Times are changing for drink makers

23 April, 2013
Foodmagazine

Soft drinks are some of the most popular and most talked about beverages on the market, but despite their dominance innovation in the sector is starting to stall.

Traditionally a fast moving and competitive market, new releases in the industry are falling, and analysts say after years of expanding influence manufacturers may have reached their peak.

According to a new report by Innova Market Insights the soft drink industry represented a surprisingly small portion of new releases last year, and the dearth of new products may represent a break in the sector’s traditional strength.

“Despite their ongoing dominance in terms of market size, carbonated beverages accounted for just 14 per cent of global new product activity in soft drinks in 2012,” Innova research manager Lu Williams said.

“This reflects a mature status, the fairly concentrated nature of the industry and the relatively limited innovation opportunities in comparison with some other parts of the market, such as fruit and juice drinks.”

But despite the fallbacks research by Innova points to one new channel for the industry.

Like other beverage makers soft drink manufacturers have put their eye on developing healthier options for the market, with consumers increasingly concerned about their health and well-being.

Sugar free alternatives have long been provided by soft drink makers, and if current leads are anything to go by, this trend is likely to continue.
Not only in Australia but on the global scale as well, soft drink makers are looking to cut sugar in order to draw in a larger portion of consumers.
“Interest in low calorie and reduced sugar lines is now well established and products using this type of claim accounted for 17.5 per cent of global carbonate launches in 2012,” the Innova report claimed.

“This percentage rises to nearer a quarter in the USA and Western Europe and falls to about 11% in Asia.”

But unlike the sugar-free releases of yesteryear, these products have a new twist.

Instead of cutting sugar altogether brands are now looking toward increasing artificial sweeteners whilst lowering, but not removing, the sugar content.
It’s a subtle yet significant change for the industry, and while the early signs are promising, it’s relatively new ground for some of the industry’s biggest brands.

New interest
Because it has the largest soft drink market in the world, manufacturers have traditionally looked to the United States to lead innovation in the sector.
But the dominance of the US market has also contributed to its demise, with large brands keeping upstarts in the market to a minimum.

“Product development trends to be led from the US, although the very concentrated nature of the market, with the top three players accounting for 90 per cent of sales, has served to limit innovation in some instances,” Williams said.

“This has also tended to stifle the development of new players and brands.”

Nevertheless the market is getting tighter and with this the industry has started to diversify, with more obvious differences emerging between products, particularly those released in Australia.

Mid calorie or low sugar drinks are now a big focus for soft drink brands, and the sugar-free alternatives of previous years are playing second-fiddle to these new developments.

“A more recent trend aimed at regenerating interest in mature and generally static market is that of mid-calorie products, positioned as a halfway house between the taste of full-sugar products and the health benefits of sugar-free options,” Williams said.

The Next product
One of the most talked about low calorie releases of recent times has been the Pepsi Next launch.

This release was of particular importance not only because it represented a major leap into the mid-calorie market, but because its Australian release was significantly different to other global releases.

Unlike its US counterpart, the Australian launch of Pepsi Next had a stronger focus on retaining the sugar content.

“The brand was launched in Australia in 2012, but interestingly using a formulation with stevia for 30 per cent sugar reduction, rather than the 60 per cent reduction in the US version with a variety of sweeteners,” Williams said.

With consumers increasingly concerned about the impact artificial sweeteners may have on their health, brands have moved to quell concerns by bringing sugar back into the equation.

This move forms the crux of the difference between the US and Australian versions of Pepsi Next, with the local version being sweetened with sugar and stevia only, while the US version takes on a blend of sugar and four different sweeteners.

With its lower reliance on alternative sweeteners the Australian product posts a significantly higher sugar content, and it’s a far cry from the sugar-free Pepsi Max consumers are most used to.

In Australia Stevia is considered a ‘natural’ ingredient and the fact that the sweetener is plant-based has helped allay health concerns and improve the product’s image.

The move has also been used by a number of non-alcoholic beverage makers, particularly juice makers, which enjoy the benefit of closely aligning their products with more ‘natural’ ingredients.

But despite the new buzz around mid-calorie drinks Williams says the new products aren’t without their downfalls.

These products are not well tested in the market, so brands are still unsure how they’ll be received by consumers, and the new competition brought in by these products may introduce complications for existing products with a strong and loyal fan base.

“They may not have widespread consumer appeal, may confuse consumers with a raft of different calorie levels, sweeteners and positionings may, in any case, cannibalise sales of existing full and low calorie lines,” Williams warns.

The trend intensifies
Pepsi isn’t the only large soft drink brand to enter the mid-calorie market, with main rival Coca-Cola also making similar moves overseas.

Last month Coke released a new reduced calorie Sprite for the UK market, and in a sign of how confident the company is in the product, the new release will completely replace the existing Sprite range.

Like the Australian incarnation of Pepsi Next, this new Sprite will be sweetened with Stevia and sugar, but will contain 30 per cent less sugar.
The launch will bring Coke’s UK assets up to speed with what is already becoming a well-established trend in other markets, and the company has already released Sprite with 30 per cent less sugar in France.

Back in the US coke has also developed and tested its own mid-calorie drinks for Fanta and Sprite.

Both products feature ‘natural’ sweeteners, including sugar, stevia, and erythritol, producing a product with 50 per cent less calories.

With the US traditionally acting as a litmus test for the wider industry, Coke’s foray is likely to attract plenty of competition.

And not to be outdone number three player in the US, Dr Pepper Snapple, has also been driving its Dr Pepper Ten concept, a ten calorie soft drink aimed at young males who are traditionally less interested in health and dieting.

In January Dr Pepper launched new lines of 7 Up Ten, A&W Ten, Sunkist Ten, Canada Dry Ten, and RC Ten, all of which relied on a revamped recipe.

“With ten calories, they are neither traditional diet soft drinks nor even really mid-calorie offerings, but fall somewhere in between,” Innova said.

The Wider View
The issue of health, and particularly the worsening obesity epidemic, looms large over most new soft drink releases.

It follows a highly publicised ban on large sugary drinks in New York restaurants, and closer to home Australian regulators have long considered tightening the rules on this controversial market.

If anything the new trends in soft drinks show manufacturers aren’t willing to be caught behind the eight-ball, and these investments show they’re willing to make big bets on the emerging trends.

But only time will tell whether these releases hit the spot, with health improvements and profitability the true measures of success on this front.
In the meantime brands and pundits alike will have to sit back and watch, with consumers ultimately deciding whether it’s sink or swim for this new trend.