Exploring Price Elasticity and the NFC Revival in US 100% Juice
At a category level, 100% juice remains one of the most challenged areas of US soft drinks. As Euromonitor’s industry demand model demonstrates, it is also one of the most sensitive to changes in product retail price. According to Euromonitor’s latest research, US 100% juice as a whole experienced a fifth straight year of retail decline in 2014, shrinking by a further 2% over the course of the last year. A confluence of factors – led by heightened consumer sensitivity to price, but including changing attitudes to nutrition and taste – are changing the beverage habits of Americans.
Over the past fourteen years of available data, volumes in both not-from-concentrate (NFC) and reconstituted 100% juice have proven to be highly elastic to increases in off-trade price, especially when considered against other types of soft drinks. Yet since 2013, the fresher and more expensive NFC category has bucked this historic trend by demonstrating modest volume growth even as unit prices rise in real terms. Conversely, it is reconstituted juice that has produced most of the declines in 100% juice volumes even though constant value unit prices have been flat to declining.
Why has demand for high priced NFC juice absorbed recent price increases even as reconstituted juice has failed to benefit from relatively stable retail prices? Successful 100% NFC juice brands have increased the value of their products – and improved consumer price tolerance – through fresh, higher quality ingredients, smaller portion options, and branding that is focused on nutritional value, ingredient quality and taste. Meanwhile, reconstituted juices have faced more pressure from substitution to other, lower-priced fruit still categories and have struggled to innovate in terms of exciting flavours and healthier blends.
Source: Euromonitor International
Source: Euromonitor International Industry Demand Model
Note: Retail sales only (excludes on-trade),; the price elasticity in this article refers to the 1-year effect on consumption of a 1% constant value price change in a given year.
Euromonitor’s industry demand model clearly demonstrates the consumer price sensitivity that both types of 100% juice have historically experienced in contrast to other beverage options at the category level, even when compared against complimentary JNSD (juice, nectars, still drinks) categories. In contrast to juices, low-priced, predominately powdered concentrates and juice drinks are relatively inelastic to price changes. Unlike 100% juice, where orange varieties dominate overall retail volume, the nectar and juice drink (fruit still) categories also have a more diverse mix of strong brands to drive consumer loyalty and new flavours to sustain interest. In absolute terms, prices in these lower juice content stills categories are lower, and products have been less exposed to volatility in the supply of fruit. Smaller packages for low or zero fruit content juice drinks and nectars – lunch size juice boxes or single-serve pouches, for instance – may also mitigate the sticker shock of an increase in the unit price per litre, since retail prices are low in absolute terms (in contrast to large “family” size bottles of 100% orange juice).
With orange juice historically dominating 100% juice in the US and similar large pack sizes for leading brands, it is no surprise that rising prices have historically resulted in proportionally lower volumes. Consumers will not pay a significantly higher price for a fundamentally unchanged product.
How NFC juices are changing this dynamic
In 2013, US NFC 100% juice volumes increased by 1% and remained relatively flat in 2014. Over this same two year period, US reconstituted 100% juice volume declined by 1% and 3% respectively. Interestingly, while reconstituted juice prices were essentially flat, 100% NFC juices experienced a significant increase (up 9% since 2011). How has NFC in the US recorded modest but respectable growth over the last two years despite rising constant value prices? The answer lies in better, healthier, smaller and more premium brands.
First, it is important to recognise and understand the success that the more expensive juice brands continue to enjoy with consumers in speciality channels. Premium mass market orange juices and speciality, ultra-premium single-serve NFC juice blends are the growth area in the wider 100% juice category. These products have taken share away from lower-priced competition over the past several years, countering the historic price elasticity of NFC 100% juice.
Coconut, cold press, and green vegetable prepared juices are some of the products contributing to these impressive growth rates. Coconut waters (a NFC 100% juice) like VitaCoco and Zico carry much higher prices than traditional NFC orange juice and have experienced double-digit growth, helping to change the historic relationship between higher unit prices and shrinking volume.
While this ultra-premium juice segment still remains small in overall volume terms (despite the first emergence of coconut juices cold press blends in the grocery channel) some relatively mainstream, established brands have bucked the downward trend within the much larger NFC orange juice product area through added value. Naked (PepsiCo), a premium but mass channel brand of largely single serve, chilled NFC 100% juices and smoothies experienced 150% volume growth over 2008-2013, with small “on the go” packages, green juice blends and best in class merchandising near supermarket produce aisles contributing to this performance. Cold press juices, also a niche growth variety, are sold in smaller 8-16 fluid ounce single servings, and can retail for as much as US$20/litre. While mainstream consumers have exited the multi-serve orange juice category during a strained, slow growth economic period, consumers at the higher end of the income spectrum have sustained sales of “cleanse” or “detox” juice products. These expensive NFC juices, derived from higher quality, fresher processing techniques, can claim to retain more nutritional content.
Source: Euromonitor International
Small adjustments to the image and presentation of brands in the orange juice aisle can also have a big impact on value. Coca-Cola’s mid-tier NFC brand Simply Orange, although not significantly more expensive than the category average for 100% juice, has benefited from ingredients focused branding and an adjusted focus towards single serve, immediate consumption juices instead of larger format take-home portion sizes. Attractive packaging and clean, simple advertising campaigns focusing on the simplicity of ingredients and freshness of the product has helped the Simply brand to sustain positive growth, despite wider category price increases and the decline of competing brands.
Despite consumer price sensitivities, some higher quality premium 100% juices are clearly succeeding despite category trends. Meanwhile, reconstituted 100% juices – although slightly cheaper – have borne the brunt of decline, unable to justify their comparatively high unit prices through the marketing of higher quality processing techniques and unable to satisfy the higher-value consumer demand for fresher, more natural beverages. This leaves reconstituted brands vulnerable to consumer substitution to other lower-priced fruit flavoured categories, such as juice drinks, concentrates and RTD tea.
Consequently, NFC 100% juice is replacing the reconstituted category with many US consumers. While NFC has improved and changed through new juices types and innovation, reconstituted juice has remained the same. We may expect consumers in the reconstituted category to remain highly sensitive to changes in price, and for low-price private label brands to continue taking share from branded players. Private label and economy positioned reconstitution 100% juice approach price points that compete with juice drinks and lower juice content fruit stills. The blurring of lines between flavourful, affordable 100% reconstituted juice products and other lower fruit content stills (juice drinks in particular) may be the best hope for any future growth. Meanwhile, NFC 100% juice will continue to sustain the wider 100% category in the US. This trend is expected to continue over the next five years, as consumers continue to prioritise premium juice brands and superior ingredients over price considerations.