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Introduction and Summary
The soft drinks industry proved remarkably resilient in 2008 despite tough trading conditions, writes Paul Moody.
UK soft drinks sales totalled £8.4bn in 2008 across all channels, just 1% lower than the previous year's record figure; soft drinks remains one of the most important categories in the take-home and on-premise sectors. During a year when both the weather and the economy were against us, and the impact of regulation continued, this was quite an achievement. It acknowledges the industry's ability to adapt and respond to change.
As the economic climate continues to deteriorate, the most difficult questions to answer are: how much will consumer demand be affected, and in what way? Our analysis of consumer behaviour in 2008, as the impact of the credit crunch began, gives some clues.
As you might expect, shoppers are looking to reduce their grocery bills, watching out for promotions and taking more opportunity to buy on promotion. Perhaps this is one critical key to soft drinks' resilience: promotions are a staple part of our industry's marketing, accounting for 61% of total branded sales. The price difference between branded products and own label alternatives is relatively narrow, and if shoppers want to trim their spend, they are showing little inclination to start with soft drinks brands they know and trust.
They do appear to be planning their shopping more consciously, cutting back on both top-up visits and 'monster shops'. But the good news for our industry is that branded soft drinks are a staple of the mid-sized shopping basket.
As a result, take-home sales, which account for almost three-quarters of the UK soft drinks market, have held up well: they grew by 1% in value in 2008 despite a 2% volume decline. This growth was driven largely by glucose and stimulant (energy) drinks and sports drinks – both of which offer consumers unique functional benefits that they are willing to pay for. As economic conditions have worsened, traditional favourites such as cola, squash and juice drinks have benefited.
Smoothies faltered significantly after several years of strong growth, as consumers were clearly not willing to pay the price premium when they could get their fruit fix elsewhere. Bottled water also suffered as the poor summer and economic climate contributed to its second year of declining sales. However, evidence from international markets similar to the UK suggests it may have more room for growth in the medium to long term. The gradual trends we noted in previous years – from carbonated to still, and from regular to diet or no-added-sugar have continued.
The licensed trade had a more difficult year than the grocery retailers. The economy, the continued challenge of the smoking ban and a disappointing summer added up to a perfect storm of challenges, and Euro 2008 failed to provide the hoped-for relief. But the growing emphasis on food and families has favoured soft drinks. They outperformed total alcoholic drinks, with sales down just 4% by value and 6% by volume at £2.3bn. Cola and lemonade remained pub staples while food and family-friendly fruit juice and juice drinks performed the most strongly. In contrast to take-home, energy drinks saw their third consecutive year of decline – while bottled water suffered in both channels.
Our review of international trends shows a similar picture to the UK across Europe and the United States. While volumes may be down, value is holding up well. Health and wellbeing continued to shape consumer behaviour in these countries and beyond, as our snapshot of India shows, although there are significant differences in local interpretation.
Soft drinks continue to be a staple purchase on which consumers are reluctant to compromise. And as a soft drink is a small-ticket, cash item offering affordable everyday enjoyment, they have little reason to. In the downturn so far, it's the big brands and traditionally popular sub-categories like cola, squash and juice drinks that consumers seem particularly unwilling to do without.
The soft drinks industry's close understanding of consumer and shopper behaviour has enabled it to continue satisfying the huge diversity of consumer needs, whether for hydration, health, enjoyment, convenience, value or – particularly nowadays – all of those at once. With another tough year in prospect, the challenge for the industry is to keep delivering the combination of value and quality that consumers expect, and to stay alert to every shift in their daily purchasing decisions.
Paul Moody
Chief Executive, Britvic Soft Drinks and President, British Soft Drinks Association
