Introduction and summary

Questions

How did the soft drinks market perform in 2007?

2007 was really quite a challenging year for the soft drinks market. There were a number of factors that impacted on the market. Of course we had the worst summer on record and there were some other issues as well that had a role to play. Not least of which was the introduction of the smoking ban in England from July last year. But the soft drinks industry showed itself to be adept and adaptable as it brought new products and brands to the market that really met the consumers needs. Now despite that, the volume was down 2% but encouragingly the value of the market was up 2.4% to just around £8.5 billion. Now I think that really reflects really well on the industry’s ability to anticipate consumers’ needs and wants and to bring to them products that absolutely match what they’re looking for.

How did soft drinks perform in the take-home channel?

Soft drinks within the take-home channel continues to be the single largest category with sales of in excess of £6 billion. The take-home channel was also affected by the poor summer, and as a consequence its volume performance was down 2%. But encouragingly value was up by 2.8% and indeed cola, still the single largest category, continued to grow its share of the overall soft drinks market in take-home. The growth and the value of the market was driven by consumers continued movement towards products that are healthy or well-being or have some functional benefit. This could be seen in the growth of glucose and stimulant drinks and smoothies. Pure juice is now pushing to be the largest category as it showed good growth during the course of the year.

How did soft drinks perform in the on-premise channel?

The on-premise channel was also impacted by the very poor summer and the introduction of the smoking ban, which took effect in England at the beginning of July. Whilst volume in the market was down just over 2%, encouragingly value was up 1.3% and this compares very strongly with the beer category, which itself was down 3% in the year. Cola continued to grow well and is now twice the size of the next nearest category. Reflecting the general consumer trends towards ‘better for you’, both juice drinks and bottled water performed strongly in the on-licensed sector. Moving to food service there was a good value growth of 12%; clear evidence that there is a strong association between soft drinks and food.

How did the smoking ban effect sales of soft drinks in the on-premise channel?

The on-premise channel performed well in the first half of the year, showing good growth up to the end of May. In June there was already evidence of a slow down in performance as a result of a poor summer and from the beginning of July there was the impact of the smoking ban, although it is very difficult to isolate the impact of either of those. In the second half of the year there was good growth shown by cola, by juice drinks and by bottled water. All three categories are often consumed with food, and that combined with the introduction of the smoking ban, does suggest that the growth in food linked with additional consumption of soft drinks is something that we will see both now and in the future.

What sectors of the soft drinks market drove growth overall in 2007?

Growth in the market in 2007 was driven by products and categories that had functional benefits. Added vitamins or added minerals for example, or energy boosting via stimulant or glucose or sports drinks. Further growth was driven by added-value products commanding a price premium.

What external challenges did the industry face in 2007?

In 2007 the industry faced a number of external challenges. Of course we had the worst summer on record, and on the 1st July a smoking ban was introduced into public places in England, and that had an impact particularly on the on-licence premise market. In addition to those two we had the continued focus on obesity which remains top of mind for the government and that led to some new legislation and new guidelines around advertising to children and indeed also lead to the development of GDA labelling and focusing on energy intake. There was continued focus on environment and sustainability and the soft drinks industry took a number of steps to mitigate its impact. Overall the industry worked hard to anticipate and respond to changing regulations.

What consumer trends are shaping the market?

There are four key consumer trends that are influencing the soft drinks industry at the moment. Health and wellbeing, convenience, ethics, and indeed, indulgence. What’s interesting is that all four of them are not mutually exclusive. The industry is developing products that meet one or maybe all of those in the same occasion. The consumer trend towards health and wellbeing is now even more complex with three separate strands. In addition to diet there is now a focus on naturalness and on functional benefits.

How are carbonated soft drinks performing?

Reflecting the consumer trends towards health and well-being, the stills market showed stronger growth leading up to 2006. In 2007 carbonates showed both volume and value growth led primarily by stimulant and energy drinks. The good performance of carbonates in 2007 suggests that consumers are taking a more balanced view about their repertoire of soft drinks across both stills and carbonates.

How are regular drinks performing, compared to diet or no added sugar?

In line with the consumer trends towards health and well-being, no-added sugar or diet products over the last 3 or 4 years have shown good growth. Equally, as there is now a greater focus on naturalness, the role of full sugar or regular products is now becoming more prominent in the repertoire that the consumers are choosing.

How does the UK compare to other markets?

We looked at a number of markets world wide that are similar to the UK market, and what’s very clear is that trends towards health and well-being exists around the world as well. In the US, the take-home market grew particularly strongly and one of the key contributors to that growth was bottled water, and within that, bottled water that has enriched or enhanced product. In Australia the market grew by 9% led by sports and energy drinks. Germany and France had relatively modest growth, but in Ireland there was a market growth of around 7%. The Irish market is very similar to the UK in that they are seeing the same trends around health and well-being and as a result seeing good growth in juice, juice drinks and water.

What's next for soft drinks?

The soft drinks industry will continue to be led by the consumer. The consumer has ever more increasingly complex demands and needs. And that’s not just about the products. It often reflects their focus on things like environment and sustainability. What’s key is that they industry focuses on innovating creatively to meet the needs of the consumer, to continue to focussing on bringing the products that meet their needs. Both in terms of what they drink, when they drink and how they drink.