Analyst Insight by Hope Lee.
Solid volume gains in major emerging markets, a revival in Russia and Japanese companies' shopping spree the year's key stories.
Euromonitor International's forthcoming data shows that there has been no change in the global soft drinks company rankings between 2009 and 2010, with the top 10 companies maintaining their positions in terms of off-trade RTD volume sales.
In 2010, The Coca-Cola Company (TCCC) stands firm in the top spot, while PepsiCo trails way behind its archrival. In light of the slow economic recovery and lingering discussions about a double-dip recession in developed Western markets, it is important to note which players have proved resilient or even outperformed the overall market, and the possible factors affecting their global performance.
Euromonitor International takes a look at the top-line performance of the major players.
Emerging markets largely contribute to Coca-Cola's performance
After a poor 2008/2009, many soft drinks companies have seen a slow recovery in 2009/2010. In terms of off-trade RTD volume growth, TCCC performed broadly in line with the global soft drinks market, growing its sales by around 8% over 2008-2010 thanks to a seeming recovery in sales, particularly in carbonates, in a few major markets in 2009/2010.
While health and wellness is the ongoing driving force shaping general consumption patterns, weakened consumer purchasing power temporarily served to retain or regain carbonates consumers during the economic downturn.
In the case of carbonates in the US, TCCC has seen the decline (-0.6%) soften in 2009/2010 compared to 2008/2009 (-2.9%). In North America, TCCC finalised the deal for Coca-Cola Enterprises Inc (North America) in 2010. Although the deal is not expected to give TCCC an immediate boost to its overall market share, the long-term benefits are likely to be favourable to its operations.
Major emerging markets acted as sources of volume gains for major multinationals over the 2008-2010 period. Those which established a strong hold in these markets years ago are seeing dividends, which have somewhat eased the pain from developed Western markets.
Over the past 12 months, major emerging markets including Brazil, China, Argentina and India produced solid volume gains for TCCC's overall soft drinks business on the back of the swift recovery of the macro economy and continuous urbanisation.
In Russia, the company has also seen a recovery in volume growth (6%) in 2010 following a sharp decline the previous year. The completion of the Nidan deal has been another reason to celebrate. Russia's recent successful bid to host the FIFA 2018 World Cup is likely to have a positive effect on general investment in the country.
PepsiCo acquisition improves its global share
PepsiCo's acquisition of its anchor bottlers immediately lifted its global share in 2010, although the benefits of the transformation of the business model will only be seen in the years to come. To put things into context, PepsiCo's position in the overall soft drinks market was effectively enhanced by its taking over of Pepsi Bottling Group in 2010, and with it Mexico's third largest bottled water brand Electropura.
By the same token, the acquisition of PepsiAmericas Inc enabled PepsiCo to take full control of Sandora and Sadochok, which contributed to strong growth in its global juice sales. In a similar vein to TCCC's performance in Russia, PepsiCo also saw sales bounce back in the recession-hit nation.
In December 2010, PepsiCo has taken another big stride and has announced its intention to buy a 66% stake in Wimm-Bill-Dann Produkty Pitania OAO. The deal is considered a watershed and the impact is significant enough to make the American giant potentially the largest food and beverage company in the country. Nevertheless, the proposal was still awaiting official approval at the time of writing.
Apart from the effects of its acquisition-led growth strategy, PepsiCo has continued to see robust growth in China and India's juice markets in 2010, and has made notable share gains. This is an encouraging sign as the company is at the start of building up its juice brands in these two populous nations.
Nestlé and Danone's water troubles ease, but still remain
In light of the sluggishness of developed Western markets, both Nestlé and Danone have also unsurprisingly reported that major emerging markets have been their sources of volume growth over the 2008-2010 period. Nestlé recorded solid volume growth in sales of bottled water in Turkey, Mexico, Pakistan, Egypt, Saudi Arabia and Poland over 2009/2010.
Continuing to lead global bottled water by volume in 2010, Danone's changed corporate direction and leaning towards fresh dairy and baby nutrition has revived rumours of the potential disposal of its core water business, altogether or partially
. Indeed, the French food and beverage giant's water business has continued to see strong volume growth in China, Indonesia, Argentina, Poland, Morocco and Saudi Arabia. A focus on domestic brands in these markets has produced solid gains to underpin its global leadership in volume terms. However, the value contribution to global revenues is limited.
Hence, Danone commands third place by retail value sales in the global rankings in 2010. Nevertheless, in 2010, Danone increased its stake from 40% to 70% in the joint venture in Iran with local player Damavand Mineral Water Co.
As with most bottled water companies, Danone and Nestlé are struggling to convince cash-strapped Western Europeans to consume something they may now consider less essential than 10 years ago. This struggle is expected to continue and will add uncertainty to the bottled water industry.
Japanese companies' unstoppable shopping spree
Following an acquisition-led overseas expansion strategy, Suntory has cemented its global market share by off-trade volume to maintain eighth position in the overall global soft drinks market in 2010.
The ultimate ownership of the Orangina Schweppes business has given Suntory a global footprint, which is a fantastic starting point for its long-term corporate objective to become a major global player in food and beverages. However, it remains to be seen how Suntory will manage the integration and maximise the benefits of Orangina's established network.
Asahi has also improved its market share marginally in the global soft drinks arena in 2010, thanks to the acquisition of House Foods' mineral water business in Japan. Its proposal to acquire Australia's beverage company Pure & Natural Beverages (P&N) is still under scrutiny at this point. The potential successful integration of the former Cadbury Schweppes' Australian beverage business with P&N is likely to have a big impact on the Australasian region.
Armed with a strong war chest, major Japanese companies are expected to continue their shopping spree into 2011. Recent rumours have surfaced that they could be potential suitors for Danone's global water business.
Britvic raising its international profile
Beyond the mega multinational players, some second-tier companies are also actively expanding. UK-based beverage company Britvic is a medium-sized player which is worth watching as it is raising its international profile and seeking expansion in Europe. In terms of actual sales by off-trade RTD volume, Britvic is expected to overtake Ito En in the overall soft drinks market in 2010. This is a direct result of the French acquisition of Fruité Entreprises.
The British company grew its soft drinks by 24% by off-trade RTD volume over 2008-2010 despite the recession in the UK and Ireland. Britvic is introducing Fruit Shoot to the US and Australia, which is considered a smart move as the regulations on drinks consumed within schools are becoming increasingly strict.
The company has also stated its desire to grow the world's number one liquid concentrate brand Robinsons globally, which may create a good business opportunity for local bottlers or beverage manufacturers.
Despite some Western analysts' cautious optimism, many Chinese companies maintained their growth momentum over 2008-2010 on the back of a good macroeconomic performance, with high double-digit volume growth in sales of soft drinks.
Low per capita consumption and continuous urbanisation will mean many years of prosperous business lay ahead. Both Tingyi (ranked sixth) and Wahaha (ranked ninth) have maintained their global positions in 2010. Uni-President is expected to overtake Unilever in 2010 in terms of actual volume sales.
These companies will continue to bank on China's large population for growth. So far, Uni-President is the only one which has expressed a desire to expand into other Asian countries.
Summary: Recovery is on track
To summarise, major soft drinks companies are seeing their businesses on the road to recovery and are hoping that the situation can only get better in 2011 in developed markets. The lesson learnt is that for a business to be viable and successful it has to be able to withstand a period of adverse economic conditions.
Multinationals have solid financial muscles to flex during such periods and can continue to prey on 'bargains'. Having a balanced geographical spread has proved a wise strategy. Acquisition activities in Russia have lifted the country's spirits.
Japanese companies have once again played a major part in the market in 2009/2010. Looking at the bigger picture, the accumulated cash from the East (either private businesses like Suntory or sovereign wealth funds) is and will continue to trickle down into the global arena and play a growing and influential part of globalisation.