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New products challenge 'Coca-Colonisation'

19-Sep-2003

The domination of the global soft drinks market by cola brands is coming under serious threat from more modern products such as healthy juices, iced tea and iced coffee.

A new report by market analysts Datamonitor says that the 'Coca-colonisation' phenomenon, which saw brands such as Coke and Pepsi spread from the US to the rest of the world, could be repeated, but this time from east to west.

 

Products such as elixirs (soft drinks with nutritional benefits) and iced tea and coffee are hugely popular in Japan, where ready-to-drink (RTD) tea and coffee alone are worth almost £13 billion (compared to £35 billion for global cola sales), and this popularity is now spreading into western markets as manufacturers look for new products to tempt jaded European and American consumers.

 

Datamonitor's report, The Global Soft Drinks Market to 2007, highlights the success of the two main cola brands, whose influence now covers almost the whole of the globe. Around the world, over 70 billion litres of cola were bought at retail in 2002 - that is 210 billion cans, or more than 33 cans for each person in the world per year. In 2003, the figure is expected to be almost 72 billion litres, worth £37 billion.

 

With figures that high, it is hard to talk about a cola crisis, as Datamonitor points out, but the figures do show that the days of phenomenal growth for cola may be over. The 1997-2002 period saw global volume growth running at over 2 per cent a year, but Datamonitor predicts this will drop below the 2 per cent mark in the coming years; in the US, which accounts for a third of all cola consumption, annual growth will be less than 1 per cent.

 

With developed markets showing a distinct change in their consumption habits and turning increasingly to alternative products, the growth potential for the cola brands now seems likely to come from developing markets. Indian cola sales volumes rose by 8 per cent a year from 1997-2002, Datamonitor said, and are expected to continue growing at 7 per cent a year up to 2007. The corresponding figures for China are 12 per cent and 7 per cent.

 

But while the cola companies are pushing into new markets in a bid to bolster sales of their core products, they are also developing sales of other, non-cola brands. In 2002, global sales of non-carbonated soft drinks were 152 billion litres, with volume growth running at almost 9 per cent a year, according to Datamonitor. By 2007, this figure is expected to reach 210 billion litres. Much of this is made up of developed categories such as bottled water and juices, but some more exotic drinks are also gaining popularity.

 

"There's only so much cola you can drink," said Datamonitor analyst John Band, the author of the report. "And there's only so much you can get away with charging for a can of cola. A Starbucks Frappuccino costs $1.49 (under £1) in a supermarket in the US; a 12oz can of Pepsi costs well below a dollar. Since PepsiCo owns both brand names at retail, switching cola drinkers onto Frappuccinos leaves the company laughing."

 

Alternative brands from the east

 

Many of these alternative products are more popular than cola in some markets, in particular in Asia where sales have grown almost exponentially. The average Japanese person drank 4.8 litres of elixirs in 2002, the report shows, a major increase from just 2.3 litres in 1997. Even more dramatic has been the take-off in South Korea: the average Korean now drinks 3.7 litres of elixirs a year, compared with zero six years ago.

 

But the elixir trend is also starting to take off in the US, the 'back yard' of the cola brands. In 2002, elixir consumption rose to 0.9 litres a head in the US, creating a market worth almost £400 million. Sales have risen six fold since 1997, putting the US market in fifth place globally behind Japan, Korea, Taiwan and Norway in per head consumption terms.

 

Most of Europe, however, is far behind. Britons drink just 150 millilitres of elixirs per year, while sales in Germany and France were too low to show up in Datamonitor's survey. Indeed, no southern European country showed any significant sales of elixirs at all, despite - or perhaps because of - the widespread popularity of fruit juices and other similar products there.

 

"There's a widespread trend for consumers to 'self-medicate' with vitamin or bacteria-enhanced foods and drinks," said Band. "This is true across all developed consumer markets - even those in southern Europe. What varies is how people take in these nutrients. Unlike people in East Asia, Europeans don't feel comfortable with actively 'healthy' soft drinks. They may feel it's a contradiction in terms."The success of nutraceutical drinks is part of a wider trend towards healthier soft drink consumption, Datamonitor said, which has also affected other sectors. For example, diet colas have shown much faster growth than mainstream colas over the last six years in most developed markets. In the US, diet colas now account for a third of cola sales.

 

Furthermore, the proportion has risen from 14 per cent in 1997 in France to 20 per cent last year, and from 16 per cent in Germany to 19 per cent. However, the UK has seen the most dramatic diet growth: in 2001, diet cola sales overtook regular cola sales. This continued in 2002, leaving the UK market split almost exactly between diet and regular cola drinks.

 

Cold drinks are hot property

 

Another growth market across nearly all major soft drinks countries has been ready-to-drink packaged iced tea, like Lipton or Snapple, and packaged iced coffee like Starbucks Frappuccino. Japan also leads the way here: the home of 'on the go' culture has a £13 billion RTD tea and coffee market, and the average Japanese drinks 60 litres of RTD tea and coffee a year.

 

Europe is starting to follow suit: French annual iced tea consumption rose to 3.2 litres per person in 2002 - a 65 per cent rise on 1997; the figure in Germany was up by 33 per cent to 6.5 litres. Even in the UK, where the thought of drinking tea cold and without milk borders on the heretical, iced tea sales have grown by 50 per cent over the last six years, although they were still just 0.08 litres per person in 2002.

 

Iced coffee is also an explosive growth market, in some countries at least. Sales in the US almost tripled over 1997-2002 to reach 0.62 litres per person - worth over £1.5 billion in total. In Europe, the trend has been more mixed: iced coffee consumption in the Czech Republic and neighbouring Slovakia increased by well over 50 per cent over 1997-2002; Czech consumption was 0.51 litres in 2002, while the Slovaks were almost level with Americans on 0.57 litres, the report shows.

 

However, key markets such as the UK and France have yet to see iced coffee build a significant presence - indeed, Nestlé dropped its Nescafé Ice drink from the UK in 2002 because sales were so low.

 

"Iced drinks have had niche, local presence for a long time, like iced tea in the US and ready-to-drink green teas in Asia," said Band. "But it's only recently that multinationals have pushed them as a serious alternative to carbonates. So far, they've been most successful in countries with fewer preconceived notions about what to do with tea and coffee - but this could change. It will be interesting to see when Frappuccino launches in the UK - if Starbucks can do for UK RTD coffee what it's done for on-trade coffee, the market will change dramatically."