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What next for the soft drinks market?

20 April 2011 by
What next for the soft drinks market?

Soft drinks volumes across the on-trade fell 3% last year according to a report by Britvic, despite sales being up 1% to £2.8b. Sales were also up 9.2% in the Horeca market. John Porter reports on what the soft drinks companies have planned to tempt cash-strapped customers

However much marketers might like to pretend that consumer behaviour can be simply predicted, the reality is different. The expectation that consumers will have traded down their soft drinks spending during the recession is borne out by industry figures - but only to an extent.

Price is important, but so is value for money. Alongside decisions based purely on the need to manage spending, consumers are also influenced by factors such as the perceived health benefits of a drink.

Other concerns, such as environmental issues and even the weather can all play a part. In its annual soft drinks report, Britvic attributes much of a 3% fall in soft drinks volumes across the on-trade last year to snow at the start and end of 2010, which prevented customers from driving to destination food pubs.

Consumer spending

One impact of the credit crunch has been an expectation by consumers that they will get more for their money. Last year saw strong sales of squashes and cordials, and this year the emphasis is more on added-value products. Carla Lewis, trends and innovation consultant with market researcher Mintel, says: "It is about giving something extra, like a functional ingredient or a single portion pack."

The Britvic report shows that soft drinks sales in the on-trade were up 1% in value to £2.8b, despite the volume fall, while the Horeca market (hotels, restaurants and catering), measured through delivered wholesalers, saw sales up 9.2%. There was a strong performance in restaurants, which saw soft drinks sales grow by 26.6%, and growth of 9% in workplace catering.

Andrew Boyd, Britvic's business unit director for food service and leisure, said that the impact of deals and discounts on food margins had prompted many mid-market restaurants to focus on soft drinks. "We've run a number of offers linking a soft drinks sale to a meal, which helps to improve customer perception of value."

In pubs and bars, Paul Linthwaite, Britvic's business unit director for on-trade, said that many cash-strapped consumers have traded down to carbonates, especially dispensed cola and lemonade. Draught soft drinks saw value growth of 3% last year, while packaged sales of comparable products fell 1%.

The added cost of soft drinks on the bill for families eating out on fixed price deals can also be an issue, believes Linthwaite. A "bottomless glass" refill deal on draught carbonates in Mitchells & Butlers brands including Toby Carvery has proven successful, and Britvic aims to roll out similar offers.

Also with a focus on value, NH Harrington Hall hotel in South Kensington, London, recently added a Krogab push-button juice machine to its breakfast service. Chetan Bhanot, operations manager at the 200-bedroom hotel, said: "We need to offer our customers a quality beverage experience, but at the same time we have to be aware of our costs."

Krogab also helped the hotel address packaging waste issues, with 10-litre packs of juice which creates up to seven times the volume when mixed with water.

Innovation

Price was not the only factor influencing sales last year, believes Britvic's Linthwaite, with customers also looking for a better range of choices, especially alongside food. "If you're not drinking alcohol, the choice of a carbonate, fruit juice or juice drink, or water to accompany your meal, is actually quite boring."

Linthwaite believes this, along with spending issues, was a factor in a sales decline of Britvic's J20 brand, which saw a 13% fall in on-trade volumes last year. In response, as well as refreshing J20, with activity including a "name the flavour" promotion, Britvic plans a drive to persuade UK consumers to embrace the Lipton Ice Tea brand.

Although iced tea has been seen as a challenge to UK consumer tastes, the "cold hot drinks" category is in growth, and recent sampling campaigns for the Lipton brand have encouraged Britvic. "It's a light, refreshing flavour that goes very well with food," says Linthwaite.

SHS Sales & Marketing believes its Shloer grape juice brand also has a part to pay in enabling operators to offer increased variety. Amanda Grabham, Shloer's marketing communications controller, says: "The fact that Shloer is grape-based sets it apart from its competitors, reinforces the wine-alternative connection in consumers' minds and gives it an adult acceptability. Given that 85% of consumers believe Shloer is a good fit with food, it represents an opportunity for pubs, restaurants and hotels to create a point of difference."

Marvin Henshaw, UK manager for European fruit juice brand Pago, believes flavour innovation can help operators to grow sales, not simply of soft drinks, but also of food served alongside it. He says: "We are a conservative bunch in the UK and tend only to drink orange and apple juice. We have 14 different juice flavours in the UK and we want to encourage customers into thinking about juice in new ways and to be a little more adventurous."

Aiming to encourage consumers to experiment with fruit juice flavours alongside food, Peach Pub Company chef Mark Godbehear recently produced a range of dishes matched to Pago fruit juice flavours. These included chargrilled gammon served with pineapple, jerk chicken with lemon and lime, and roast duck breast with cranberry (see panel).

Godbehear, head chef at the White Swan, near Milton Keynes, says: "Acidic flavours cut through meat fats extremely well whilst the sweeter juices complement the saltiness of foods like cured meats and cheeses."

Gabriel David, founder of West Country producer Luscombe, stocked by operators such as Heston Blumenthal, Michael Caines and Mark Hix, agrees: "Palates are becoming more discerning and with alcohol consumption falling there's a strong demand for the trade to offer high quality soft drinks. Customers expect it and a collection like Luscombe offers real quality and a complement to a range of beers, wines and spirits."

Health

Mintel reports that soft drinks which deliver health benefits are an important area for new product development, while fruit juice continues to benefit from its natural credentials, growing sales by 8.4% in the Horeca market last year

Johnsons Juice Co category marketer Shirna Ferrers says: "In recent years there has been an increasing interest in the content of our food and drink, and consumers rightly associate freshly squeezed juices with genuine goodness and minimal processing."

One brand trading strongly on its health credentials is WB&CO with its range of three vegetable juices. Founder Mark Walker is fructose intolerant, and has adapted the traditional method for making olive oil to extract juice from vegetables and herbs, preserving the essential nutrients as well as the natural taste.

The range is sold at two London sushi bars operated by Tsuru. Owner Emma Reynolds says: "They taste very fresh - the best way to describe it is that they taste of ‘health'.

"We stock the veg juices at our restaurants at Mansion House and Shoreditch, which tend to have a higher spend per head. Carrot & ginger is definitely the most popular. Spinach is more of a challenge - it takes some courage to order a green drink - but we get City boys coming out of the gym and ordering sushi and a spinach juice."

Energy

Linked to health, but more specifically focused on performance, is the energy drink category, which grew 1.8% overall in Horeca last year, and is understandably strongest in sports and leisure sites. One significant trend is a move away from high calorie products.

GlaxoSmithKline (GSK), which owns brand leader Lucozade, offers the Lucozade Sport Lite variant which has added a new orange flavour this year, while Coca-Cola Enterprises (CCE), launched Powerade Zero last autumn.

Selena Taylor, trade communications manager at CCE, quoted research which highlights the opportunity: "There are 1.8 billion active sporting occasions among Powerade's core audience each year. Currently, during these occasions, 79% drink water and only 15% drink sports drinks. Out of those that drink water, 52% reject sports drinks because of the high sugar and calorie content."

Water

In the wider market, however, water sales have seen a significant decline. Figures in Britvic's report show a 6.9% decline in sales of still water in Horeca last year, and a 3.7% fall in value sales of flavoured water. Sparkling water bucked the trend, with sales up by 4.3%. "Water suffered a backlash during the economic downturn," says Mintel's Lewis.

With packaged water, operators also need to balance the environmental concerns of some customers with the expectation of others that something other than tap water will be on offer. For a "green" business, the challenge is heightened. Brighton boutique hotel Paskins Town House has made a strong commitment to environmental responsibility, and owner Roger Marlowe stocks the Aquapax brand as the guest water in rooms. Packaged in paper cartons, guests finding the brand in their rooms are immediately reminded of the hotel's commitment, says Marlowe.

"When you're a green business, you have to be seen to be green. Aquapax is very popular with guests. The packaging is excellent, giving it a premium feel. It's surprising how much people value packaged water - especially since our tap water is very good."

fruit juice and food

Mark Godbehear
Mark Godbehear
Peach Pub Company chef Mark Godbehear's recommendations for food and juice matches

â- Strawberry salad of Parma ham, buffalo mozzarella, basil and balsamic reduction

â- Lemon Lime jerk chicken with a sweet potato and coconut curry and dark rum glaze

â- Blood Orange and Lime seared tuna loin, braised fennel and watercress salad

â- Cranberry roast duck breast, vanilla mash with lime and orange jus

â- Cloudy Apple pork and leek sausages, mature cheddar mash and celery gravy

â- Peach warm chicken liver, bacon and pistachio salad with a raspberry vinaigrette

â- Pear Cropwell Bishop Stilton, pickled walnut and bacon tartlet

top on-trade brands (By volume)

Pepsi
Pepsi
1. Pepsi

2. Coca-Cola

3. Diet Pepsi

4. R Whites Lemonade

5. Diet Coke

6. Schweppes Lemonade

7. Britvic J2O

8. Britvic Pure Juice Mixers

9. Red Bull

10. Schweppes Mixers

CONTACTS

Aquapaxwww.justdrinkingwater.com

Britvic 0845 758 1781
www.britvic.co.uk

Coca-Cola Enterprises 0845 722 7222
www.cokecce.co.uk

GlaxoSmithKline 0870 241 5132

Johnsons Juice Co 0800 023 2497
www.johnsonsjuices.co.uk

Krograb 01477 536919
www.krogab.co.uk

Luscombe 01364 643036
www.luscombe.co.uk

Pagowww.pagofruitjuice.co.uk

Shloer SHS Sales & Marketing 01452 378500
www.shs-sales.co.uk

WB&Cowww.wbcouk.com

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