THE SOFT DRINK DILEMMA

Transcription

1 THE SOFT DRINK DILEMMA LEFT BEHIND OR FINALLY COMING OF AGE? A Kolibri Drinks Case Study May 2018

2 THE SOFT DRINK DILEMMA LEFT BEHIND OR FINALLY COMING OF AGE? The soft drinks category is at a cross roads. Perceived both by consumers and the trade as lacking in excitement and innovation, the category is seen as lagging behind its more glamorous alcoholic cousin. Fears of too much sugar, unknown ingredients and dreary packaging put the industry in the doldrums, but change is afoot with new, premium options and inspiration from allied categories. So is there a brave, new world for those who want a soft option that won t rot their teeth? Or is it simply a case of smaller bottle sizes, dubious sweeteners and more of the same? As with all stories, we need to dig a bit to get to the truth. SUGAR, PUBLIC ENEMY NO 1! If we go back to basics, the number one consideration for consumers is clearly taste 1, but concerns about sugar are worrying today s purchaser with 70% concerned about how sugar impacts their health 2. Given the record levels of obesity linked to high sugar consumption, The UK government has decided to step in and force the issue. From April 6th 2018 a levy on drinks with more than 5g of sugar per 100ml and a higher charge for those with 8g or more has been implemented. It is fair to say that the soft drinks industry has been slow in dealing with the sugar question and it is only in the last three years with the regulatory stick enforcement that manufacturers have seriously begun removing the sugar from drinks and reformulating their recipes. 1 Britvic Health research Source: Mintel, Understanding consumers perceptions of sweetened products, November 2016

3 3 UK soft drinks manufacturers have reduced sugar intake from their products by 16.2% since Almost 60% of soft drinks now sold in the UK are low or no calorie A positive headwind for the soft drinks category should be the decline in alcohol consumption as 1 in 5, rising to 1 in 3 of those in London, describe themselves as teetotal. 4 This is particularly marked among younger people with 25% claiming to be non-drinkers. 5 You would therefore expect a strong desire for non-alcoholic alternatives and yet the soft drinks market grew by only 1.4% in From the consumer perspective soft drinks are generally seen as sweet, fizzy and aimed at kids. Despite the continued desire to eat out and socialise 7 where soft drinks have a large role, there have been no game changers in the industry. Yes there have been new flavours, special editions and new ingredients but colas and still juices are in decline 8 and it is therefore in the smaller subsegments of smoothies, waters and mixers and specifically the premium arena where we have to look for the fizz. WATER THE SAFE CHOICE Bottled water is one of the segments which is growing with sales of plain bottled water in the retail trade growing by 14% in 2016 to reach 2.9 billion litres. 9 Many of the big brands have already tried to capture some of this lucrative market with varying degrees 3 BDSA Annual reports 2016 and Office of National Statistics 5 Adult Drinking Habits of Great Britain ONS May Nielsen & CGA combined Market Read 52 week value sales to Dec % of 25-34s eat out at least 1x week Source: CGA brand track to Apr CGA Foodservice & Licensed Value MAT to

4 of success. Coca Cola s Glaceau Smart Water which truly is spring water (unlike the ill-fated Dasani) is being expanded with a sparkling and fruit variants. In the States Pepsi-Co is launching bubly in 2018, a sparkling water with bright colours and light hearted flavour names to rebalance its portfolio away from sugary drinks. The overall trajectory for water is looking positive with Zenith brand consultancy forecasting that by 2021, the total market for UK water drinks will exceed 5.5 billion litres. Plain bottled water is set to lead this advance, with average growth of 9% per year. Flavoured, functional and juicy waters are forecast to expand more slowly. Bubly NOT ALL SOFT DRINKS ARE CREATED EQUAL The soft drinks category is seen by consumers as bland and boring, with little excitement or novelty, but there are brands and segments which have been outperforming the market. Although premium soft drinks only represent 7% of the category, in 2016 they grew by 32% 10 and astonishingly most of this growth came from Fever Tree. Customers desire high quality, natural ingredients and Fever Tree delivers this with a premium glass bottle and clever tie ups with premium spirits. Since its launch in 2005 Fever Tree has extended its range to encompass different flavoured tonics, ginger beer, lemonade, soda and cola, to create premium mixers that can be drank alone or with spirits. In December 2017 they even managed to overtake Schweppes as the biggest selling retail brand of mixers with market share of 39% vs 34% for Schweppes. 11 Other companies seeing the success of Fever Tree have launched their own variants eg London Essence and Thomas and Evans, both from Wisehead products, the Britvic incubator. London Essence Thomas and Evans It remains to be seen quite how many luxury or premium mixers the trade will support 10 CGA OPMS On Trade MAT

5 BUT DON T FORGET HEALTH The new tonics do generally have a light option but they are focused far more on the botanicals and quality ingredients so the consumers may not notice, or choose to ignore, the 7 or 8g of sugar in each serving. With the sugar tax now implemented, the big brands have chosen to minimise their sugars where it doesn t impact on the taste and in the meantime invest in developing new brands which are low sugar or low calorie and by reducing portion sizes. Coca Cola was badly burnt when it changed its recipe in 1985 to become new Coke and was then forced into an embarrassing and expensive U-turn less than 3 months later to re-instate the original drink. Its latest advertising campaign ignores this blip in its history and proudly proclaims They don t make them like they used to. We do. In tandem with the focus on its uniqueness and iconic taste, the company is launching smaller bottles (though still raising the price per litre on its classic recipe) to minimise the visibility of the price increase. More importantly it is putting its substantial marketing muscle into a re-vamped Diet Coke and the introduction of two new products. With no added sugar, AdeZ is a dairy free smoothie which contains seeds, fruit juices and vitamins and which Coca Cola Enterprises is hoping with be as successful in the UK as it is in Mexico and Argentina. Fitting into the consumer interest in health and wellbeing, and with the might of CCE behind it, this is one to watch. In addition CCE has announced the AdeZ launch of the globally successful, premium iced tea brand Fuze Tea in GB a fusion of the flavours of fruits, botanicals and tea, with two low sugar variants to deliver a fresh, contemporary taste, offering a premium alternative within the iced tea category. There are also many start-ups who are using health / low sugar to enter this category and entice consumers. Fuzetea

6 Nix and Kix natural drinks have no refined sugars and high quality ingredients with a cayenne kick while Cawston Press has removed added sugar and replaced it with fruit juice to create a healthier drink. The jury is still out on whether the impact of the sugar tax will be that consumers move away from the higher priced drinks and take advantage of the wider variety of soft drinks becoming available. Research from Mintel suggests that 50% of year olds (the biggest soft drinks consumers) will cut back on the amount of carbonated soft drinks if prices rise, although a third will not change their habits at all. Nix and Kix A special mention should also go to Seedlip, a distilled nonalcoholic drink which can be served with tonic to create zero proof cocktails. Now stocked in the finest bars and gaining overseas distribution, Seedlip is What to drink when you are not drinking. Borrowing from the cues of premium spirits such as Sipsmith, with beautiful presentation and a premium price, Seedlip is fulfils a new role for customers who want to enjoy the same experience they have when drinking alcoholic drinks. Diageo clearly believe in its future as they have taken a stake in the brand and can therefore support its expansion.

7 WHAT ABOUT THE THEATRE? One of the reasons soft drinks has been lagging is the lack of ritual or theatre. In consumer research, it is clear that innovation in this area would be welcomed as currently Soft drinks are pretty self-explanatory - there is no theatre to them. You don t expect a soft drink to be a head turner 12 When looking at allied categories eg craft beers, spirits there is far more excitement as brands with stories that are authentic and have a particular serve, or glassware attract interest and trial. Within soft drinks Kamila Sitwell, co-founder of Kolibri drinks explains We want to shake up the soft drinks category! Customers want great tasting drinks that are healthy too and they want a bit more entertainment in this area. The great thing about Kolibri drinks is that it can be made to the individual s taste, every time. By adding Kolibri drops (a nectar containing apple, lemon and caramel), your drink can be tailored to the level of sweetness that you prefer. You can enjoy the blending and crafting of your drink so that every time it will be as unique as you are. Kamila Sitwell, Co Founder of Kolibri Drinks GROWING UP AND STARTING TO PARTY MILLENNIAL STYLE Soft drinks are coming of age and the category is being re-invigorated with a wave of new entrepreneurs building on their understanding of what 21st century consumers really want to drink. Mixologists in top end bars are recognising the power of creating amazing non-alcoholic cocktails and in London, Redemption a bar and restaurant (which just happens to be vegan and alcohol free) promises how to spoil yourself without spoiling yourself. Yes, we want to have it all indulgence and health, freedom without constraints and to have it wherever and whenever. This is just the start. 12 Hotelier, Episode Hotel, Leamington

8