Drinking games: the popularity of diet beverages is at an all-time high, augmented by the growing variety of effective sweeteners on the market. Yet, one segment's boon is another's disappointment, as sales of regular versions falter

Prepared Foods, Nov, 2004 by William A. Roberts, Jr.

The sheer variety of beverages in the average supermarket could be regarded as overwhelming, particularly when considering that many of the category's offerings often are split among several areas of the store: juices and sports drinks in one area, carbonated drinks in another, the growing variety of waters elsewhere. While, at first glance, this would seem an inconvenience to shoppers, it has not deterred the rapid growth of beverage sales. Shelf-stable, ready-to-drink (RTD) beverages, carbonated drinks, juices, waters and sports drinks will hit $26.7 billion this year, a 14% jump from 1999 says Mintel (Chicago).

While Mintel's recent report "Consumer Choices in the Beverage Aisle" covers all of the aforementioned beverage options, this analysis will focus only on those items with value-added ingredients. Hence, bottled water, seltzers and the like, while covered in-depth in Mintel's report, will be given little attention here. Furthermore, the June issue of Prepared Foods featured a category analysis of energy drinks and sports beverages, so those will be addressed only briefly as well. Please note that statistics referring to the category as a whole, however, include all of the various segments found in the Mintel report.

A Beautiful Mindset

Citing exclusive consumer research, Mintel's report finds that consumers are increasingly drawn to the aura surrounding a particular drink brand. In their minds, the purchase of a sports drink, an herb-infused juice or a cola associated with a celebrity is an acceptance of the personality of that drink and a willingness to associate it with themselves. This is evidenced in the booming sales of sports drinks, in particular. The segment is estimated to hit $1.3 billion in sales this year, a 28.4% jump from 2002, yet activity levels and participation in sports by average Americans have not risen. Even more impressive--despite sports drinks' fairly high calorie and carbohydrate content--these products have managed to lure consumers desiring energy and refreshment.

These products also cater to one of the leading trends facing the industry today: convenience. Many sports drinks and virtually all energy drinks are found in single-serving containers, though the packaging is found across the category's segments. However, while the single-serving option has multiple advantages (including suitability for on-the-go consumption and minimizing the risk of spills), the single-serving container has boiled down to a battle between plastic and aluminum. Plastic bottles can be resealed, but resealable aluminum bottles are on the horizon and currently are used with a number of energy drinks; they reportedly are the subject of a market test by Coca-Cola (Atlanta).

Canned Good

More widespread, at least among carbonated beverages, has been the typical can, though the means of delivery has shifted from the 24- and six-packs to the 12-pack. Coca-Cola's Fridge Pack, introduced in 2002, has propelled the popularity of this type of case, and other beverage makers have followed suit with their own take on refrigerator-friendliness.

Despite facing its share of difficulties in recent years, Coca-Cola still leads in sales among regular carbonated beverages, which is by far the largest segment in the category. While the segment has maintained its top spot, however, it has had a rather bleak decade, with relatively flat growth. Regular carbonated beverages account for over $10 billion through supermarkets and mass merchandisers, but they face serious obstacles, including but not limited to various warnings and efforts to rid diets of "empty" calories, as well as lackluster advertising campaigns. These factors do not even include the carb-cutting fervor which has overtaken the industry and prompted the category's two leading manufacturers to cull carbohydrates for the diet-conscious masses, leading to Coca-Cola's C2 and PepsiCo's (Purchase, N.Y.) Pepsi Edge.

Though neither is mentioned in-depth in Mintel's report, C2 and Pepsi Edge debuted with strong advertising support, yet early results suggest the pair have not fared well in the marketplace. It may well be the products simply were too late to catch the carb-cutting wave at its peak, as numerous studies have cast doubt on the diets' success rates and government agencies have begun to ponder carb-related labeling issues.

Any problems with these two products would not appear to result from a lack of dietary awareness, although consumers may regard current diet offerings as low enough in carbohydrates. In fact, Mintel finds the diet carbonated beverage segment experienced steady growth from 1999 to 2004, managing to wrest control of the number-two spot from canned and bottled juices. While not the fastest-growing segment, diet carbonated beverages is the largest segment posting steady growth during the period under review, boosting sales 22% in constant dollars during that time.

Between 2001 and 2003, sales of diet offerings rose for all of the category's big three companies--PepsiCo, Coca-Cola and Dr Pepper/7Up (Cadbury Schweppes, Plano, Texas), as sales of their regular versions slipped. This leads Mintel to speculate, "Though the solid growth of diet drinks shows that it is not necessary for a beverage to carry a health benefit to succeed, the absence of a health liability may be a prerequisite for significant growth."