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Not surprisingly, the largest markets by consumption are Germany, Italy, the UK, France and Spain. And when measured by expenditure, the UK is the largest market, mainly because consumer prices are so high and because a high proportion of soft drinks are purchased out-of-home. This contrasts with Germany where most drinks are consumed in-home and purchased in bulk (at lower prices) at supermarkets and discount stores. Although the overall performance of soft drinks during the past five years has been much better than the relatively static food market, performances have been variable and show signs of slowing growth. Although annual average value growth was 2.7% between 2001 and 2006, volumes grew by just 2.2% per year. Volume growth in some countries actually declined during this period (Sweden and Denmark) whilst others barely grew at all (Austria, Ireland, Netherlands). The highest average annual growth rates were enjoyed by Spain (4.3%), and Portugal (3.2%). The UK was the only other country to see above-average growth at 2.6% in volume per year, compared to the EU's 2.2%.

Health factors

As in most food markets today, you are never far from the influences of the health trend in soft drinks. Not so long ago health drinks meant low sugar or low calorie alternatives. Today, they include a much broader range of beverages, ie:

l freshly-squeezed juices and smoothies

l organic juices

l fortified (vitamins, calcium, omega-3)

l energy drinks

l sports drinks

l decaffeinated

l superfoods

l functional (alertness, cardiovascular health, antioxidants, pre- and pro-biotics).

Juices, nectars and smoothies

EU total consumption of juices, nectars and smoothies was 9.9bn litres in 2006, an average annual increase of 1.9% since 2001. However, due to the launch and success of higher added-value products, such as smoothies, fresh juices and juices from more exotic sources, values rose by an annual average of 2.9% over the same period to reach €11.4bn. This is a further example of consumers willing to pay more for products with additional benefits.

Germany is by far the largest market for juices and nectars, accounting for more than one-third of the EU total. The UK, Spain and Italy are the next largest markets.

In terms of per person consumption, Germany and Finland have the highest levels at 40 litres and 33.6 litres, respectively. Per person consumption in Austria, the UK, Spain and the Netherlands is around 25 litres per year - the EU mean.

Carbonated soft drinks

Of all the beverages covered here, carbonated soft drinks have experienced the poorest overall performance.

Consumption in most countries is static or declining. Only France has enjoyed a significant increase (3.1%). The result is that total volume consumption remained the same in 2006 as in 2001, although values rose slightly during the period.

However, although carbonates account for only 29% of all soft drinks volumes, they still take the largest share of value (36%), worth €25bn at consumer prices in 2006.

Bottled water

Not only has bottled water consumption grown by 3.3% on average, year-on-year since 2001, the segment added a further 6.5bn litres to the EU total up to 2006. In comparison, the juices and nectars segment added 0.9bn litres, carbonates lost 0.2bn litres and other soft drinks put on 2.5bn litres. This is a stunning performance as, by weight, it is larger than the gains made by all other food and drink segments over this period.

Despite the high volume, average consumer values for water are much lower than for its competitors. With a total value of €17.3bn its value is only just ahead of 'other soft drinks' and considerably less than the value of carbonates. Nevertheless, average value growth between 2001 and 2006 was 3.7%, the best performance after other soft drinks.

Other soft drinks

Included in the 'other soft drinks' category are sports and health drinks, still drinks and cordials. This segment achieved the largest annual average growth in volume between 2001 and 2006 of 4.2% per year, which is the best performance of the beverages sector. By comparison, values grew by 4.4%.

Sports and energy drinks

Sports and energy drinks are formulated to replace rapidly the natural body fluids lost during vigorous exercise and contain electrolytes and carbohydrate. However, modern formulations also claim to boost sports performance as well as aid muscle recovery and sometimes also contain protein.

Hypotonic sports drinks have gained share over the past five years, as consumers have looked for lower calorie alternatives, although isotonics remain the dominant force. Energy drinks, while targeting similar markets and consumers, are more about maintaining or boosting energy levels and alertness.

One of the main drivers in this sector is image, as well as function. This goes some way to explain the expansion of such products into the alcoholic mixers sector, where image and function seem to make an attractive combination, especially for younger consumers. We could even see this sector expand to include performance boosting products for the over 40s.

RTS analysis indicates that the volume consumption of sports and energy drinks in the EU now totals 1.2bn litres at a value of €4.2bn. Growth over the past five years has averaged 14.8% per year, which pretty much beats any other sector of the food and drinks industry. Values were up 14.5%.

Within the sports and energy drinks segment, RTS research indicates that the consumption of sports drinks alone is now 590M litres, worth more than €1.2bn. Here, volume growth between 2001 and 2006 averaged 13.8% per year, which is lower than for energy drinks although sports drinks are a longer-established market. Although energy and sports drinks enjoy similar volumes, the value of energy drinks is much higher as retail selling prices reach as much as €6 per litre.

The future for soft drinks

There are two main areas of concern for soft drinks: a static carbonated segment and a gradual year-on-year slowing down of growth in the sector as a whole.

The decline in consumption of carbonates observed in several markets is believed to be the result of some negative press (eg sugar content and the use of benzoate as a preservative), the growth in more interesting and emerging competitive sectors (smoothies, health drinks and juices), and a general feeling of over-familiarity. This latter point has been tackled by the launch of products such as colas with vanilla, 'with a twist' and caffeine-free. Although this segment is forecast to remain static in volume over the next five years, we do still expect values to grow as a new generation of added-value carbonates develops.

The key segments of growth have been health drinks. These include juices based on so-called superfoods (pomegranate, cranberry, açai, goji berries), smoothies, probiotics, omega-3 and energy and sports drinks. Consumption of bottled water also continues to make good progress, again with health variants (vitaminised, with calcium) and flavoured waters doing especially well.

In those markets where dilutables feature strongly (UK, France, Belgium) further developments in flavour types, combination flavours and added values can be expected. The sports and energy sub-segment should continue to out-perform all others in terms of year-on-year growth.

The key factors that will prevent the sector from continued high growth are:

l slow population growth with static to declining populations expected in the key beverage markets of Germany and Italy

l continued poor performance in the main value segment of carbonates

l a slowing down in the growth rate of bottled waters

l continued pressure from health lobbies to reduce intake of sugary drinks, especially for children, plus concerns over the use of certain sweeteners, colours and preservatives.

In summary, the key areas for the development of soft drinks are:

l health: low sugar, low calorie, antioxidants, healthful additions, organics, freshness

l fitness and performance: further development of sports and energy drinks

l lifestyle: drinks designed to fit in with modern lifestyles and consumer concerns

l convenience: development of more on-the-go and nutritional beverages

l indulgence: to continue to use new and better quality fruits and ingredients

l ingredients in general: the continued development and use of natural flavours and colours, and beneficial additives.

For more information, email jamie.rice@rts-resource.com or call him on +44 (0)1902 422282

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