E
merging markets for Soft Drinks Industry in the global context
Emerging Markets (second Tier Markets)
Emerging markets in the global context
·
Amongst the developing regions,
five key emerging markets are likely to be Ukraine, South Africa, Indonesia,
Philippines and Thailand. Ukraine was the most dynamic of the five in 2006,
with off-trade volume growth of 17%, ahead of Philippines and South Africa (7%
growth each), Indonesia and Thailand (5% growth each). Ukraine, Philippines and
South Africa exceeded the global average of 5% in 2006. The five markets
contributed 9% to global incremental growth in off-trade volume terms in 2006.
·
In line with the global trend,
bottled water was the largest soft drinks sector in Indonesia and the
Philippines in 2006, accounting for 86% and 46% of sales respectively by
off-trade volume. The dominance of bottled water in Indonesia is due to the
popularity of home delivery of 5-gallon bottles which are used instead of the
poor quality of tap water in this country. Carbonates dominate the marketplace
in Ukraine (51% by of-trade volume), Thailand (39%) and South Africa (71%)
buoyed by growing consumer incomes enabling consumers to afford products such
as carbonates previously considered to be luxury items. However, over the
forecast period the contribution of carbonates to overall soft drinks sales by
off-trade volume is expected to decrease in these countries as consumers become
increasingly health conscious and switch to non-carbonates. In Thailand,
bottled water is expected to overtake carbonates as the largest soft drinks
sector over this period.
·
Although functional drinks was
the most dynamic soft drinks sector globally, among the five emerging markets
this was only so in Indonesia where off-trade volume sales of functional drinks
grew by 33% in 2006 fuelled by the introduction of new brands as well as
manufacturers' consistent promotional campaigns to educate consumers on the
benefits of drinking sports drinks on a daily basis and not only after sports
activities. Despite this outstanding growth, functional drinks remain a niche
sector in Indonesia, accounting for less than 2% of soft drink sales by
off-trade volume in 2006.
·
Functional drinks also
outperformed the overall soft drinks market in the other four emerging markets
as the health trend gained momentum in these countries supported by rising
disposable incomes which encouraged consumers to trade up to products with
added value and health benefits. These same factors ensured that RTD tea (the
second fastest growing sector globally) was the most dynamic sector in Ukraine
(60% growth by off-trade volume, 2006), the Philippines (59%) and South Africa
(27%). In Thailand, bottled water led the field in 2006 (9% growth by off-trade
volume) driven by consumer concerns over the safety and hygiene of drinking
water.
Criteria for success
·
Despite rising incomes,
lower-income consumers in emerging markets are still demanding products which
offer value for money. In South Africa, for example, the expansion of the
middle class means that a growing number of consumers are finally acquiring
basic needs such as running water and electricity. As a result, the expansion
of the middle income bracket in the country means the majority of consumers are
price sensitive and feel the need to purchase value for money consumables.
·
The trend towards healthy
lifestyles has impacted all five of the highlighted emerging markets with
consumers increasingly switching away from carbonates to healthier options
particularly functional drinks, bottled water, RTD tea and fruit/vegetable
juice. Overall, the demand for products offering extra health benefits is also
fuelling growth of premium sectors including 100% juice and juice-based
carbonates across the emerging markets.
·
New product developments tend
to target middle- to upper-income consumer groups which have improved
purchasing power and are willing and able to spend extra money on healthier and
better quality products. This has resulted in a flurry of novel value-added
functional products including the launch of preventative fortified soft drinks
such as VITON Active C (a vitamin C-enriched sports drink) and SidoMuncul C1000
(a vitamin C-enriched elixir in powder concentrate form) in Indonesia. In
Thailand, the health and beauty trend has crept into soft drinks with
manufacturers adding functional ingredients such as collagen or L-Carnetine to
products targeting female consumers. For example, Malee Plus launched a range
of fruit juices containing collagen and a grape seed extract which help skin
look younger.
Competitive landscape: Who moved first?
·
Multinationals are the market
leaders in all the five selected emerging markets. The Coca-Cola Company is the
leading soft drinks manufacturer by off-trade volume in all countries besides
Indonesia where Danone leads by off-trade volume due to its dominance of the
key bottled water sector in the country.
·
Local soft drinks manufacturers
are highly competitive in Ukraine. Soft drinks is one of the markets in which
consumer loyalty to locally manufactured products is especially strong.
Although The Coca-Cola Company is the market leader with 13% share by off-trade
volume in 2006, the remaining top five players are domestic manufacturers, offering
a wide assortment of drinks, particularly in carbonates. Key sectors such as
bottled water and fruit/vegetable juice are dominated by domestic players,
although foreign players such as The Coca-Cola Company and PepsiCo Inc are
expected to leverage on their strength in carbonates and expand into these
lucrative sectors over the forecast period. There is a clear trend towards
market consolidation in Ukraine, and multinationals are taking note of
opportunities in the country. In June 2007, PepsiCo Inc acquired Ukrainian
juice maker Sandora.
·
The Coca-Cola Company dominates
the Philippines market with a 48% share by off-trade volume in 2006. The
company's tremendous success in the country can be linked to its strong brand
position from the long-standing presence of Coca-Cola products in the country,
the strong affinity for carbonated drinks as well as its efficient distribution
network thanks to its links with San Miguel Corp. This keeps Coca-Cola products
among the most widely available soft drinks, penetrating even the most remote
corners of the archipelago, a feat normally found difficult by foreign
companies in the country. Since 2002 the company has steadily been losing share
to aggressive domestic players such as second-ranked Asia Brewery Inc and fourth-placed
Philippine Spring Water Resources Inc. These bottled water manufacturers
compete on the basis of price and distribution, with their brands priced for
cut-throat competition, leaving little room for multinationals to capture their
well-earned positions.
·
The Coca-Cola Company, PepsiCo
Inc and Nestlé occupy first, second and fourth position in soft drinks in
Thailand respectively and collectively accounted for 48% of off-trade volume
sales in 2006. The multinationals owe their positions to their strong presence
in carbonates (The Coca-Cola Company and PepsiCo Inc) and bottled water (Nestlé
and PepsiCo Inc), the two largest soft drinks sectors in Thailand. The booming
trend towards health consciousness among Thai consumers has contributed to
growth of the bottled water sector as consumers switch from carbonates to
healthier options. However, despite the trend towards healthy living,
carbonates sales continue to grow fuelled by low-calorie carbonates which meet
the needs of health-conscious carbonates drinkers.
·
The Coca-Cola Company
completely dominates the South African market with 57% share by off-trade
volume in 2006 thanks to its strength in the key carbonates sector where it
offers the widest variety of products across the board. The company has the
benefit of being a large organisation and therefore having the resources to
advertise and promote its products to a very large extent. Smaller domestic
companies, such as fourth-ranked Quality Beverages, are unable to adopt such a
fierce advertising strategy. However, Quality Beverages is able to promote its
products in terms of price, which is a significant factor among middle-income
consumers in the country. The only other multinational to feature in the top
five soft drinks manufacturers in South Africa is third-ranked PepsiCo Inc
which relaunched in 2005 after an absence of 10 years. While PepsiCo Inc
recognises the opportunity for growth in South Africa, it remains to be seen
how consumers react given their fierce loyalty to The Coca-Cola Company.
·
Danone dominates the soft
drinks market in Indonesia with a 38% share by off-trade volume in 2006. The
company enjoys a significant lead in the market, as second-ranked Sino Sosro
has only 6% share by off-trade volume. The next largest multinational in the market
(fifth-ranked The Coca-Cola Company) only has a 4% share of the market by
off-trade volume. In a country plagued by poor quality tap water, being
considered the pioneer for bottled water in Indonesia puts Danone in a strong
position which it strives to maintain through heavy promotions and advertising.
Prospects
·
With steady forecast growth
rates, the five emerging markets are expected to contribute significantly to
global soft drinks growth over the 2006-2011 forecast period, with a combined
10.1 billion litres of off-trade sales, accounting for 12% of global gains (the
same contribution as over the review period).
·
The key contributing emerging
market in absolute off-trade volume terms is expected to be Indonesia, as its
soft drinks market is forecast to expand by 4.4 billion litres over the
2006-2011 period. The Philippines is expected to post the next largest growth,
of just under two billion litres, as mounting health awareness, coupled with
tighter budgets, results in consumers shying away from products perceived to
have a high sugar content.
·
Ukraine is expected to be the
most dynamic of the five emerging markets over the forecast period in off-trade
volume terms, with a CAGR of 11%, significantly ahead of South Africa (7%
CAGR). All five emerging markets are set to outperform the global market, which
is forecast to post a CAGR of 4%, chiefly due to the maturity of the developed
markets. However, the emerging markets are all set to grow at a rate below that
posted between 2001 and 2006, indicating that market stabilisation and a degree
of saturation will become apparent going forward.
·
Over the forecast period soft
drinks is expected to post healthy growth in Ukraine (11% CAGR by off-trade
volume), thanks to a range of underdeveloped categories combined with further
potential for already established niches. Per capita consumption of soft drinks
still remains below that of neighbouring countries, not to mention Western
European countries, but this is expected to increase over the forecast period
backed by growing disposable incomes. Bottled water and carbonates are expected
to account for 77% of absolute gains by off-trade volume in Ukraine over the
2006-2011 period. A developing bottled water culture will continue to be driven
by growing consumer concerns about health and the improving living standards of
Ukrainians. Despite pressures from healthier drinks such as bottled water and
fruit juice, carbonates is expected to continue its positive performance driven
by rising consumer incomes and increasingly busy lifestyles which should see
consumers switching from home-made fruit drinks to carbonates.
·
The soft drinks industry in
Indonesia still has immense growth potential (6% CAGR by off-trade volume,
2006-2011). However, it has always, naturally, been vulnerable to the unstable
economic situation. Expectations of lower inflation rates over the forecast
period should translate to better performance of the industry. The expected
continuing health consciousness among Indonesian consumers is likely to benefit
not only health and wellness soft drinks products, but also products that are
already perceived to be healthy even without any fortification, such as
fruit/vegetable juice and RTD tea. Indeed, bottled water is expected to account
for 84% of absolute off-trade volume gains over the 2006-2011 period.
Functional drinks and functional bottled water are also expected to benefit
from the growing health concerns among consumers. The expected rapid
development of modern retail outlets is likely to provide a spur to the
performance of soft drinks throughout the forecast period. The expansion will
provide manufacturers with more space to market their soft drinks products,
while at the same time consumers will have better access to a wider range of
soft drinks products at affordable prices.
·
Bottled water will remain the
most important sector in both Thailand and Philippines over the forecast
period. In Thailand, bottled water is expected to account for 63% of absolute
growth by off-trade volume as health-conscious Thai consumers switch from
carbonates to bottled water. In the Philippines, bottled water will account for
90% of absolute growth by off-trade volume partly due to growing health
awareness in the country, but also due to hygiene rather than any nutritional benefits
that may be gained from drinking bottled water.
·
In South Africa carbonates and
bottled water will account for 85% of absolute growth by off-trade volume over
the 2006-2011 period. Carbonates are perceived as a value for money purchase,
and the sector is expected to benefit from rising disposable incomes as the
country's middle class expands. Due to the trend towards healthy living,
low-calorie carbonates are expected to perform particularly well over the
forecast period. The fact that these products are favourably priced makes them
affordable to a large portion of the population. Bottled water is the fastest
growing soft drinks sector in South Africa due to consumers' focus on healthy
living. Additionally, bottled water is more affordable than other healthy
alternative beverages and thus appeals to the large middle class.
pulse m? � t f ȟ� � 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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