While the US$820 billion global soft drinks industry saw continued growth in 2013, with sales up five percent over the previous year, competitive pressures continue to intensify. Flat volumes in high income markets are matched by a consumer base which demands ever –greater variety, and whose commitment to leading brands (and categories) continues to wane. In emerging markets, staggering potential volume growth is matched by the staggering levels of long-term investment necessary to get there, as well as the growing need to reach local consumers on their own terms, with region- and even market-specific brands. In 2014, the global story will be one of growing fragmentation, in terms of consumer preferences, manufacturer power, and ultimately product sales.
“What You Drink is Who You Are”
If the 20th century was largely defined by mass brands and their promise of a modern, global lifestyle, the 21st is all about the individual. Social media offers consumers the chance to brand themselves, with a complete portfolio of tastes, preferences, and recommendations available for public consumption. Millennials in high-income markets lead the way here, constantly on the lookout for new experiences, new flavours, and new ways to define themselves. Blockbuster mass brands are giving way to individual “portfolios” of smaller brands, while flavour preferences are growing bolder and more complex as consumer look to set themselves apart and experience the next big thing, from less-sweet “adult” sodas to cold-pressed juices.
At the same time, as endless variety drives a dizzying array of choices, demand for “curation” is also growing, with more consumers looking to high-end retailers and foodservice operators to point the way. Rather than stocking up on a few trusted brands, consumers are looking to retailers for a trusted experience and a guaranteed selection of interesting, compelling new options every time they walk in the store. Likewise, as competition for global foodservice consumers heats up, more and more chains are looking to build their own distinctive beverage portfolios as a means of building their brands and differentiating the experiences they offer. Starbucks’ recent forays into hand-crafted sodas and energy beverages are one example, with more operators set to take greater control of the beverage “conversation” with consumers in coming years.
Emerging Market Consumers Demand Local Innovations
While the process of fragmentation is less advanced in many emerging markets, with global brands like Coca-Cola, Pepsi, and Red Bull still enjoying strong appeal and seeing substantial growth, local preferences will continue to gain steam. In addition to the enormous capital investments necessary to drive expansion in markets like China, India, and Africa, the most successful brands must devote a growing proportion of their product-development resources to specific markets, the better to reach an increasingly empowered consumer base. The launch of Pepsi Atom in India last year is a powerful example of this trend, with Pepsi choosing to launch a reformulated, more intensely carbonated cola product as part of its ongoing program or “indo-vation,” or India-centric product development.
What’s more, it is becoming increasingly clear that emerging growth in the 21st century will not be defined by carbonated soft drinks at all, but instead by a varied portfolio of local favourites, above all in Asia. Already lagging well behind bottled water volumes in the region, carbonated soft drinks are set to be surpassed by ready-to-drink tea by 2018, with juices following close behind. Even in markets where carbonated soft drinks are in a far stronger position, like Latin America or the Middle East, demand continues to grow for products offering local flavours or textures, with non-cola carbonates set for continued share gains. Texture variations, such as those found in Coca-Cola’s blockbuster Minute Maid Pulpy brand family, will likely gain traction across a variety of markets and categories.
What Can This Do for Me?
Yet 2014 will not simply see consumers choose from a greater variety of categories—instead, the very idea of discrete soft drinks categories is expected to come under increasing strain. This process is already well underway in the booming energy drinks category, where brands like Monster continue to roll out new flavour variations (often combining elements of juice, RTD tea, and even sports drinks with added energy) in an effort to expand the category beyond its core base of consumers. Elsewhere, growing health concerns have forced manufacturers to reformulate their products, picking and choosing from elements of bottled water, juice, RTD teas, and carbonates to hit the right combination of flavour, sugar content, and differentiation. What’s more, as the basket of products purchased by the typical consumer in many markets continues to expand, those same consumers have grown more discerning, looking for exactly the right combination of product attributes (regardless of category) for every occasion.
While the global sweet tooth is not going away anytime soon—witness booming sales of full-flavour carbonated soft drinks in growth markets all across the Middle East and Africa—flavour, too, is an area where consumer preferences continue to evolve. In East Asia, there has long been demand for less-sweet RTD teas in most markets, while Japanese manufacturers’ never-ending quest for novelty and innovation has lead them to explore a variety of juice and soft drinks products with added salt, offering both a new flavour profile and new branding possibilities. Elsewhere, the rise of cocktail culture has led to a growing acceptance of more complex flavours, often combining sweet, herbaceous, and bitter notes, which in turn has helped generate interest in more “adult” soft drinks with flavourings like elderflower, lavender, or fresh ginger. More generally, the desire to reduce sugar intake while avoiding artificial additives is expected to drive greater demand for naturally low-sugar products.
No Rest for the Weary
In nearly every market, the soft drinks industry increasingly finds itself at a crossroads, with no easy paths in sight. Emerging markets offer real potential volume growth, yet getting there will require vast long-term investments. Meanwhile, in high-income developed markets, consumer demand for variety (amidst flat volumes overall) has thrown an entire industry into flux. On top of all of this lies a global regulatory environment that promises increasing scrutiny for the foreseeable future. In 2014, every consumer wants refreshment, and more are willing to pay for it than ever before, yet what they buy (and where they buy it, and from whom) is as much an open question as it ever has been.