SOFT DRINK SALES FLAT

MINA WILLIAMS

This past year has been a soft one for the soft drink category, with pricing pains and emerging beverage categories leaving sales flat. However, industry experts predict that strong promotions peaking in the fourth quarter, along with proper positioning, will help the category regain its sparkle.

Recent price hikes on concentrates have been credited as the leading contributor to lagging sales, serving up the largest obstacle to sales and case movement. Layered on top of increased ingredient prices, packaging costs have continued to rise, forcing retail price up. The result: consumers have simply not bought product.

"Soft drinks have always represented a value," said Gary Hemphill, vice president of the Beverage Marketing Corporation, a New York-based consultancy. "The end result of the price hikes have been softer sales this year."

Overall, the soft drink industry is up one-half of a percent in volume, according to Beverage Marketing Corporation. This is a far cry from the industry average of annual 3% lifts the category has posted over the last ten years.

However, double-digit growth is being experienced within the bottled water segment. "Bottled water has taken some bite out of soft drinks," said Hemphill.

Market research firm ACNielsen, Schaumburg, Ill., reports a 4.8% dollar volume gain in the category over last year, with low calorie sparkling and carbonated water segments posting a 23.8% increase.

"Unit case volume trends in North America have been soft during the fist half of the third quarter due to the lingering impact of higher retail pricing in the supermarket channel," Jeff Dunn, North America group president, Coca-Cola Company, said in a prepared statement. "We are working with our bottlers to significantly improve profitable volume growth trends in North America throughout the remainder of the year. This will happen by delivering on innovative marketing activities and superior customer service."

Industry watchers say sales for the remaining quarter of 2000 are hinged on building upon promotions. In the promotion sensitive soft drink category, Olympic-oriented events, new creative advertising and a focus on the upcoming holidays -- Halloween, Thanksgiving, Christmas and New Year's -- are expected to trigger sales, resulting in a 1% increase in volume by year's end.

"It is heightened promotional activity that is expected to get sales up," said Hemphill.

Supermarket operators are also willing to put to work their merchandising magic to boost sales. Operators are strategically marketing soft drinks based upon usage. The growth of single-serve containers, driven by the desire for immediate consumption, is expected to make a positive impact on sales as the supermarket class of trade picks up some of the losses experienced due to the softness of the take-home market.

"Cross merchandising contributes greatly to impulse sales," said Hemphill. "Express lane refrigerated merchandisers and soft drinks in more locations of the store is more than likely a big contributor to sales. It's all about product placement and the right packaging in the right place and at the right temperature."

Operating under this theory supermarket retailers are positioning a variety of soft drink presentations in different locations to spur sales. In the deli, cold single-serve offerings are merchandised alongside sandwiches or rotisserie chickens. Supper picnic displays feature two liter bottles.

Despite the market share and case volume slippage of the cola brands, all the challengers still have a $4.5 billion volume mountain to climb. (see "Soft Drink Dollars" this page). Colas still dominate the market with a 60% share. However, consumers seek variety, which is the contributing factor to the speedy growth in the non-cola brands. The second-largest flavor category is lemon-lime with a 10% to 11% share, according to the Beverage Marketing Corporation. Soft drinks under diet guises are also leading the pack in sales.

Again, ACNielsen concurs, listing lemon-lime regular and diet varieties showing a rise in dollar volume of 3.8% and 5.4%, respectively. Remaining flavors or carbonated beverages and diet offerings saw 6.5% and 10.8% increases.

Brands leading the pack include Mountain Dew, posting the best share and volume growth, Dr Pepper, Minute Maid and Sprite (see "Top 10 Soft Drink Brand Profiles" sidebar, page 64). Other notables include the root beer flavor brands.

Private label continues to have its ebbs and flows. These brands apparently regained steam in the wake of branded price hikes.

"The price disparity between national brands and private label helps private label make inroads," said Hemphill. Additionally, major player Cott Corp., the Toronto-based supplier of retailer-branded beverages, has bounced back following management changes and corporate restructuring, stepping up the company's ability to compete on more than price alone.

Although new product successes are often challenging, with niche ideas not necessarily transferring into big volumes, new product introductions continue to emerge. The decade-old growth of New Age beverages marches on. Bottled water, along with nutrient and functional enhanced lines, are on fire, say industry experts.

What industry experts question is if these expanded flavors, new products and diet drinks boost soft drink sales or simply cannibalize the existing brands. Even entry into the relatively safe waters of lemon-lime may produce snags. Pepsi's new lemon-lime product, Sierra Mist, is pitted against Sprite and 7-Up. Distribution may hinder the product's success, as national distribution is unlikely with Pepsi bottlers currently distributing Sprite and 7-Up.

TOP-10 SOFT DRINK BRAND PROFILES

Brands and, more specifically, cola brands continue to lead the soft drink category. However, marketers are keeping a wary eye on non-cola flavors as these brands emerge into the top ten.

1 Coca-Cola Classic -- 20.3% market share (-0.3).

Selling 2,060.6 million cases, Coca-Cola Classic experienced a 1% dip in its volume growth; it's first slip since 1985. Despite the downward turn the brand still carries a big stick, one-third larger than any other carbonated soft drink brand.

2 Pepsi-Cola -- 14.1% market share (-0.4).

With 1,436.8 million cases to its credit, Pepsi-Cola missed volume growth by 2%, retreating to 1995 volume.

3 Diet Coke -- 8.5% market share (-0.1).

The winner of the diet wars, Diet Coke claims sales of 860.3 million cases. It outpaces Diet Pepsi, Caffeine Free Diet Pepsi and Pepsi One combined by 55.5 million cases, despite a decline of 1% volume growth.

4 Mountain Dew -- 7.1% market share ( 0.4).

Leading the way for non-cola flavors Mountain Dew moved 719.1 million cases last year, leading all other brands in contributing to industry growth. The brand's volume growth was 6%.

5 Sprite -- 6.7% market share ( 32.7%).

Adding more than two percentage points to its share since 1994, Sprite sells about 681.7 million cases annually. Even its slowest growth year led to volume growth of 3%.

6 Dr Pepper -- 6.2% market share ( 0.3).

Despite the industry-wide lag Dr. Pepper moved 629.9 million cases last year, posting a 5.1% growth in volume -- the third consecutive year of a rise between 5% and 6%.

7 Diet Pepsi -- 4.7% market share (-0.3).

Perhaps cannibalized by sister brand Pepsi One, Diet Pepsi's volume growth slipped 5% last year, representing 481.1 million cases.

8 7-Up -- 2.0% market share (-0.1).

Moving 204.9 million cases still resulted in a volume loss of 2.8% last year.

9 Caffeine Free Diet Coke -- 1.7% market share (-0.1).

Posting its seventh volume loss in eight years the brand's volume growth has been reduced another 2.5%, with 177.3 million cases being moved.

10 Minute Maid -- 1.3% market share ( 0.1)

Moving 137.0 million cases last year pushed Minute Maid's volume growth up 8.5% and placed the brand in the lead in terms of growth.