Beverage opportunities linger but not without risk

Posted by James Ferre on 26th November 2008

The late 2000s have proven to be a challenging period for the US liquid refreshment beverage category, but growth persists as do opportunities. The changes in the US marketplace often present leading indications as to where the Australian market is headed.

Many factors confront the industry, which consists of carbonated soft drinks, bottled water, milk, fruit beverages, sports beverages, ready-to-drink tea and coffee, and energy drinks. Some relate to broader economic and social conditions, while others relate specifically to the beverage market and developments within the particular segments. The Future of Liquid Refreshment Beverages in the U.S., a recent report by Beverage Marketing explores the terrain and peers over the horizon, elucidating the trends shaping the beverage industry landscape and making projections for each segment through 2012.

Higher energy and commodity costs and an overall weak economy have put pressure on the overall marketplace and category performance in America has been soft in recent years.

In addition to the weakness in the category, the market is in a state of transition. New categories are emerging. Some traditional categories are declining, while other categories are in the process of being redefined.

All of these changes are driven by the consumer.

Consumers have dramatically shaken up the beverage business in recent years with greater expectations of the products they consume. They are open to new products. In particular, they are seeking healthier and more functional alternatives.

The emphasis is on niche. More lower volume yet greater profitability segments could reap great reward. For beverage marketers, it’s the proverbial double-edged sword, however; heightened opportunity but also increased risk.

The US liquid refreshment beverage market has grown steadily in the past ten years. Volume increased from 29.4 billion gallons in 1997 to 36.5 billion gallons in 2007, a compound annual growth rate (CAGR) of 2.2%. However, volume growth has been softer of late. The market is expected to increase at a five-year CAGR of 1.1% from 2007 to 2012. Segments enjoying more forceful growth, and likely to continue doing so in the near future, include those that meet consumer demands for functional properties, such as energy drinks and sports beverages, or health and wellness benefits, such as ready-to-drink tea.

The health and energy drink sectors have seen strong growth in Australia in recent years as the carbonated soft drink market has stagnated. The interest in such beverages continues to grow, as does competition. The recent Fine Food exhibition held in Melbourne in September showcased a range of up-and-coming businesses looking to capitalise on the trend but, as competition strengthens, the risks get greater.