Consumers Aren’t Drinking Like They Used to…Carbonated Beverages, That Is

Discussion
Jun 27, 2006
Al McClain

By Al McClain


As everyone in the retailing industry must know by now, sales of carbonated beverages are off. According to recent Morgan Stanley research by analyst Bill Pecoriello as reported in Ad Age and on CNN/Money, soda volume is expected to decline 1.5 percent annually for the foreseeable future. And Ad Age calculates that noncarbonated beverage sales (bottled water, sports drinks, energy drinks, tea) could surpass those of carbonated beverages in 7 years.


The Morgan Stanley poll of 1550 consumers showed that teens are drinking less soft drinks and bottled water compared to adults, and more juice, sports drinks, and energy drinks. Five of the top ten beverage brands are now noncarbonated – Gatorade, Minute Maid, Tropicana, Aquafina and Dasani. And Gatorade is about to overtake Sprite for #5. Plus, all three billion-dollar new beverages of the past 25 years are non-carbonated – Gatorade, Nestle Waters, and Red Bull.


Overall, U.S. carbonated soda sales declined 0.2 percent in 2005 (Beverage Digest) and Beverage Marketing has forecasted a 0.6 percent drop for this year, leaving carbonated beverages with a 52.9 percent beverage share. (Meanwhile, a report earlier this year on FoodNavigator.com said that sales in Eastern Europe grew 7 percent in 2004, while Asia, Central and South America, the Middle East, and Africa all grew 3-4 percent).


Analysts explain that energy drinks are successfully using the internet, viral marketing, etc. to gain youth drinkers. Obviously, there is also the issue of obesity, and the tendency of late for schools to ban the sale of various types of beverages.


Worst of all for soda marketers could be that sodas aren’t “cool” any more with the youth market. The Morgan Stanley research shows that 13-17 year olds drink less carbonated beverages than the overall population, and analyst Pecoriello believes that, when teens become adults, they are likely to become more health conscious and unlikely to drink more soft drinks.


Moderator’s Comment: How can mainstream retailers sort out consumption trends that are having such a huge impact on this category? Should retailers strictly
focus on what SKUs move today, or can they do anything to anticipate the trends in this mega-category and sell more of what consumers want, and are going to want?


There have been many food and beverage products that were predicted to be on the way out or in over the years, only to make remarkable course corrections.
Eggs, coffee, low-carbs, protein, low-fat, beef, chicken, tuna, wine, and beer are just some categories that come to mind. They’ve all experienced wide swings in one direction
or both directions in recent years.


The trick in this case is figuring out what’s going to happen next. One thing is certain – there won’t be a decline of 1.5 percent a year indefinitely –
either the pace will accelerate, or something will tip back in the other direction to make soft drinks cool again, and away we go. Maybe teenagers will start drinking them because
they’re “bad” for you, for example.
– Al McClain – Moderator

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10 Comments on "Consumers Aren’t Drinking Like They Used to…Carbonated Beverages, That Is"


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David Zahn
Guest
14 years 8 months ago
Mark’s point of view is valid from the retailer’s point of view in as much as the retailer is still the provider of the beverage that is “replacing” the carbonated soft drink. If the beverage of choice is not available, found, or purchased on the retailer’s stores/channel – it is a horse of a different color. From a manufacturer’s point of view, it is important because if you “hang your hat” on CSDs, the trend does not bode well long term. All the larger beverage producers are keeping very close tabs on this one and have all expanded their non-carbonated offerings, so that they are well prepared to flex or possibly even lead the consumer and the retailers away from CSDs and to the alternate beverage choices. I am not a purchaser of energy drinks, but believe that it may be more “fad” than long-term viable product. Wine coolers were also once the “rage” in a different beverage category – but you don’t see much of them any more. I suspect energy drinks will be… Read more »
Bill Bishop
Guest
Bill Bishop
14 years 8 months ago

Al McClain and Mark Twain both get it right with the thought, “The rumors of my demise are greatly exaggerated.”

It’s true that carbonated soft drinks are a mature category, but they’re also a huge category that still generates significant profits and one that contains large segments, e.g., diet, that have plenty of vitality.

What retailers need to do is to use much more localized shelf sets to improve service levels for faster-moving carbonated beverages and, at the same time, give their shoppers easy and prominent access to all the innovative beverages–carbonated and non-carbonated–that are coming to market.

Non-alcoholic beverages represents a large, profitable, and dynamic portfolio of retailer opportunity and should be subject to the disciplines of portfolio management.

Bernice Hurst
Guest
14 years 8 months ago

Interesting question, Al, and I understand the current concerns about declining sales in this sector but surely the principle applies to every item in the store? Customers will only shop where they know they can get what they want today; retailers have to have those products but, at the same time, introduce the ones that their suppliers believe customers will want tomorrow. Listening to suppliers’ views is a double edged sword – they exist to persuade retailers and customers that they have to have the next new product coming off the line. I’ve never been a great believer in consumers telling manufacturers what they want, at least not until after the manufacturers offer something that takes their fancy. For as long as manufacturers continue to create demand that they can supply, retailers will have to stock a mix of what is currently in demand and what will shortly be in demand. Prevention, as they say, is the best form of cure. And anticipation the fastest road to profit (if you get it right).

John Lofstock
Guest
John Lofstock
14 years 8 months ago

This is definitely a trend to watch. While some reports say the biggest losers in the shift toward healthier beverages will be Coke and Pepsi, I don’t think that is necessarily true. Look at the top brands and who owns them Gatorade (Pepsi), Minute Maid (Coke), Tropicana (Pepsi) Aguafina (Pepsi) and Dasani (Coke). The only real new entrant to threaten Coke and Pepsi over the past decade has been Red Bull, whose sales continue to soar. Both Coke and Pepsi, and other companies like Anheuser-Busch have all developed brands to compete in this segment, but none have rivaled Red Bull’s success. In any event, expect Coke and Pepsi to continue to develop new product to maintain market share even as sales of carbonated beverages fizzle.

Camille P. Schuster, PhD.
Guest
14 years 8 months ago

The beverage category is an example of what is happening in all categories to a greater or lesser degree. As the mass market fragments into smaller groups with different wants and needs and as manufacturers offer greater choices, forecasting what to buy and what to manufacture is a greater risk. As a result, companies that have produced supply chains organized around replenishment and manufacturing procedures that can produce small batches quickly will have an advantage.

Gene Hoffman
Guest
Gene Hoffman
14 years 8 months ago

Food retailers aren’t set up to be effective futurists. They live – or expire – in The Present. They gain peace of mind in knowing that the leading beverage companies are deeply immersed in research to determine future liquid taste-bud preferences and that those bottlers will keep the popular future beverages coming to their stores. Then, as Bill Bishop mentioned, the retailers should localize beverage shelf sets to maximize retail sales and profits.

Ben Ball
Guest
14 years 8 months ago

One critical element in this discussion is WHY consumers are seeking additional beverage variety. One argument is that we consume such a large quantity of beverages in the absolute that variety becomes extremely important. The sheer number of new entries (which I recently saw reported at about 650 last year alone) implies that consumers are inherent variety seekers when it comes to slaking their thirsts.

There is no reason CSD’s cannot provide this variety. In many cases they led these trends to begin with. Case in point, energy drinks. Remember JOLT Cola? How about Mountain Dew Code RED? These were the first hyper-caffeinated drinks and they launched the segment.

Mark Lilien
Guest
14 years 8 months ago

Every well-run retailer knows where today’s profits come from as well as recent changing trends. It doesn’t matter whether people drink carbonated beverages or not if the total beverage category is stable and the gross margins don’t decline. If the manufacturers and the retailers make just as much money regardless of the carbon dioxide content, the only ones who’ll care should be the folks who produce the gas sold to the bottlers. Pepsi shouldn’t care whether carbonated beverages decline as long as they also sell the noncarbonated drinks. So why should the supermarket owner care?

Stephan Kouzomis
Guest
Stephan Kouzomis
14 years 8 months ago
If there is a weak part of the supermarket industry, it is the ability to analyze and understand where categories are heading..short and long term. Of course, you have some of the top supermarkets understanding where each category’s growth and non growth will come from. Just view Publix, Wegmans, Marsh, etc. to name a few. Such category assessment is classified under research, a part of marketing, and should be part of every beverages’ annual business review with the retailer’s category management team. Some supermarkets have more sophisticated category teams that can gain where the category is heading. And these retailers do it well. There is no futurism, guessing or being misdirected by the beverage supplier in this exercise. On top of this, it is common sense to understand what is happening in the beverage category outside the supermarket industry and the respective market(s). Bottled water is up, and has established itself as a major alternative to soft drinks. Then you have Starbucks, and what it has done in nurturing teenagers and others into the latte,… Read more »
Bruce Yuen
Guest
Bruce Yuen
14 years 8 months ago
Whether soft drinks or any other food & beverage category, I think a fundamental demand from consumers is that the product they buy must taste good. This is a “trend” that never changes. Yes, consumers are fickle and will always want to try new things. But in the end, what they stick with are the categories and brands that meet this basic taste requirement. Thus I’d argue that Coke and Pepsi carbonated soft drinks today are inferior in quality and taste vs. the way they made it in the “old days” with real sugar, better flavors and glass bottles. Don’t confuse line extensions with real taste innovation. That’s why we have consumers and retailers importing (illegally in many cases) Coke in bottles from Mexico because it tastes the way many of us remember Coke used to taste. As an executive in a small gourmet soda company, I’ve found that there are plenty of soda lovers of all ages, even teens, who are simply looking for a soda worth drinking, as evidenced by the growth in… Read more »
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