State of the Industry: Beverages

November 7th, 2017


Category: Miscellaneous

(Food Business News) –  Alternatives to carbonated soft drinks, such as bottled water, energy drinks and ready-to-drink tea, continue to grow in sales and take up market share in the overall beverage category. Bottled water may be leading the charge.

“Bottled water effectively reshaped the beverage marketplace,” said Michael C. Bellas, chairman and chief executive officer of the Beverage Marketing Corp. “When Perrier first entered the country in the 1970s, few would have predicted the heights to which bottled water would eventually climb. Where once it would have been unimaginable to see Americans walking down the street carrying plastic bottles of water, or driving around with them in their cars’ cup holders, now that’s the norm.”

Bottled water volume in the United States grew to 12.8 billion gallons in 2016 from 11.8 billion gallons in 2015, nearly a 9% increase, according to the Beverage Marketing Corp., New York. Per capita consumption of bottled water exceeded 39 gallons in 2016, which compared to 38.5 gallons for carbonated soft drinks.
“Around the turn of the century, per capita soft drink consumption regularly exceeded 50 gallons, and Beverage Marketing expects bottled water to reach that level by the middle of the next decade,” the B.M.C. said.

A 2017 success story came in PepsiCo, Inc.’s launch of Lifewtr.

“In just five months of sales since its launch in Q1, Lifewtr has already reached $70 million in retail sales across measured channels, was the top brand contributing to L.R.B. (liquid refreshment beverages) retail sales growth in the second quarter and is on track to generate approximately $200 million in retail sales on an annualized basis,” said Indra K. Nooyi, chairman and c.e.o. of PepsiCo, Inc., Purchase, N.Y., in a July 11 earnings call.
Globally, bottled water’s share in the overall beverage category increased to 19% in 2016 from 16% in 2011, according to Zenith, based in Bath, United Kingdom. Bottled water trailed only tea, which held a 21% beverage share in 2016 and 22% in 2011. Carbonates were at 12% in 2016 and 13% in 2011.

“There is still a lot of headroom for growth,” said Matt Wilton, commercial director for Zenith, in a Sept. 6 webinar. “Bottled water is still under 20% of the overall beverage landscape, (It is) a very dynamic sector but still a lot of headroom for share growth.”

Geographically, sales in Asia made up 41% of total global bottled water sales in 2016, which was up from 34% in 2011.

An energized category

In the U.S. retail market, sales of energy and sports drinks reached $25 billion in 2016 after rising at an annual rate of 17% over the preceding half decade, according to Packaged Facts, Rockville, Md. Consumers are seeking beverages with functional properties along with novel and healthier-seeming alternatives to carbonated soft drinks, according to Packaged Facts.

“Many consumers perceive sports drinks as healthier than sodas and other carbonated beverages due to their association with sports and physical activity in general,” said David Sprinkle, research director for Packaged Facts. “Although originally designed for athletes, these products soon garnered mainstream sales as anytime drinks, particularly among teen and young adult males. The novel flavor profile of energy and sports drinks also appealed to consumers seeking a change from sodas.”

Moody’s Investors Service, New York, said alternative beverages were taking away market share from carbonated soft drinks. Such beverages include ready-to-drink coffee and tea, energy drinks, organic juices, enhanced waters and functional beverages. Both the Coca-Cola Co. and PepsiCo were better positioned to grow their alternative beverage footprints than the Dr Pepper Snapple Group, Plano, Texas, because of their large scale, high cash balances and strong free cash flow, according to Moody’s.
Dr. Pepper Snapple placed its faith in the recently acquired Bai brand, which features sparkling drinks, teas and waters with antioxidants. The company wants Bai to become the leader in the healthy beverage segment, said Michael Simon, chief marketing officer for Bai brands, on March 8 at the UBS Global Consumer & Retail Conference in Boston.

“The way I would describe Bai, simply put, it’s a line of great-tasting beverages that also includes good-for-you ingredients,” he said.

No heat needed

Cold brew, also known as cold press, took hold in the coffee category. The type of coffee is brewed without heat. The Coca-Cola Co. launched cold-brew coffees under the Gold Peak brand. The J.M. Smucker Co., Orrville, Ohio, launched Dunkin’ Donuts Cold Brew Coffee Packs for at-home preparation.

U.S. retail sales of ground coffee slipped 1.5% to $3,990 million in the 52-week period ended July 9, according to Information Resources, Inc., a Chicago-based market research firm. Sales dropped for both brand leader Folgers, 6.8% to $1,139 million, and second-place Maxwell House, 3.9% to $551 million.

E-commerce sales potentially could be cannibalizing coffee sales at brick-and-mortar outlets.
“The two largest segments we have in e-commerce happen to be the snack nuts and coffee segments,” said George Zoghbi, the former chief operating officer of the U.S. commercial business for the Kraft Heinz Co., based in Pittsburgh and owner of the Maxwell House brand, in an Aug. 3 earnings call. “So they lent themselves more toward that channel.”

U.S. retail sales of R.-T.-D. canned and bottled tea rose 3% to $2,151 million in the 52-week period ended July 9, according to I.R.I. Nestle S.A., Zurich, Switzerland, and the Coca-Cola Co. in 2017 decided to end their R.-T.-D. tea joint venture on Jan. 1, 2018. The agreement dated to 1991. Nestle said it will grant the Coca-Cola Co. a license to manufacture and distribute Nestea in Canada, Spain, Portugal, Andorra, Romania, Hungary and Bulgaria.

U.S. retail sales of refrigerated juices and drinks slipped 1.3% to $6,018 million in the 52-week period ended July 9, according to I.R.I. Discouraging news came in May when the American Academy of Pediatrics released a report recommending children under the age of one should not consume juice because of its lack of fiber and protein and because of its caloric content. Orange juice sales have been weak.

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