The soft sell – drinks market17 December 2014
Working from Canadean’s ‘Identifying new opportunities in the soft and hot drink markets and responding to evolving consumer need states’ report, Beverage Packaging Innovation delivers a soft-drinks analysis for the current market.
The demand for soft drinks is rapidly increasing, with the global market adding an additional 170 billion litres in only six years. Packaged water, ready-to-drink (RTD) tea and coffee, and functional drinks are all driving volume growth in the soft-drinks markets. Packaged water is the primary driver of this growth with demand increasing by more than 110 billion litres between 2010 and 2016.
Carbonates is the slowest growing category, but will still add an extra 12 billion litres to soft-drinks market growth between 2010 and 2016, with most of this growth coming from emerging markets. China is the key country, accounting for approximately 85 billion more litres of soft drinks in 2016 than in 2010.
There is a clear split between the high-growth categories of packaged water, RTD tea and coffee, functional drinks, and juices and smoothies, and the low-growth categories of carbonates and concentrates. Consumers' growing concerns with their consumption of sugar is holding back consumption of carbonates. Offering low and zero-sugar alternatives does not seem to be working. Consumers consider packaged water to be better for them, while health fears are emerging over sweeteners such as aspartame.
Concern over sugar also has an impact on the juices and smoothies category. Still drinks are driving the overall rapid growth within this category, but demand for juice itself is weakening.
Meanwhile, RTD tea and coffee, and functional drinks are seen as more refreshing and relaxing, or as better energy boosters. These categories will continue to take share from carbonates as occasion-based consumption increases in importance, as opposed to general thirst-quenching.
Consumers in older-age groups are driving consumption in developed economies and older emerging economies. Key consumers in developed economies and older emerging economies are of a higher age demographic than one may expect: those aged 35-54 account for more than half of soft-drinks consumption in both regions. Older consumers aged 55 and over are particularly important in developed economies, with a 27% consumption share.
Consumers aged 45 and over drink 42% of all soft drinks in developed economies - manufacturers need to adapt to better serve the health and lifestyle needs of consumers in these older age groups.
Consumers aged 35-54 years old drink 35% of soft drinks in older emerging economies. As the populations in these countries rapidly age, the older adult consumer influence will continue to increase and drive this market.
Children are key consumers: 33% of consumption is by those aged 15 and under. Marketers need to ensure that it is healthy enough for adult buyers to be convinced, but taste will be the dominant factor for the consumer.
Key soft-drink consumption groups
While consumers in developed economies want to indulge with soft drinks, the desire to relax, and create personal space and time is the leading consumption motivator in emerging economy regions. However, other leading motivators differ between emerging economy regions; quality and lifestyle are important in older emerging economies, while meeting age or individual nutritional needs at an affordable price are more important in younger emerging economies. Finally, value for money is not actually one of the key motivations in older emerging economies; instead, consumers want the best-quality product with additional health or wellness attributes to provoke purchase.
Tweens and early teens consume the most soft drinks relative to their population share. Despite this, they still only account for 8.6% of all soft-drinks purchasing, highlighting that while their average consumption is high, targeting larger age groups with lower average consumptions can drive greater volumes for manufacturers. Older consumers underconsume relative to their population share the most - by 1.2%. This needs to be addressed as populations age - by 2018, the average median age in developed economies will be 42.7. Older young adults are another key age group for marketers to target, overconsuming relative to their population share by 1.0%. Aged 25-34, these consumers have finished education and have started their careers, giving them more disposable income than younger adults or children.
Pre-mid-lifers and mid-lifers offer a key opportunity in China and Russia, recording high consumption shares, large population shares and substantial disposable income. Both age groups overconsume soft drinks - pre-mid-lifers by 1.3% and mid-lifers by 2.5%. Tweens and early teens are the other age group that overconsumes relative to their population share - by 2.3%. This substantial overconsumption makes them a key target for marketers, though regulatory pressure in China and Russia means they must be careful in how they promote their products to those aged ten to 15 years old. Older consumes aged 55 and over underconsume the most relative to their population share. This is a key issue soft-drinks marketers need to address as they already account for 20.6% of the population, and this share is only going to increase with the populations of China and Russia rapidly aging.
Over or underconsumption
Children and babies, and tweens and early teens overconsumption, combined with their large population shares, make them the key age groups to target for soft-drinks marketers in younger emerging economies. Together, they account for a third of soft drinks occasions, despite accounting for only 30% of the population. Rising health concerns, particularly around sugar consumption and obesity, mean marketers need to be careful about how they target these sectors in younger emerging economies, and with what products. Meeting age-specific needs is the second-most important motivator of soft-drinks consumption in younger emerging economies - products for children will need to be low in sugar, and fortified with vitamins and other nutrients to help their growing bodies. Pre-mid-lifers and mid-lifers aged 35 to 54 are the key adult age groups to target as, together, they overconsume soft drinks by 1.1% relative to their share of the population.
Overconsumption by older consumers shows that they offer an untapped opportunity in many soft-drinks categories. While the key age groups differ by category, early young adults, older young adults and pre-mid-lifers are the most likely to underconsume relative to their population. Older consumers are the best opportunity worldwide. They overconsume substantially in the large categories of carbonates, juices, and RTD tea and coffee. Meanwhile, they offer strong opportunities for growth in the categories where they underconsume - concentrates should appeal to value-focused older consumers, while functional drinks and smoothies should be developed to appeal to their age-specific nutritional needs. Tweens and early teens are another key age group, only underconsuming in one category, RTD tea and coffee. However, ten to 15 year olds only account for 8.5% of the global population. While they may have a large average consumption, the age group's small size means marketers and packaging designers targeting them need to improve margins, rather than increasing volumes.
Definitions for light, medium and heavy consumption frequency vary by category and country. However, on average, a light consumer drinks each category two to three times a month, while medium consumers drink each category nine to ten times a month. Increasing how often light consumers drink each category will be key for marketers, and requires fewer resources than trying to gain new consumers. If light consumers drank soft and hot drinks to the same level as medium consumers of soft and hot drinks, this would create an extra 396.4 billion consumption occasions in the key countries studied, an increase of 20.8% in the total market size. This includes 285.7 billion new soft-drinks occasions.