Distribution Strategy of Soft Drinks Industry -Project Report
Key Drivers
·
The core supermarkets/hypermarkets
channel continued to stutter in 2006, with its global share falling, despite a
rise in volume sales. Discounters are the key competitor, as economic malaise
in key developed markets has made consumers more prudent.
·
A growing trend for impulse
purchasing and on-the-go demand drove growth in the convenience stores sector
in 2006. Rising urbanisation and expansion into the sector by
supermarket/hypermarket operators also contributed to the increase in share.
·
Independents were the big
losers in global distribution, as stores were unable to compete with the
one-stop shop convenience factor, low pricing and expansive product range of
multiple grocers. The slight increase in the share of independents in 2006
marked a turnaround after nearly a decade of global share decline.
·
The rise in private label
penetration is partly attributable to the growth of multiple grocers and in
emerging markets and Western Europe.
Global Trends
·
Despite losing share for the
third successive year, supermarkets/hypermarkets remain by far the strongest
soft drinks distribution channel accounting for 33% of sales by total volume in
2006. Competitive pricing, one-stop shop convenience and wide product ranges
give this channel a strong advantage over its rivals, in both developed and
emerging markets. Consolidation is a key trend, with major players employing
organic and acquisition-led growth strategies to expand their coverage on a
global basis. This trend is set to continue, with leading players expected to
expand their multi-sector growth strategies.
·
Supermarkets/hypermarkets are
the dominant distribution format in all regions excluding Eastern Europe and
Latin America. Additionally, supermarkets/hypermarkets continues to be the most
dynamic distribution channel in Asia-Pacific and Africa and the Middle East on
the back of rising consumer incomes and increasing urbanisation.
·
In Western Europe,
consolidation of supermarkets/hypermarkets is a major theme, as key players
also expand into the convenience stores channel. However, the sector has
continued to lose share, largely as a result of the strong growth of
discounters, with the likes of Aldi and Lidl prospering from uncertain economic
climates in some key markets, such as Germany and the UK.
·
Supermarkets/hypermarkets are
also losing out to discounters in North America and Australasia where consumers
are looking to make savings in response to subdued economic conditions over the
review period. Additionally, a strong consumer desire for convenience has
resulted in changing purchasing patterns in North America away from bulk buying
and towards portable packages. The rise in impulse purchasing has had a
negative impact on supermarket/hypermarkets while boosting sales through
convenience stores.
·
The other off-trade channel
leads distribution in Latin America due to direct home delivery sales of
bottled water in the region. As consumer spending power rises, so they are able
to trade up from tap water to bottled water, in the wake of growing concern
over quality standards. Independent food stores is the second most important
distribution channel in the region. It is also the major channel in Eastern
Europe
Sector Trends
·
Supermarkets/hypermarkets is
the dominant distribution channel in soft drinks overall (33% share by total
volume in 2006). RTD coffee is the one exception, with convenience stores being
the major distribution channel due to the nature of the drink. RTD coffee is
frequently purchased on impulse and consumed as an energy booster.
·
Due to the dominance of
supermarkets/hypermarkets, this channel has witnessed the majority of absolute
volume gains over the 2001-2006 period across total soft drinks. This held true
for every sector besides bottled water where direct sales accounted for the
majority of absolute gains. Direct selling is an important distribution channel
for bottled water accounting for 22% of total volume sales in 2006, behind
sales through supermarkets/hypermarkets (29%). The direct home delivery sales
format is most popular in Latin America, where bottled water is often used as a
substitute for unsafe tap water.
·
Globally, discounters has been
the most dynamic soft drinks distribution channel over the review period (8%
CAGR by total volume, 2001-2006). While this trend applies to carbonates,
bottled water and concentrates, independent food stores (6% CAGR by total
volume, 2001-2006) and convenience stores (5% CAGR) have been the most dynamic
distribution channels for fruit/vegetable juice. This is partly due to the
dominance of independent food stores in Eastern Europe and the rising
popularity of convenience stores in China in line with growing urbanisation.
The on-trade channel (15% CAGR) has outperformed the rest in functional drinks
primarily because Red Bull established itself very early on as a mixer to be
used with alcohol in bars and restaurants. Red Bull and vodka, Red Bull and
Jägermeister and a variety of other combinations are ubiquitous with young
consumers in bars. Supermarkets/hypermarkets has been the fastest growing
distribution channel for RTD tea, RTD coffee and Asian speciality drinks as
these traditionally niche sectors enter the mainstream.
·
Vending was the least dynamic
distribution channel for total soft drinks globally (4% CAGR, 2001-2006).
Although vending sales of functional drinks declined over the review period,
vending is one of the more dynamic channels for bottled water (12% CAGR,
2001-2006) given that vending machines made it easier for consumers to purchase
bottled water on impulse particularly during hot summer weather.
Retailing Developments: New Trends
·
Consumers are turning from
mid-sized retail to a combination of larger hypermarkets and smaller and more
convenient local stores. Large hypermarkets offer a one-stop shopping
experience, and are convenient for monthly grocery shopping, while smaller,
local stores offer service and convenience for last-minute or emergency
purchases. This trend is driven by well-known global factors: an increasing
number of women in the workforce, a rising number of single-person households
and the need for convenience and service in an increasingly stressful
environment. However, particularly in developing markets, the main reason is
the increase in spending power of low-end consumers, who live farther away from
urban centres and depend on small local retail outlets for their shopping.
Consumers are still looking for low prices, but want to find them nearer to
home and accompanied by great service, and may even be willing to pay a little
more to obtain that. As consumers have less time they prefer to shop wisely,
purchasing certain products once-a-month via large hypermarkets, which offer
payment plans and price comparison, as well as complementing their monthly
needs at neighbourhood stores and convenience stores.
·
Convenience stores are
benefiting in developed markets from growing popularity among the expanding
over 65 demographic, with accessibility a key factor. In addition, the growth
of the forecourt convenience shop format is contributing to sector gains, with
this trend particularly visible in Western Europe. Furthermore, a trend away
from bulk and towards portability is also fuelling growth, with the US a key
example here. Rising temperatures due to climate change are also fuelling
impulse purchasing of soft drinks with convenience stores and vending machines
best positioned to benefit from this trend.
·
The dominant
supermarkets/hypermarkets sector continues to broaden its product offer, both in
general and within soft drinks. With regards to broadening the offer, Tesco
continues to expand its Tesco Extra format in the UK, as well as trialling its
Homeplus format and launching its Tesco Direct on-line shopping service, with
the latter two solely devoted to the retailing of non-food and drink products.
Coles and Woolworth are employing similar strategies in Australia. Regarding
soft drinks, in particular, operators in the US and the UK have introduced more
chiller cabinets to stores in order to tap into the impulse market for cold
soft drinks.
·
While the development of
forecourt retailing has benefited the convenience stores sector in the UK and
elsewhere in Western Europe, changes in payment systems, with the introduction
of the pay-at-pump format, have hit sector sales in the US. Rising competition
from drugstores has also negatively impacted the sector, largely on the grounds
of convenience, with the soft drinks offer becoming increasingly tied in with
rising concern over wellbeing.
·
On the back of a robust
performance in recent years in North America and Western Europe, discounters
have started to expand their product range. In Germany, operators make strong
efforts to meet consumer demand for new kinds of soft drinks. If new branded
products are successfully introduced on the market, the leading discounters
quickly respond to the trend. In some categories, such as functional water,
energy drinks and chilled cup RTD coffee, instead of having a negative impact
on demand for branded products, the introduction of private label products
created additional demand, as products became affordable for more consumers. In
addition, operators have increased their focus on emerging markets, with a
notable rise in outlet numbers in Eastern Europe. Indeed, Poland is primed for
an invasion by discounters in the short term.
·
Direct home delivery is a major
distribution channel in Latin America, in particular in Mexico, largely as a
result of demand for bulk consignments of bottled water. Rising disposable
incomes are allowing more people access to bottled water, and this increase in
home delivery demand is hitting the share of supermarkets/hypermarkets.
Private Label Trends
·
The share of private label in
global soft drinks grew marginally in 2006, to nearly 9% of off-trade volume
sales. This growth was driven by increasing sales of private label bottled
water particularly in North America and Western Europe (Germany, France).
Because bottled water is considered somewhat of a commodity (and only one step
away from tap water), consumers tend to be price-conscious when purchasing
bottled water in larger quantities for at-home consumption. As a result, the
rise in private label penetration is partly attributable to the growth of the
discounters channel. In contrast, off-trade volume sales of private label
fruit/vegetable juice declined in 2006 as the trend towards premiumisation
became more entrenched resulting in the phasing out of standard quality
products.
·
Western Europe and North
America accounted for 92% of private label sales by off-trade volume in 2006,
partly due to the higher penetration of discounters in these regions. Private
label penetration is generally limited in emerging markets and accounted for
less than 1% of sales by off-trade volume in Asia-Pacific, Latin America and
Africa and the Middle East in 2006, predominantly as a result of the low
pricing levels already in existence. However, sector share is rising, largely
as a result of the growing coverage of supermarkets/hypermarkets.
Prospects
·
Supermarket/hypermarket numbers
are predicted to continue to rise. Operators are likely to increasingly invest
in emerging market growth programmes particularly in regions where purchasing
power is expected to improve in the medium term. In Brazil, for example, both
Wal-Mart and Pão de Açucar are concentrating on the historically poor North and
Northeast regions where retail is traditionally small and segmented. Similarly
in Egypt, the introduction of hypermarkets and superstores is reshaping the
retail environment making it possible to buy everything under one roof with a
weekly shop instead of visiting a series of small groceries, meat and chicken
vendors on a daily basis. In developed markets, greater cross-sector expansion
is expected to occur, as well as innovation, such as in chiller cabinets, and
diversification into non-food and drink sectors.
·
The share of convenience stores
in global distribution is expected to continue to rise in the short term, as
the channel benefits from strong trends towards urbanisation in emerging
markets and impulse buying and on-the-go consumption in the developed world.
Additionally, convenience stores and kiosks should benefit from rising
temperatures due to climate change. Its relationship with the multiple grocer
sector should also grow going forward, in particular in developed markets, as
supermarket/hypermarket operators increasingly look outside their own sector to
achieve growth. Many chains, in both developed and developing regions, are
developing small concept stores, targeting convenience shopping with better
service and value-added products, despite higher prices.
·
The outlook for the discounters
channel appears bright, with operators set to build on success in Western
Europe and expand into Eastern Europe. Aldi is leading sector expansion in
Eastern Europe, having announced growth strategies in Poland and Russia, and
more growth is expected. Discounters are also broadening their product ranges,
an expansion that should positively impact soft drinks, in particular if
operators follow the lead of multiple grocers and offer more on-the-go
products.
·
In contrast, the future looks
much less rosy for independents, as these traditional outlets are unable to
compete with the ongoing expansion of multiple grocers, convenience stores and
discounters. Independents will remain important, in particular in emerging
markets; however, their presence is set to become increasingly marginalised.
·
The vending machine channel is
expected to gain importance over the medium term driven by the increase in
impulse purchases and on-the-go consumption. Sales are expected to be boosted
by new product development activity, with manufacturers launching ever smaller
and easy-to-use packaging formats as well as increasing the range of products
available through vending. Beverages sold through vending will include RTD
coffee and RTD tea, bottled water, fruit juice and energy drinks. The
increasing importance of vending as a distribution channel is not expected to
cannibalise sales through supermarkets/hypermarkets and discounters, but will
rather come at the expense of convenience stores and independent food stores.
·
The forecast for private label
is mixed. Although steady growth is expected across the emerging world, largely
on the back of rising numbers of multiple grocers and discounters, and in
Western Europe, immovable attitudes towards branded products in North America
and to a lesser extent Australasia, look set to offset much of this positive
development.
·
Private label product
differentiation could change perceptions of private label products. Sales of
products in the medium price range are expected to be eroded by the development
of both low-budget private label lines and premium private label lines.
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