Table Of contents
John Band
Disclaimer
EXECUTIVE SUMMARY
Introduction
Market size and growth
Market drivers
Key product development areas
Case studies
Future opportunities
Introduction
Summary
Introduction
Definition and scope
Market definitions
What this report is about
Market size and growth
Summary
Introduction
Market demographics
Adult share of soft drinks consumption
Adult soft drinks value and volume
Volume by geography
Volume by category
Value by age group
Value by geography
Value by category
Segmentation by age, region & category
Market drivers
Summary
Introduction
Demographic changes
Changing age patterns
Changing cultures and tastes
Changing incomes
Health awareness
Natural, positive and free-from drinks are all significant
Healthy drinks are no longer solely a developed world concern
Cultural, social and religious factorsAs it becomes less acceptable for people in western societies to drink alcohol on work-related occasions and when driving, the demand for non-alcoholic drinks is rising. At the same time, much of the growth in drinks markets is occurring in countries in the Middle East, Africa and Asia where social and religious cultures lead to much lower acceptability of alcohol consumption than is the case in the west – but where people increasingly seek to emulate western lifestyles. In both cases, this creates scope for adult-oriented soft drinks that can act as a plausible alcohol substitute.
Decreasing range of acceptable alcohol occasionsIn developed economies for most of the second half of the 20th century, alcohol consumption in the workplace was generally considered a normal and acceptable part of life, among white collar and blue collar workers alike. Particularly in male-dominated occupations such as heavy industry and construction, drinking after work and often also at lunchtime was a social requirement, while Friday night drinks with colleagues was an important part of the work social environment for 9-5 jobs across almost all industries. Even at management level, long business lunches featuring large quantities of alcohol, and evening client entertainments were a prevalent and accepted part of business culture.
Increased growth in markets where alcohol is discouragedParticularly in societies with a majority Muslim population, but also across many strands of Hindu and even Christian societies in the developing world, alcohol consumption is discouraged. This ranges from the absolute bans seen in Saudi Arabia, through the tight restrictions on sale, consumption occasions and intoxication seen in the United Arab Emirates, through to the widespread availability but strong social stigma attached to consumption seen in parts of India and Africa. While the parallel growth in alcohol sales seen in many of these markets highlights that people may not necessarily always act in line with their declared beliefs, it is certainly the case that many of the countries currently showing the fastest growth in adult soft drinks consumption are ones where many people are reluctant to drink alcohol on many occasions, even if they do sometimes indulge.
Product customization and individualization
Key product development areasSummary
IntroductionThis chapter looks at some of the key areas where adult positionings have recently proved significant within the soft drinks market. These are not restrictive or exclusive categories – indeed, many if not most of the product examples used in this section fall into more than one category – but are useful ways of analytically splitting the most important areas of innovation. The areas considered in this section are brewed soft drinks, premium-positioned adult beverages, specific health drinks, and on-trade alcohol substitutes.
Brewed soft drinksMalt-based drinks are a long-established category, sometimes positioned as beer substitutes and sometimes as completely independent beverages, but are seeing a great deal of brand innovation. European manufacturers have produced functional versions fortified with ginseng and aloe vera and low-calorie versions, while Latin American producers have created versions pre-mixed with evaporated milk. The category’s importance is highlighted by the strong recent merger and acquisition activity that has surrounded it. Coca-Cola is increasingly involved with malted soft drinks worldwide, having launched a kvass (local malted beverage) brand in Russia under the Krushka & Bochka name in 2008, and having rolled this out for wider worldwide distribution in 2011. Coca-Cola also bought a 50% stake in Aujan, one of the Middle East’s leading beverage companies and the producer of Barbican, a leading beer-substitute malt beverage brand, in December 2011. According to Aujan, Barbican sales worldwide grew by 12% in 2011.
Volume growth outstrips key soft drinks categories
Market value is driven by strong average price growth
Brewed soft drinks have a wide range of positionings
Premium-positioned adult beveragesThe soft drinks categories most closely associated with adult consumption are premium bottled waters, ready-to-drink teas, and super-premium carbonates (premiumized malt beverages fall within the latter category). Across all these categories, packaging and branding are increasingly taking on premium cues, while growth in authentic, regional and ‘free-from’ product claims has been strong in recent years as consumers seek a healthier and more natural product range.
Adult-oriented branding and packaging cuesTwo of the most prevalent premium adult soft drinks brands in the US and the UK respectively are Jones Soda and Fentiman’s. They feature several common traits, despite going down different branding routes, and together highlight the flavor, packaging and branding cues that are used to differentiate premium adult soft drinks from the mass market. Both brands have unconventional flavors that differ from mainstream carbonates; expensive high-end glass bottles in a shape that is unique to the brand; use of premium, natural ingredients; and a brand name which sounds like, but has little to do with, a real person’s name in a way that humanizes the brand and differentiates itself from major corporations (Jones Soda is an entirely invented name; Fentiman’s is the name of a drinks company that closed down in the 1960s and whose name was licensed by the current manufacturer). The key difference between the brands, of course, is that Jones Soda has an edgy, alternative aesthetic, whereas Fentimans has opted for a traditional, Victorian-style aesthetic.
Premiumizing the RTD teas marketRTD tea and coffee has been the fastest growing segment of the global drinks industry in volume terms, and this growth has largely been driven by RTD teas (RTD coffee is successful primarily in Japan, where beverage sales have been flat for a decade). The biggest growth has been in China, reflecting the importance of hot tea as a beverage in Chinese society and hence consumers’ familiarity with the category as they shift to packaged beverages. However, there has also been substantial growth in the western world in the premium RTD tea market, exemplified by AriZona Tea and SoBe. These products follow much of the premium adult soft drink blueprint mentioned above, in terms of natural quirkiness, although their price point and sports positioning requires the use of PET rather than a glass bottle. As a result they have built a significant presence in the US market, helping to diversify the US RTD tea category away from mainstream ice teas like Liptonice. PepsiCo bought SoBe in 2000 and was behind much of its roll-out, while Arizona has remained independent. According to an anonymous industry insider quoted in April 2012’s Beverage Digest, Coca-Cola “has to buy AriZona” if it is to successfully compete with PepsiCo in high-growth categories.
Specific adult health beveragesFunctional beverages are targeting consumers of all ages with products aimed more and more specific conditions, as the ability to provide particular ingredients rises. Diet and cosmetic beverages have a mixed reputation but are increasingly being launched at all ends of the market. Aging populations, as highlighted throughout this report, are increasingly being targeted with drinks that are specific to their needs. At the same time, energy and sports drinks are evolving to address increasingly specific situations, with recent launches ranging from confidence-boosters to hangover cures.
Cosmetic beverages become more sophisticatedDiet drinks have long been popular among adult soft drinks consumers, whether referring to artificially sweetened carbonated variants such as Diet Coke, or to dedicated meal replacements aimed at dieting consumers. Recent improvements in sweetening technology, with the addition of sweeteners such as sucralose and more recently stevia that provide a more subtle and more sugar-like flavor than traditional artificial sweeteners such as saccharin and aspartame, have allowed manufacturers to formulate zero- or low-calorie beverages that are increasingly close in flavor to classic branded drinks. This allows variants such as Coke Zero and Sprite Zero to be targeted at groups who are used to the full strength version of the drink (as opposed to Diet Coke and Diet Pepsi, which have significantly different flavor and demographic profiles from the parent brand). It also increasingly allows premium diet beverages to be launched, as newer sweetener types. Stevia also has the advantage of being derived from natural plant materials rather than being synthesized in the lab, and hence can be marketed in many countries as ‘natural’, helping to reinforce premium healthy positionings on products such as Coca-Cola’s Odwalla juice drinks and Sprite Green carbonated soda.
Senior health beveragesBeverages with specific health beverages targeted at seniors have long been tipped as a significant potential growth area within the functional drinks market, as the demographic group grows and their spending habits change to favor soft drinks consumption. However, beverages targeted at the group have met with limited success in most developed markets: our analysis found that over-55s are still the least important audience for functional drinks, with the uptake of senior health drinks a very long way from offsetting the popularity of energy and sports drinks among younger age groups. The group is an important consumer of nutritional supplements, with over-55s accounting for 39% of the value of consumption of vitamin and mineral supplements in the US according to Business Insights’ market database, but has yet to be convinced of the merits of consuming these supplements in beverage form. This reflects the general lower willingness of the current cohort of over-55s to consume packaged soft drinks, and is likely to gradually evolve as people with heavier soft drinks consumption and more exposure to functional drinks of other kinds get older – both in developed markets and, increasingly, in mid income countries.
Energy and sports drinks target specific adult conditionsClassic energy drinks such as Red Bull, although functional on the broad definition used in this report, are not highly targeted at specific needs – rather, they offer an energy boost that applies across many different situations generally derived primarily from high levels of sugar and caffeine. This represents an opportunity to provide consumers with more closely directed benefits. One of the traditional areas for this has been in sports drinks, which seek to provide both energy and direct rehydration benefits by providing electrolytes. However, companies are increasingly seeking to tap into new markets, whether in terms of targeting totally new areas with functional products or in terms of providing functional products with novel benefits, formulations and flavor combinations.
Out-of-home alcohol substitutesBecause of changing attitudes to drinking occasions, there is a significant and increasing demand for beverages that are targeted to replace alcohol when going out, either to bars, pubs and clubs or to eat. For many years, juice drinks packaged like flavored alcoholic beverages (such as Britvic’s J2O) have proven popular, as have juice drinks packaged like wine (such as Schloer). However, as these types of drinking occasions grow in importance, the range and sophistication of such drinks is significantly expanding. The recent growth in brewed soft drinks is also helping add bolder flavors and a more beer-like feel to beverages within this category, while companies are also increasingly seeking to use food-matching to capture on-trade dining occasions.
Soft drinks are targeting multiple going-out drinking occasionsIn general, premium adult soft drinks fit with going-out drinking occasions. The glass bottles, bold flavors and colors, heavy branding and premium price are all well suited to the kind of drinks occasions where consumers might otherwise consume bottled beers or cocktails. Many of these drinks have been discussed elsewhere in the report, highlighting the overlap in key traits between going-out occasions, adult soft drinks premiumization, and the growing prevalence of malt-based drinks. Examples discussed in the Case Studies chapter of this report include Carlsberg’s BEO*, Hopper Soft Brew and Coca-Cola’s Tumult. They all exemplify the need to target consumers who are avoiding alcohol with high-end products that can meet their taste and image requirements. At the same time, it is worth noting that this is not a trend solely limited to high-end products: consumers seeking less sophisticated drinks offerings are nonetheless still affected by the same shift away from alcohol occasions as the rest of the market.
High-end brands seek to pair with restaurant foodTraditionally restaurant food has been matched with wine, by consumers or by sommeliers, although there have been significant often successful efforts in recent years to establish pairings with beer and cider. With the exception of mineral water, the same has not been the case for soft drinks. In general, there is a view that particularly for adults, consuming soft drinks other than water is more suitable for fast food than fine dining. However, various recent launches and marketing efforts have sought to change this perception.
Case studiesSummary
IntroductionThe case studies listed in this section discuss and illustrate the key product and targeting trends discussed in the earlier sections of this report. Many of the drinks considered exemplify several of the concepts being discussed, being brewed drinks that combine an on-trade positioning with premium, natural and/or functional adult soft drinks traits.
BEO* (Carlsberg)Carlsberg launched its BEO* brewed juice-flavored beverage in May 2011 in Scandinavia, and intends to roll it out across its major beer markets worldwide. The drink is targeted at “situations where consumers prefer an alternative that doesn't contain alcohol [such as] a lunch date or a meeting with friends at a café during the week”, according to innovation director Lene Dyrby Andersen. Demographically speaking, the company says it is primarily aimed at cosmopolitan urban women. The drink contains only natural ingredients, no added sugar (only natural sugar from the juice and the brewed malt base). It has a complex flavor profile: its apple and orange flavors are actually apple and green tea, and blood orange and hibiscus.
Fayrouz (Heineken)Fayrouz, now owned by Heineken but developed by Middle Eastern beverage company Al-Ahram until the latter was bought out by Heineken in 2002, is a malt-based drink with the texture and head associated with beer, but the sweet flavor of a soft drink. Unlike many malted drinks (some of which contain trace amounts of alcohol as a result), it does not undergo any kind of fermentation process. Because the drink is not actually fermented, it is naturally sweet and non-alcoholic, and has been certified halal (permissible) by Islamic theologians. It is positioned as a “refreshing premium adult soft drink that provides a natural change from daily routines and traditional soft drinks”, rather than as a health drink or a beer substitute.
Fever-TreeFever-Tree is a high-end carbonated soft drinks brand that has adopted a very specific niche positioning: creating super-premium mixers to complement super-premium spirits. The range is made with the finest and most authentic natural ingredients available: subtle botanical flavors, natural juices, spring water and cane sugar. Its tonic water and bitter lemon use quinine extracted from genuine chinchona trees, rather than the artificial substitutes used in most mass-marketed tonic waters. Its ginger ale is a blend of three natural ginger extracts from Cochin, Ecuador and Nigeria.
Honest TeaUS tea brand Honest Tea is an organic premium RTD tea range whose key selling point is the fact that it is made from real tea leaves, rather than (as the company claims is the case for most RTD teas marketed in the US) from the detritus left over after quality tea leaves have been extracted and sold elsewhere. The Honest Tea brand name reflects this positioning. The company has generalized from this honest position to a more general ethical and sustainable brand and business model; its mission statement is to “create honest relationships with our employees, suppliers, customers and with the communities in which we do business”, while at the same time creating and promoting “great-tasting, truly healthy, organic beverages”. It has taken an unusual approach to the demand for lower-calorie, lower-sugar products, although one which is strongly consistent with its general mission statement. Rather than compromise its position by using artificial sweeteners, Honest Tea instead pushes its zero-calorie Unsweetened Just Green and Just Black tea, and its low-calorie, cane-sugar sweetened ‘tad sweet’ drinks tea and soda varieties.
Hopper Soft BrewHopper Soft Brew is a malt-based, hopped soft drink, which launched into the on-trade in the UK in 2008. The appearance when poured resembles the head of a beer, while the taste is both hoppy and fruity; the company advertises the drink as ‘the soft drink born in a brewery’. As with Fayrouz, the brew mash is left entirely unfermented so the drink is entirely alcohol-free. It is made with all-natural ingredients and preservative free. The “credible and refreshing alternative to alcohol and sweet soft drinks” is offered in blackcurrant, apple and citrus flavors. In early 2012, the company began distributing the drinks via major UK supermarket Sainsbury’s, as well as commencing exports to Australia.
Tumult (Coca-Cola)Coca-Cola’s Tumult, currently available in France, is a low-calorie, fermented, non-alcoholic drink that is available in 'fruit' and 'malt' flavors. The drink offers health benefits via its low-
Future opportunitiesSummary
IntroductionThe market, product and consumer forces outlined in Chapters 2-4 of this report will have a significant impact on the face of the soft drinks industry over the next five years and beyond. This chapter aims to sum up the feasible predicted developments in the global soft drinks industry, both within the forecast period covered by the data within the report and further off into the long-term horizon. It considers four main trend types: regional trends, marketing trends, consumer trends and packaging trends. Based on this analysis,
Substitution for alcohol in developed markets will continueHealth and cultural changes will increase in importance
Consumer interest in pairing soft drinks with food will increaseHigh-end restaurants are creating their own soft drinks in order to directly complement their food offerings. For example, the Harbour seafood restaurant in New York City offers a tasting menu with six food courses, with which customers are offered a choice of a soft drink pairing, a beer pairing, or a wine pairing, with the soft drinks designed in house by the restaurant’s executive chef. Even the world’s number one rated restaurant, Copenhagen’s Noma, offers a matching soft drinks menu including local juices to complement the highly localized food offering.
Middle class growth in developing markets is a key opportunityLower-middle-income consumers will seek culturally relevant products
Consumer needs are becoming increasingly complex and specificIn developed markets, the age of mass marketing may not be over, but it is certainly no longer the whole story. Media fragmentation and growing age complexity trends have ensured that the one-size-fits-all approach followed by classic soft drinks brands such as Coke and Pepsi is no longer viable for new launches (the enormous equity that the established brands have, clearly, will keep them in the mass marketing forefront for some time).
Meeting consumers’ functional needs will be increasingly importantNew functional beverages and packaging types can address highly specific individual needs, and can be packaged in ways that have particular appeal to specific demographic groups. With their reputation for health, malt-based beverages may be a particularly strong way to provide these benefits among key current consumer groups.
Media changes will allow improved consumer targetingSoft drink consumers have increasingly complex media consumption habits
Social media and smartphone application usage are strong among all age groupsAs digital technologies become increasingly popular among all areas of the population, rather than the stereotypical traditional audience of tweens, teens and young adults, these new media increasingly allow different adult groups to be targeted with specific campaigns. Social media providers hold an enormous range of demographic information on their users and can use this in order to tailor adverts based on age, location, and friends’ activities.
New media allow campaigns to be focused directly on specific targeted audiences
Appendix
Category-level definitions
Carbonates
Concentrates
Functional drinks
Juices
RTD tea & coffee
Smoothies
Methodology
List Of Tables
Table: Global adult population by age group, 2006–2016
Table: Rank of different beverage categories by adult share of consumption (1=highest adult %), by region, 2011
Table: Global adult soft drinks volume consumption by age group (liters bn), 2006–2016
Table: Global adult soft drinks volume consumption per capita, by age group (liters per person), 2006–2016
Table: Global adult soft drinks consumption volume by region & key countries (liters bn)
Table: Global adult soft drinks consumption volume by category (liters bn), 2006–2016
Table: Global adult soft drinks consumption volume per capita by category (liters per person), 2006–2016
Table: Global adult soft drinks consumption value by age group ($bn), 2006–16
Table: Global adult soft drinks consumption value per capita by age group ($ per person), 2006–2016
Table: Global adult soft drinks consumption value by region & key countries ($bn)
Table: Global adult soft drinks consumption value by category ($bn), 2006–16
Table: Category volume consumption rank by age, 2011
Table: Category volume consumption rank by region, 2011
Table: Age volume consumption rank by region, 2011
Table: Global middle class population by region, 2001–2021
Table: Global brewed soft drinks volume consumption by region and major countries (liters m), 2006–2016
Table: Global brewed soft drinks consumption value by region & major countries ($m), 2006–2016
Table: Bottled water definitions
Table: Carbonates definitions
Table: Concentrates definitions
Table: Functional drinks definitions
Table: Juices definitions
Table: RTD tea & coffee definitions
Table: Smoothies definitions
List Of Figures
Figure: There are several possible ways of considering ‘adult soft drinks’
Figure: Percentage of population aged over 18, by region, 2006–2016
Figure: The over 55s age group will reach 25% of adults worldwide by 2016
Figure: More than 80% of soft drinks in Asia and Europe are consumed by adults
Figure: RTD tea & coffee is the most adult-dominated category, and carbonates the least
Figure: Due to regional effects, global growth is consistent across age groups
Figure: The Americas have the highest volumes, but Asia is growing fastest
Figure: Functional drinks are the fastest-growing adult soft drinks category
Figure: The 25-34 and over-55 groups jointly drink the highest value of soft drinks
Figure: The Americas have the highest adult soft drinks value consumption
Figure: The most strongly adult categories have been driving value growth
Figure: Younger adults tend to favor carbonates and functional drinks
Figure: Europe and the Americas are dominated by water and carbonates
Figure: European soft drinks consumption is dominated by older consumers
Figure: Key market drivers behind adult soft drinks
Figure: China’s age profile in 2016 resembles that of the US in 2006
Figure: Tata’s Plus range targets functional beverages at mass-market Indians
Figure: Coca-Cola’s Freestyle vending machine provides instant custom flavors
Figure: Africa & the Middle East dominate consumption of brewed soft drinks
Figure: Africa & Middle East also dominates the market in value terms
Figure: Some malt-based beverages are clearly marketed as beer substitutes
Figure: Traditional beverage Kvass is becoming a mass-marketed product
Figure: Vita-Malt and Karamalz trade off their perceived health benefits
Figure: Bionade is a modern brewed drink that ignores traditional malt cues
Figure: Jones Soda and Fentiman’s are typical premium adult beverages
Figure: Major brands have launched adult-optimized versions of their drinks
Figure: Chinese premium mineral waters are based on regional authenticity
Figure: AriZona and SoBe are major RTD premium tea brands
Figure: Premium RTD teas are increasingly popular worldwide
Figure: Odwalla and Sprite Green are natural-positioned products with stevia
Figure: Sunlover and Glowelle are drinks that seek to address beauty needs
Figure: Senior health beverages are increasingly popular in developing markets
Figure: Targeted functional drinks address a wide range of conditions
Figure: Iron Press & Faith target different genders for similar going-out occasions
Figure: Breckland and Luscombe are soft drinks designed to be paired with food
Figure: Carlsberg BEO* is a premium brewed drink focused on flavor authenticity
Figure: Fayrouz straddles the line between beer substitutes and carbonates
Figure: Fever-Tree is a craft range based heavily on ingredient authenticity
Figure: Honest Tea builds a premium adult positioning through ethics
Figure: Hopper Soft Brew is a non-traditional brewed drink targeting on-trade occasions
Figure: Coca-Cola's Tumult seeks to portray itself as ‘alive’
Figure: Key future trends for adult soft drinks marketers
Figure: Per capita alcoholic drinks consumption is falling in developed markets
Figure: Low/no-alcohol beer sales are rising across most major markets
Figure: Kirin Mets Cola targets men aged over 30 with fat loss claims
Figure: Spotify’s US users are overwhelmingly aged 18-34