The era of rapid growth for carbonated soft drinks is over. We previously reported that beverage giant PepsiCo has reached an acquisition agreement with Israeli soda machine company SodaStream. This deal not only brings a new business to PepsiCo but also indicates that PepsiCo is trying to bet on other beverage products, as consumers are attempting to move away from sweet carbonated drinks. All signs suggest that the beverage industry battlefield has already changed.

Carbonated Soft Drinks Fall Out of Favor Manufacturers Try to Save Them but with Little Effect For a long time, Coca-Cola and Pepsi have been almost synonymous with carbonated soft drinks, but recent financial reports show that the glory days of carbonated drinks are not looking good. According to data from the U.S. beverage industry publication Beverage Digest, U.S. carbonated soft drink sales have declined for 11 consecutive years, with a 1.2% drop in 2015, greater than the 0.9% decline in 2014. Moreover, per capita consumption of carbonated soft drinks fell to 153.7 liters in 2015, the lowest in 30 years since 1985. To make matters worse, on June 16, 2016, the Philadelphia City Council passed a proposal to levy a so-called "soda tax," making it the first major U.S. city to impose a special tax on sugary drinks. The tax applies not only to soda but also to diet cola, sports drinks, sugary water, energy drinks, and pre-sweetened coffee and tea. Although Pepsi and Coca-Cola still hold more than 80% of the global market share, the fact that carbonated drinks are no longer in their heyday has become an undeniable reality. With rising purchasing power and increased health awareness, more and more consumers are seeking alternatives to carbonated drinks. For carbonated drinks, the unhealthy image of carbonation, high sugar content, and phosphoric acid has always troubled beverage manufacturers. Therefore, when catering to consumers, carbonated beverage companies often focus on improving these three aspects: reducing sugar or calories. For example, Coca-Cola has launched low-calorie products like Diet Coke, Coke Zero, and Coca-Cola Life. Pepsi has also switched to sucralose, developed an aspartame-free version, and recently launched a new black can product featuring a sugar-free formula. Coca-Cola also introduced "Coca-Cola Plus" after Coke Zero, claiming it helps burn fat. However, market reactions suggest that consumers are not buying this marketing approach, as the perception that carbonated drinks are unhealthy has not changed.

Not Selling Cola, Selling Water Major Giants Aim at the Premium Water Segment If low sugar and low calories still cannot give consumers the health they want, bottled water should fit the bill. This explains why bottled water is experiencing a boom while carbonated drink sales decline. Taking the Chinese market as an example, bottled water sales have been rising steadily over the past few years. Data from China Business Industry Research Institute shows that from 2011 to 2016, China's bottled water sales grew 9.8% year-on-year, with an average annual compound growth rate of 8.3%. In 2016, China's bottled water sales reached 42.064 billion liters, with retail sales of 137.855 billion yuan. From the data, it is clear that by 2015, the bottled water market had already surpassed carbonated drinks and maintained a high growth rate of 15-20% annually. Facing the difficult situation of carbonated drinks, manufacturers had to find another way: if carbonated drinks don't sell, sell water. Compared to carbonated drinks, bottled water has lower profit margins, so giants have turned their attention to new-concept products and premium water lines. In February 2017, PepsiCo purchased a 30-second prime TV ad slot during the Super Bowl for $5 million to promote its premium water brand, LIFEWTR. Pepsi's old rival Coca-Cola had already launched its smartwater premium water line earlier. According to reports, excluding retailer private-label bottled water, Coca-Cola's regular bottled water brand Dasani and premium water brand smartwater even captured the highest market share among similar products in the U.S. drinking water market. Perhaps soon, we will no longer associate Coca-Cola and Pepsi with carbonated drinks.

Natural, Healthy Sparkling Water Becomes the New Industry Favorite As the beverage market increasingly tilts toward health, a new type of drink with fresh taste and fine bubbles—sparkling water—has quietly entered consumers' sight, becoming the new darling of beverage fashion. Brands like Chateldon, Sourcy, Voss, and Perrier are leading the way. According to the latest survey by market research firm Mintel, 50% of people have consumed sparkling water in the past six months. Sales of sparkling water in the U.S. are also rising: from 2009 to 2015, U.S. sparkling water sales increased from 202 million gallons to 424 million gallons, a CAGR of 13.1%, higher than the 5.6% compound growth rate of the bottled water industry over the same period, making it the fastest-growing subcategory. At the same time, sparkling water's market share has been rising, from 2.4% to 3.6%. According to Suntory's market research, only 19% of respondents had tried sparkling water in 2006, but by 2010, this proportion had risen to 61.2%. Euromonitor data shows that in 2015, retail sales of sparkling water in the Chinese market surged 65% year-on-year, 18 times the sales in 2010. Its appeal lies in its fresh taste, fine bubbles, various fruit flavors, and its promotion of sugar-free and zero-calorie attributes. These points alone are very appealing to consumers. Additionally, when consumed properly, it can aid weight loss, which is particularly favored by female customers. Sparkling water machines create a carbonated drink taste by pressing and carbonating water, without sodium bicarbonate, and the raw material is mineral-rich spring water. This addresses consumers' concerns about the unhealthy factors of carbonated drinks and better meets health needs. As consumer health awareness increases, the era of rapid growth for carbonated drinks is over. The two cola giants need to continuously explore new markets and promote diversified product layouts as a driving force for sustained growth to meet rapidly changing consumer demands. "More nutritious, more diverse, more personalized, more convenient, more intelligent, more collaborative" is the main theme of innovation and development in the beverage industry.

Source: Beverage Observer -END-