Increasing consumer preoccupation with health is forcing drinks manufacturers to innovate by launching low-sugar varieties and brands targeted at adults, reports Ruth Nicholas

It is a time of unprecedented upheaval for the soft drinks category. Manufacturers are dealing with changes in legislation, government and regulatory intervention, shifting consumer attitudes towards health, wellbeing and the role soft drinks play in their lifestyles, and a frequently hostile press. And these are just some of the challenges.

But among the issues lie opportunities. Increased health-consciousness and consumer confusion about what is really healthy and what's not are undoubtedly challenges, especially to some much-derided fizzy drinks. However, the importance of adequate hydration to health is becoming ever-more widely accepted and is an excellent opportunity for the industry to improve its reputation and bring in more sales.

The far-reaching changes in the licensed trade, liberalising opening hours and banning smoking in pubs will create opportunities for soft drinks both on and off premises as consumers drink alternatives to alcohol in pubs, with this translating into similar habits at home. Increasing consumers' exposure to soft drinks can only be good for business and good for the grocery trade.

The latest proposals from communications industry regulator Ofcom will curtail certain advertising freedoms and marketing to children, making this a problematic area, but the gains to be had from repositioning brands for adults are immense.

Indulgence drinks are booming, as are functional, better-for-you, water and flavoured water, juice and smoothies, as the trend towards health and wellbeing gains pace and consumers look for alternatives to drinks perceived to be unhealthy.

Somerfield category buyer for soft drinks, John Place, says: "Carbonates is obviously having a tough time, although not as bad as is sometimes made out. On the positive side, water continues to perform well, while functional drinks, children's lunchbox and adult are all in good shape."

The majority of soft drinks will be banned from school tuck shops and vending machines in September when the School Food Trust guidelines come into force. Only water, fruit juice, milk and yoghurt drinks will be allowed.

Coca-Cola Enterprises operational marketing director Kieran Hemsworth says: "We think there is every reason to be optimistic about soft drinks. It's a huge category, is extremely dynamic and it is in growth. There are undoubtedly shifts occurring in consumer preferences, but these are not a problem, they are an opportunity."

Carbonates, both fruit and non-fruit- flavoured, did not have a great 2005, the former suffering most with volume and value down 12%. But British Soft Drinks Association public affairs manager Richard Laming denies that carbonates is in crisis. "In recent years it has been growing less quickly, but it is a large and important sector," he says. "There are still lots of opportunities for the market and individual companies."

No sugar, no-added-sugar and low-calorie variants are leading the fight back. One of the most significant changes in the marketplace is the acceleration of no added sugar to become the biggest sector in cola, now accounting for more than half of sales and the only growth sector in fruit-flavoured carbonates, says Britvic category director Andrew Marsden.

"The move towards no added sugar has been going on for 15 to 20 years, but the rate of acceleration has gone up considerably in the past 12-18 months." It is inconceivable now that people would launch products without a no-added-sugar option, he adds.

Whatever the industry says, the long- term prospects for all carbonates and drinks perceived to be unhealthy are not good. Children denied access to them at school and given less exposure to marketing messages will eventually see other forms of soft drink as normal, says Mintel analyst Harry Foster. "That will have a significant impact on future generations' behaviour," he adds. Negative press will also take its toll.

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Focus on Soft Drinks (May 2006)