Are Carbonated Beverages Losing Their Fizz?

by Shweta Jain

Back in the 90’s, a birthday party meant children would gulp down their favourite soda, a glassful of Coke or Pepsi! Aah! Visitors coming home or an impromptu celebration meant a quick run to the friendly neighbourhood store for the familiar PET bottles filled with fizzy happiness!

Fast forward to 2016 – Hector Beverages captured the nation’s imagination with its ad campaign by taking viewers on a trip down memory lane for its non-carbonated traditional beverage offering, Paper Boat. Even in the US, advertisements on vending machines now read, “It takes 65 minutes of dancing to burn calories consumed in a can of soda”! Nielsen’s H1-‘16 data indicates, juices and juice based drinks have, for the first time, pushed Coke and Pepsi out of the top 5 highest sold beverages from modern trade outlets in India. A trend indicative of a shift in beverage consumption habits from aerated to healthier, traditional and / or functional beverages.

Are Carbonated Beverages Losing Their Fizz

The soft drink market in India comprises of bottled water, carbonates, concentrates, functional drinks, juices, RTD tea & coffee and smoothies. Pegged at ~US$5 bn in 2015, the market is likely to grow at 11.5% p.a. to reach ~US$8 bn by 2019, according to MarketLine. Carbonated or aerated drinks account for ~48% of the soft drink market in India by value. With consumers increasingly opting for healthier beverages, the Carbonated Soft Drinks (CSD) market in India is seeing colas losing value share to other flavoured drinks. “Globally, cola carbonates has received a lot of negative publicity due to high sugar content and its lack of nutritional value,” Euromonitor India Country Manager Janaki Padmanabhan said.

Colas are being replaced by healthier and functional options with no added sugar and concentrates. Carbonates are estimated to have grown by 10.8% in ’15-’16, ~60% less than the rate at which bottled water and juices are expected to have grown by during the same period. There is a shift in consumer preferences towards alternatives easily available in the unorganized market as well as on the store shelf:

• Juices: Juices grew at a CAGR of 26.3% over FY10-15 and are now ~25% of the overall soft drink market by value. “100% juices” grew the fastest at 31.3% value CAGR. In the 100% natural category, cold pressed juices command a significant premium – a 250 ml bottle is priced at INR 150 as compared to a 300 ml Coke can at INR 30! Although the market for these expensive juices is small, but, increasing disposable income and perceived health benefits are attracting consumers, entrepreneurs and cola giants alike. Since 2014 there have been almost half a dozen cold pressed juice start-ups in the country and RAW Pressery has managed to close its Series B round of US$ 4.5 mn in Feb. 2016. The trend is stronger globally – CSD behemoths invested in brands like Naked Juice, Suja Life etc. and Starbucks launched its own cold pressed juice brand.

• Water: Packaged water sales in India are growing at 23%-25% over twice the rate of sodas for FY16. Companies like the Tata Beverages are trying to introduce functional bottled water variants fortified with Zinc to cater to the high nutrient deficiency levels in the country, reflective of a trend across the emerging world. Mandatory BIS and FSSAI certifications for packaged water plants are trying to ensure spurious brands do not spoil the party.

• Fortified / Functional Drinks: Functional beverages contain vitamins, herbs, probiotics, non-digestible fiber, or amino acids. Functional beverages are expected to record a 3% retail value CAGR to reach INR 76 bn by 2020. From Red Bull, the leading brand in the energy drink space, with probiotics beverage – Yakult and GSK’s Horlics are all increasingly finding shelf space. There are likely to be a few entrants in the functional drink space in India. For example, Austrian energy drink Tranquini is entering the Indian market. With its positioning of using natural herbs (green tea, chamomile and lavender) instead of caffeine and ginseng, the brand is likely to shake up the functional beverage segment for incumbents like Red Bull.

• Coconut Water: Though the tender coconut market remains largely unorganized, companies in India are slowly waking up to the Western trend and entering the packaged coconut water segment. Few brands like Cocofly (Nilgai Foods), Coco Sip (Manpasand Beverages), Coco Jal (Jain Agro) are attempting to organize the Indian market by offering convenient pack sizes and a longer shelf life while still retaining the natural and preservative free properties of this refreshing health drink.
Market Outlook

There is no denying that the CSD market is still large both in terms of volume and value as a proportion of the overall soft drinks market in India. However, one cannot ignore the juice and bottled water categories, which are certainly starting to make their presence felt. These categories are poised to grow the faster than the CSD market over the next few years. Increased focus towards health and fitness is pushing consumers in both rural and urban areas to increasingly adopt non-CSDs. To maintain their market leadership and prevent it from further decline, CSD companies have to take note of the shift in consumer preferences. It will be interesting to watch how the CSD brands battle it out with their non-CSD counterparts.

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