Overview

The difficult economic climate, with consumer confidence at a low, made 2009 another challenging year for soft drinks.

OVERVIEW
But there was light at the end of the tunnel as sales value grew 2% to £6.2bn and volume 1% as the second half of the year saw an overall improvement in the economic outlook.

As shoppers stretched their pounds further, smoothies proved a stretch too far: the downward trend in sales accelerated to a 27% decline, making them the hardest-hit sub-category by far. The recession also continued to impact on other premium categories, such as pure juice and sports drinks – both saw sales decline by 4%.

Consumers' search for more affordable treats produced one of the most interesting trends of the year. While the majority of shoppers switching from pure juice traded down to juice drinks, many opted for a very different soft drink choice. Low calorie cola was the main beneficiary as recession-hit consumers sought the feel-good factor but still kept an eye on their waistlines. Buoyed by this, cola increased its leadership in the take-home channel, with a 22% share of the market and value growth of 4%.

Brands and promotions played a key role in delivering a value for money message in 2009. A return to the safety of big brands coupled with the launch of Essential Waitrose provided a great platform for growth. These elements combined with our most successful expansion programme in any year have delivered a genuine broadening in our consumer reach.
Suzanna Duke, Director – Ambient Buying, Waitrose

Squash and non-fruit carbonates also performed strongly, while water plus, juice drinks and fruit carbonates turned around the previous year’s decline.

Value sales of plain water remained flat with a small uplift in volume sales, a marked improvement on 2008 when the sub-category experienced both value and volume decline.

The issues facing the soft drinks industry reflect broader economic trends. At the start of 2009, consumers in Britain were much more gloomy about the recession than most other Europeans, with more than half (54%) looking ahead with pessimism. This was reflected in a score of 65 on the consumer confidence index, compared to a global average of 77.

With concerns about the economy, debt and job security foremost in their minds, consumers continued to set themselves smaller budgets. This has meant cutting back, mainly by spending less on new clothes, fuel and going out − and by switching to cheaper grocery brands.

Consumers were also prepared to shop around for their groceries, changing their buying habits to get the best value. Out of town outlets were still favoured for the bigger trolley shops and accounted for 52% of all sales, while 20% of British households bought groceries online. Shoppers were also making more frequent, smaller purchases of 10 items or less. The basket shop accounted for 12% more visits and a 16% increase in spend.

Retailers responded to this demand for value by increasing their promotional activity – by the third quarter of 2009, 35% of grocery sales were at discounted prices. But it seemed to work: till spend at all major supermarkets showed an increase in value share over the previous year.

Towards the end of 2009 shoppers showed a greater sense of optimism, with consumer confidence rising to 72 on the index. But consumers' concerns about the economy, debt and job security look set to continue during 2010. The need to save money is as strong as ever and, with value considerations increasingly influencing buying choices, manufacturers will face some tough decisions about price structure and maintaining value perceptions. And when the economy improves, will consumers return to their pre-recession spending habits or maintain their thrifty, budget-conscious mindset?

SUPPLIERS
The top three suppliers CCE, Britvic and GSK, accounted for almost 50% of the market between them. The collective value growth of Britvic (6%) and CCE (4%) drove category growth of £111m and increased value sales by 5%, compared to the 2% growth in soft drinks overall. Third-placed GSK fared less well, with value sales down 3%. Britvic’s success was driven by strong performances from Pepsi, Robinsons and drench juicy spring water. CCE’s growing portfolio of energy drinks benefited from the buoyant energy category, with rising sales of Monster and Relentless. Coke was also a key contributor, with sales up 4%. GSK had a difficult year, with both Ribena and Lucozade seeing sales decline.

Also in the top 10 suppliers, Barrs saw sales value increase by 9%, with Irn Bru and new acquisitions Rockstar and Rubicon Juice Drinks leading the way. A significant increase in distribution provided a shot in the arm for Nestlé Waters top brand Buxton and relative newcomer Pure Life.

BRANDS
The Top 10 brands accounted for nearly half of the total take-home soft drinks sales. Actimel grew the fastest in value terms, up 7%, although a higher than average price meant it did not feature in the Top 10 brands by volume.

Cola had another good year, with Coke and Pepsi both performing well. But the leading light was Pepsi Max, with value sales up 9% making it the fastest growing major cola brand. Robinsons increased its dominance in the squash market, contributing more than a third of the sub-category’s overall growth.

On the downside, Tropicana was impacted by the trend of trading down from pure juice, with sales down 5.7%.

RETAILERS
With consumers more determined than ever to make every penny count in 2009, the search for low prices meant more shopping around − and retailer loyalty suffered.

Ultimately, supermarkets won the battle, with sales value up 4% driven by the exceptional performance of the big four in a tough market. Promotions certainly helped, to the extent that discounters such as Aldi and Lidl saw their market share grow more slowly than last year. 61% of the population bought from a discounter in 2009 – nearly the same as from Morrison’s – but if consumer confidence continues to grow and shoppers return to their former habits, discounters may find it challenging to maintain their recent growth.

An increase in promotions, led by retailers, was certainly evident in the soft drinks sector – 49% of sales for later consumption were on promotion, an increase of 3%.

The well-publicised challenges faced by impulse outlets were reflected in a 3% drop in soft drinks sales. Hardest hit were local and high street newsagents, with value down 20%, and multiple off-licences, down 11% by value due to the collapse of First Quench group, owner of Thresher and Wine Rack. High street shops, independents and multiple forecourts also suffered a decline.

But it wasn't all doom and gloom for small stores, with the convenience channel (stores of <280 sq m) enjoying a 2% increase in sales.