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March 31, 2014

Rethinking Carbonates: Potential in Un-Soda

Dana LaMendolaAnalyst Insight by Dana LaMendola - Beverages Analyst

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In 2013, US carbonate consumption decreased by 902 million litres, marking the tenth consecutive year of declining soda volume. Health and wellness concerns regarding the high sugar and artificial sweetener content of soda are the most highly publicized drivers behind this decline. Yet as US soda sales flounder, other carbonated beverages including energy drinks and enhanced bottled waters are increasing, in spite of the fact that many of these beverages also contain sugar or sweeteners. This shift reveals that while the perception of soda is growing increasingly negative, US consumer demand for flavoured, fizzy beverages persists. Consequently, there is still plenty of potential for carbonates, so long as they are positioned as something distinctly different from traditional "soda".


Sweeteners: Culprit or Scapegoat?

Between 2008 and 2013, US retail carbonate sales contracted by nearly 3 billion litres. Much of this decline has been blamed on the negative perceptions regarding soda’s nutritional properties, or lack thereof. While the high sugar content of full-calorie carbonates is the most-cited offender, in recent years there has also been increasing backlash against artificial sweeteners. Indeed, in 2013 reduced sugar carbonates, which include diet and mid-calorie sodas, declined by 2% in volume and 3% in value as compared to full-calorie carbonates, which decreased by just 1% in both retail volume and value. This decline in low calorie carbonates demonstrates that an increasing number of consumers view low calorie sodas as unhealthy due to their inclusion of artificial sweeteners.

Carbonate Growth 2008-2013


*Enhanced bottled water includes sales of all flavoured, carbonated bottled water, including functional and non-functional products

Positioning and Functionality

Yet, these concerns over sweeteners – natural or artificial – have thus far had little impact on the energy drink or enhanced bottled water products, both of which also use sugar or artificial sweeteners in their products. Between 2008 and 2013, energy drinks increased by 61% in retail volume, and 55% in retail value, reaching US$ 9 billion in sales in 2013.  Like soda, nearly all energy drinks are carbonated soft drinks that contain high levels of sugar, or artificial sweeteners. Despite sharing many attributes with carbonates, energy drinks are careful to position themselves as something very different from soda. To achieve this, energy drinks emphasise their functionality which is derived by the addition of more caffeine or other stimulating ingredients like taurine, guarana, and ginseng.  It is the promise of alertness and vigour that attracts consumers to energy drinks, rather than the flavour or carbonation.  In addition to this emphasis on functionality, the packaging of energy drinks which is most often in cans that are either smaller or larger than the 12 ounce can used by most mainstream soda brands, also helps this flavoured, carbonated beverage to distance itself from being perceived as soda altogether.

Like energy drinks, Sparkling Ice, the fastest growing functional bottled water brand in the US, shares many similarities with soda. Both are flavoured, carbonated drinks that are sweetened with artificial ingredients. (Sparkling Ice uses sucralose) Yet while retail volumes of reduced sugar non-cola carbonates declined in 2013, sales of Sparkling Ice increased by 90% in volume and 86% in retail value, reaching US$ 435 million in sales. Sparkling Ice’s success lies in its ability to position itself as something completely different from a soda, which it achieves through its packaging and inclusion of natural ingredients. Although Sparkling Ice has existed since the early 1990s, it did not attract widespread attention until 2010, when the company decided to revamp its image through new packaging and reformulation. The new packaging of Sparkling Ice is a slim water bottle, which is a signal to consumers that it is a product more akin to similarly packaged bottled waters rather than mainstream sodas, which are most often packaged in cans or wider bottles.  In addition to this deliberate packaging, Sparkling Ice incorporates real fruit juice, vitamins, and antioxidants in its formula.  These health and wellness components further contribute to the perception that Sparkling Ice is something very different from your average soda.

Broader Implications

The success of energy drinks and enhanced bottled water products like Sparkling Ice confirms an enduring US demand for fizzy drinks. The basic components of these products are very similar to carbonates: carbonation, flavour, and sweetener. However it is the positioning of these products as something entirely different from soda that is driving their success. While flavour and fizz are no longer sufficient on their own to attract consumers, they remain integral characteristics of the most popular US soft drinks.  Ultimately, this is great news for US beverage companies, as it means the decline of carbonates is much more about branding and perception than it is about any real shift in behavior. To capitalise on this opportunity, carbonate manufacturers should consider further developing their own ‘un-soda’ portfolios, a chance to balance out the losses that will likely continue in the traditional carbonates segment.


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