Carbonated Soft Drinks: Strong, But Losing Ground

Most carbonated soft drink companies found 2007 a good year, but not because of CSD sales in the U.S. Increases in carbonated beverage sales outside North America plus profits from their non-carbonated acquisitions are keeping Coke and Pepsi strong, despite the introduction of new products such as Coke Zero and Diet Pepsi Max, industry analysts say.

Cola drinkers began backing away even from diet colas last year, causing the diet CSD category to lose 5% in volume sales across all channels, according to reports from both Information Resources and ACNielsen.

What’s happening here? For one thing, consumers are clearly favoring isotonics, energy drinks and flavored waters these days. For another, younger customers are buying more now and their buying habits are different from those of previous generations.

"Younger shoppers like to bounce around between flavors, packages and brands," said Valero Marketing Vice President Hal Adams. "They’re looking for different items in different day parts and want the brands that stay relevant to their changing needs and tastes."

The resulting lowered brand loyalty led Valero to budget low to moderate growth in the carbonated beverage category for 2008. "The majority of the growth is expected to come from single-serve packages," Adams said.

Even positive numbers have a negative spin. Though carbonates still dominate U.S. non-alcohol beverage sales with a market share of 63%, Datamonitor reported the category is losing share to bottled waters, which are currently at 17%, and forecasts a continuing decline in CSD "share of throat."

Diet CSDs aren’t suffering as much as non-diet models, but overall diet CSD sales are still slipping. Coke Zero gained 23.5% in volume sales for the year, according to IRI and ACNielsen.

Another reason for slowing CSD sales is that the business model has changed, mature markets with very high per capita CSD consumption are in a decline and emerging market consumers have more beverages from which to choose.

The idea of large global brands appealing to everyone and everywhere is no longer a form of business that is going to work, according to a BevNet report. Beverage marketing is now much more about brands that are perhaps smaller in scope, but reach particular segments of the market. It’s a whole different sensibility, and a lot of it is focused on health benefits.

Flavors also remain critical for the category because of the changing demographics of the country, notably larger Hispanic and Asian populations, both of which show preference for more highly flavored drinks, making new flavor choices an important part of marketing the category.

Additional industry developments are causing additional problems for CSD marketers. Bottlers are trying to retool their industry for the growing number of SKUs they have to make, sell and deliver making it difficult for retailers to find sufficient space for all the new products. And most consumers are more savvy about soft drink prices than about what the latest isotonic or energy drink is going for.

An even bigger problem is that carbs are no longer seen as harmless beverages to enjoy with meals and snacks alike. Negative news reports linking carbonated drinks and obesity haven’t helped, nor have soft drink bans in schools.

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