Just as electricity companies are moving away from coal, now it seems that the big soft drink companies are moving away from sugar. This means that convenience retailers will need to stay on the ball as new products start demanding space in the drinks fridge. This is especially the case in the carbonated soft drinks category.
Two years ago, cola products took out sixteen of the top twenty best selling products in the carbonated soft drink category at convenience stores. Twenty years ago, cola on its own was responsible for more than 55 per cent of drink fridge sales. Then came a barrage of new launches in ice teas, ice coffee, juice blends, sports drinks, energy drinks, more kinds of water than you can poke a stick at and, more recently, hot coffee. The combination of these has seen a progressive erosion of the carbonated soft drinks category, particularly over the last ten years.
Now comes the latest attack – sugar.
According to Euromonitor, soft drink sales across all Australian retail channels declined by 4 per cent last year while cola sales declined by 7 per cent.
The most recent AACS SOI Report states that ready to drink beverage sales grew by 5.2 per cent in 2016 following a slight decline in the previous year. Cola clawed back sales growth of 1.1 per cent, largely driven by Pepsi Max (up 13.9%), Coke Zero (up 5.8%) and Vanilla Coke (up 13.8%), with a Coke No Sugar Vanilla now on the way.
But according to the AACS Report: “At present, it seems many Australians are relatively unmoved by natural sweetener replacements. IPSOS Food CHATs results indicate that only 3per cent of adult Australians intended to prioritise the use of artificial or natural sweeteners as a replacement of sugar in the next 12 months.”
This seems at odds with the media furore over sugar sweetened soft drink which has erupted in the last two years has been largely focussed on the carbonated soft drink sector. Little attention has been directed at sports and energy drinks, juices, flavoured milks, ice creams and confectionery, all of which to one degree or another are travelling on the same sugar-sweetened boat. A number of overseas countries have already introduced sugar taxes which have been directed almost exclusively at soft drinks, with other products escaping the tax man’s attention.
Despite the scepticism voiced in the AACS SOI Report, non-sugar and reduced sugar soft drinks are on the rise either because there is a perceived consumer preference away from sugar, as evidenced by the blizzard of sugar free products that have emerged in the confectionery area, or in anticipation of a future sugar tax.
Many Pacific island nations, where obesity is a major health problem, have had soft drink taxes in place from as early as 1984, Hungary was the first major country to introduce a tax on soft drinks in 2011, with Mexico following in 2013, South Africa and Norway in 2017, the UK and Ireland to join the ranks in 2018, plus a handful of cities in the USA introducing taxes of their own. Denmark was a stand-out when it removed its soft drink tax in 2014.
The anecdotal evidence seems to be that these taxes have driven consumers away from sugary soft drinks into less calorie dense beverages and, in particular, bottled water. There is no evidence that overall cold beverage unit sales have significantly declined as a result of a tax on sugary soft drinks, although it is safe to assume that total dollar sales would have suffered as a result of soft drink taxes.
There has been a big surge in artificially sweetened soft drinks offerings from all manufacturers in the last couple of years, perhaps in anticipation of a sugar tax. Sugar tax or not, consumer preference in Australia is moving away from drinks heavily sweetened with sugar and this has driven a great deal of innovation across the drinks fridge, particularly in the carbonated category.
Four of Coca-Cola’s six product major cola variants now contain less sugar. As well as Diet Coca-Cola and Coca-Cola Zero, we now have Coca-Cola With Stevia (which replaced Coca-Cola Life earlier this year) and from June this year, Coke No Sugar. Coke No Sugar is claimed to be a very close flavour match to Coca Cola Classic and will probably see the phasing out of Coca-Cola Zero after Coke No Sugar gets a foothold in the market.
In 2016, Coca-Cola reduced sugar in more than 200 of its products internationally. This year the company plans to reduce sugar levels in more than 500 of its products around the world, with more low sugar options being launched in Australia. Other manufacturers are following suit.
Coke No Sugar was piloted in Japan in 2015 and launched in Mexico Last year. It hit Australian stores in the middle of June and has been supported by a huge ongoing sampling campaign of over two million packs.
Pepsi has always been on a winner with its Pepsi Max, which is popular with convenience store customers. Pepsi followed Coca-Cola’s green-packaged Coca-Cola Life with Pepsi True. Both products were sweetened with a combination of stevia and sugar. Pepsi True was subsequently replaced by Pepsi Next.
“Australian consumers are clearly shifting their tastes to embrace more low and no sugar beverages,” said Brad Van Dijk, PepsiCo Senior Director, ANZ Beverages. “with the volume of No Sugar Beverages growing by 2.3 per cent in 2016 according to IRI Aztec Scan Data NAT Grocery and Convenience Apr-17 YTD.
“Despite an overall decline in Carbonated Soft Drinks of 1.6 per cent, No Sugar Cola grew by 0.9 per cent which was certainly reflected in the continued popularity of Pepsi Max and its flavoured variants. It’s indicative that Australian consumers are seeking a wider range of products with a renewed focus on health and flavour impact,” he said.
While Cola products make up around two thirds of the top twenty best sellers in the carbonated category, the balance is made up of water, ginger beer and flavours.
Schweppes, now owned by Asahi Beverages, manufactures Pepsi product under license plus has numerous brands of its own, many of which fall into the carbonated category. Schweppes has always been the dominant player in the subcategory of flavoured carbonated drinks and mixers and leads the way with product innovation in this area. While there were three small companies exhibiting Kombucha at the recent C&I Expo in Sydney, Schweppes is the first mainstream manufacturer to get a Kombucha brand on the market.
Schweppes brands include Schweppes, Solo, Cottee’s Cordials, The Real Iced Tea Co, Cool Ridge, Frantelle and Spring Valley. The company makes and distributes a range of products under licence including Pepsi, Pepsi Max, Gatorade and Mountain Dew, and distributes VOSS premium water.
Coca-Cola Amatil has also made a move in the flavours area by promoting its range of Cascade mixers into the convenience and liquor channels, in an attempt to lure mixer buyers away from traditional flavours.
“We see the sugar issue in a wider context”, said James Lane. “Customers are demanding more choices in flavour, portion size and sweetening agent. They are increasingly choosing quality over volume, not just in beverages, but in food as well. It’s not just about sugar.
Jamie Sullivan heads up AIDA (The Australian Independent Distributors Alliance). AIDA places fridges into stores and apart from a few minor restrictions, allows retailers to stock whatever they want from the AIDA range. The company says its members supply some 25,000 outlets in the convenience, route, cafe and foodservice channels.
“Carbonated is a massive part of the beverage industry,” Mr Sullivan said, “But there are a lot more options now and people are becoming more health conscious. For many years, retailers have been pretty much dictated to by the major drinks manufacturers. But those days are going and retailers are now responding with a more widespread beverage offering.
Harris Spryou is marketing Manager for Tru Blu Beverages which, as P&N Beverages, sold its major brands to Asahi several years go. It has since developed a bewildering range of new brands.
“Convenience has always been a tough market,” said Mr Spryou. “Nowadays we do a lot of packing of house brands for the three supermarket majors and, with our own brands, we a focussing our energies on more niche, low calorie and premium brands in the carbonated category. These are now being picked up by quite a lot of independent convenience stores.
“We’re also licensed to manufacture and distribute Angostura Lemon Lime and Bitters which is popular with mature customers and we have Glee, a carbonated juice drink which has gone over very well in schools. We also have the new Riviera range of carbonated organic juices.”
“Innovation will continue to fuel the beverages industry as a whole to produce exciting new products,” said PepsiCo’s Brad Van Dijk. “entwined with the need to meet the evolving tastes of consumers. Low and no sugar beverages will continue to rise in popularity, largely fuelled by a continued focus on reducing calories in beverages while also pushing the boundaries with the development of new flavours consumers love.”
“People are not drinking as much as they used to,” Coca-Cola’s James Lane said. “And they are consuming cold drinks mostly with food. Food and drink choices change throughout the week, with more indulgent choices tending to happen towards the end of the week. That’s why soft drink sales are highest on a Friday both at lunch time and at about 5:00 pm.”
“The sugar issue seems to be settling into a middle ground,” he said, “where consumers are choosing both low calorie and high calorie drinks at different times, which actually results in higher overall consumption. That’s why both options need to be ranged in the convenience store drinks fridge.”