Monday, April 21, 2003

Industry brief : Beverages I Part 2    3   more Carbonated soft drinks At the core of the beverage industry is the carbonated soft-drink category. The dominant players in this area (Coca Cola, Pepsi, and Cadbury-Schweppes) own virtually all of the North American market’s most widely distributed and best-known brands. They are dominant in world markets as well. These companies’ products occupy large portions of any supermarket’s shelf space, often covering more territory than real food categories like dairy products, meat, or produce. As with many mature retail industries, the beverage giants have a problem – growth in the sales of their flagship carbonated products are at a near standstill in the key U.S. market, with 1% growth or less.  After years of rapid growth, it seems that the average American can’t drink any more flavored, fizzy soda water. To remedy that, these three companies are rapidly expanding both globally as they enter and promote new markets for existing products and locally, as they add products from adjacent beverage categories in the supermarket, in categories  that are still expanding.  We'll talk about these areas in a later posting. The prototype of all marketing and branding struggles, the “Cola Wars” keep expanding. The Pepsi and Coca Colakeep rolling out the big guns: dueling pop stars,  and new branded products in the form of  “Vanilla  Coke” and  “Pepsi Blue.”  . They are fighting on the TV, in the fast-food restaurants, and in the supermarkets; they are also dueling  in the schools. One of the biggest pushes of the last few years has been convincing school districts, universities, and other institutions to go all-Coke or all-Pepsi, in return for a (small) cut of the gross sales. Selling  costly sugared water and building an increasing demand for it, even in Third World countries, involves marketing in its purest form, unsullied by any preexisting need  or local tradition. Markets in Eastern Europe, China, India, and Mexico, among others, are expanding fast, and both Coke and Pepsi are finding local partners (bottlers) in these countries to keep extending their reach.  And while the American market may be mature, there’s still an opportunity worldwide to replace hot beverages like coffee and tea that require some preparation with these cold, iconic. ready-to-drink brands. All this worldwide activity can’t disguise an unpleasant core reality for the vendors: U.S. carbonated soft drink sales increased only 0.5% in the year 2002. Although total sales for the industry was up slightly, per capita consumption was down for the third year in a row In other words, domestic soft drink growth  is not keeping pace with population growth.  Overall soda market In fact, Coke and Pepsi have a third major rival on the bottled soft drink shelves, namely Cadbury-Schweppes. The big three carbonated beverage  makers now exist in a stable oligopoly that changes only by small increments and which controls over 90% of the market. Over the years, Cadbury-Schweppes (the result of a merger between a British candy company and a British beverage company)  has improved its position by acquiring key brands in the US, namely Dr. Pepper and SevenUp, along with A & W and Canada Dry. In past decades,  the carbonated beverage  section  had been the beneficiary of an amazing record of growth, where consumption has  more than doubled over the past 25 years. Americans  consume twice as much soda as they did 25 years ago, up from 22 gallons per person per year to over 56. In 2000, these three companies had almost exactly the same share of the U.S. market they had in 1999, namely:  Company Percentage Brands      Coca Cola    44.1% Coke, Sprite, Barq, Fanta, Mello Yello, etc.       Pepsico    31.4% Pepsi, Mountain Dew, Mug, Slice, etc. Cadbury/Schweppes    14.7% Seven-Up, Dr. Pepper, Schweppes, A & W, Canada Dry, Sunkist, Squirt, etc. While individual flavors go up and down, the relative market share of the big three changes at a glacial rate. The next biggest North American soda company, the Canadian-based  Cott Beverage company, had only a little over 3% of the market, and that company specializes in supplying private label soda to supermarkets and other chains. In 2001, however, Cadbury acquired moribund RC Cola, giving it a cola drink to battle against the big guys.  This gave the company more shelf position and immediately gave the RC Cola brand, long a distant also-ran with weak marketing muscles, more sales and market presence.  Pepsi gave itself a small boost because of the popularity of newly introduced Mountain Dew Code Red, a hyper-caffienated soda. Coke’s numbers declined slightly.  The market share figures in 2001:  Company Percentage Coca Cola 43.7%         Pepsico 31.6% Cadbury/Schweppes 15.8%  It’s pretty indicative of this mature market that the only major move in market share comes through a takeover. Moreover, the takeover targets that are left  are so small that the biggest remaining brand doesn’t make more than 1% difference in total volume. 8:49:16 PM

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