Industry issue 1 - recession

Section: State of the Industry '09 CSD REPORT SPONSORED BY AJINOMOTO. Aspartame The US liquid refreshment beverage market had its share of hits and misses in 2008. Last year was marked by challenges for the United States economy and most consumer product goods industries, and the beverage market was not immune. In an economic climate where consumers increasingly tightened their wallets, fewer beverages were being pulled off beverage aisle shelves or ordered at restaurants and fast food chains. The overall US liquid refreshment beverage (LRB) market, which includes all non-alcohol beverages, shrank by 2 percent by volume, the first volume decline on record. The health and wellness trend that began to take shape earlier this decade continued to positively impact the market's performance as segments like enhanced and flavored waters were drivers of growth. Yet the double-digit increases witnessed in years past have slowed considerably. "Generally, when looking at growth trends, the decline is slow and gradual. This past year you saw growth rates cut in half for the premium LRBs and that was shocking," Michael Bellas, chairman and CEO, Beverage Marketing Corporation (BMC) says. And the beleaguered carbonated soft drink category, which has been struggling for several years, saw its decline accelerate, charting a 3.1 percent drop in volume. Even bottled water, a category with a considerable health halo, dropped by 1 percent, affected by the economy and environmental concerns. "The year started with high fuel prices and some of that was passed on to the consumer in terms of higher prices because the cost of distributing beverages was higher, but you also had higher packaging costs because of the cost of PET. And then the last half of the year is really when the economy hit the wall. In effect, the economy would be the biggest overriding impact," says Gary Hemphill, managing director, information services, BMC. However, there continues to be shining stars in the LRB market as smaller, more niche beverage categories posted the strongest growth, despite being higher-priced, premium beverages. As consumers continue to seek value and a real functional benefit, it seems those beverage companies most effectively responding to those needs are the ones who will continue to prosper in uncertain times. Brand                    Million    Market    Growth     Share Gallons    Share               Point Change

Carbonated Soft Drinks                  14,232.6     47.5%     -3.1%      -0.5

Bottled Water(*)         8,672.9     28.9%     -1.0%      +0.3

Fruit Beverages          3,928.2     13.1%     -2.0%       0.0

Sports Drinks            1,318.6      4.4%     -3.1%      -0.1

Ready-to-Drink Tea         859.3      2.9%     -1.8%       0.0

Flavored and Enhanced Water             548.1      1.8%     +8.3%      +0.1

Energy Drinks              365.9      1.2%     +9.0%      +0.1

Ready-to-Drink Coffee       47.5      0.2%     +1.6%       0.0

Total                   29,973.2    100.0%     -2.0%        NA

LEADING US CSD COMPANIES MILLIONS OF GALLONS

The Coca-Cola Company     6,172.3    -3.0%

PepsiCo. Inc.             4,451.2    -4.2%

Dr Pepper Snapple Group   2,207.0    -1.3%

Cott Corporation            676.4    -6.0%

National Beverage           374.5    +2.4%

Big Red                      43.1    +2.7%

Carolina Beverage            11.0    +4.0%

http://web.ebscohost.com.ezproxy.lib.ucalgary.ca/ehost/detail?vid=1&hid=105&sid=e7ae2663-5bda-4674-ab73-2ee2f031810b%40sessionmgr110&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=38124285

PepsiCo Inc. expects U.S. nonalcoholic beverage volume to grow again, at least in line with population growth. A Media & Marketing article Tuesday incorrectly cited a spokesman as saying the company expects soft-drink volume to grow again, at least in line with population growth. (WSJ April 1, 2009) U.S. soft-drink sales slid for the fourth year in a row last year as Coca-Cola Co.,  PepsiCo Inc. and some other beverage companies failed to rev up consumer interest in their biggest soda brands in the midst of a worsening economy. U.S. soft-drink volume fell 3% in 2008, according to Beverage Digest, an industry publication and data service that tracks soft-drink sales in supermarkets and other retail outlets, vending machines and restaurants. The decline was the steepest on record, and evidence of further acceleration from drops of 0.2%, 0.6% and 2.3% in 2005, 2006 and 2007, respectively. The cumulative 6% decline over four years erased gains made by the industry between 1997 and 2004, the peak year for U.S. sales. Volume slid to about 9.6 billion 192-ounce cases last year from 10.24 billion cases in 2004. The sales drop is due to the slow economy and increases in pricing, along with some continued interest in alternative beverages such as enhanced waters, said John Sicher, editor and publisher of Beverage Digest. In the past few years, energy drinks have been a bright spot for Coca-Cola and  PepsiCo but sales of those products have slowed, too, as they tend to be relatively expensive, Mr. Sicher said. The gloomy news raised the specter of whether the big players are doing enough to reinvigorate their core brands in the $72.7 billion U.S. soft-drink market. "Unless and until the major companies can get the soda business at least back to flattish, it's going to continue to be a drag on the entire industry and their businesses," Mr. Sicher said. Coca-Cola's soft-drink volume fell 3.1%, and its share of the U.S. carbonated soft-drink market slipped 0.1 percentage point to 42.7%. PepsiCo's volume fell 4% and its share slipped 0.3 percentage point to 30.8%. The third-largest soft-drink maker, Dr Pepper Snapple Group Inc. saw its sales volume drop slightly, but its market share rose 0.3 percentage point to 15.3%. Volume for Cott Corp., the fourth-largest beverage maker, which produces private-label beverages for retailers, fell 6% and its market share slipped 0.1 percentage point. Coke spokesman Dan Schafer said the company expects its soft-drink volume to grow again, though he wouldn't say when. "We believe it will and we're committed to making that happen," he said. The company cited new advertising and new packaging such as 99-cent 14-ounce bottles being rolled out now as evidence of its attention to core soft-drink brands. Coke also benefited from a 36% jump in sales last year of Coke-ColaZero, he said. Pepsi spokesman Larry Jabbonsky said the company expects soft-drink volume to grow again, at least in line with population growth. "We've said we're out to 'refresh everything,' and we mean it," Mr. Jabbonsky said, referring to revamped marketing and packaging for key beverages such as Pepsi and Gatorade. Among the top 10 soda brands, only Diet Mountain Dew, marketed by PepsiCo, and Diet Dr Pepper, marketed by Dr Pepper  Snapple, posted volume growth. Overall, the U.S. market for nonalcoholic beverages -- including soda, bottled water, sports drinks, fruit drinks, energy drinks and other drinks -- fell 2% last year, according to Beverage Marketing Corp., an industry consulting firm that also released data yesterday. The volume downturn was the first on record, according to the firm. Hot summer months will bring a key test for beverage companies' strategies. And lower commodities costs "might enable the companies to be a bit more aggressive [in pricing] this summer," Mr. Sicher said.

http://proquest.umi.com.ezproxy.lib.ucalgary.ca/pqdweb?index=0&did=1670043401&SrchMode=2&sid=2&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1257730338&clientId=12303