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When we say cola we often think of just Coke and Pepsi but even in this category there may be opportunity for entrepreneurial companies willing to take a risk.
Carbonates sales performance is not quite back to pre-recession levels but recorded strong 2% global volume growth in 2010. This mostly stems from recoveries in North America, Latin America, and Western Europe, the three largest markets for carbonates.
Latin America in particular has recovered quickly; the region features a large number of cheaper higher volume products. North America was in decline even before the recession, but low calorie successes such as Coke Zero and Pepsi Max have brought back slight growth in volume terms in 2010. Western Europe is still struggling with flat movement, but marking an improvement on the decline seen in 2008.
Every region across the globe rebounded in 2010 except for the Middle East and Africa where off-trade carbonates volume growth slowed from a 4% compound annual growth rate from 2005-2009 to under 1% for 2009 vs. 2010. However, this decline is driven by Saudi Arabia, the third largest carbonates market in Middle East/Africa where there were large price increases (making-up for many years of constant prices). Excluding Saudi Arabia, 2010 carbonates volume increase was consistent with the historical trend.
Regular cola carbonates are predicted to show the greatest acceleration in volume sales, adding 7 billion litres through 2015, compared to just over 4 billion from 2005-2010. Growth is led by Latin America and Middle East and Africa. North American sales are still in decline but the rate is expected to slow through 2015, though low calorie colas will continue to cannibalise.
Orange and other non-cola carbonates on the other hand are expected to see slowing growth over 2010-2015. However, other non-cola carbonates, including Dr Pepper and tropical fruit flavours as well as root beer, is predicted to see the second highest volume growth of any category, including more than low calorie cola, adding nearly 5 billion litres.
The two beverage giants have been quick to recognize the future potential of the Middle East and Africa. Coca-Cola is trying to duplicate the success they experienced in Latin America by developing this market early. However, PepsiCo has recognized the volume potential of Middle East/Africa earlier in the development process than they did for Latin America.
In Latin America Coca-Cola has a commanding volume share of carbonates with a 57% share in 2010 vs. only 13% for PepsiCo. Coca-Cola was quick to recognize the potential of international expansion, developed Latin America long before their competitors saw the potential and is now the undisputed leader.
PepsiCo recognized the long-term value of getting into developing markets early and Middle East/Africa is considerably more competitive than Latin America. Coca-Cola still had a 52% share in 2010 but PepsiCo was much stronger with a 27% share.
While the combined share of almost 80% for Coca-Cola and PepsiCo may seem to preclude any other competitors, this may not be the case. The key issue may be the tremendous potential for carbonates category growth.
The Middle East and Africa has the youngest population of all the world’s regions. The region’s population has been steadily rising over time and that trend will persist for the foreseeable future. Between 1980 and 2020, the Middle East and Africa will add almost 947 million, pushing its total population to more than 1.5 billion by the end of the 40-year period. Middle East and Africa is the only region with growth at all ages, and also the only region with the most projected growth in age brackets below 40 years. Although the actual overall numbers are smaller than other regions, it still offers considerable opportunity.
With the rise of retail grocery expected especially in urban areas, this could be a way for new players to gain rapid market entry, especially with a favourable young worker demographic expected to emerge. Secondary brands such as Big Cola in Latin America and others in Eastern Europe have already utilised this retail strategy to build a clear economy price tier for carbonates to go against Coca-Cola in those regions. A similar tactic could work in the Middle East and Africa. In 2010, Aje Group expanded Big Cola to Thailand, for example.
With growing affluence in developing markets, there may be room for some secondary players to find a niche in colas as these markets develop. Similar to Latin America, private label brands in Middle East/Africa have an insignificant market share in carbonates