Suppliers are pulling out all the stops on the promotional and advertising fronts to drive soft drink sales – so why are overall volumes down, asks Simon Creasey

It's fair to say it hasn't been a sparkling year for soft drinks. Despite high levels of NPD, and two of the big four retailers upping their number of soft drink promotions, volume sales have slipped 0.5%. And, although category value has risen 6.8% [Kantar Worldpanel 52w/e 21 February], this increase has been driven by hikes in the cost of commodities such as sugar and aluminium.

The big players nevertheless insist the category has performed well in the face of recession and poor weather in the supermarkets at least (in the impulse sector, it's a rather different story see p62). Key sub-sectors have bucked the overall trend, they point out. And the World Cup should provide a further boost. But are the market's prospects as rosy as they suggest?

For some sub-categories, the answer appears to be yes. The heavy promotional and advertising activity may not have been enough to mitigate the impact of commodity-driven price rises on volume sales of flavoured carbonates, squashes, mixers and shandies, but colas and energy drinks have held up well.

Value in the overall colas market has risen 5.9%, while volume is up 1.9% [Kantar]. The big winners, unsurprisingly, have been Coca-Cola and Pepsi. Value sales of 'full-fat' Coke have risen 6.7% and volume is up 5.2%, while Diet Coke has seen its value sales leap 11.6% and volume jump 8.3% [IRI 52w/e 21 February].

Although Coca-Cola Zero's performance has been less than stellar, between them, the three hit combined sales of £1bn in 2009, according to The Grocer's 2010 Britain's Biggest Brands supplement.

"A year-on-year increase in sales of 4.7% was recorded," confirms CCE vice president of strategic marketing and planning Craig Smith. "It is the first time the combined sales of the three Coke brands has broken the £1bn barrier."

Pepsi is similarly upbeat in the wake of an 8.7% uplift in value and 4.5% rise in volume for Pepsi Max and a 4.7% rise in value and 1.8% increase in volume for Pepsi Cola. Pepsi's natural Raw cola, launched in February 2008, posted some of the soft drink category's most impressive growth (albeit from a low base), enjoying a 2,665% hike in value to £1.3m and a 4,043% jump in volume [IRI]. However, volume sales of Diet Pepsi fell 3%, despite a 2.5% increase in value [IRI].

Overall, Britvic Soft Drinks, the UK bottler for Pepsi, has had a solid year, with growth in carbonates and stills, according to marketing director Simon Stewart. "The convenience soft drinks market had fairly robust growth last year, which was interrupted by the bad weather," he says. "Now the weather is better, people are going back to what they were buying before."

Energy drinks
Even if it commands a price premium, it seems. One of the most compelling stories in the soft drinks category is the continued success of energy drinks at a time when consumers are supposedly watching the pennies. Value sales are up 11.9% and volume is up 3.8% [Kantar].

It helps that the sub-category, which published a new code of conduct last month to regulate the sale and marketing of energy drinks to children, targets young adults, a group that has increased its consumption of carbonated drinks over the past year.

"Sports and energy drinks are products that are bought for their functional benefits," says Red Bull trade communications manager Tom Smith. "These aren't luxury purchases that consumers might look to cut down on, so even during a tough economic climate the products still remain relevant to their daily lives and the category continues to thrive."

Red Bull remains the undisputed energy drink market leader with sales of £195.7m, up 1.7% in value [IRI], but volumes have fallen 0.5% and its Cola has had a disastrous year, with value sales down 26.3% to £3.2m [IRI]. The brand has also had to watch its back as other major players enter its territory CCE for one.

"Our energy portfolio accounted for 53.8% of total energy sector growth in the last 52 weeks," says CCE's Craig Smith. "This growth has been driven by Monster and Relentless providing increased customer choice through the expanded portfolio."

Indeed, Relentless is now worth £54.8m, up 28.0% on last year, with Monster posting sales of £11.4m up a massive 840% [IRI]. In March CCE added Monster Khaos and Monster Energy shots, taking it into the highly competitive shots market.

Energy shots
These mini-marvels have proved to be a shot in the arm for the energy drinks sector. Red Bull's Smith says retailers should ensure shots have a high-profile presence in stores, particularly around checkouts.

"We're seeing Red Bull Energy Shots outperform other energy shot products. Even more impressively, they now outsell eight of the top 10 chewing gum SKUs and seven of the top 10 mint products, which is a good indication of the emergence of the category," says Smith.

Not everyone believes such rapid growth is sustainable, though. "Energy shots have been the short-term answer," says Sterling Distributions MD James Hammond. "However, I believe this will be a fad that many have tried to capitalise on. It will settle down to be a sector that only has a few main players, with category growth being steady and limited. Its current success is due to marketing investment."

Key to the long-term survival of the shot sub-sector will be pricing.

"Price points are crucially important whatever category you're looking at, but particularly in shots," says Windfall Drinks MD Mike Sears. "We think 99p is a sensible premium. In an impulse situation, £1.99 or £1.29 will get you trial because customers are curious, but will it get you repeat purchase?"

This is particularly important as the target market of young males have many brands to choose from, adds Global Brands marketing controller Simon Green, who looks after Kick Energy.

"With 16 to 34-year-old males dominating the demand for energy drinks, competing brands are investing aggressively in advertising and marketing," he says. "There is a clear opportunity for retailers to capitalise on this by giving the category more focus in store. With usage broadening, energy drinks are now sold widely as an alternative to mainstream soft drinks, a sports enhancement or a practical part of a professional's routine to prevent the daily slump."

Red Bull has earned itself a commanding spot in the sporting limelight. With the Formula 1 season already well under way, Red Bull's teams Red Bull Racing and Toro Rosso play an important role in building brand awareness. The brand also supports other high-profile events, such as the Red Bull Air Race and the Red Bull X-Fighters, which return to London's Battersea Power Station this summer.

Another company looking to align itself with adrenalin-fuelled fun is Global Brands, which is investing £1.9m in promoting Kick Energy in 2010, including sponsorship deals with the likes of rally driver Craig Breen and the Lashings World XI exhibition cricket team.

Meanwhile, the clue to energy drink Tonino Lamborghini's sporting aspirations is in its name. Launched in the UK last month, the drink, which is available in four variants, features the luxury car brand's bull logo and is the brainchild of Tonino Lamborghini, son ofLamborghini founder Ferruccio Lamborghini.

In the UK, the product is distributed exclusively by Sterling Distributions with an rsp of £1.29 for a 250ml can. Sterling's Hammond predicts the drink will be a hit with everyone from "car-crazy Top Gear fans to those simply looking for a premium and high-performance energy drink".

Flavoured carbonates
This summer's sporting fixtures will no doubt boost the sub-category's fortunes further, particularly if the weather does its bit. The mixed weather has brought mixed fortunes for other flavoured carbonates, however, with value up 6.4% but volume down 1.8% [Kantar]. Falling consumption among children hasn't helped, but there have been some better figures from brands that either target a more overtly adult audience or have promoted heavily.

The more successful brands also tend to be those that have made effective use of social media in their advertising campaigns (see boxout above), boosting their appeal with young adults.

One player that has definitely bucked the downward volume trend is CCE, whose portfolio of flavoured carbonates which includes Sprite, Fanta and Dr Pepper is performing well with 6.5% value and 1.2% volume growth, says CCE's Smith. Dr Pepper's figures were particularly impressive, with value sales up a whopping 1,088% to £1.1m and volume up 336% [IRI].

And on the lemonade front, Sprite isn't the only success story. Lemonade sales have grown 4% to £148m, according to the 2010 Britvic Soft Drinks Report, with volume down 3% to £466m, and smaller brands have enjoyed their share of the glory.

Barr Lemonade sales have grown 26.4% to £2.6m, while Sunsip Lemonade's have risen 148% to £2.4m with volume up 142%, and R Whites' have risen 19% to £11.2m on 13.7% volume growth. Indeed, they outperformed one of the bigger brands on volume Schweppes saw sales of its core lemonade line fall 1.6% in volume, although value rose 9.9% to £38.9m.

One of the problems with the latter may have been that although it has been promoted pretty heavily, it's up against some heavyweight and heavy promoting big-name rivals, such as Sprite and 7Up.

Squash and juice drinks
On the face of it, cheaper alternatives to carbonated drinks such as juice drinks and squash have not fared as well. In the squash sub-category, although value was up 8.7%, volume was down 3% [Kantar], somewhat surprisingly given its relative affordability.

However, the picture may not be as gloomy as it looks. The Britvic Report says volume is actually growing, if the effect of double-concentrate squashes on figures is taken into account, and that the main reason volumes are down is that people are switching to these more cost-effective formats.

This is certainly a theory that resonates with SodaStream marketing director Fiona Hope. "It's no surprise that consumption has increased as concentrates offer consumers a cheaper alternative in the recession," she says. "While the value benefit of concentrates may become less important as the economic outlook gets brighter, they offer environmental benefits that the 44% of consumers who care about green products will be even more mindful of post-recession."

Quite how many consumers will buy into the environmental argument remains to be seen, however, and squash and juice drink manufacturers are not waiting around to take another hit on volumes.

Last month, Britvic added an adult-targeted range called Select to its Robinsons brand. The line-up, which is intended to appeal to more grown-up taste buds, includes flavours such as orange, mandarin & peach, apple & wild blueberry, and red grape, pomegranate & raspberry, and has an rsp of £1.59 for 850ml. The launch coincides with a packaging refresh for the whole Robinsons brand, designed to highlight the quality of the ingredients and give the brand a family-focused look.

Ribena brand owner GSK has also been pushing the NPD envelope, running high-profile outdoor advertising, sampling and promotions throughout March and April to support its new launches.

"One of the biggest recent launches was the Ribena strawberry 500ml bottle, which generated £8.5m in sales in 2009," says GSK sales strategy and category marketing director Colin Seymour. "We've backed that up with a further extension in the form of a raspberry flavour. We have also launched a Ribena product called Juiced Up, which is specifically targeted at schools and meets approved school standards."

The new brand contains 85% fruit juice and 15% water and was launched in February in 180ml wedge-shaped cartons. The drinks, which provide one portion of fruit and come in two flavours: apple & blackcurrant and raspberry, are currently available through school food service outlets, but a spokeswoman said they could be rolled out to other channels.

Further competition for kids' custom comes from Villa Drinks' Wild Juices, sugar-free drinks containing Hadrian Spring water, natural flavourings and added vitamins, which are packaged in eye-catching chunky 270ml bottles featuring colourful animal artwork.

"We have been astonished at how well received these drinks have been," says Villa Drinks marketing director Sean Wimore. "Our Wild Juices displays at the shows we have attended act like a magnet to youngsters, and parents and adults instantly understand and approve of the offering as a suitable choice for children. We have, I believe, created a unique range of animal-themed ready-to-drink 10% juice drinks with a 'healthy drinking' ethic, which give us a market niche with powerful potential."

Other brands are targeting their diluted juices at a broader age group. Calypso, for instance, is launching new brand Exotix into retail this month. The drinks, which mix fruit juice and mineral water, come in three fruit flavours guava, mango and passion fruit (rsp: 30p-35p for 185ml).

"This is a launch that has been in the planning for some time following consumer market research," says Calypso sales marketing director Richard Cooke. "The idea originated from the Asian market, but exotic varieties have now become a mainstream choice and are destined to become a big growth area."

Adult soft drinks
Another potential growth area is soft drinks for adults and not just in the energy drinks arena. Consumption of carbonates has increased among younger adults and older males, according to Kantar.

This is borne out by Nielsen figures, which show that adult soft drink sales in supermarkets increased by 5% last year, generating an additional £4.8m worth of sales and bringing the total value of the adult soft drink sub-sector to almost £109m [Nielsen MAT 20 February].

Much of this growth is down to consumers saving money by entertaining at home rather than heading to the pub, believes Shloer marketing communications controller Amanda Grabham.

"More than a third of consumers said they were entertaining more at home than in the previous year and we believe that trend is set to continue, particularly as we head into the barbecue season," she adds. "This represents a real opportunity for retailers as there's always a need at social gatherings to provide soft drinks for guests who aren't drinking alcohol, for those who are driving or for mums-to-be. Adult soft drinks provide a welcome alternative to the usual fruit juice, cola or water."

To take advantage of this trend, Shloer has allocated a £12m marketing spend this year, which will include TV advertising and in-store support.

Another company looking to cash in on the adult market is Fentimans. Consumers are seeking out more traditional flavours with greater emphasis on provenance, claims MD Eldon Robson, and the company, which recently embarked on its first national advertising campaign, launched an organic range with a Cool Organic Ginger Beer and a Smooth Organic Lemonade to cash in on this trend earlier this year.

This thirst for familiar flavours has played a large part in dictating NPD in the category, with producers only too happy to rise to the challenge.

"We're driving the resurgence in traditional soft drinks as consumer demand demonstrates the appeal of the nostalgic taste of botanically brewed drinks with a quintessentially British heritage," says Robson. "Traditionally, our ginger beer has been our top seller, followed closely by our Victorian Lemonade and Dandelion & Burdock. However, in the past 18 months our Curiosity Cola has had a phenomenal increase in sales, taking it close to being our second best-seller."

AG Barr is also catering to nostalgic tastes, this month launching the Barr's Originals range of traditional carbonate flavours Zingy Traditional Lemonade, Cream Soda with a Hint of Raspberry, Dandelion & Burdoch and Fiery Ginger Beer.

"Barr's Originals are bang on trend essentially they are a taste of the past for today," says Barr head of marketing Adrian Troy. "Authenticity, naturalness and great taste are major trends that are driving consumer choice, and our drinks deliver on all these fronts."

The range joins the company's recently launched Cherryade, which Troy claims was one of the "most successful NPD launches in the past 18 months, helping to drive an extra £4m of carbonate sales in 2009". Building on this success, Barr is launching two new flavours Orangeade and Raspberryade in 330ml and two-litre formats with further innovations planned for later in the year.

New product development
Given that 17% of the soft drink products on shelf have been launched in the past year [Kantar 52w/e 21 February], NPD clearly plays a major role in the category.

Most new products are launched around the end of quarter one and early in quarter two in order to enjoy a full summer worth of sales. However, a lot of recent launches have been new flavours rather than genuine NPD and the trend looks set to continue, says Princes Soft Drinks marketing director Graham Breed.

"The soft drinks market has always been a hive of innovation, with diverse drivers such as convenience, health and indulgence shaping NPD," he says. "It is unlikely that NPD will dry up but, as consumers become less experimental, new launches are likely to focus on pack formats and flavours rather than brand new innovations."

That's not to say there won't be plenty of new flavours. Belvoir Fruit Farms released five new lines this month Blackcurrant & Cox Apple, Cranberry, Raspberry Lemonade Pressé, Organic Orange & Jasmine Pressé, and Apple & Melon Pressé. It also redesigned its packaging earlier this year, marking a significant investment for the company. It is hoping to tap into growing consumer demand for natural products, says Belvoir MD, Pev Manners.

"Consumers are increasingly asking for a more natural product that doesn't use artificial additives or preservatives, and this is how we have built our business," he adds. "Taste, naturalness and quality ingredients are integral to everything we do. None of our drinks contain any added preservatives, colours, flavours (natural or otherwise), artificial sweeteners or gums."

Manners hopes this approach puts the company in a strong position to benefit from health concerns, which are still high on the agenda for consumers.

In March this year, PepsiCo published its first health report, where it set out its ambition to be a radically different business in 10 years time by acquiring healthier brands and developing more nutritious NPD. In the report, the company pledges that by 2012 65% all of its carbonated soft drinks will be sugar-free in 2008 that figure stood at 61%. The move may be designed to head off any legislation that could be on the cards if the industry fails to respond to the Food Standards Agency's request for a reduction in the amount of sugar in its soft drinks (see box, p73).

Consumer demand for healthier drinks is already strong and GSK's Seymour predicts that as we move out of recession the thirst for products that offer health and wellbeing benefits will increase. "You see more controlled expenditure during a recessionary period.

Consumers are more willing to spend on something that will give them a health, wellbeing or functional benefit at that moment, but they are less likely to spend on something that will give them a benefit over longer term," he says.

"However, as we come out of the recession consumers will be looking to buy into products that might give them a better health benefit over the longer term."

GSK has launched the 50-calorie Lucozade Sport Lite to meet this anticipated demand (see box, p54). "An awful lot of people go to the gym to exercise and participate in social sport and they may reject sports drinks based on calorie content. They want to rehydrate and replace energy lost through exercising without replacing the calories they have lost through the exercise," says Seymour.

Advertising and marketing
Healthier soft drinks present one potential growth opportunity but there are plenty of other areas suppliers can target. As we emerge from the recession, money will be thrown into advertising and promotions as the leading brands jockey for position to take advantage of the upturn.

There are signs this is already happening and suppliers are also turning to more intensive consumer research. CCE has invested in a virtual store at its new Collaboration Learning and Insights Centre, which "enables a much deeper insight into the specific triggers and barriers that can influence a shopper on their route to purchase", for instance. Test consumers browse the virtual aisles, while a computer programme monitors their reactions to different displays and merchandising.

It has also spent £2m on research to learn how people shop the soft drinks category. The resulting report, Open More Business Making More From Soft Drinks By Applying New Category Vision, identified 16 relevant shopping environments, which it divided into the three main groups: take-home, impulse and foodservice.

In all areas it identified significant opportunities for growth, highlighting that in terms of per capita consumption rates the UK lags behind countries such as Ireland, Belgium and Norway. "If we persuade existing soft drink customers to buy just one more soft drink every fortnight then in five years the soft drinks category could be worth an extra £1.4bn," claims the report.

A key investment for the company this summer is a partnership with drinks giant Diageo to drive spirit and mixer sales in the off-trade and grow basket spend. The venture is being backed by a £4m through-the-line campaign and will headline with "some of the nation's most popular spirit and mixer drink combinations with the aim of reminding consumers to consider spirit and mixer drinks", explains Smith.

A further boon for CCE and rival operators will be the upcoming World Cup. CCE has already kicked off its FIFA World Cup campaign with a trophy tour that allows competition winners the rare opportunity to get up close and personal with the World Cup trophy.

The company also ran an on-pack promotion in February on its Powerade brand, giving consumers the chance to win one of 100 training sessions at either a football camp in South Africa or elite rugby camps at Twickenham and the Millennium Stadium. It is also running the What's Your Celebration? campaign, which invites football fans to submit their unique goal celebration, with on-pack promotions offering opportunities to win tickets to World Cup matches.

It's no surprise that Lucozade the official sport drink of the England football team and the official sponsor of ITV's World Cup coverage is going big on the tournament as well. It is running a £15m marketing campaign during May and June with an on-pack offer called Fuelling England's Roar, which gives consumers the chance to win one million prizes, including England shirts, flags and caps. But the marketing focus won't just be on the World Cup this year. Lucozade Energy is running a Win an Amazing Adventure promotion, which includes power boating trips, ice climbing and rally driving.

Music will also continue to provide lucrative tie-up opportunities. Vimto is just one of many brands aligning itself with gigs and festivals this year. It is planning a major on-pack promotion under the banner Seriously Mixed Up Tunes.

"On-pack promotions offer something exciting and different and encourage trial without compromising price," says Vimto head of marketing Neil Gibson.

On a more ambitious scale, Britvic is looking at the possibility of extending its J2O pub quiz into an advertising-funded TV programme. It is currently negotiating terms and hopes to be able to put the show on air this summer. Britvic's Stewart says the company's total marketing spend will be significantly higher this year than last, and will be distributed in very different proportions.

"We're spending more in terms of point of purchase, we're spending more on digital and we're spending more in terms of PR," he adds. "In terms of how traditional media is measured, we're probably spending less but overall the total pool of money is about 5% more than last year."

The future
The key to success for companies this year will be ensuring products deliver value for money. "Customers are still focused on value, but value doesn't necessarily mean price, it's what people think is worth paying for," says GSK's Seymour.

But even if the economic outlook brightens, question marks remain over whether consumers will cast aside their thrifty ways and return to pre-recessionary shopping habits. The challenge for brands and retailers is to encourage consumers to splash out and increase their volume consumption. The soft drinks market may not have gone flat, but there's a long way to go before it fully gets its fizz back.