Beverage Category Declines for Second Straight Year

Fortified Waters, Sports Drinks Hard Hit by Price-Conscious Consumers

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NEW YORK ( -- Fortified waters and sports drinks saw steep volume declines last year, while the carbonated soft-drink category saw some rebound amid declines as consumers continue to shun packaged beverages. Overall, the beverage category declined 3.1% in volume in 2009. A year ago, the beverage category saw volume drop by 2.1%, the first decline on record.

Coca-Cola's Vitaminwater brand saw a 13% decline.
Coca-Cola's Vitaminwater brand saw a 13% decline.
"The challenged economy is undoubtedly the single greatest factor that's impacted the performance of refreshment beverages in each of the last two years," said Gary Hemphill, managing director-chief operating officer at Beverage Marketing Corp. "It's possible this could continue into 2010. It's a little bit premature to say, but it's not beyond the realm of possibility."

Mr. Hemphill said that while his company does not specifically measure tap water, it's safe to say that consumers have been turning to the cheap alternative. Prior to the recession, tap-water consumption had been trending downward for decades.

According to Beverage Marketing Corp., so-called value-added water and sports drinks were the two hardest hit categories, with volume declines of 12.5% and 12.3%, respectively.

Value-added water was dragged down by Coca-Cola's Vitaminwater brand, which saw a 13% decline. PepsiCo's SoBe Lifewater brand, however, jumped 63% on the strength of the SoBe Lifewater Zero launch, which uses the company's stevia-based PureVia sweetener. Though the SoBe launch is still a small player in the overall category, it does indicate that consumers are willing to pay for products they view as healthier, which bodes well for both PepsiCo and Coca-Cola, as the beverage giants race to introduce products with natural sweeteners.

U.S. Liquid Refreshment Beverage Market
Changes in Volume by Segment
Segment % Change 2008-2009
Ready-to-drink Tea 1.2%
Energy Drinks 0.2%
Carbonated Soft Drinks -2.3%
Bottled Water -2.7%
Fruit Beverages -3.7%
Ready-to-drink Coffee -5.4%
Sports Drinks -12.3%
Value-Added Water -12.5%
Total Beverages -3.1%
Source: Beverage Marketing Corporation

PepsiCo's Gatorade, which was repositioned as G with a splashy campaign last year, was a major factor in the decline of the sports-drink category. Volume decline was 15.5% at Gatorade, which is the largest player in the category, compared to a 1% drop at the smaller Powerade label. Gatorade's share of volume fell 0.5% among the leading beverage brands, though it maintained its position as the fifth-largest overall beverage brand.

Soft drinks
Carbonated soft drinks, the largest beverage category, declined 2.3% in volume, showing a rebound from last year's 3% decline. 2009 marked the fifth consecutive year of declines in the category. Flavored diet soft drinks, such as Diet Mtn Dew and Diet Dr Pepper, proved most popular with consumers and were the only two brands to see growth in 2009, according to a separate report from Beverage Digest. Dr Pepper and Fanta were the only other brands that didn't show declines, with flat volume share.

Consumers are more likely to trade down to private label colas from Pepsi and Coke than they are from difficult-to-duplicate flavored soft drinks like Mtn Dew and Dr Pepper. But, Mr. Hemphill added, soft drinks in general could be viewed by consumers as an affordable alternative to pricier categories like value-added water.

Coke and Pepsi both saw volume and share declines, according to Beverage Digest. Coke lost 0.3 share points paired with a 4% decline in volume, while Pepsi lost 0.4 share points and volume declined 5.5%. Diet Coke also closed the gap with Pepsi in volume share, with both brands now claiming a 9.9 share of the market. A year ago the two brands were 0.3 share points apart.

Ready-to-drink tea and energy drinks were the two strongest-performing categories, growing volume by 1.2% and 0.2%, respectively. And, surprisingly, bottled water saw a relatively modest 2.7% volume decline. High penetration of private-label brands and value pricing from Nestle Pure Life helped boost the category. Nestle Pure Life saw a 14.6% jump in volume, compared to double-digit declines for the pricier Aquafina and Dasani brands.

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