Euromonitor Forecast: Water Keeps Flowing, Sports Drinks and Juices Fall

Like kids transitioning into adults, once-emerging beverage categories are growing up quick.

According to market research group Euromonitor, which released its five-year growth forecast for U.S. soft drinks on Monday, unsweetened flavored waters, sparkling waters and plant-based hydration drinks have reached a mature growth phase which is set to bring a host of opportunities — and challenges — in the years ahead.

Beverage categories grouped under “soft drinks” include bottled water (still, carbonated, flavored and functional bottled waters), carbonates, juice, RTD coffee, RTD tea, energy drinks, sports drinks and concentrates (liquid and powder).

In bottled water — which includes still, carbonated, flavored and functional bottled waters — Euromonitor forecasts category volume to grow at a compound annual growth rate (CAGR) of 3.8 percent over the next five years and by 20.5 percent through 2023. During that period, sales are projected to grow at a CAGR of 2 percent.

“We are noticing not a slowdown but a maturation of what we would define as flavored bottled water,” said Howard Telford, head of soft drinks at Euromonitor. “There is an argument I think increasingly that as we are reaching that maturation, there will be a lot more price competition. I think brands have caught up to La Croix in some cases.”

Telford said a 5 percent increase in overall U.S. mineral water volume underscores that premium sourcing is driving value in mass market water.

“Super premium mineral carbonated brands that aren’t necessarily trading on flavor but on the sourcing and the quality of the water itself has been another big value driver alongside flavor and function,” he said.

However, even as brands like Topo Chico and San Pellegrino enjoyed strong years in 2018, Telford emphasized that private label brands have been amongst the most successful in bottled water, reaching almost 40 percent of the categories overall volume outside of retail bulk. That growth is coming from both still purified spring waters and flavored seltzers, with room to expand further.

“We are reaching a tipping point in terms of those flavored seltzers and all the price competition in that category,” he said. “Private label is getting their share of the pie there as well, and they are catching up in packaged water and even value added water.”

For carbonated soft drinks (CSDs), both U.S. volumes and sales are projected to continue falling at a CAGR of -1.1 percent and -0.9 percent, respectively, through 2023. Over the next five years, CSD sales are forecasted to contract at mid-single digit rates. Telford some reasons for optimism, though; along with a slight uptick in diet sodas and craft products such as tonic waters, an emerging group of non-cola CSD products with functional benefits — such as probiotic sodas — are projected to enjoy high single digit growth over the coming years.

The ready-to-drink coffee segment is expected to continue growing at a healthy rate of 5 percent CAGR through 2023, according to Euromonitor. Within the broad range of products that falls under that general categorization, which Telford said grew 9 percent year-over-year in 2019, some sectors have fared better than others. He noted that, despite the proliferation of independent brands, cold brew remains a fairly new concept for convenience store consumers, and the scheduled entrance of Coca-Cola North America (CCNA) into the category this year with the launch of Far Coast will help push those doors open. Elsewhere, indulgent coffee drinks are having mixed results, with slumping sales for Starbucks Frappuccino line offset by the strong performance of Dunkin’ products sold through Coke.

“The question for the RTD category as a whole is whether premium coffees and premium functional coffees are enough to offset some of the flatness we’ve seen on the more indulgent end [of the category],” Telford said. “I think that’s the direction that the category is heading — away from indulgence and towards functional, with more quality sourcing and processing.”

Meanwhile, sports drinks are projected to fall by 17.9 percent in sales and 16.5 percent in volume by 2023. Telford noted that the category, long dominated by Gatorade and Powerade, has been in decline for an extended period. Tellingly, even as consumers seek more low sugar beverage choices, sales of reduced sugar sports drinks were down 5 percent in 2018. However, category disruption will provide opportunities for non-traditional hydration drinks.

“As I would think about how we define categories, it may not even make sense to think about the sports drink category; it makes more sense to think about hydration, or value added hydration,” he said. “I think a lot of the lost volume [in sports drinks[ is flowing into coconut water but it’s also one of the things that’s sustaining growth in added value packaged water.”

Juice has also suffered in recent years, a trend that is expected to continue through 2023. Both volume and sales are projected to drop over the next five years. Telford noted that 100 percent juice products are producing weak numbers nationally, while the performance of super premium fruit smoothies has not been sufficient to offset losses elsewhere. However, organic 100 percent juice products were up 3 percent in 2018 and organic juice drinks were up 6 percent.

“I think [that growth] is indicative of the direction parents are going — [organic] signals quality and a level of comfort in giving to their kids,” he said, citing the success Honest Kids has had “transforming the kids juice box category.”

Specific projections for plant-based non-dairy products were not available, but Telford said pulse products and oat milks have driven much of the segment’s recent growth.

“One thing I think we are seeing with our survey research is the traction that sustainability is getting across the board in beverages,” he said. “A lot of that is in packaging and sourcing, but the other side is the sustainability that comes to some of these non-soy plant-based milks. Almond milk, for example; a lot of consumers are spending a lot more time researching the consequences of that, and there’s a very weak argument for almond milk being sustainable. There will be more creativity in looking at stuff like walnut milk, or things with a bit more sustainable footprint.”