The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.Learn More
Carbonated soft drinks and confectionery are two areas of the US consumer basket that contain high amounts of processed sugar and have duly attracted negative attention from public health advocates. Despite vulnerability to growing wellness concerns, the two categories have experienced divergent recent fortunes and future prospects, as a greater number of consumers adjust their food and beverage purchasing habits towards less frequent, more premium indulgences. Through the early incorporation of smaller packages and more premium products, the confectionery category has outperformed carbonates in terms of value growth.
Source: Euromonitor International
The US carbonates and confectionery categories are two corners of the US food and beverage industry that are among the most dependent on sugar to maintain a sweet, familiar flavour profile, and are therefore sensitive to wellness trends negatively impacting sales and future prospects. Additionally, as discretionary purchases, both industries are susceptible to consumers scaling back consumption during times of economic hardship. Over 2008-2013, facing both health and economic headwinds, carbonates volumes in the United States declined by 8% in absolute terms, whilst confectionery volumes also declined by 9% over the same period.
However, there has not been perfect symmetry between the two product areas, particularly in terms of market value. Despite comparable declines in retail volumes, the US confectionery industry has done an enviable job of maintaining value sales and revenue growth despite steady reductions in volume sold at retail. Over the same 2008-2013 period, value sales of carbonates declined by 2% in absolute terms (considered in current dollars), while the confectionery industry generated 14% growth, translating to an additional US$3.8 billion in value. The US candy industry has maintained relatively strong prospects through a better understanding of irregular, indulgence consumption and a relentless drive to interest consumers through brand innovation.
In the US, high rates of per capita carbonates consumption – largely emerging from the multipack, take-home segment, constitutes a high platform from which volume consumption could still fall. Despite high sugar content per serving, carbonates have long been treated by consumers – and marketed by brand owners – as everyday products, beverages to be consumed in regular quantities throughout meal or snacking occasions. Pricing and merchandising of carbonates in the US has reflected this understanding of consumers’ habits: heavy discounting, promotional expenditures and a product mix in the grocery channel that is still dominated by multipacks and large volume containers. US supermarkets and hypermarkets dedicate enormous amounts of valuable aisle and centre-store space to carbonates brands alone, with seasonal discounting still a potential driver of foot traffic despite accelerating declines.
As American consumer habits have slowly changed (for both health reasons and out of economic necessity), carbonates consumption for many consumers has instead taken the form of occasional, impulse indulgence rather than regular, habitual consumption. Consumers have cut back and replaced high sugar carbonates with water, iced teas and other cheaper or healthier products. According to recent Euromonitor Analyst Pulse survey research, consumers today in the United States are far less likely to have multipacks or large bottles of cola in their home refrigerators, and consumption remains highest in occasional, impulse channels like convenience stores or forecourt retailers. The high growth categories in US soft drinks – energy drinks, sports drinks and RTD teas – have experienced recent success in the busy, on-the-go coolers of these smaller points of sale, winning impulse consumers with small, higher value single serve bottles rather than the coupon clipping take-home shopper in search of discounted 24-packs of soft drinks.
While consumer consumption patterns have certainly shifted, this development has not been fully reflected in the larger product mix offered by carbonates brands, particularly in the take-home distribution segment. Brands have focused on responding to health (namely sugar) concerns – perhaps the most important of the myriad of negative factors – through artificial sweeteners and low-calorie variants of popular drinks. Yet, the expected mainstream shift to low-calorie versions of sweet carbonates has not occurred. Instead, the small areas of the carbonates category that have demonstrated real growth have been ‘real sugar’ or full flavour non-colas with an indulgence or functional positioning. Low calorie carbonates have actually underperformed full flavour alternatives in many cases.
Both confectionery and carbonate brands face the same obstacles when attempting to incorporate alternative sweeteners: instinctive, unempirical consumer mistrust of artificial sweeteners and current lack of awareness (or enjoyment) of natural alternatives, such as stevia. Yet while carbonates have invested considerable time and resources in creating low-calorie alternatives, confectionery brands have succeeded by adopting a different strategy: keeping their indulgence brands fresh through constant innovation, with a focus on smaller, higher value products.
The confectionery category has shown a greater propensity for introducing new, higher value products that compete on taste and enjoyment, keeping the category interesting for consumers and escaping the cycle of heavy discounting on familiar products. Pastilles, gums, chocolates and hard candies in US grocery regularly offer new product introductions and extensions to keep the category fresh, significantly outperforming sugary drinks in terms of value growth.
Flavour innovations from traditional confectionery brands, familiar staples including Twizzlers, Skittles and Starburst, have kept brands fresh and relevant. Brands have not sought to hide from an indulgence positioning, but rather responded to consumer concerns through package sizing and ‘convenience’ package types. Hershey Co and Mars both introduced bite-sized and miniature versions of some of their most popular products over the past several years. Hershey introduced new bite-sized versions of its Jolly Rancher and Twizzlers brands, making them an easier snack and allowing for greater portion control while also expanding the available flavour portfolio. Mars also miniaturised its Starburst brand to make it easier to consume in controlled portions, with the introduction of Starburst Minis in summer 2013, servings which are smaller than traditional Starbursts, and come already unwrapped. With the possible exception of mints and chewing gum, confectionery brands have not sought to tinker with product sweeteners or formulations in order to retain wellness minded consumers: they have given consumers the option to scale back their overall volume and exercise portion control while defending the value of their industry.
Soda manufacturers have been much slower off the mark in terms of ‘small-sizing’ with package mix, although price-package adjustments are certainly a bigger part of brand strategy since 2009. Coca-Cola introduced 7.5 ounce, 8-pack cans in 2011 while PepsiCo re-introduced mini cans with a high profile Academy Awards advertising campaign in 2013. These launches reflect the growing propensity towards portion control as the consumer’s preferred strategy to reduce calories.
Source: Euromonitor International
In addition to a torrent of new product introductions, the confectionery category has been far more adept at developing higher value, premium products. While the carbonates category remains stuck in a commoditised loop of seasonal discounting, confectioners have experimented with higher quality, expensive products that seem to be winning consumer attention. Soft liquorice, premium chocolates and ‘retro’ or imported candies carrying higher price points have been major winners over the past year, driving the confectionery category forward. Consequently, as a joint function of premium product offerings and small package sizes, the confectionery industry is expected to continue generating unit price increases (considered in constant terms) while the carbonates industry remains stuck discounting the bulk of its volume throughout the year.
Carbonates brands may have been wedded to their iconic brands and package sizes (the 20oz bottle or the 330ml can) for too long, with formulations and flavours treated as sacrosanct despite waning volume sales. Failure to regularly experiment and innovate on a large scale with big brands (not simply in terms of small test markets or niche demographics) has left the industry playing a fevered game of catch-up as consumers exit the category to other product types.
Confectionery items are already an occasional indulgence for a growing percentage of US consumers. Product life cycles and promotions – limited time offers and seasonal flavours – are an integral part of retail strategy for candy brands. Carbonated drinks may be following the same path, as impulse, occasional consumers become the key to future prospects. Consider Sprite Blast – an exclusive new summer flavour of Sprite launched last month, in a distinct 7.5 oz can. With LTOs, smaller portions – and particularly with a more recent focus on glass bottles and new convenience pack sizes in the impulse channel – carbonates brands have taken a big step in the right direction. But more widespread changes need to be taken in order to yield growth in the category, while adhering to public pressure for a more responsible – and potentially profitable – approach to the category.