Global Soft Drinks Trends, Essay Example

The global soft drinks market was worth $440.3 billion in 2009 and is expected to have a value of $511.6 billion by 2014, resulting in a cumulative increase of 16.2 percent over the period. It is expected that the global consumption of soft drinks will total $465.4 billion liters by 2014 (Business Wire). There was a time when carbonated drinks alone occupied the entire soft drinks industry but now several other product lines such as energy drinks, sports drinks, mineral water, and tea/coffee are emerging as elements of the soft drinks industry. Even though Americas remain the biggest market by global soft drinks market value, accounting for 43.9% of the global market share (Business Wire), a significant proportion of the growth is now coming from emerging economies (Food Product Design) where income levels are rising and soft drinks markets are still in infancy.

There are several factors at both microeconomic and macroeconomic levels that influence the demand for soft drinks. First of all, demand for soft drinks varies directly with personal income levels. Thus, it is not surprising that soft drinks average consumption levels are usually higher in countries such as U.S. that have high per capita income levels as compared to developing countries. This also explains why the demand for soft drinks products is expected to rise in emerging economies as income levels are rising there due to globalization. Another microeconomic factor that affects the demand for soft drinks is the prices of the products. When prices go up, the demand for soft drinks goes down. Consumers are even more sensitive to prices when they have low income and it is safe to assume that the price elasticity of demand for soft drinks is higher for consumers with low income as compared to those with high income. This is because soft drinks consumption accounts for a lower proportion of the overall spending of high income earners. As income levels rise around the world, the price elasticity of demand for soft drink products will decline which is positive news for the industry.

One of the macroeconomic factors that influences the demand for soft drinks is the overall economic climate. During difficult economic times, unemployment levels are high and people become more conservative in their spending habits. This is why global soft drinks industry’s revenue declined in 2009 because of the difficult economic conditions across the world (IBISWorld). Another macroeconomic factor is the intensity of competition. Global soft drinks industry has medium barriers to entry because of the dominance of two industry players, Coca Cola and Pepsi that together own a little more than one third or 35 percent (Coca Cola (25%), Pepsi (10%)) of the entire global soft drinks market (The Globe and Mail). The entry barriers also exist due to high capital costs, brand loyalty for existing industry players, and high marketing costs.

The global soft drinks industry is segmented by various factors. One of them is consumer preferences. While carbonated drinks still account for the major portion of overall global sales (40.6 percent in 2010) (DataMonitor), other categories are growing at a rapid pace. For example, bottled water was the top volume category in 2010 and the sales of sports drinks are rapidly growing in Asia and Western Europe, especially Indonesia. Another segmentation criterion is gender. Women are now a major target in the sports drinks market in Western Europe. Soft drinks manufacturers also segment international markets by products. Some products are particularly popular in certain countries. For example, juices are widely popular in Russia and China (Russell). Segmentation strategies based on lifestyles are also being utilized by soft drinks manufacturers. Sports drinks are often targeted at those with active sports lifestyles while energy drinks are targeted at students and those with active social lives.

Three of the leading soft drink companies in the world are Coca Cola, Pepsi, and Nestle. Coca Cola is the world’s largest soft drinks maker by market share. The company had a cumulative market share of 25.9 percent in terms of sales value in 2010 while its closest competitors Pepsi and Nestle held 11.50 percent and 3 percent, respectively (Statistia). Coca Cola’s products are sold in more 200 countries. Coca Cola enjoys one of the highest brand recognition rates in the world, with about 94 percent of global population able to recognize Coca Cola’s logo. Of the 33 non-alcoholic drinks that generate over a billion dollar of annual sales, 15 are owned by Coca Cola. The company spends huge amount on marketing, spending a total of $2.9 billion in 2010 (Bhasin).

As far as Pepsi is concerned, the company is the second largest soft drinks producer in the world. The company is especially a strong player in the rising economies such as India and China. Pepsi has 45 plants in India and 22 in China to which it plans to add another 14. The company has overtaken Nestle as the number one food and beverage company in India (Choudhury). The company operates nearly 700 manufacturing facilities worldwide in which it produces several well-known brands such as Pepsi, Sobe, Gatorade, and Propel Zero (Pepsi Co.). Nestle is the world’s third largest soft drinks manufacturer. Nestle is especially renowned for bottled water and offers 65 bottled water brands on a global basis. The company’s Pure Life is the world’s number one bottled water brand and is sold in 28 countries. The company’s U.S. brands include Poland Spring, Arrowhead, Ozarka, and Zephyrhills while international brands include Perrier, S. Pellegrino, and Acqua Panna (Yahoo! Finance). The company doesn’t make any soda drinks and has been taking steps to bank on the negative image of soda beverages by marketing bottled water as a healthy alternative (Patrick).

The opportunities presented by globalization include economies of scale. Another opportunity is centralization of various operating tasks such as production and distribution. Pepsi has acquired several anchor bottlers in the last few years to improve control as well as increase global market share. Another opportunity presented by globalization is the acquisition of local companies to quickly gain foothold. Pepsi has acquired a majority stake in Russia’s Wimm-Bill-Dann Produkty Pitania OAO, to become a leading food and beverage company in the country (Food Product Design). Carbonated drinks are getting negative coverage in many countries due to their perceived contribution towards obesity trend. Thus, a great opportunity lies in offering healthier alternatives. Even major players such as Pepsi and Coca Cola are increasingly presenting their respective sports drinks as healthy beverages. The market for healthy beverages is so lucrative that 60 percent of all global soft drink launches in 2010 had some sort of health positioning (Nutraceuticals World). Fruit juices and drinks accounted for 21 percent of the global soft drinks market in 2010 which is roughly half of the share held by carbonated drinks during the same period (Ingredients Network). Substantial growth opportunities also lie in other non-Asian regional markets. For example, per capita soft drinks consumption in Latin America only trailed behind North America and Western Europe in 2011 and is expected to equal Western Europe by 2016. Households in Latin America are known to spend the greatest proportion of their disposable income on soft drinks of any region (EuroMonitor International). Thus, soft drinks manufacturers should focus on markets that may not enjoying the record growth rates like BRIC countries but have high per capita consumption rates.

One major threat is the rising intensity of the competition. The competition has also been growing due to globalization as previously closed economies such as Russia, India, and China are allowing more and more food and beverage companies to enter the market. Another threat is from rapidly changing consumers’ preferences because carbonated drinks, which still account for a substantial portion of overall sales for the global leaders such as Pepsi and Coca Cola, get significant negative coverage and are considered unhealthy. Similarly, even though energy drinks are gaining popularity, the tide may also turn against them due to high caffeine contents. One way to counter negative perceptions may be to use healthier ingredients. Leatherhead Food Research reported in 2011 that soft drinks manufacturer have been experimenting with new herbal and botanical extracts to make their products stand out (Bouckley). One ingredient that has received a great deal of attention is stevia which could be used as a sweetener in the soft drinks. Coca Cola recently announced that it will use stevia in Nestea and Sprite in France. Stevia is believed to reduce sugar and calories content by 30 percent (Ingredients Network).

As far as Spain is concerned, the carbonated soft drinks market enjoyed a compound annual growth rate (CAGR) of 1.5% over the period 2005-2009. The total sales in 2009 were $8.8 billion. The growth rate is expected to slow down and it is estimated that the CAGR over the period 2009-2014 would be only 1.1 percent (DataMonitor). This indicates that not only the country is a saturated market, especially in terms of carbonated drinks but the adverse economic conditions are also negatively affecting growth aspects in Spain. The leading players in Spanish soft drinks market are Coca Cola, Pepsi, and Groupe Danone (DataMonitor). Due to the recent financial crisis, Spanish consumers have become more price-conscious and many major grocery retailers in Spain have become an aggressive player through private label brands. In addition, Spanish are also becoming more health conscious which is leading to introduction of healthy drinks in record numbers in the Spanish markets (EuroMonitor).

Global soft drinks market has been going through a radical transformation due to the forces of globalization, changing consumer preferences, and degree of competition. Coca Cola and Pepsi remain the two largest individual players in the global soft drinks market but the competition is getting more intensive day-by-day. Carbonated drinks are declining in popularity and are being fast replaced by other product categories such as sports drinks, energy drinks, and lifestyle beverages. The greatest prospects of growth lie in emerging economies where soft drinks markets are still in infancy and income levels are rising. While per capita consumption rates continue to be higher in North Americas and Western Europe, the future growth prospects are not as bright due to mature markets as they are in emerging economies.

References

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Business Wire. Research and Markets: In 2014, the Global Soft Drinks Market Is Forecast To Have a Volume of 465.4 Billion Liters, an Increase Of 16.7% Since 2009. 4 February 2011. 3 August 2012 <http://www.businesswire.com/news/home/20110204005758/en/Research-Markets-2014-Global-Soft-Drinks-Market>.

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