From marketing to men, more natural products and slim cans, soft drink makers continue to pour life into a category that could use some more fizz. The carbonated soft drink (CSD) category’s dollar sales dipped 1.3 percent to $18.5 billion in U.S. food, drug and mass merchandise outlets for the year ending Jan. 22, according to The Nielsen Co., Schaumburg, Ill. CSD volume sported a similar decline, the research firm reports.
Full calorie CSDs took the greatest hit in 2010, with sales dropping 3.6 percent in measured channels during the time period, Nielsen reports. Low-calorie colas fared better with a 1 percent decrease in sales and remained relatively flat in volume. Branded soft drinks also out-performed private label soft drinks in dollar sales and volume for the year, Nielsen says.
The big news is not that the soft drinks category’s sales are down, which has been the case for the past six years, but that Diet Coke surpassed Pepsi for the No. 2 brand in the category in 2010 and now follows flagship Coca-Cola, according to Beverage Digest. Although Diet Coke’s volume declined 1 percent to nearly 927 million cases, Pepsi’s volume decreased 4.8 percent to approximately 892 million cases, the trade publication reports. The No. 1-ranked brand, Coca-Cola, saw its volume dip half a percent, Beverage Digest says.
CSDs continued to execute best in supermarkets and hypermarkets. “Those are the channels that are able to promote them the best, and they have the most interest in using them as leaders to draw consumers into the store,” says Richard Haffner, head of global beverage research for Euromonitor International, Chicago.
In addition, the economy has helped shift some consumers back to CSDs from other higher priced categories, such as energy drinks, says Garima Goel Lal, senior consumer analyst for Mintel International, Chicago.
Big three performance
Coke Zero continues to perform well despite declines from other major brands. The Coca-Cola Co., Atlanta, reports that trademark Coca-Cola in North America was up 1 percent in the fourth quarter. The growth was led by Coke Zero, which delivered double-digit volume growth for the 19th consecutive quarter.
Coke Zero turned five years old in 2010, and among more than 350 sparkling beverage brands launched since 2001, Coke Zero is one of six to surpass 1 percent market share and the only one to maintain it, the company says.
“The idea behind Coke Zero was to target men and to bring the men in without calling it a diet product,” Euromonitor’s Haffner says. “When you look at what’s happening with the share trends between Coke Zero and Diet Coke, Coke Zero looks pretty incremental. They have to be drawing new buyers into that diet franchise.”
Sprite also had its third consecutive quarter of positive growth, up 4 percent for the quarter and 2 percent for the full year, Coca-Cola reports. Fanta also delivered positive growth for the quarter and the full year, it says.
Coca-Cola’s sparkling beverages in North America, excluding the benefit of its new cross-licensed brands, primarily Plano, Texas-based Dr Pepper Snapple Group (DPS) brands in North America, were up 1 percent in the quarter and remained even for the full year. Including the benefit of cross-licensed brands from DPS, North American sparkling beverages were up 8 percent for the quarter and 1 percent for the full year. Coca-Cola’s North American market grew sparkling volume and value share for the quarter and full year versus the total category, said Muhtar Kent, the company’s chairman and chief executive officer, during the company’s fourth quarter earnings conference call in February.
PepsiCo, Purchase, N.Y., reported that its North American total beverage volume, excluding the affect of incremental volume from the agreement with DPS, grew 1 percent in the quarter behind strong performance of the company’s non-carbonated beverage portfolio. The company’s North American beverage business is in the midst of a restage that it started in 2009, said Indra Nooyi, PepsiCo’s chairwoman and chief executive officer at the Consumer Analyst Group of New York Conference at the end of February. PepsiCo undertook a restage in response to trends it was seeing in the North American beverage category, Nooyi said.
As a result, for its carbonated brands, last year PepsiCo relaunched Pespi Max, which has doubled the rate of weekly sales volume since the relaunch and has gained share, said Hugh Johnston, PepsiCo’s chief financial officer during PepsiCo’s fourth quarter earnings conference call in February.
Last year, PepsiCo also introduced Sierra Mist Natural, which has led Sierra Mist to see positive volume growth, he said. The drink features five natural ingredients, including sugar as its sweetener, and hit the market with an updated logo, can design and light green bottle.
DPS reported its bottler case sales’ CSD volume grew 2 percent for the year. Dr Pepper volume increased 3 percent and its Core 4 brands â€” 7 UP, Sunkist, A&W and Canada Dry â€” declined 1 percent for the year, the company says. Crush and Canada Dry grew double digits for the year. Sunkist soda declined high-single digits, 7UP declined mid-single digits and A&W declined low-single digits in 2010, DPS says. Fountain foodservice volume increased 5 percent on increased Dr Pepper availability, the company says.
In 2010, the company reformulated 7UP with natural lemon lime flavor and debuted the brand in new packaging. This year, DPS is expanding the distribution of Sun Drop, a citrus soda well-known in the Carolinas and Midwest, nationwide.
In addition, this year DPS is in six test markets with Dr Pepper Ten, a 10 calorie soft drink marketed to men who are looking for lower calorie options but are not satisfied with the taste or image of diet soft drinks. Dr Pepper Ten uses a blend of sweeteners to offer a taste similar to Dr Pepper, the company says.
“As long as they are able to replicate the taste exactly as the original one, loyal consumers are likely to pick up those products,” Mintel’s Goel Lal says.
With the launch of Sierra Mist Natural and 7UP with natural flavors, the major soft drink companies have moved the popular natural trend to the CSD category.
Natural was the top health claim of new CSDs launched in the United States last year, reports Innova Market Insights, Duiven, The Netherlands. In addition, sugar edged out other sweeteners to be the top sweetener used in new CSDs in the United States last year, the research firm says.
“Making a product as natural as possible is a big theme,” says Richard Hall, chairman of United Kingdom-based Zenith International. “It doesn’t apply so much for products for fun and indulgence, but it is important for products with a well-being or health appeal. Natural claims have to be relevant to the product and have to be believable to be effective.”
Looking at current growth trends, it is likely that major CSD makers will invest in natural sodas and making natural line extensions, Goel Lal says. “Natural types of products are showing growth,” she says. “Other than that, the market remains flat or is declining for major brands.”
CSDs sweetened with sugar such as Pepsi Throw-back, Mountain Dew Throwback and Dr Pepper with sugar also performed well, she says. “Their sales are still small, but growing, and there is some hope that health-minded consumers are actually moving toward these natural options in soda,” Goel Lal says.
Last month, PepsiCo announced that it is now offering Pepsi Throwback and Mountain Dew Throwback permanently. Over the past few months, the retro versions have added one share point to PepsiCo beverage sales â€” half of which is incremental, USA Today reported.
Although sugar might help to bring some consumers back to the category, for consumers who are managing their weight, sugar formulations aren’t a benefit because they are drinking the same amount of calories, she says. “It’s just a matter of perception rather than just actual benefits,” Goel Lal says.
Euromonitor’s Haffner agrees. “People don’t drink carbonated soft drinks because they are healthy for you, but I think they may be removing a negative barrier,” he says.
Where innovation is present, consumers are likely to spend, and Haffner expects CSD makers to continue to release products that bridge the gap between categories. “There is always going to be lots of innovation within soft drinks,” he says. “Because of the maturity of the category, to get growth it is going to require innovation.”
Playing with packaging
CSD innovation is not just coming from new formulations. In March, PepsiCo rolled out a taller, slimmer 12-ounce Diet Pepsi Skinny Can nationwide. In late 2009, Coca-Cola also released a 7.5-ounce, 90-calorie slim mini cans for its Coca-Cola, Cherry Coca-Cola, Sprite, Fanta Orange and Barq’s Root Beer brands.
“Adjusting pack sizes and price points is vital to resolving the balance between cash-stressed consumers and cost-squeezed companies,” Zenith’s Hall says. “Taller cans and smaller bottles can preserve a value perception for consumers and restore profitability for manufacturers.”
CSD makers also might be seeking to generate some news, Euromonitor’s Haffner says.
“If it turns out that those smaller can sizes, as we’re talking about individual servings, are preferred, they could actually generate more traffic and increase their profit,” he adds. “But one of their risks is that they give up on the total amount of volume sold because people aren’t drinking as much at one time.”
Size isn’t the only packaging attribute important to CSD makers last year. The largest new product claim Mintel reports from the category was environmentally friendly packaging, particularly in regard to a package’s recyclability, Goel Lal says.
Last month, PepsiCo announced it developed a PET bottle made entirely from plant-based resources that is completely recyclable. The bottle is made from bio-based raw materials, including switch grass, pine bark and corn husks. PepsiCo will pilot production of the new bottle next year.
Eco-friendly packaging innovations that were pioneered in beverages are moving into other food categories as well. In February, Coca-Cola announced that its PlantBottle, which is a PET bottle partially made from sugarcane ethanol from Brazil, will be used by the H.J. Heinz Co. for its 20-ounce ketchup bottles. The PlantBottle was first launched in 2009 and is used by Coca-Cola for brands including Coke, Sprite and Fresca.
With Coca-Cola’s recent purchase of Honest Tea, Coca-Cola, PepsiCo and DPS all continue to invest in ready-to-drink teas, coconut waters, juices and other non-carbonated brands domestically and globally to keep their businesses growing.
“Carbonated soft drink brands continue to be the core contributors to the leading businesses and have to remain a vital priority,” Zenith’s Hall says. “But non-carbonated drinks have been delivering much of the growth and will increasingly be the battleground of the future.”
Because the CSD category is a mature market, companies will need to continue to drive innovation, Euromonitor’s Haffner says.
“The growth formula is probably going to be to maintain carbonates â€” maybe grow them to the extent they can â€” but the real growth for soft drink companies will have to come from the less well-established categories,” he says. BI