The future of the beverage industry looks bright.
Of course, it looks a bit brighter for some parts of the business than for others.
In sharing their five-year growth forecast for select categories in the U.S. beverage market, market research group Euromonitor reflected wins for some and losses for others. While coffee, water and tea should maintain steady growth trajectories, declines are expected for carbonated soft drinks (CSDs) and juices.
In keeping with the downward trend in the category for the past several years, the forecast for the carbonated soft drinks market is bleak. In 2017, retail sales were down 2.5 percent (a total of around $10 billion), with value sales declining by one percent. In 2018-2019, the category is projected to contract a further 2.9 percent, followed by 2.5 percent in 2019-2020, 1.9 percent in 2020-2021 and finally a 1.8 percent decline in 2021-2022.
“It’s not a big change in the decade-long trend that we’ve been seeing in CSDs,” said Howard Telford, head of soft drinks at Euromonitor, though he noted that on-trade value for the category is down less than one percent as fountain soda sales have remained relatively flat, possibly due to a shift in consumer attitudes. “There’s a notion of an occasional, premium indulgence rather than those planned trips to the grocery store. The more experimental, more indulgent consumer is consuming CSDs in a different, lower volume way.”
The prospects for diet or low calorie sodas is similarly discouraging, according to Euromonitor. Diet CSDs were down about 3 percent in volume in 2017, and by the end of 2022, Telford said the category as a whole could be as much as 17 percent smaller in volume than it was at the end of 2017. Out of all the categories for which data was made available, low calorie sodas saw the biggest decline in off-trade value, falling 5.3 percent last year to around $6 billion. Declines are expected to continue annually in increasingly smaller increments, with 2018-2019 projected to experience a 3.9 percent drop.
The Coca-Cola Company made headlines last week with the announcement of a major brand revamp and package redesign for Diet Coke aimed at attracting millennial consumers.
“Generally I don’t think there’s a huge amount of optimism [for the diet CSD category],” Telford said. “There’s a long way to go to giving that category a kickstart, and it’s hard to put your finger on one thing that needs to be fixed there.”
Yet there have been some bright spots within carbonated soft drinks. Telford noted that orange flavored CSDs, such as Fanta, are up 1.4 percent in volume in 2017, while ginger ale products have also seen retail volume increase by 4 percent in 2017. Telford attributed the rise to consumers’ desire for more sophisticated flavor profiles.
For juices, results were mixed. Telford characterized the past year as “not good” for the category overall, as declines in traditional back-of-the-store orange juice products continued. He noted worrying declines in volume for 100 percent juice products, while growth in the super premium segment has leveled, which Telford said may have been influenced by pricing as those brands attempt to move from natural retailers into conventional and mainstream stores. There’s also some indication that consumers’ increased attention to sugar content has played a role in diminishing returns for juices. However, Telford said that the long-term view of the category remained relatively encouraging.
After enjoying explosive growth earlier this decade, coconut water, along with other plant-based waters, still have room to continue growing, based on the data. The category was valued at $857 million in 2017, up almost 1 percent from the prior year. Expansion is expected, with 2.2 percent growth projected for 2018-2019, 2.8 percent for 2019-2020, 3.1 percent for 2020-2021 and 3.3 percent for 2021-2022. By that time, the value of the category is expected to be close to $1 billion.
In ready-to-drink coffee, the forecast is clear cut: “In value terms, we think this is going to continue to be a double-digit value growth winner,” said Telford. After growing by nearly 15 percent in 2017-2018 to over $3 billion, the category is expected to grow a further 10.3 percent in 2018-2019. By 2022, the category is expected to be over $4.8 billion.
One of the big reasons for that is cold brew, as the format has served as a primary driver of the wave of premiumization that is impacting the entire category. Premium coffees face a similar pricing challenge as juice in moving into mainstream grocery and convenience stores, but Telford said some brands have found a way to reach a balance.
“Stok has been a big winner,” he said. “We’ve seen some strong growth from High Brew as well, that’s been another brand that’s been very successful in finding an accessible mainstream price point and taking a cold brew product into mainstream grocery, leading the charge for cold brew in that segment.”
As RTD coffee grows and cold brew matures into a mainstream offering, Telford expressed optimism that “craft” brands, albeit well-financed ones, such as the JAB Holdings-owned Stumptown, will still find space within which to operate in the market.
“Stumptown is essentially a national brand now,” he said. “I think there are players that are making that leap. Price point is very important; it’s more a Whole Foods product than a Kroger product. But I’m pretty optimistic about that category and about cold brew making that leap.”
Yet even the impressive gains in RTD coffee are dwarfed by the boom in kombucha, which grew by 35 percent last year, thanks in large part to brands, such as KeVita and GT’s, successfully pushing into the mainstream.
In terms of the overall RTD tea market, Euromonitor projects the category to grow 3.9 percent in 2018-2019, down from 4.6 percent in 2017-2018. In subsequent years, the forecast calls for 3.2 percent growth in 2019-2020, 2.8 percent the following year and 2.3 percent in 2021-2022. Still teas brands with reduced sugar or zero sugar offerings, such as Ito En, Pure Leaf and Gold Peak, have performed particularly well, according to Telford.
Off-trade value for energy drinks were off about 2 percent. Telford said the category has matured but is still showing growth, particularly from reduced sugar or zero calorie lines from Red Bull and Monster Zero Ultra.
“It’s sort of a new era in general for energy drinks; our forecast is going to be a lot more conservative than we would have expected several years ago, as the category is more mature,” he said.
However, brands that blur the lines between energy and other categories, such as some functional drinks or caffeinated waters, could present a threat to the traditional energy drink establishment.
“How consumers are thinking about energy is a lot more expensive than it used to be and it’s touching on adjacent categories,” he said. “Value is up, volume is up, it’s just a little bit more conservative now as we look out to 2022.”