio-vascular health, antioxidants, pre- and pro-biotics)
It seems as though you might as well make yourself healthy whilst you satisfy your thirst. However, taste remains crucial. But, if “health” and taste can be combined successfully, this seems to improve the chances of success.
Juices, nectars and smoothies
EU total consumption was 9.9 billion litres in 2006, an average annual increase of 1.9% since 2001. However, due to the launch and success of higher added value products, such as smoothies, fresh juices and juices from more exotic sources, values rose by an annual average of 2.9% over the same period to reach €11.4bn. This is a further example of consumers willing to pay more for products with perceived additional benefits.
Germany is by far the largest market for juices and nectars, accounting for more than one-third of the EU total. The UK, Spain and Italy are the next largest markets.
In terms of per person consumption, Germany and Finland have the highest levels at 40 litres and 33.6 litres, respectively. Per person consumption in Austria, the UK, Spain and the Netherlands is around 25 litres per year – the EU mean.
Carbonated soft drinks
Of all the beverages covered here, carbonates have experienced the poorest overall performance. Whilst there have been variable performances by country, most countries have seen either static performances or declines in consumption. Of the major countries, only France has enjoyed a significant increase (+3.1% cagr). The result is that total volume consumption remained the same 2001 versus 2006, although values rose slightly during the period.
The carbonates sector has been the traditional option amongst soft drinks but this is changing. The emergence of alternatives, projecting more modern images and health credentials, has done much to take share from this once dominant segment. The industry has, of course, been fighting back with launches of new formulations but, for now, the relative decline seems inevitable.
However, it must be remembered that although carbonates account for only 29% of all soft drinks volumes (as defined), they still take the largest share of value (36%) worth €25 billion, at consumer prices, in 2006.
Bottled water
It may surprise some to know that the bottled water segment has been one of the star performers – despite the fact that it is already such a large volume market. Generally in the food and drink industry we find that large markets tend to grow more slowly. Not only has bottled water consumption grown by 3.3% on average, year-on-year since 2001, the segment added a further 6.5 billion litres to the EU total up to 2006. In comparison, the juices and nectars segment added 0.9 billion, carbonates lost 0.2bn and other soft drinks put on 2.5bn litres. This is a stunning performance as, by weight, it is larger than the gains made by all other food and drink segments over this period.
The reasons for this have been many but the three main drivers are seen to be:
1. Image
2. Variety
3. Affluence
The drinking of bottled water has become synonymous with health and fitness whilst the numbers of brands, and even flavours, now available means that there is a water product for everyone. Lastly, of course, the average European consumer can afford to purchase it ready bottled rather than take water from the tap.
Despite its high volume, average consumer values for water are much lower than for its competitors. With a total value of €17.3 billion its value is only just ahead of “other soft drinks” and considerably less than the value of carbonates. Nevertheless, average value growth between 2001 and 2006 was 3.7%, the best performance after “other soft drinks”.
Other soft drinks
Included here are sports and health drinks, still drinks (not included above, such as rtd tea and coffee) and cordials (dilutables, although only the UK has a significant market). This segment achieved the largest annual average growth in volume between 2001 and 2006 of 4.2% per year, which is the best performance of the beverages sector. By comparison, values grew by 4.4%. This is not such a good value performance as one would expect, perhaps, but it appears to be the case that as the market for these “specialities” has expanded, some prices have fallen. In many cases this is a direct result of competition with, for example, other brands and retailer brands starting to compete with the “big names” in this sector such as Red Bull, Lucozade, Isostar, Gatorade and Powerade (see below).
Sports and energy drinks
Special mention must be made about the sports and energy drinks sub-sector of “other soft drinks” as this too has become an area of high growth and high value.
Generally, when measured, these two drink types are combined although they do have two different effects.
Sports drinks are formulated to replace rapidly the natural body fluids lost during vigorous exercise and contain electrolytes and carbohydrate. However, modern formulations also claim to boost sports performance as well as aid muscle recovery and sometimes also contain protein.
The sports drink sub-segment now includes a wide range of products, including isotonics, hypertonics and hypotonics, satisfying the needs of serious and professional sports people, body builders and everyday “light exercisers”, respectively.
Hypotonic sports drinks have gained share over the past five years, as consumers look for lower calorie alternatives, although isotonics remain the dominant force.
Energy drinks, whilst targeting similar markets and consumers, are more about maintaining or boosting energy levels and alertness. Perhaps the most well known brand is Red Bull, formulated with caffeine and taurine.
Some of the newer product developments combine the two main attributes of “sports and energy” with products such as Relentless and Go Fast positioned as providing “complete answers”. Meanwhile, Red Bull is reportedly emphasising the “sports characteristics” of its products.
Again, one of the main drivers in this sector is image, as well as function. This probably goes some way to explain the expansion of such products into the alcoholic “mixers” sector, where image and function seem to make an attractive combination, especially for younger consumers. We could even see this sector expand to include performance boosting products for the “over 40s” or the elderly.
In terms of market size, RTS analysis indicates that the volume consumption of sports and energy drinks in the EU now totals 1.2 billion litres at a consumer value of €4.2bn. Growth over the past five years has averaged a highly significant 14.8% per year, which pretty much beats any other sector of the food and drink industry. Values have performed slightly less well for the reasons mentioned but still managed to achieve 14.5% per year. It is little wonder, looking at these figures, why major manufacturers have become interested in the segment – especially as there are similar strong performances being repeated globally.
Within the sports and energy drinks segment, RTS research indicates that the consumption of sports drinks alone is now 590 million litres, worth more than €1.2bn. Here, volume growth between 2001 and 2006 averaged 13.8% per year, which is lower than for energy drinks although sports drinks are a longer-established market. Although energy and sports drinks enjoy similar volumes, the value of energy drinks is much higher as retail selling prices reach as much as €6 per litre.
Major brands in this segment include:
PepsiCo (Gatorade)
Coca Cola (Powerade, Relentless)
GlaxoSmithKline (Lucozade Sports)
Isostar
Taut
Christinen (Christinen Sport)
Cantrell & Cochrane (Club Energise)
The top 3 brands are believed to hold around 40% of the European market.
The future for beverages
The future for beverages in Europe is varied. Despite strong overall growth in the sector as a whole, from our analysis there are two main areas of concern:
1. A static carbonated soft drinks segment;
2. A gradual year-on-year slowing down of growth in the sector as a whole.
The decline in consumption of carbonates observed in several markets is believed to be the result of some negative press (sugar contents, the use of benzoate as a preservative), the growth in more “interesting” and emerging competitive sectors (smoothies, health drinks and juices) and a general feeling of “over familiarity”. This latter point has been tackled to a degree by the launch of products such as colas: with cherry, “with a twist” and caffeine-free. Although this segment is forecast to remain static in volume over the next five years, we do still expect values to grow as a new generation of added value carbonates develops.
The key segments of growth have been those that can loosely be called “health” drinks. These include juices based on so-called “Superfoods” (pomegranate, cranberry, açai, goji berries), smoothies, probiotic, omega-3 and energy and sports drinks.
Consumption of bottled water also continues to make good progress, again with health variants (vitaminised, with calcium) and flavoured waters doing especially well.
In those markets where dilutables feature strongly (mainly the UK, followed by France and Belgium) further developments in flavour types, combination flavours and added values can be expected.
The sports and energy sub-segment should continue to out-perform all others in terms of year-on-year growth – at least for the next five years.
Further high growth sub-segments will emerge and develop.
The key factors that will keep the sector from continued high growth rates are:
• Slow population growth with static to declining populations expected in the key beverage markets of Germany and Italy;
• Continued poor performance in the main value segment of carbonates;
• After years of growth, a slowing down in the growth rate of bottled waters;
• Continued pressure from health lobbies to reduce intake of sugary drinks, especially for children, plus concerns over the use of certain sweeteners, colours and preservatives.
In summary, the key areas for the development of, and adding value to, beverages include:
• Health: low sugar, low calorie, antioxidants, healthful additions, organics, “freshness”;
• Fitness and performance: further development of sports and energy drinks with an emphasis on adding further attributes/health benefits;
• Lifestyle beverages: drinks designed to fit with modern lifestyles and consumer concerns;
• Convenience: development of more “on-the-go” and “nutritional” beverages;
• Indulgence: to continue to use new and better quality fruits and ingredients;
• Ingredients in general: the continued development and use of natural flavours and colours, and beneficial additives.