Migration to Water, Sports Drinks Impacts Carbonated Soft Drink Sales

Beverage makers who once relied heavily on carbonated soft-drink sales are putting more focus on water and sports drinks as consumers show increasing interest in drinks that are lighter and are perceived to be healthier.

Sales volume of carbonated soft drinks across retail, vending and fountain channels in the United States fell last year for the first time since 1985, according to Beverage Digest, which said volume slid 0.2 percent. Excluding energy drinks, it fell 0.7 percent.

Even so, sales of noncarbonated drinks were on the rise, helping beverage makers like The Coca-Cola Co., PepsiCo Inc. and Cadbury Schweppes PLC.

“I think people have a growing interest in beverages which are lighter and have actual or perceived functional benefit,” Beverage Digest editor John Sicher said Thursday. “I think we’ve seen a decline in regular soft drinks for some time.”

Sicher said the trend toward noncarbonated drinks is likely to continue, but he noted beverage makers are prepared for the shift.

“I think we’re seeing a consumer shift, but I think Coke and Cadbury and Pepsi are well-positioned to handle this,” Sicher said.

A spokesman for Atlanta-based Coca-Cola said the company reported last month in its fourth-quarter and year-end earnings release that it saw a 1 percent increase in carbonated soft-drink sales volume in the U.S. for the last three months of 2005, reversing three consecutive quarters of negative performance in the category.

“People want variety,” Ben Deutsch said. “You saw this tremendous growth in non-carbs this last year. That’s impacting carbonated soft drinks.”

Still, Deutsch said Coca-Cola is “very bullish” on carbonated soft drinks going forward.

“We are a total beverage company and we see tremendous opportunity both in carbonated soft drinks and in non-carbs,” he said.

In a research note Wednesday, Morgan Stanley analyst William Pecoriello said the rules for success in the soft drink industry are changing rapidly.

“Consumer choices are exploding, consumers have greater knowledge about products, are taking personal responsibility for their health/wellness and growing more sophisticated,” he wrote. “The concentrate companies and bottlers need to make changes to their businesses to adapt to this reality.”

On an individual basis, Beverage Digest said Cadbury Schweppes grew its sales volume of carbonated soft drinks by 0.6 percent in 2005, compared to Coca-Cola, which was down by 0.1 percent for the year and Pepsi, which was down 1.2 percent.