Thirst For Profit

The need to make the right stock decisions to keep on top form and to bring in both customers and revenue is the challenge for the coming year. Sheila Eggleston reports.

Maximising sales in the current economy is no easy feat yet there is a subtle feeling of optimism across all the sectors within the soft drinks industry that hasn't been dampened by the unpredictability of our weather.

Rivals Britvic, Coca-Cola Enterprises (CCE) and Pepsico have all launched reports on the soft drinks sector that provide an insight into its future and the opportunities that are up for grabs.

Britvic says it anticipates 2010 will be another challenging year, but that over the past six months an uplift in consumer confidence has been evident. This is borne out by the latest Consumer Confidence Index released by market researcher Nielsen and the British Retail Consortium.

Nielsen polls 26,219 internet users around the world every six months asking them a series of questions that include their concerns, spending intentions and changing purchase behaviour, and the results in November 2009 showed that confidence had risen to its highest level for 18 months.

In Britvic's 2010 Report the soft drinks giant highlights the resilience of the UK soft drinks market in 2009 with sales rising 2% increasing the category to £8.5bn [Nielsen MAT December 26 2009]. Among the heroes is the cola sub-category, which retained its lead position to take a 22% share of the market, while other strong performers were glucose and stimulant drinks, squash, non fruit and fruit carbonates, juice drinks and water plus.

Plain water sales remained flat, it says, suggesting that consumers are reluctant to buy what is readily available from the tap at home.

One significant factor was that the licensed channel did better than grocery retailers. Sales rose 3% to £2.4bn, turning around the 4% decline in 2008 to put soft drinks at number two behind beer in the channel's performance table.

The company says that in a difficult year for the on trade, which saw increased competition from supermarket meals and drink deals, this performance was significant. The winners were the staples – cola, lemonade, flavoured carbonates and squash.

Britvic's own performance has been a positive and profitable one, growing by 6% in value in both take home and on premise channels, and in volume it grew by 5% in the on premise channel and 2% in take home.

Its super brand in pubs and restaurants has been Pepsi, which it says overtook Coke to become the best selling cola in the on premise channel with sales up 10% to £475m.

Other successes have been R Whites lemonade up 7% to £209m, mixers up 7% to £75m, and pure juice mixers and squashes/cordials up by 6% to £54m and £68m respectively.

Last year pubs and workplace catering stood out in the growth stakes. Britvic says pubs attracted more customers, especially families and mixed groups, and these family friendly establishments increased the market for soft drinks – which may help to explain the category's resilience. With this in mind brands like Robinson's Fruit Shoot grew by 9% to £14m within the on premise channel, supported by activity such as the new Fruit Shoot magazine designed to entertain kids and increase the time families spent in outlets. Fast food outlets and cafés also performed well, with sales rising 10% to £30m.

Obviously this year, all eyes are on the World Cup and the opportunities that can be grasped with a bit of savvy. Britvic says it presents a real opportunity for foodservice operators. During the five week World Cup period in 2006, it says soft drinks sales shot up by 14%, so outlets should be prepared to cater for the potential uplift in consumer demand come June this year.

GlaxoSmithKline (GSK) has already got behind the event as sponsor of the England national football team and the official sports drink sponsor of ITV's exclusive 2010 World Cup coverage with its Lucozade Sport brand. Its campaign – Fuelling England's Roar – will be supported by a £15m marketing package aimed at driving sales during the summer. 

CCE has invested heavily in research to fuel its growth in the soft drinks sector. Its report entitled: Open More Business, is the result of a £2m research programme over the last three years to understand how consumers buy soft drinks, and how to tap into these trends to accelerate growth across the £11.4bn soft drinks category, which includes on premise soft drink sales of £3.9bn [Nielsen: 52 weeks to November 2009]. It has also just linked with software specialist Red Dot Square Solutions to aid it in its customer research.

Managing director Simon Baldry says: "This research will drive our leadership of the category as we work with our customers to help them unlock the £1.4bn growth opportunity we have identified. It's the same as soft drinks shoppers buying one extra soft drink every fortnight. In Great Britain our per capita soft drinks consumption is currently behind countries like Ireland, Belgium and Norway, so we know there is strong potential for growth here." Its hit list is divided into three main groups – future consumption, on the go, and on premise. The business and industry sector is an obvious target with all the opportunities its workplace catering offer.

This sector is worth £1.79bn, serving some 666 million "routine" meals, says CCE, and catering outlets represent just under half of total canteen catering outlets in the market, ahead of education, healthcare and defence outlets.

Meantime Pepsico, which has just released its first health report outlining its vision for 2020, is planning a radical change to its soft drinks and savoury snack ranges. For example, it has pledged that 65% of its canned and bottled carbonated soft drinks will be no sugar by 2015. "Transforming the business won't be easy but the changes we propose are real and achievable," says Pepsico UK president Richard Evans.

Juices and smoothies continue to satisfy consumer demand for healthier options and they play a part in achieving the Government's five portions a day of fruit and veg. Tropicana, part of Pepsico's  portfolio, claims the chilled juice category is currently worth almost £1bn.

This year it is livening up its range with the addition of Tropicana extra juicy bits which contains 50% more pulp than original and three new orange plus flavours; orange and passionfruit, orange and lime, and orange and watermelon. Princes Soft Drinks says it's important for caterers to get the core drinks mix right and not underestimate the importance of having brands that consumers see as worth paying for.

"This is important to people when they are out and about – whether they are regulars or visiting for the first time," says marketing director Graham Breed. "The recession has driven many consumers to reconsider what they feel is value for money. This has been good news for brands like Princes, which has built its reputation based on product quality. Sales of our juice have bucked the general trend, growing 80% year on year.

"The weather will always be an important factor when it comes to consumers' choice of refreshment, so it's important that when you're stocking up on soft drinks, you take the weather into account. For example carbonates are first to fly off the shelves when the weather is hot and thirst quenchers like bottled water are also a safe bet.

"If you rotate your drinks promotions – making fruit juice prominent at the start of the year when people are on a health kick, and bringing carbonates and water to the fore when the weather heats up – you won't lose consumers' interest and will keep them satisfied all year round. It's always good to have a range of hot drinks on offer when winter creeps in, so why not try a warm fruit punch to keep consumers coming back for more.

"If storage space is tight, consider buying ambient juice rather than chilled. Its long shelf life cuts food waste to a minimum and means you can maximize profits from your stock. Chill the juices on a daily or weekly basis as you need it."

Britons' love of smoothies hasn't dimmed and, according to First Choice Coffee, when mixed in front of customers they tend to be perceived as higher value than bottled cold drinks, allowing operators to charge more.

"A mango smoothie can generate a profit of £1.40 per cup – a gross profit margin of almost 70%. Selling 80 drinks a day will generate more than £650 in pure profit a week," says managing director Elaine Higginson.

The company says any size of operator can tap into this profit potential with its new summer drinks packages. The offer ranges from its Fruits Recruits basic range of two bases – caffé frappe and mango smoothie – plus syrups, to its comprehensive Major Mixer range that can make 12 drinks from sticky toffee frappe to peaches and cream smoothie. Each package includes biodegradable cups, lids and straws.

Catering for kids today is no picnic with the number of official guidelines that have to be adhered to and picky minor diners, but soft drink suppliers seem to have hit on the right formula.

Calypso Soft Drinks says its product performance remained strong during 2009 despite the unpredictable weather and the economy. Overall the market performed quite well and, despite the recession, total company sales were up 18%, with Calypso's soft drinks sales up 12%, it says.

"Healthier drinks continue to be the focus for all channels as best practice nutrition for children remains high on everyone's agenda. Naturally value for money products have also been a priority this year and will continue to be in great demand over the course of 2010," comments sales and marketing director Richard Cooke.

The company, which specialises in children's soft drinks, says its top selling brands in schools are Aquajuice 67, Jubbly smoothie, Juicy Aid and Juice Shots.

Aquajuice 67 is its biggest brand with a £15m turnover and year on year growth of 30%. This year it launched a lemon and lime variant in 330ml and 500ml bottles. A new 250ml size will be introduced in apple, forest fruits, and lemon and lime flavours.

Calypso has rebranded pure juice cuplets as Juice Shots. These 85ml snacks have shown a staggering growth of 40% with a sales value worth more than £10m. One of the main factors for its success, says Cooke, is that there is no waste and is a perfect size for children's lunches or for snacks, and the cost per carton is good value.

"As with Fairtrade juices, we know that Juice Shots have evolved a very loyal following and this is part of the secret to its success," he says. Another achievement is Calypso's partnership with the World Land Trust under its Juicy Aid banner that has been successful in its first six months in raising funds to purchase 118 acres of threatened Atlantic rainforest.

Aimia Foods says more than three billion litres of cola is consumed every year and holds a 52% share of the market. But while cola is popular with both children and teenagers, it has not been sold in schools since the introduction of the nutritional guidelines.

The company has now extended its Spring Cool range to include a cola variant specifically to fill this gap in school menus. The sparkling cola flavoured drink is based on a new recipe that is a healthy alternative to non school compliant colas that exist in the market.

Made with 50% fruit juice, it contains one of the recommended 5-a-day fruit and vegetables and no caffeine, colours or additives.

The new drink is available in handy 330ml and 500ml resealable bottles and joins the existing range that includes Spring Cool X:ITE, Spring Cool 105, Spring Water and Spring Cool naturally flavoured water. A marketing package to help schools promote the product includes posters and stickers.

Radnor Hills is another company that is geared up to supplying still and sparkling fruit juice drinks that tick all the boxes in schools. New to its range is Radnor Fruits, a still fruit juice drink in forest fruits, peach and citrus flavours.

According to SUSO, the world is evolving so quickly along with people's tastes and expectations that product innovation is critical if the soft drinks category is to keep developing and growing. CEO Sean Uprichard says: "We have observed three key trends driving innovation: the environment; health and well being, and a desire for functionality whether it be in terms of health benefits, energy, hydration or something else.

"At SUSO we have catered for these developments through drinks that use packaging that is 97% recyclable, recipes that contain only fruit and bubbles so are uncompromising in terms of health benefits, and that delivers the functional benefit of one of the recommended 5-aday intake of fruit and vegetables."

He says the approach to ranging is important particularly in the education sector. "When you look at the planogram of a typical secondary school, for example, 25% of space will be allocated to bottled water, milk based drinks, juice and juicy water drinks and, more recently, the new generation of healthier, schools approved fizzy drinks of which SUSO is the top performer.

"These are the four key areas of want and need for teenagers, so having the strongest possible offer in each of these areas is key for any school drinks retailer. Without the offer in each of these categories kids will go elsewhere, in this case outside the school, to get the type of drink they really want.

"Having established what type of drinks to stock, the value of focusing the offer on leading brands is two-fold.  Firstly, a brand serves as a beacon to signpost that this type of drink is available and, secondly, as a leading, strong performing offer there is the likelihood the brand will be well shopped and thus require more space. Having fewer brands enables that extra space allocation to ensure no sales are missed."

SUSO says its products have become one of the fastest selling drinks in UK secondary schools and the number one selling soft drink in almost every school where it is available – with some selling upwards of 1,000 cans a week. Its carbonated fruit juice comes in berry, orange, lemon and sparkling apple flavours.

"Healthier, new brands have for some time been able to justify a price premium in the market at large, which is good for suppliers because the product costs more to make.

"It is also good for retailers because often there is scope to deliver enhanced profitability in the outlet; if not in terms of percentage margin then usually in terms of cash profit because consumers like new things and tend to buy more than they would normally.

"However for teenagers, particularly those in schools, the health benefit is not something they are prepared to pay a premium for.

"What they will pay a slight premium for is a brand with a look and feel that is relevant and cool. This is where SUSO positions itself as the fizzy drink teenagers love for the way it looks and tastes, but one that parents and teachers can love too for what it is – a healthier, fizzy drink."

When it comes to innovation in the sector, there seems to be no let up. Britvic and Pepsico have launched what they claim is the biggest pack innovation the market has seen in more than 15 years. Britvic plans to launch new 600ml PET bottles across its carbonates range that will offer consumers a bigger bottle and better value for money, it says, while invigorating the category and providing foodservice operators with a great profit opportunity.

The new format will roll out in April and be available across the no and low sugar variants of Britvic's leading carbonates including Pepsi Max, Diet Pepsi, 7Up Free, and Tango, replacing the current 500ml no and low sugar range.

Senior brand manager for Pepsi, Noel Clarke, says: "The 600ml format will play a major role in reinvigorating the on the go carbonates category and presents an excellent opportunity for foodservice operators to make bigger profits from Britvic's range of carbonated soft drinks. "Pepsi Max, Tango and 7Up already command a higher rate of sale than similar brands in the market and research shows that the move to the larger size format will grow this further."

Britvic has also launched a limited edition cold effect can of Tango, which uses temperature sensitive ink to reveal jokes when the cans are chilled. Aimed at youngsters looking for something edgy, these will be available in a special value added 24 for 20 case for foodservice outlets.

CCE, which recently took on the UK sales and distribution of Ocean Spray's juice drinks range, says Ocean Spray is the leading cranberry juice with 66% value share.

It believes its distribution and delivery experience will boost brand awareness and availability, as well as help on premise outlets increase sales by offering greater quality and choice to its customers.

Brand development controller Caroline Philiponnet-Bethell says: "The relationship between CCE and Ocean Spray is very new. "We started distributing Ocean Spray in February and the reason why we partnered is to build growth in juice across the trade and to increase opportunities."

She believes offering the juice as a mixer will be the biggest opportunity going forward as cranberry is a popular choice for women and research shows one in four people have drunk cranberry juice with alcohol – 84% with vodka. It is also a key ingredient in popular cocktail recipes.

"Cranberry juice is one of the best drinks to control alcohol consumption and is ideal for people who are trying to pace themselves," she says.

This year the brand has had a makeover. New one litre packs are taller, slimmer and have a new cap that improves pouring. A new 250ml can for a single serve has also been introduced. Also new are blueberry and blueberry light juice in one litre packs.

From April Ocean Spray plans to focus on its two fruity variants to drive sales as a spirit and mixer choice as well as an adult straight soft drink across on premise outlets, backed by a hefty £7m media campaign.

Philiponnet-Bethell explains: "Before it was aimed at a slightly older target, talking only about health. CCE will be offering outlets branded menu makers with soft drinks descriptors to help increase customer awareness and drive the spirit and mix opportunity."

Building on the success of its strawberry Ribena, GSK has launched raspberry Ribena in a 500ml bottle and 288ml carton.

Brand manager Lucinda West says: "NPD is a key driver for growth in the soft drinks category and the launch of raspberry Ribena looks set to generate huge excitement with consumers and strong sales."