Functional drinks drive growth in soft drinks market

The report from market analysts Datamonitor together with Innova reveals that consumers are far from having had their fill of soft drinks, as bottled water, energy drinks and new age beverages fuel growth.

"Society is becoming more experimental and health aware, drinking less alcohol and demanding a social environment that reflects this. In response, the number of occasions available to consume soft drinks has increased and the ability of soft drinks to satisfy physiological and psychological needs has expanded with innovation in product and packaging,"​ said Dominik Nosalik, consumer markets analyst at Datamonitor and author of the report.

Busy on-the-go drives soft drinks​ The soft drinks market has experienced very strong growth across the world, particularly in the emerging economies. Globally, the value of soft drinks increased by almost 33 per cent between 1997 and 2002, and is currently growing an annual rate of over 4 per cent. By 2007, Datamonitor predicts that the global soft drinks market will be worth $361bn(£251bn).

The UK is Europe's second largest market and on average Brits drink 156 litres of soft drinks a year, but consumption is forecast to rise to 186 litres by 2007. Between 2002 and 2007, the value of the UK soft drinks market is forecast to grow by almost 30 per cent, to almost £13bn.

This represents impressive growth in a country that already has a very high penetration of soft drinks, writes Datamonitor.

The changing lifestyles, needs and expectations of children, youth, adults and families are all responsible for the strong growth of soft drinks. "Consumers' lives have become increasingly busy and fast-paced, spawning an on-the-go culture. This has created a strong demand for refreshment in a variety of out-of-home locations thus driving soft drinks, which are more accessible and convenient than other drinks such as hot drinks and alcohol,"​ added Nosalik.

The development of convenience-orientated packaging in soft drinks, such as single-serve, weight-reduced cartons and packs, has played a crucial role in facilitating this. For example, Crystal Drinks in the UK launched Crystal Premium earlier this year - a 100 per cent pure orange juice in a single-serve bottle with a sports cap for convenient drinking on the hoof. Meanwhile in Germany, Nestlé has launched their indulgent iced coffee Nescafé range in a slimline cans for easy and unobtrusive portability.

Carbonates losing ground​ Bottled water has been a key growth area for the soft drinks market, reflecting the demand for lighter and healthier beverages. By 2007, Brits will drink 1,446 million litres of bottled water (equivalent to 24 litres per person per year), representing an impressive growth of 46 per cent on 2002 consumption levels.

Spending is also forecast to grow by 41 per cent up to £910m in 2007. The success of bottled water reflects the demand for lighter and healthier beverages, the desire to overcome dehydration, and for trusted sources of clean water as concerns over tap water quality have increased, said the report.

Product innovation is moving in the direction of how best to offer value to customers though healthier propositions. According to Innova database, added vitamins and minerals account for 40 per cent of all different types of enhanced bottled waters currently available on the market.

Sports and energy drinks show even stronger growth, reflecting consumers' demand for products that meet the needs of active lifestyles, particularly among the young.

Energy drinks are driving this category, writes Datamonitor, as they are seen as a cool alternative to mainstream brands, and appeal to a broadening consumer base because of their functional benefits. For example, Coca-Cola launched 'Burn' in Spain in the summer, and energy drink with, it claims, 'the right kind of sugars and complex carbs' to ensure sustained energy.

The demand for energy drinks is even attracting the interests of alcoholic drink makers, such as Anheueser-Busch that launched the energy drink '180' in the US in February this year complete with vitamins C, B6 and B12 to enhance the healthiness of the product.

New age beverages have experienced a rebirth as manufacturers capitalise on consumers' growing interest in herbal remedies. "Consumer attitudes to healthcare are changing and more people are taking responsibility for their health rather than passively accepting medical decisions. Within this desire to exercise individual decision, many consumers are looking outside the traditional realm of pharmaceuticals to herbal remedies and supplements,"​ said Nosalik.

Datamonitor claims that the self-medication trend will continue to boost the new age beverage category. The opportunities will range from hangover remedies to pick-me-ups to those beverages that act as insurance policies against future health problems.

Even though bottled waters and energy drinks are booming, carbonates still hold the largest share, representing some 64 per cent of the soft drinks market volumes. However, their market share is forecast to contract from just over 64 per cent in 2002 to 61.8 per cent in 2007.

Soft drinks consumption appears to be increasing among older segments of the population, although it was previously concentrated among children, writes Datamonitor. In more developed soft drinks countries, consumers aged 35 and over represent the first generation to grow up with soft drinks. Having grown up with soft drinks, many of these consumers continue to drink soft drinks and introduce them to their families.

Although the overall trend, as consumers get older, still shows an increasing preference for hot tea and coffee over soft drinks, soft drinks such as pure juice and squash, water and other more natural products are becoming more relevant to this increasingly health conscious group.