Canadian Vending

Products Beverages
Beverage Sales Bubble

Consumer habits push several categories higher


March 31, 2008
By Cam Wood


Topics

As sales in the carbonated soft drink category continue to decline,
vending operators should be exploring their options for which consumer
beverages will provide some excitement and a positive return.

As sales in the carbonated soft drink category continue to decline, vending operators should be exploring their options for which consumer beverages will provide some excitement and a positive return.

Carbonated soft drinks (CSD) have been under the gun over the past few years as Canadians re-evaluate their diets and consumption habits. Earlier this year, Canadian Pizza reported that across the country consumers were moving away from high-calorie, low-nutrition beverages, and into other, healthier categories such as water, juice and functional drinks.

Gary Hemphill, of the Beverage Marketing Corporation, says that consumers are undergoing significant lifestyle and lifestage changes, which is having a dramatic effect on their beverage of choice.

 water 
Growth in the bottled water category has been mostly driven by consumer demand as opposed to corporate marketing. 

But their “needs and attitudes are creating more opportunities for focused product and brand strategies.”
Hemphill presented his company’s findings on beverage trends, and which categories provide the best opportunities, at the recent National Automatic Merchandising Association’s Spring Expo.

“We’re seeing more and more niche-type beverages – smaller volume products, but higher profitability. The consumer is taking the market towards more functionality and is now thinking more about the ‘need’ for the beverage,” Hemphill said.

And while CSDs continue their decline across North America, three categories have emerged as strong areas for growth: bottled water, sports drinks and energy drinks. One other area of rapid growth of late has also been in the ready-to-drink coffee and tea offerings, but Hemphill noted they still are considered niche products.

As the consumer has changed in the reasons why they are now drinking what they are drinking, beverage companies have targeted innovation in those areas. While CSDs were once traditionally considered a “treat” item, consumers are demanding beverages that serve the purpose of hydration, health and wellness benefits, and weight control.

“And we expect to see more of this in the coming years. Increasingly consumers are seeking products with benefits … beverages are no longer just for ‘fun’ and ‘refreshment,’” said Hemphill.

Coca-Cola Bottling Company’s Paul Herring is seeing this migration first hand. As the Business Unit Full Service Vending Manager, Herring must be keenly aware of these lifestyle and lifestage transitions among Canadian consumers, and position his company’s products accordingly.

“With today’s busy lifestyles, consumers are increasingly looking for convenient choices, especially when they are on the go and away from home – this is a great opportunity for vending operators,” he recently told Canadian Vending.
In examining trends over the past year, the Beverage Marketing Corporation found that sales of energy drinks have grown 47.9 per cent. In 2005, sales leapt 73 per cent in what Hemphill calls “an amazing phenomenon.”

Hemphill said what was once considered a “fad” is now a legitimate beverage category.

In the sports drink category, sales over the past five years have continued to increase by double digits – 11 per cent in 2006 alone, 20 per cent the year previous. Two brands account for 97 per cent of the volume – Coke’s Powerade and Pepsico’s Gatorade.

“Sports drinks offer the benefits of both hydration and energy, especially in places where consumers are active: arenas, community centres, outdoor parks and sports facilities,” Herring said. And with Canadians growing concern for healthy lifestyles, traffic volume is also increasing in these areas.

“The outlook is very positive,” said Hemphill.

Touching on the bottled water category, Hemphill said the continued growth is “interesting” given that very little marketing has been dedicated to the product. The “amazing” growth since the early 1990s has been almost exclusively driven by consumer demand.

“The lion’s share of the growth is in the single-serve category.”

Fifty-seven per cent of consumption falls in that group, while direct deliver (office coolers) account for 16.3 per cent. Flavoured waters accounted for 15 per cent of the single-serve selections by consumers, almost double in popularity from two years ago.

Hemphill believes bottling companies will use this area, and that of value-added waters (vitamin-enhanced, oxygen-enriched, etc.), to drive future product innovation.

“They should be a key part of your product portfolio today,” he told the vending operators in attendance.
The growth behind bottled water is also one of the contributing factors behind the decline in CSD consumption. In a recent report, financial giant Morgan Stanley predicted that 45 per cent of consumers leaving soft drinks behind are picking up bottled water instead.

“And you don’t really hear consumers complaining about water,” Hemphill said.

This trend of consumer health and wellness is expected to continue to drive the beverage industry through 2010, according to Hemphill.

“Water is likely to be the primary driver, but energy drinks will drive profitability as consumers have shown a willingness to pay a premium for the perceived benefits.”