SOFT DRINK SALES FALL FOR FIRST TIME IN 20 YEARS

Health-Conscious Consumers Opting for Water, Noncarbonated Products

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CHICAGO (AdAge.com) -- Sales volume of carbonated soft drinks across retail, vending and fountain channels fell last year for the first time in two decades. According to Beverage Digest, volume slid 0.2% -- and if it hadn’t factored in energy drinks like Red Bull and Monster -- carbonated beverage volume would have tumbled even further, 0.7%.
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'Basic fundamental problems'
“The carbonated soft drink business in the U.S. has basic fundamental problems,” said John Sicher, editor of Beverage Digest. “This is the first generation of children that are going to grow up not viewing soft drinks as the ultimate treat. They’re growing up on things like sports drinks, water and noncarbonated drinks. As these little kids move into late teens and early adulthood, their drinking habits are going to be different than past generations.”

Trends so far this year appear to continue the downward slide, said Bill Pecoriello, beverage analyst for Morgan Stanley. He estimates the category will slip at rate of 1% over the next few years.

Increase in overall revenue
Though volume fell, sales in the $70 billion category grew 3.3%, mostly on price increases for regular and diet drinks and on premium pricing for energy drinks.

Even diet drinks have taken a hit, as sales have slammed on the brakes since the beginning of 2004, according to Information Resources Inc. data. Volume gains in diet carbonated soft drinks have steadily dropped to a 6% decline during the fourth quarter of 2005 from a volume gain of 8% during late 2004.

“Consumers say they don’t like the taste, are worried about artificial sweeteners and don’t view diet carbonated soft drinks as ‘healthy,’” Mr. Pecoriello wrote, citing Morgan Stanley research that showed 64% of water growth is coming from carbonated soft drinks.

“The rules for success in the soft-drink industry are changing rapidly,” he wrote in a note today to investors. Carbonated soft drinks “continue to lose their positive image as a popular, versatile, fun beverage choice as consumers are cutting back on sugar, drinking more water and watching calories.” Citing Morgan Stanley’s own consumer research, Mr. Pecoriello pointed to the growing mountain of articles linking sodas with obesity.

Schweppes, Mountain Dew make gains
There were some winners, however. Of the top three soft-drink marketers, Cadbury Schweppes grew its volume by 0.6% in contrast to leader Coca-Cola Co., down 0.1%, and Pepsi-Cola Co., down 1.2%. Among the top five brands, Coke Classic dropped 2%, Pepsi-Cola slid 3.2%, Diet Coke slipped 0.1% and Diet Pepsi 1.9%. No. 4 brand Mountain Dew grew 1.8%.

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