FEATURE – SOFT DRINKS: Soft Targets

Health-conscious consumers are creating ample opportunities for the soft drinks segment. Clinton Cawood reports on the latest innovations

There’s nothing soft about the non-alcoholic drinks category at the moment. With health and responsible drinking concerns changing consumers’ attitudes, relentless innovation throughout the category, and the ever-present opportunity to provide mixers for alcohol, competition is tough. In supermarkets, various soft drinks sectors compete for shelf-space, not
to mention the on-trade, where space for non-alcoholic drinks is notoriously limited.

Health remains one of the primary concerns in soft drinks and one of the main motivations behind product innovation. The potential for healthier soft-drinks offerings prompted Unilever’s first major brand launch in 12 years, along with the confidence to invest £12 million to market it. The new brand, AdeZ, a fruit and soya drink, trades on its nutritional credentials, including its use of non-GM soya, that it is fortified with vitamins and minerals, and its low levels of calories, sugar and fat.

Mike Knowland, business group operations manager, says that the brand “has been built on consumer insight that a strong body is the starting point for getting the most out of life”. He goes on to explain that, “AdeZ targets the £1.6 billion juice category as well as building on the current growth in the soya marketplace.”

Healthy performance
Managing director of Shloer, Mike Coppard, agrees that, “The broader trend toward health and well-being is going to carry on. Consumers are savvy these days.” For Coppard, however, “Soft drinks are first and foremost about taste and refreshment.” He points out that his company “doesn’t put artificial ingredients in Shloer, or use preservatives or artificial flavours. But we’re not out there to market medicine.”

At innocent drinks, meanwhile, commercial director Giles Brook reiterates the fact that, “It’s all about using natural ingredients.”

An extension of the trend towards healthier offerings is the increasing success of functional drinks. “People are always looking for functionality from a drink,” says Brook. Responding to this, innocent has recently launched a superfood range, “delivering that functionality through natural ways”. This can be as much a question of marketing as it is one of innovation. Speaking of the new range, Brook explains, “We’ve always been in the functional market. What we’ve done is just rebranded.”

Helen Tomlinson, category planning controller for GlaxoSmithKline, recognises an increase in “health, taste and convenience as overriding category drivers affecting consumer choice”. She says, “Drinks sectors such as water, pure fruit juice and fruit smoothies have seen sales growth driven by increasingly health-conscious consumers.” In line with this trend, the company has launched Ribena Really Light, a no-added sugar variant of the brand.

A spokesperson for Coca-Cola Enterprises (CCE) confirms that, “Consumers are leading increasingly hectic lifestyles and are looking for functional, on-the-go refreshment.” In line with this, the company’s Minute Maid range is fortified with vitamins and minerals “to make it easier for consumers to enjoy a healthy lifestyle”.

There is, of course, much more to the soft drinks category than health and well-being. Julian Mears, media manager for Britvic, acknowledges the “better-for-you products”, but adds that “on the other end of this is indulgence. This is where J20 fits in,” he explains. “We work along the lines of a debit and credit society.”

This is particularly interesting given the number of potential soft-drink opportunities that can be created. As Coppard at Shloer points out, “Soft drinks are now more socially acceptable. There’s a soft drink for every occasion.”
One obvious occasion, as Brook describes it, is a “healthy indulgence” or a “treat without compromise”. This is a position that traditional carbonated soft drinks (CSDs) would, at this point, probably welcome.

Losing the fizz?
CSDs have been going through a particularly difficult patch in recent times. Concerns about obesity in Europe and the US have resulted in anything but positive publicity for CSDs. As a result, legislation has been proposed to monitor and restrict sales of soft drinks at schools, for example. Benzene levels found in various soft drinks earlier this year had a further adverse effect on the reputation of CSDs. With the simultaneous rise in popularity of healthy soft drinks, it is hardly surprising that, as Brook puts it, “Carbonates are on the decline, and this is a trend that is forecast to continue.”

Coca-Cola Zero is, in part, a response to this decline, and one that has been largely successful so far. “In 16 weeks since its July launch, Coca-Cola Zero has achieved sales of £24.1m. Within four weeks, 1.1m households had tried it,” says CCE’s spokesperson, citing ACNielsen Scantrack figures.

Launches like these are evidence that it is still far from the end for CSDs. Tomlinson believes, “We are now seeing some traditional manufacturers innovating to simply stand still.” CSDs are maintaining market share in the face of these challenges, however, and, as Coppard puts it, “They’re not diving off the cliff edge because they’re such a huge part of the market. But for the first time we’re seeing a gradual erosion of their market base.” CCE’s spokesperson maintains that, “The role of CSDs will always be key, with the sector worth £2.3bn in value terms.”

John Revess, as marketing director of Rexam Beverage Can Europe & Asia, which packages soft drinks, energy drinks and beer, has noticed that, “CSDs are flat. We don’t expect any substantial growth. But now soft drinks brands are repositioning the brand and switching consumers to more healthy products. If they reposition themselves quickly they will be able to hold the category stable. If not, that category risks going into decline.”

Innovation, therefore, seems to be the answer, which is something that the soft drinks industry as a whole has always done well. Mears recalls that, “J20 was doing really well, but there were places that it couldn’t go because the packaging was glass. We now offer glass and PET bottles.”

Crystal clear
When it comes to water, innovation is less straightforward than it is for other drinks in this category. “When you innovate with mineral water,” explains Abbey Well’s trade marketing and national account manager, Margaret Johnson, “you turn it into a soft drink.” While this is a part of Abbey Well’s offering, the core is as a mineral water brand for the on-trade. For Johnson, innovation is primarily “in terms of pack sizes. We have a huge range of pack sizes, in glass and plastic bottles, so we can serve any kind of outlet.”

Bottled water is an increasingly important market. Zenith International reports that this sector is growing in Western Europe. In an update on this market, Zenith reported that the majority of countries in this area were showing increased growth in bottled water, with six countries’ markets growing over 5%.

Highland Spring quotes ACNielsen figures to support the fact that bottled water has the second-highest share of the off-trade soft drinks market in the UK. Johnson believes, however, that other soft drinks sectors are seldom competitors to bottled water. “Some people may use bottled water as a soft drink replacement, but most people have water as a rehydrator,” she says.

Mears at Britvic believes that future growth in soft drinks will be driven by new products. “We don’t have a very mature water market here, when you compare it to France, Italy or Spain,” he says. “There are definite innovations left in that area.” His advice is to “innovate in areas of sustainable growth”. Mears says, “There has been a lot of talk about dairy drinks and smoothies, but when you compare them to larger categories, they appear quite flawed. It’s about getting that context right.”

Packaging innovation
Revess believes that packaging is a vital part of brand innovation. “We’re working hard with all the brand owners to bring the brand to life. Not to say that the packaging is the brand, but there are brand values that can be communicated via packaging.”

Innovation is closely linked with convenience, an equally important factor to modern consumers as health is. As Tomlinson puts it, “Consumers are coming to expect convenience, such as easy-to-use sports caps, as a given.” This is intrinsically linked with the occasion and type of outlet, as Britvic, with its broad portfolio, understands. Mears explains: “We see a different behaviour in grocery from what we see in impulse. The decision even comes down to packaging – you need the right cap on your bottle so you don’t spill when you’re driving. How much people drink also differs at different times of the day. As far as impulse goes, you wouldn’t buy a 2-litre bottle of Pepsi,” he says.

Innocent’s offering for children is packaged in a wedge shape that is more suited to lunch boxes. In addition, innocent has recently invested in getting into schools. According to Brook, “We’ve funded a 25% reduction on our retail price on our 180ml kids wedge.” In a further move to make innocent products more accessible, there are discussions under way to allow its smoothies to benefit from the same VAT exemption that fruit does. “When you buy a smoothie, it’s just fruit in a bottle. We are working with government and other organisations to reduce VAT at a UK level.”

In addition to innovation and achieving appropriate distribution, one factor that can have a significant impact for sales is the marketing budgets of some of the larger soft drinks companies. Coca-Cola Zero’s launch was accompanied by a huge, and very effective, advertising and sampling campaign.

Since being acquired by the SHS group in 2005, Shloer has also had a significantly bigger advertising budget. “One of the benefits of going back into private ownership is that they have given us money to spend,” says Coppard.

On-trade specifics

While soft drinks offerings differ in various off-trade outlets, the most striking differences are between the on- and off-trade. Britvic’s J20 has achieved success in both and, as far as Mears is concerned, “It’s the same as for impulses – it’s about getting the offering right.” However, he acknowledges that, “We do have to understand that there are more fundamental issues like space. In a supermarket you can choose between Coca-Cola, Pepsi and own-label cola, but in the on-trade you only need one.”

Abbey Well’s decision to operate only in the on-trade was the result of a concern facing many producers in the drinks industry. “The philosophy was that in a restaurant you wouldn’t buy Tesco house wine, so why would you buy Tesco house water?” This approach has been successful, making Abbey Well the biggest-selling brand in the managed pub sector, for example.

For other brands, however, it is not so simple. While it is easier to gain a presence in the off-trade, owing to greater shelf-space, many producers have a focus on the on-trade as well. Shloer’s Coppard stresses the importance of a diverse offering in venues. “You don’t necessarily want to have cola or pay £2 for an orange juice and lemonade. One of the challenges for that sector is to get more in tune with what consumers want. There has to be more family appeal. The range of soft drinks in that channel is limited, but it’s improving.” Brook comments, “innocent smoothies are available outside of supermarkets, but not enough.” As a result the company is currently involved in trials with the Peach Pub Group, for example.

Coppard goes on to say that in the on-trade, “One thing is getting distribution, but you have to get pull-through on the other end.” He mentions another problem shared by countless other drinks producers. “How many times do you order a brand? Consumers don’t know what brands are on offer unless they come to the bar and look behind it,” he says.

Coca-Cola’s portfolio includes a number of brands with a presence in the on-trade. CCE’s spokesperson says, “A significant percentage of on-trade drinkers order from the table or by guessing what is available. Listing the full range of soft drinks on the menu is key.” Quoting Alcovision research for the year ending June 2006, CCE’s spokesperson says that, “54% of soft drinks sales are as mixers [with alcohol], and in nightclubs this rises to over 90%.”

Given the fact that many soft drinks now make use of their health credentials, marketing drinks as mixers is not universal. Coppard says, “The challenge first and foremost is to get distribution and get Shloer linked with food offerings before we take on the challenge of getting it seen as a mixer.” For innocent, however, Brook explains, “We’re not getting involved in mixability. We wouldn’t be actively supporting it, but I’m sure some people do it.”

An important difference, as Mears points out, is that, “With mixers, as opposed to soft drinks, people don’t ask by name.” While mixers are important to Britvic’s business, Mears remembers that the company is also “catering for people who don’t drink, or are driving so can’t drink.” Remembering the debit and credit society, Mears has also noticed, “There are more and more people drinking a soft drink between alcoholic beverages.” Similarly, says Abbey Well’s Johnson, “It’s becoming more acceptable for people in a restaurant to have a bottle of water and a bottle of wine.”

Thanks to factors such as these,  the soft drinks category is largely managing to address its various challenges. Competition is tough, but there are enough occasions, outlets and consumers to justify and support it.

Market overview
Chilled fruit juice +23% in value (IRI Infoscan YOY 07/10/2006)
Carbonated soft drinks worth £2.3bn (ACNielsen)
Energy and sports drinks +17% in value and volume (ACNielsen 10/2006)
13 of 16 countries in Western Europe reported growth in bottled water sales
Total sales in these 16 countries accounts for 42.7bn litres, with average consumption
of 107.7 litres per person (Zenith International, 2006)

Marketing spend
AdeZ: £12m
Coca-Cola Zero: £5m
innocent: £5.5m

© db December 2006