soft drinks (carbonated & concentrated) 2011

Market Report 2011

18th Edition February 2011 Edited by Sarah Walker, Katie Hughes, Lucy Capstick ISBN 978-1-84729-698-6

Soft Drinks (Carbonated & Concentrated)


Foreword

In todays competitive business environment, knowledge and understanding of your marketplace is essential. With over 30 years experience producing highly respected off-the-shelf publications, Key Note has built a reputation as the number one source of UK market information. Below are just a few of the comments our business partners and clients have made on Key Notes range of reports. "The Chartered Institute of Marketing encourages the use of market research as an important part of a systematic approach to marketing. Key Note reports have been available in the Institutes Information and Library Service for many years and have helped our members to build knowledge and understanding of their marketplace and their customers." The Chartered Institute of Marketing "We have enjoyed a long-standing relationship with Key Note and have always received an excellent service. Key Note reports are well produced and are always in demand by users of the business library. "Having subscribed to Market Assessment reports for a number of years, we continue to be impressed by their quality and breadth of coverage." The British Library "Key Note reports cover a wide range of industries and markets they are detailed, well written and easily digestible, with a good use of tables. They allow deadlines to be met by providing a true overview of a particular market and its prospects." NatWest "Accurate and relevant market intelligence is the starting point for every campaign we undertake. We use Key Note because they have a report on just about every market sector you can think of, and the information is comprehensive, reliable and accurate." J Walter Thompson "Market Assessment reports provide an extremely comprehensive source of information for both account handling and new business research, with excellent, clear graphics." Saatchi & Saatchi Advertising

James Donovan Managing Director Key Note Limited

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Contents

ContentsExecutive Summary 1. Market Definition 1 2

REPORT COVERAGE....................................................................................................................2 MARKET SECTORS.......................................................................................................................2Carbonated Soft Drinks................................................................................................................3 Concentrated Soft Drinks.............................................................................................................3

MARKET TRENDS.........................................................................................................................3A Health-Conscious Nation..........................................................................................................3 Energy Drinks..................................................................................................................................3 Weather Dependency...................................................................................................................4

ECONOMIC TRENDS....................................................................................................................4Population.......................................................................................................................................4 Table 1.1: UK Resident Population estimates by Sex (000), Mid-Years 2005-2009...........4 Gross Domestic Product................................................................................................................4 Table 1.2: UK Gross Domestic Product at Current and Annual Chain-Linked Prices (m), 2005-2009..............................................................................................................................5 Table 1.3: UK Rate of Inflation (%), 2005-2009.......................................................................5 Unemployment...............................................................................................................................6 Table 1.4: Actual Number of Unemployed Persons in the UK (Million), 2005-2009.........6 Table 1.5: Household Disposable Income Per Capita (), 2005-2009...................................6

MARKET POSITION......................................................................................................................7The UK..............................................................................................................................................7 Overseas...........................................................................................................................................7

2. Market Size

8

THE TOTAL MARKET..................................................................................................................8Table 2.1: The Total UK Soft Drinks Market by Value and Volume (m at rsp and million litres), 2006-2010...................................................................................8 Figure 2.1: Total UK Soft Drinks Market by Value and Volume (m at rsp and million litres), 2006-2010...................................................................................9 Table 2.2: Market Value and Volumes for Carbonated and Concentrated Drinks (m at rsp and million litres), 2006-2010.................................................................................10

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Figure 2.2: The Market for Carbonated and Concentrated Soft Drinks by Value (m at rsp), 2006-2010.................................................................................................................11

BY MARKET SECTOR.................................................................................................................11Table 2.3: Major Brands of Carbonated and Concentrated Soft Drinks, 2010................12 Carbonated Soft Drinks by Segment........................................................................................13 Table 2.4: The UK Carbonated Soft Drinks Sector by Type of Drink by Value (m at rsp and %), 2007 and 2010............................................................................................13 Concentrated Soft Drinks by Segment....................................................................................15

OVERSEAS TRADE......................................................................................................................15

3. Industry Background

16

RECENT HISTORY.......................................................................................................................16 NUMBER OF COMPANIES.......................................................................................................16Table 3.1: Number of UK PAYE- or VAT-Based Enterprises Engaged in the Manufacture of Mineral Waters and Soft Drinks by Turnover Sizeband, 2007-2010......................................................................................................................................17

EMPLOYMENT............................................................................................................................17Table 3.2: Number of UK VAT-Based Local Units Engaged in the Manufacture of Mineral Waters and Soft Drinks by Employment Sizeband (number and %) 2010................................................................................................................................................18

REGIONAL VARIATIONS IN THE MARKETPLACE.............................................................18 DISTRIBUTION.............................................................................................................................19The On-Trade Market..................................................................................................................19 The Take-Home Market..............................................................................................................19

HOW ROBUST IS THE MARKET?...........................................................................................20 LEGISLATION...............................................................................................................................20 KEY TRADE ASSOCIATIONS....................................................................................................20The British Soft Drinks Association...........................................................................................20

4. Competitor Analysis

22

THE MARKETPLACE..................................................................................................................22 MARKET LEADERS.....................................................................................................................23Table 4.1: Major Soft Drinks Companies in the UK by Turnover and Pre-Tax Profit (m), Latest 3 Reported Financial Years..................................................................................23 Coca-Cola Enterprises Ltd...........................................................................................................24 Britvic PLC......................................................................................................................................25 AG Barr PLC...................................................................................................................................26 Red Bull Company Ltd.................................................................................................................27

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Other Companies.........................................................................................................................28

OUTSIDE SUPPLIERS..................................................................................................................28Ingredients....................................................................................................................................29 Packaging......................................................................................................................................29

MARKETING ACTIVITY.............................................................................................................30Main Media Advertising Expenditure......................................................................................30 Table 4.2: Main Media Advertising Expenditure on Carbonates and Concentrates by Type (000), Years Ending September 2009 and 2010....................................................30 Individual Brands and Sectors...................................................................................................30 Table 4.3: Main Media Advertising Expenditure on Carbonated and Concentrated Drinks Brands (000), Year Ending September 2010 ...........................................................31 Other Marketing Activities........................................................................................................33

5. Strengths, Weaknesses, Opportunities and Threats

34

STRENGTHS..................................................................................................................................34 WEAKNESSES..............................................................................................................................34 OPPORTUNITIES.........................................................................................................................34 THREATS.......................................................................................................................................35

6. Buying Behaviour

36

CONSUMER PENETRATION.....................................................................................................36Table 6.1: Penetration of Soft Drinks by Type (% of adults), 2003, 2006, 2007 and 2010........................................................................................................................................36 Table 6.2: Penetration of Colas and Other Carbonates by Sex, Age, Social Grade, Marital Status, Working Status and Location (% of adults), 2010.....................................37 Table 6.3: Penetration of Concentrates and Mixers by Sex, Age, Social Grade, Marital Status, Working Status and Location (% of adults), 2010...................................................39

CONSUMER PENETRATION.....................................................................................................41Table 6.4: Favourite Carbonated and Concentrated Drinks Purchased in the Past Year (% of adults), December 2010.........................................................................................41 Table 6.5: Favourite Carbonated and Concentrated Drinks Purchased in the Past Year by Sex, Age, Social Grade, Working Status, Standard Region, Size of Household, Marital Status, Presence of Children and Tenure (% of adults), December 2010.............................................................................................................................42

POPULAR DRINKS BRANDS....................................................................................................45Table 6.6: Carbonated and Concentrated Drinks Brands Purchased in the Last Year (% of adults), December 2010...................................................................................................46 Table 6.7: Selected Carbonated and Concentrated Drinks Brands Purchased in the Past Year by Sex, Age, Social Grade, Working Status, Standard Region, Size of Household, Marital Status, Presence of Children and Tenure (% of adults), December 2010.............................................................................................................................49

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Table 6.8: Selected Sports, Energy, Adult and Concentrated Drinks Brands Purchased in the Last Year by Sex, Age, Social Grade, Working Status, Standard Region, Size of Household, Marital Status, Presence of Children and Tenure (% of adults), December 2010.............................................................................................................................52

7. Current Issues

56

INTRODUCTION..........................................................................................................................56 LEGISLATION AND REGULATION.........................................................................................56 HEALTHY DRINKING TRENDS................................................................................................56

8. The Global Market

58

INTRODUCTION..........................................................................................................................58 NATIONAL PREFERENCES........................................................................................................58 MULTINATIONAL COMPANIES..............................................................................................58The Coca-Cola Company.............................................................................................................58 PepsiCo...........................................................................................................................................59

OTHER MULTINATIONALS......................................................................................................60

9. Forecasts

61

INTRODUCTION..........................................................................................................................61Economic Forecasts......................................................................................................................61 Population.....................................................................................................................................61 Table 9.1: Forecast UK Resident Population by Sex (000), Mid-Years 2010-2014...........61 Gross Domestic Product..............................................................................................................61 Table 9.2: Forecast UK Growth in Gross Domestic Product in Real Terms (%), 2010-2014......................................................................................................................................62 Inflation.........................................................................................................................................62 Table 9.3: Forecast UK Rate of Inflation (%), 2010-2014.....................................................62 Unemployment.............................................................................................................................62 Table 9.4: Forecast Actual Number of Unemployed Persons in the UK (million), 2010-2014......................................................................................................................................63

FORECASTS 2011 TO 2015......................................................................................................63Table 9.5: The Forecast Total UK Market for Carbonated and Concentrated Soft Drinks by Value (m at rsp), 2011-2015...................................................................................63 Figure 9.1: The Forecast Total UK Market for Carbonated and Concentrated Soft Drinks by Value (m at rsp), 2011-2015...................................................................................64

FUTURE TRENDS.........................................................................................................................64Increased Consumer Health Awareness..................................................................................64 Higher Barriers to Entry..............................................................................................................65 Growth of Premium Drinks........................................................................................................65

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10. Company Profiles

66

AG BARR PLC...............................................................................................................................67 BOTTLEGREEN HOLDINGS LTD..............................................................................................69 BRITVIC PLC.................................................................................................................................71 COCA-COLA ENTERPRISES LTD..............................................................................................73 COTT RETAIL BRANDS LTD.....................................................................................................75 GLAXOSMITHKLINE PLC..........................................................................................................77 NICHOLS PLC...............................................................................................................................79 RED BULL COMPANY LTD.......................................................................................................81

11. Further Sources

83

Associations.................................................................................................................................83 General Sources.........................................................................................................................83 Government Sources................................................................................................................84 Other Sources.............................................................................................................................84 Key Note Sources ......................................................................................................................85

Understanding TGI Data

87

Number, Profile, Penetration................................................................................................87 Social Grade.................................................................................................................................88 Standard Region........................................................................................................................88

Key Note Research The Key Note Range of Reports

89 90

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Executive Summary

Executive SummaryConcentrated and carbonated drinks, colloquially known as squash and fizzy drinks respectively, account for over two-thirds of the overall soft drinks market in terms of market value and volume. The carbonated soft drinks market is the larger of the two market sectors in the report owing to the dominance of cola in the overall market. Overall sales of carbonates and concentrates were worth 8.32bn in 2009, a rise from a total of 7.61bn in 2006. This increase in market value has been driven by an array of extremely well-established brands major companies that have ensured steady growth. Coca-Cola and Pepsi lead the market, both in terms of volume produced and market value. Their manufacturers, Coca-Cola Enterprises and Britvic respectively, also have a host of additional well-established brands such as Fanta, Sprite, Robinsons and Schweppes and therefore a strong hold on the market. However, a number of other companies, such as AG Barr, are also flourishing. One of the biggest challenges facing the industry is concern relating to public health. Some drinks are considered unhealthy because they contain high levels of sugar, flavourings and additives. Drinks manufacturers are combating concerns by offering consumers diet or healthy versions of existing brand names so far, this tactic seems to be succeeding as sales levels have remained high. The distribution channels for the industry are well established, and divided into the take-home and on-trade (bars, restaurants, etc.) markets. The on-trade market has historically been the most lucrative for the industry, but the take-home market has long been increasing in popularity; it could become the popular distribution channel in coming years. The future is features a wide array of challenges for soft drinks manufacturers. It is important that they maintain levels of innovation, purvey a positive and healthy brand image, and offer unique and appealing packaging. In the period between 2011 and 2015, the market value of concentrated and carbonated soft drinks is forecasted to grow in value by 11.1%.

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Market Definition

1. Market DefinitionREPORT COVERAGEThe soft drinks market is split into five different subsectors, listed below: carbonated drinks dilutable drinks bottled water fruit juices (made of 100% fruit juice) juice drinks (made of less than 100% fruit juice content) The top two sectors are the largest within the industry, and, solely, are focused on in this report; together these sectors account for just over two-thirds of the UK market for soft drinks. Carbonated soft drinks may generally also be known as fizzy drinks or pop in the UK. Most drinks in this bracket are sweet, and all have a gaseous content. Cola, lemonade, sparkling fruit and energy drinks all fall into this category. Dilutables are also classed as concentrated drinks, and are usually called squash or cordial. They are primarily consumed at home. These two sectors have been soft drinks market leaders for over 30 years and are forecasted to continue to dominate the market in the foreseeable future. However, the fruit drinks category gained in popularity during the 1990s, and continues to have a strong position within the industry. Additional drinks excluded from the scope of this Market Report are: non-alcoholic beers and wines, hot beverages, and dairy-based drinks such as milkshakes and Lassi-style beverages. To further clarify, drinks such as Fruit Shoot or Drench are classified as juiced-based products, included under the juice drinks heading, and do not qualify for this report. A major trend of the decade was the shift towards products with more health-conscious branding. However, a recent boom in energy drinks high in caffeine, additives and sugar has defied this trend.

MARKET SECTORSAs previously noted, the market can be split into two sectors.

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Market Definition

Carbonated Soft DrinksCarbonated soft drinks are usually sweet, containing high-levels of sugar or artificial sweetener; many products also contain artificial flavourings and colourings. All carbonated drinks contain carbon dioxide to make them fizzy. There are many different types of soft drink and they can be further categorised into the following groups: flavours the most famous examples in this sector are cola and lemonade, but also included are other fruit flavours, such as citrus or berry. diet versions low-calorie versions of regular flavours and brands. energy drinks containing a high level of caffeine and glucose. mixers designed to be enjoyed with alcoholic spirits; an example of this is tonic water, usually enjoyed with gin.

Concentrated Soft DrinksConcentrated or dilutable soft drinks are almost always flavoured with fruit juices. In the UK, they are traditionally known as squash or cordial. Similarly to carbonates, there are low sugar and reduced calorie versions of existing products. In recent years, there have been a number of double or even triple concentrated products, resulting in smaller or less packaging, which may have a positive environmental effect.

MARKET TRENDSA Health-Conscious NationThere has been a flurry of negative publicity for sweet, carbonated drinks in recent years, as the nation becomes more health-conscious. There is an ongoing debate surrounding obesity levels and related causes; many believe junk food and drink consumption is a root cause. In recent years, there have been a number of products launched to combat health fears amongst the public; there has been an increase in the number of products with more natural flavourings and colourings, such as Pepsi Raw which boast all natural ingredients and it uses cane sugar.

Energy DrinksCounter to the rise in health conscious branding, there has additionally been an influx of energy drink brands into the soft drinks market. Coca-Cola has launched the Relentless brand, the Monster brand has arrived in the UK from America, and Mountain Dew has been relaunched as an energy drink. Lucozade has also launched its energy product, called Lucozade Alert.

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Market Definition

There have also been new products placed on the market in the form of energy shots; these shots usually come in 60ml quantities, but contain as much caffeine as a regular-sized drink.

Weather DependencyIf the summer months are particularly warm, the market almost always sees good sales results for the period. In many of the past few years the summer periods have been relatively cool, but hopes are high for a warmer summer in 2011.

ECONOMIC TRENDSPopulationIn line with most developing countries, the UKs population is growing relatively slowly. There are more females than males, and this looks set to continue. In 2009, the total UK population was estimated to be 61.8 million, up from 60.2 million in 2005. Whilst an increasing population represents a growing consumer base for soft drinks companies, the drinks market is unlikely to experience particularly significant expansion simply as a result of modest population growth.

Table 1.1: UK Resident Population estimates by Sex (000), Mid-Years 2005-20092005 Female Male Total % change year-on-year 30,742 29,493 60,235 2006 30,895 29,689 60,584 0.6 2007 31,068 29,918 60,986 0.7 2008 31,244 30,154 61,398 0.7 2009 31,418 30,374 61,792 0.6

Source: Monthly Digest of Statistics, November 2010, National Statistics website Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queens Printer for Scotland)

Gross Domestic ProductThe recession has affected UK Gross Domestic Product (GDP), with levels starting to decline in 2008, and falling further in 2009.

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Market Definition

Historically, the soft drinks market has grown ahead of GDP but from 2003 to 2007 it was outpaced by GDP.

Table 1.2: UK Gross Domestic Product at Current and Annual Chain-Linked Prices (m), 2005-20092005 Current prices % change year-on-year Annual chain-linked GDP % change year-on-yearGDP gross domestic product

2006 1,328,363 5.9 1,328,363 2.8

2007 1,404,845 5.8 1,364,029 2.7

2008 1,445,580 2.9 1,363,139 -0.1

2009 1,392,634 -3.7 1,295,159 -5.0

1,254,058 1,292,335 -

Source: Economic & Labour Market Review, November 2010, National Statistics website Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queens Printer for Scotland)

InflationThe rate of inflation fell dramatically in 2009, after a few years of steady growth. Prices for soft-drinks continued to rise throughout the decade; there is not yet any clear sign that this will be checked in the near future.

Table 1.3: UK Rate of Inflation (%), 2005-20092005 Inflation (%) Percentage point change year-on-year 2.8 2006 3.2 0.4 2007 4.3 1.1 2008 4.0 -0.3 2009 -0.5 -4.5

Note: inflation is at retail price index (RPI); data shown are annual average changes.

Source: Focus on Consumer Price Indices Data from October 2010, National Statistics website Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queens Printer for Scotland)

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Market Definition

UnemploymentThe number of unemployed people rose above the politically-sensitive 1 million mark in 2009. A rise of over two-thirds is particularly significant and therefore may negatively affect the market.

Table 1.4: Actual Number of Unemployed Persons in the UK (Million), 2005-20092005 Actual number of claimants (million) % change year-on-year 2006 2007 2008 2009

0.86 -

0.95 10.5

0.86 -9.5

0.91 5.8

1.53 68.1

Source: Monthly Digest of Statistics, November 2010, National Statistics website Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queens Printer for Scotland)

Household Disposable IncomeDespite the recession, household disposable income has continued to rise. A higher level of household income can only be good news for the market, and may see more consumers considering premium products when purchasing soft drinks.

Table 1.5: Household Disposable Income Per Capita (), 2005-20092005 Household disposable income () % change year-on-year 2006 2007 2008 2009

13,572 -

14,080 3.7

14,453 2.6

14,976 3.6

15,225 1.7

Source: Economic & Labour Market Review, November 2010, National Statistics website Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queens Printer for Scotland)

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Market Definition

MARKET POSITIONThe UKDespite something of a shift towards healthier drinks in recent years, the carbonates market is still extremely strong. Cola remains the most popular soft drink in the world, and in the UK. Other flavoured carbonates continue to enjoy steady sales; carbonated drinks with fruit juices are proving to be popular because some people perceive them to be healthier. Most dilutables are marketed on a health basis, and they have continued to enjoy growth in sales. The energy and adult drink market has also seen a mini boom in the past few years.

OverseasThe carbonates market is fairly stable in most countries due to the widely established brands such as Coca-Cola and Pepsi operating in multiple markets. The squash market is one that does not feature as widely; squash in the UK is quite different to other products available in overseas markets like the syrups seen in France, or the nectars in the German market.

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Market Size

2. Market SizeTHE TOTAL MARKETIt is difficult to analyse the total market value for soft drinks; they have an extremely varied range of distribution outlets and consumption locations, with wildly varying prices for on-trade (to be consumed on the premises where the product is sold) and off-trade (to be consumed at home) sectors. Furthermore, vending machines and other retail outlets sometimes charge much higher prices. However, the British Soft Drinks Association (BSDA) began publishing market value figures in its annual report in 2007; the figures were compiled by Zenith International, and now cover the period up until 2009. The 2010 estimate was provided by Key Note.

Table 2.1: The Total UK Soft Drinks Market by Value and Volume (m at rsp and million litres), 2006-2010% Change 2006-2010 4.3

2006 Value (m at rsp) % change year-on-year

2007

2008

2009

e2010

12,830 12,892 12,936 13,224 13,376 3.3 0.5 0.3 2.2 1.1

Volume (million litres) 14,175 14,060 13,905 14,140 14,240 % change year-on-yearrsp retail selling prices e Key Note estimates

0.5

3.3

-0.8

-1.1

1.7

0.7

Source: The BSDA Soft Drinks Report 2010, British Soft Drinks Association, compiled by Zenith International/Key Note

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Market Size

Figure 2.1: Total UK Soft Drinks Market by Value and Volume (m at rsp and million litres), 2006-201015,000 14,750 14,500 14,250 14,000 13,750 13,500 13,250 13,000 12,750 12,500 2006 2007 2008 Year 2009 2010 Value (m at rsp) Volume (million litres)

rsp retail selling prices Note: 2010 figures for volume and market value are Key Note estimates.


The BSDAs figures omit values for market value for sports and energy drinks, as seen in Table 2.2. However, breakdowns for market value and volumes are available for other subsectors.

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Market Size

Table 2.2: Market Value and Volumes for Carbonated and Concentrated Drinks (m at rsp and million litres), 2006-20102006 Carbonates Value (m at rsp) % change year-on-year Volume (million litres) % change year-on-year Concentrates Value (m at rsp) % change year-on-year Volume (million litres) % change year-on-yearrsp retail selling prices e estimates (BSDA for volume, Key Note for value) Note: Carbonates are referred to in the BSDA data as dilutables; they are expressed in ready-to-drink volumes (a multiple of 4 of the concentrated volume).

2007

2008

2009

e2010

6,800 -0.7 5,915 -2.5

6,880 1.2 5,835 -1.4

7,140 3.8 5,935 1.7

7,470 4.6 6,065 2.2

7,600 1.7 6,150 1.4

805 3.9 3,350 8.1

805 3,350 -

795 -1.2 3,250 -3.0

850 6.9 3,350 3.1

870 2.4 3,400 1.5


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Market Size

Figure 2.2: The Market for Carbonated and Concentrated Soft Drinks by Value (m at rsp), 2006-20109,000 8,000 7,000 Value (m at rsp) 6,000 5,000 4,000 3,000 2,000 1,000 2006 2007 2008 Years 2009 2010 Carbonates Concentrates

rsp retail selling prices Note: 2010 figures for market sector values are Key Note estimates.

Source: The BDSA Soft Drinks Report 2010, British Soft Drinks Association, compiled by Zenith International/Key Note

From this, it is possible to see that market value has grown at an increasing pace in each subsector year-on-year since 2006; therefore, both carbonates and concentrates have also achieved growth overall for the period.

BY MARKET SECTORThis section divides the market into concentrates and carbonates, to analyse each sector more closely. Both market sectors are dominated by large companies and renowned brands.

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Market Size

Table 2.3: Major Brands of Carbonated and Concentrated Soft Drinks, 2010Major Brands (Company including UK Licensees)

Sector Carbonates Cola Fruit-Flavoured

Coca-Cola/Coke, Diet Coke, Coke Zero, Cherry Coke, etc. (CCE) Pepsi, Diet Pepsi, Pepsi Max, etc. (Britvic) Fanta, Sprite, Lilt, Schweppes, Dr Pepper (CCE) Tango, 7 UP, R Whites (Britvic) Irn Bru, Rubicon, Orangina, Tizer (AG Barr)

Mixers Energy/Sport

Schweppes (CCE); Britvic (Britvic) Lucozade (GlaxoKlineSmith) Red Bull (Red Bull) Powerade, Relentless (CCE)

Herbal/Adult

Purdeys (Britvic) Shloer (Merrydown) Appletiser (CCE)

Concentrates

Robinsons (Britvic) Ribena (GlaxoSmithKline) Kia-Ora (CCE)

CCE Coca-Cola Enterprises

Source: Key Note

Almost all soft drinks are made from a combination of water (still or carbonated), sugar, juice and flavourings. The cost of the raw ingredients is comparatively low, providing large profit margins especially for sizeable companies which benefit from economies of scale. This production method has led to a small group of large companies taking the greater share of the market in both concentrates and carbonates. Low production costs can also leave considerable funds for marketing to cement these companies market positions. There are two giants in the UK market Coca Cola Enterprises (CCE) and Britvic. CCE own an array of leading brands such as Coca-Cola, Schweppes, Powerade and Kia-Ora. Britvic are the PepsiCo UK licensees, as well as owners of the Robinsons and R Whites brands, amongst others.

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Market Size

Other companies that have a foothold in the market include the healthcare conglomerate GlaxoSmithKline which owns Lucozade brand, AG Barr which owns Irn Bru, Rubicon, Orangina and more, and Red Bull which dominates the energy drinks market. One method that leading drinks suppliers have employed to combat growing health fears is to market seemingly healthier versions of their existing products. CCE has launched a range of zero products across its range, as well as other low or no sugar versions. Many companies are doing the same thing, and AG Barr has launched a range of healthier products that are targeted specifically at schools, called the school range.

Carbonated Soft Drinks by SegmentThe dominance of cola in the market means that the market for carbonates is divided up in Table 2.4 into the sectors: cola, lemonade, other fruit flavours, mixers, sport and energy drinks and others. Cola has traditionally owned the largest market share, and continues to do so.

Table 2.4: The UK Carbonated Soft Drinks Sector by Type of Drink by Value (m at rsp and %), 2007 and 20102010 Market Share

2007

2010

Cola drinks Other fruit Sports and energy drinks Lemonade Mixers (excluding lemonade, energy) Other carbonates Totalrsp retail selling prices

3,725 675 675 675 500 500 6,750

4,390 870 810 700 440 390 7,600

57.8 11.4 10.7 9.2 5.8 5.1 100.0

including fruit-flavoured carbonated bottled water including herbal and adult drinks, non-fruit flavours

Source: Key Note

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Market Size

The two main cola brands, Pepsi and Coca-Cola, completely dominate the cola market. The cola sector has seen a healthy rise in both market value and share between 2007 and 2010, particularly for an established product that has been on the market for a considerable length of time. However, this boost could be the result of the launch of several products such as Coke Zero, Diet Coke with Citrus Zest and a rebranding for Cherry Coke. Pepsi also launched a small range of citrus flavours, but these have since been discontinued. Although Diet Coke with Citrus Zest has been listed as a flavoured carbonated product on its website, this Market Report categorises it as a cola. The market for other fruit drinks has been boosted over the past 3 years due to the launch of several new products and brands such as Rubicon by AG Barr, which is made using exotic fruit juice, sugar and carbonated water. Its popularity has grown in recent years, in part due to a more health-conscious nation. The rest of the fruit carbonates market is dominated by instantly recognisable brands with an international presence such as Fanta, Tango and Dr Pepper, amongst others. These brands provide the sector with stability, witnessing growth year-on-year. The growth of the sports and energy drinks sector has been slightly counter to the key trend towards health-driven goods. There has been an emergence of several energy brands such as Relentless by CCE in late 2006. Other major energy brands include the imported US Monster brand, Rock Star by AG Barr, and Mountain Dew Energy by Britvic. Despite competition from other energy brands, Red Bull has managed to retain its position as the sector leader. Even though new brands, backed by international companies, have emerged, Red Bull has continued to innovate with products such as Red Bull Energy shots, which most competitors have gone on to produce. The sports drinks market has also been boosted by the launch of Gatorade, the popular US sports drink, in the UK. However, Lucozade dominate this market and CCE owned Powerade are firmly positioned in second place. Lucozade has expanded and branded its ranges to include fuel, hydration and focus (with added caffeine) varieties. New products, and repackaged or rebranded products are commonplace in this market, and will help to continue profit levels. The market for lemonade has grown slightly in value, but lost 0.8% market share as other sectors evolve since 2007. The lemonade category has seen a lack of innovation in recent years, and could be perceived as one that lacking a major brand name (Sprite and 7Up are both considered fruit flavoured, because they contain lime). The market does feature R Whites and Schweppes as market leaders, but the rest of the market comprises little-known brands. The other sector and mixers have both suffered minor decreases in market value and share. This is due to the competitive nature of the market smaller brands aimed at adults are finding it hard to compete in an area dominated by large multinational companies. However, brands such as Bottle Green, which are continuing to grow, are helping the adult carbonate market.

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Market Size

Mixers (excluding energy drinks and lemonade) have seen a slight decline over the 3 year period, owing to the rise of lemonade and energy drinks as mixers. However, this decline has been minor, and products such as tonic water and ginger beer remain fairly popular partners to spirits.

Concentrated Soft Drinks by SegmentIn recent years, the concentrates (dilutables) market has struggled but it saw a resurgence in sales in 2009, possibly because people have started to become more health-conscious, and associate the fruit-based concentrates with a healthy product. Competition is quite fierce within the market, especially owing to Robinsons having dominated the sector for quite some time. This makes it harder for new companies to penetrate the market. Almost all the flavours in the concentrates market are fruit based; the nations most purchased flavours are orange, other citrus fruits or blackcurrant. However, many prestige products have been emerging in recent years such as elderflower, pomegranate and lemongrass. The market is segmented because of the vast range of products available in the marketplace. Versions of concentrates that contain little or no added sugar are very popular amongst consumers, and high juices also form a considerable subsector, which nonetheless has yet to enjoy the kind of success that no added sugar products have experienced. The past few years have also seen a few product innovations on the market. Supermarket own-brand concentrates are now sold in double-strength varieties. These double-strength concentrates are designed to help the environment by requiring less packaging per litre of drinkable product, and to reduce the amount of space needed to store them. Most renowned brands have failed to follow suit so far but Bottle Green have released a triple-strength product in the form of a syrup, which is squeezed from a bottle instead of being poured. Other product innovations include concentrates from Robinsons that use only naturally sourced ingredients.

OVERSEAS TRADEIt is vastly expensive to import and export heavy bottles of carbonates and concentrates, which have been relatively inexpensive to manufacture. Most soft drinks are therefore produced domestically, and sold under international brand names. An example of this is the operation of Coca-Cola Enterprises, which produce a variety of instantly recognisable products across hundreds of territories; it has seven bottling plants in the UK alone, as well as many based in Europe.

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3. Industry BackgroundRECENT HISTORYThe definitive issue facing the industry at the moment is health concerns, particularly around products aimed at children with high sugar levels. As discussed later in this chapter and in Chapter 7, new legislation has been brought in to shield children from adverts for unhealthy products. The brands on the market at the moment will have to endeavour to change their consumer image. On the other side of the market, energy drinks have continued to prove popular in recent years. This sector in the market has enjoyed extended growth in recent years. Many energy drink brands are now becoming household names and new brands are emerging frequently (Playboy energy drinks launched in late 2010 in the UK). The definitive issue facing the industry at is health and concerns relating to detrimental effects of consuming certain products and ingredients, particularly products with high sugar levels which are aimed at children. As discussed in this Chapter, and in Chapter 7, new legislation has been introduced to shield children from advertisements for unhealthy products. The brands on the market at the moment are endeavouring to change their image in the eyes of consumers, to overcome this problems. In a different area of the market, energy drinks have proven popular in recent years; this sector in the market has enjoyed extended growth. Many energy drink brands are now becoming household names, and new brands are emerging frequently for example, Playboy energy drinks launched in late 2010 in the UK.

NUMBER OF COMPANIESThe most recently published statistics available for the number of companies engaged in the manufacture of soft drinks are available from the National Statistics website. It is important to note that the figures below include soft drinks that are not included in the scope of this report, such as water and fruit juice.

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Table 3.1: Number of UK PAYE- or VAT-Based Enterprises Engaged in the Manufacture of Mineral Waters and Soft Drinks by Turnover Sizeband, 2007-20102007 Turnover Sizeband (000) 0-49 50-99 100-249 250-499 500-999 1,000-4,999 5,000+ Total 45 30 35 25 30 35 25 225 40 30 40 25 30 30 30 225 40 30 45 30 25 40 25 235 40 30 45 25 20 35 25 220 2008 2009 2010

Source: UK Business: Activity, Size and Location Office for National Statistics Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queens Printer for Scotland)

The number of soft drink enterprises is fairly stable with a small increase in numbers in 2007 but two small decreases in 2007 and 2009. However, this small amount of change shows that the market is fairly stable. The industry has a lot of smaller companies but is dominated by a small number of extremely large and powerful companies.

EMPLOYMENTThe Office for National Statistics also publishes figures for employment levels within manufacturers of soft drinks. It should be noted that this table displays local units rather than enterprises, and thus includes each factory, premises, etc. as a unit, even where owned by a single enterprise. This explains why these figures are larger than those in Figure 3.1.

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Industry Background

Table 3.2: Number of UK VAT-Based Local Units Engaged in the Manufacture of Mineral Waters and Soft Drinks by Employment Sizeband (number and %) 2010Number of Local Units Number of Employees 0-4 5-9 10-19 20-49 50-99 100-249 250+ Total 135 35 35 30 15 10 10 270

Source: Source: UK Business: Activity, Size and Location 2010 Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queens Printer for Scotland)/Keynote

To further understand how many people are employed in the industry, the employment levels for the leading companies in the industry are as follows: Coca-Cola Enterprises 4,650 Britvic UK 3,500 AG Barr 947 Cott Retail Brands 708 Red Bull 196 Nichols PLC 121.

REGIONAL VARIATIONS IN THE MARKETPLACEAlmost all brands in the marketplace are available nationwide, and most are available on an international scale. To lower costs, soft drinks are produced en mass and distributed on a wide scale. Some branded products, like beer and water, place an emphasis on the area where they were produced and have a limited supply chain; the carbonated and concentrated market has established supply chains covering a very large area, with very few products distributed to limited parts of the country.

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Industry Background

Despite this, some products, like Irn-Bru in Scotland, enjoy extended popularity in certain areas. However, fewer drinks are now associated with one area because most large brands are producing in more than one bottling plant.

DISTRIBUTIONThe market is split into two different distribution channels; the on-trade and the take-home market. The take-home distribution channel accounts for approximately 70% of the total soft drink market, whereas in 2008 this figure stood at around 60%.

The On-Trade MarketThere are two major types of dispensing mechanism used in on-trade distribution. Most public houses will choose to dispense their soft drinks by tap; this means that a post-mix syrup is provided by the manufacturer, to be mixed with carbonated water. Many other restaurants and bars choose to use glass bottles which carry a certain air of prestige with them, and many mixers are dispensed from miniature glass bottles. The pub, bar and restaurant industry is increasingly dominated by large companies who own multiple establishments. These companies can apply the pressure of their vast buying power to manufacturers, ultimately lowering the trade cost of soft drinks in the on-trade market.

The Take-Home MarketAs consumers suffer the continuing impact of the recession, they are consuming more soft drinks at home than in bars and restaurants. Per 100ml, soft drinks can be over five times as more expensive to buy in pubs and restaurants than in supermarkets and shops. This helps to explain why this particular distribution channel has grown by 10% in the last 2 years. Consumers are generally offered the choice of standard 330ml cans or 150ml mini cans in addition to a range of plastic bottles varying from 500ml to 2,000ml sizes. The consumer is generally given better value if they purchase the larger containers, and a discount is often given for multiple purchases. Take-home sales are massively boosted by the sheer size of the four major supermarkets in the UK. Store outlets are ever-increasing in the UK, giving consumers a greater opportunity to buy soft drinks; they also present the consumer with better choice, as the multiples tend to stock all of the major brands.

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Industry Background

HOW ROBUST IS THE MARKET?The market is a well established one, but nonetheless there are issues facing it in the future. Health is the key one; this can be overcome if brands work towards presenting their products in a better light reducing sugar, artificial additives and flavouring levels. Most companies have enough capital to invest in product development to address this. Another problem facing the industry is its weather dependence; sales are notably lower when a summer is colder than usual. Meteorological unpredictability makes the market slightly unstable.

LEGISLATIONThe UK soft drink market is subject to both UK and European law and regulation. Currently, the industry is regulated by the Food Standards Agency (FSA). However, many of the FSAs responsibilities are being delegated to the Department for Environment, Food and Rural Affairs. Both UK and EU law restricts the use of some artificial flavourings and colourings. In the UK, the level of additives are strictly monitored by the FSA; recently it called for a voluntary removal of certain artificial food colourings this could affect some well-known carbonated drinks, such as Irn-Bru. In 2006, Ofcom, the government media regulator, introduced rules restricting adverts for unhealthy food and drink that are specifically targeted at children. This means that manufacturers are limited as to the types of programmes they can show adverts on. The restrictions also cover programmes that children may form part of the audience for, even though they are not specifically aimed at that demographic.

KEY TRADE ASSOCIATIONSThe British Soft Drinks AssociationThe British Soft Drinks Association (BSDA) is the national trade association representing the interests of manufacturers and producers of soft drinks, including carbonated and concentrated soft drinks amongst other types, such as bottled water and fruit juices. The BSDA represent industry bodies and figures in a number of ways: lobbying the government improving media relations promoting sustainability helping with support for companies and employees.

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Industry Background

The BSDA also started to regularly publish the Soft Drinks Report to provide the industry with data and analysis of the industry. This is in addition to a number of other publications that are provided to offer guidance and support to industry members.

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Competitor Analysis

4. Competitor AnalysisTHE MARKETPLACETraditionally, major brands are produced under licence in the different countries in which they are sold. These few large companies dominate the market, although there is scope for smaller boutique products, especially as gourmet flavours become more desirable. The gap between the multinational giants and smaller producers is extremely wide. Coca-Cola Enterprises (CCE) owns the Coca-Cola brand, which is the worlds most valuable soft drink brand, and it commands a large proportion of the market share. When coupled with Britvic PLC, which owns the rights to the Pepsi brand in the UK, it controls over half of the total market share of the soft drinks market and over 60% of the carbonates and concentrates market. The historic advertising battle between the Coca-Cola and Pepsi brands has raged over many decades, and has contributed to cola becoming the largest product segment in the carbonated market. However, there is a chance for companies to forge a unique market for themselves; for example, Irn-Bru has managed to find a core market in Scotland, despite strong competition from other international brands. AG Barr has recently relaunched the Rubicon brand (carbonated tropical fruit drinks) and has seen excellent sales results. Although the market is quite saturated, many consumers of carbonated drinks are teenagers; this means that the market is constantly open to innovation, as teenagers are typically more open to trying something new and often want to be the first to buy a desirable product or brand. This could explain why Rubicon is performing well in an extremely competitive market. As well as the American corporates, there are also a number of foreign soft drink brands that have successfully managed to infiltrate the UK market: Red Bull originated from, and still based in, Austria, the company produces energy drinks, and has recently entered the cola market. Cott Retail Brands based in Canada, the company produces a variety of different products. Princes it predominantly makes fruit juices, but also produces Jucee fruit squash. The company is a subsidiary of Japanese conglomerate Mitsubishi, based in Japan. Royal Unibrew a company based in Denmark which produces the Super Malt drink. There are also many more foreign brands in the soft drinks market that do not produce concentrates or carbonates such as Nestle and Danone.

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Competitor Analysis

The market is made up of both highly specialised and highly diverse companies; CCE are the leading soft drinks firm in the world and they have chosen to focus on the production of soft drinks solely. However, PepsiCo owns Walkers Crisps amongst other leading snack and cereal brands. Furthermore, GlaxoSmithKline controls the Lucozade and Ribena brands, but has most of its assets in the pharmaceutical industry. Smaller companies, like Belvoir, tend to focus on soft drinks and maintaining its current brand status. All supermarkets and most shops have an own brand version of most carbonated and concentrated products, particularly cola and lemonade varieties. A number of these products are produced by Cott Retail Brands, and it enjosy a considerable market share.

MARKET LEADERSCoca-Cola and Pepsis brand dominance in the marketplace demonstrates why CCE and Britvic (UK distributers of the respective brands) are leading the market. The leading UK companies in the market are listed in Table 4.1, along a turnover and pre-tax profits level for the most recent 3 years available. The companies are ranked in order of pre-tax profit from the most recent financial year reported.

Table 4.1: Major Soft Drinks Companies in the UK by Turnover and Pre-Tax Profit (m), Latest 3 Reported Financial YearsPre-Tax Profit (m) 239.1 206.0 215.7 76.2 91.2 52.7 24.5 23.2 20.8 22.3

Company Coca-Cola Enterprises Ltd

Year End Turnover (m) 31/12/2009 31/12/2008 31/12/2007 1619.8 1495.6 1414.9 867.3 738.8 722.0 201.4 169.7 148.4 224.0

Britvic Soft Drinks Ltd

03/10/2010 27/09/2009 28/09/2008

AG Barr PLC

30/01/2010 31/01/2009 26/01/2008

Red Bull Company Ltd

31/12/2009

Table continues...

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Competitor Analysis

Table 4.1: Major Soft Drinks Companies in the UK by Turnover and Pre-Tax Profit (m), Latest 3 Reported Financial Years...table continuedPre-Tax Profit (m) 17.5 19.6 11.9 4.1 8.0 8.6 -38.6 3.5 -0.1 -1.0 -0.9

Company

Year End Turnover (m) 31/12/2008 31/12/2007 200.1 185.7 72.4 56.2 55.3 229.2 206.4 201.9 12.2 10.3 9.0

Nichols PLC

31/12/2009 31/12/2008 31/12/2007

Cott Retail Brands Ltd

02/01/2010 27/12/2008 29/12/2007

Bottlegreen Holdings Ltd

31/03/2010 31/03/2009 31/03/2008

Note: GlaxosmithKlines soft drinks only account for a small proportion of its revenue and profits for this reason it has not been included in the table.

Source: www.myicc.co.uk

Although some of the companies in Table 4.1 produce soft drinks that are not carbonated or concentrated, they all have major brands in their portfolio that are. Companies such as Nestle, Danone and Innocent do not produce concentrated or carbonated drinks.

Coca-Cola Enterprises LtdCompany StructureCoca-Cola Enterprises Ltd (CCE Ltd) is in control of Coca-Colas UK operations. The company has a parent organisation based in Western Europe called Coca-Cola Enterprises Inc (CCE Inc), which used to control some of Coca-Colas North American operations. However, in 2010, the Coca-Cola Company acquired the North American operations of CCE Inc.

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Competitor Analysis

CCE Ltd also works very closely with Coca-Cola Great Britain (CCGB). CCGB is the ultimate owner of the brands, and is responsible for individual marketing campaigns; CCE Ltd is the manufacturer and distributor of the actual product. CCGB is a subsidiary of the Coca-Cola Company. CCE Ltd employs 4,650 people in the UK, across seven distribution sites, five sales offices, four offices and centres. It also operates across eight distribution sites. The brand portfolio of CCE is vast and diverse, with many flavours and varieties. Its carbonated brands include Coca-Cola, Diet Coke, Coke Zero, Coca-Cola Cherry, Diet Coke with Citrus Zest, Fanta, Lilt, Sprite and Dr Pepper, Schweppes, Appletiser and Relentless. Its concentrated or squash brands are Schweppes, Kia-Ora and Roses lime cordial. It also owns the Powerade brand, and many other soft drinks brands that are not carbonated or concentrated.

Current and Future DevelopmentsSome changes have been made to Coca-Colas brands in the past year. Powerade launched the Powerade Zero product, which contains no sugar and is calorie free (classed as less than 4kcal/100ml). On top of this, Fruitiser has recently seen a launch of new products, and a revamp of existing products. Coca-Cola has also started to invest in environmental initiatives; it has recently introduced recycling zones for cans in locations throughout the UK, and is shortly introducing solar-panelled vending machines to reduce existing overheads. Finally, Coca-Cola has also managed to secure sponsorship of the 2012 Olympic and Paralympic Games this represents good PR for the company. In another marketing move, the company offered buy-one-get-one-free (BOGOF) soft drinks in selected pubs in the run up to Christmas, as an anti drink-driving measure.

Financial ResultsFor the financial year ending on the 31st December 2009, CCE had a turnover of 1.62bn, up by 13.3% compared to 2006 figures. Pre-tax profits for the same year finished at 239m, up from 168.9m in 2006.

Britvic PLCCompany StructureBritvic PLC is the UKs second largest manufacturer of soft drinks. The company is agreement with PepsiCo to produce and distribute Pepsi branded drink, the second best selling carbonate, until at least 2023. The company also has similar agreements with PepsiCo for the 7UP and Gatorade brands. Most of Britvics operations are restricted to the UK, Republic of Ireland and France. However, Britvic International accounts for the 5% of the groups revenue, and exports its products to over 50 countries.

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Competitor Analysis

Britvics brand portfolio is extensive and spans across the whole of the soft drink market. It owns the rights to the Pepsi, Pepsi Max and Pepsi Diet brands, as well as the 7UP, 7UP Free and Cherry 7UP products. In addition to this it also owns the R Whites, Tango (Orange, no Added Sugar Orange, Apple and Cherry) and Purdys carbonated brands. It owns the market leading concentrated brand Robinsons, and has the rights to both Gatorade and the Mountain Dew Energy brand.

Current and Future DevelopmentsIn May of 2010, it was announced that Britvic was to buy the French company Fruit Enterprises in a deal worth just over 200m. This is a clear and conscious move by Britvic to move further into the European market, with companies such as Teisseire, Moulin de Valdonne and Pressade in its portfolio. In terms of brand development, Pepsi Raw was released in October 2008, but was pulled from the shelves in September 2010 after sales of just 700,000 in the off-trade. Another interesting move saw the group declare Tango as the official drink of Halloween 2010; evidently Britvic saw a gap in the market relating to this ever-growing event. Adam Goodger, senior brand manager of Tango, said Halloween is a big opportunity and the event is a perfect fit for Tango.

Financial ResultsFor the year ending on the 3rd October 2010, the company recorded a 867.3m turnover, with pre-tax profits of 76.2m. This is down from 2009 levels, when the company made pre-tax profits of 91.2m.

AG Barr PLCCompany StructureAG Barr has been operating for well over 100 years, and has its roots firmly planted in Scotland, partly due to its unique Irn-Bru brand. Following the companys recent success, some media outlets have earmarked the company for a potential takeover bid, but this has been staunchly denied by the company. Like Britvic, AG Barr also has franchise agreements to manufacture and distribute other soft drink brands. It has the licence to manufacture and sell Orangina, the brand owned by CCE/Schweppes, and also owns the manufacturing and distribution rights to Rockstar energy drinks, a renowned brand in the US owned by Rockstar Incorporated. The company boast 14 sites around the UK, including five production sites. In 2008, it opened a new site in Cumbernauld which houses production, warehousing and distributing facilities.

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Competitor Analysis

There are 13 brands in the AG Barr portfolio, including Irn-Bru, Tizer, Rubicon and Orangina. It produces over 60 different products and distributes them all over the UK. The company employs a unique glass bottle return system in Scotland; the system was heavily used in the industry in the past but only Barr has continued to use it not only because of its environmental credentials, but because Barr sell over 30 million returnable glass bottles per year, carrying over 16 different varieties of flavour.

Current and Future DevelopmentsAG Barr has seen a large increase in sales in the first 6 months of 2010; the company reported that profits were up by over 15m when compared to the previous year. Many new brands and products have been launched by AG Barr in the last few years. Rubicon has enjoyed a large volume of sales following its acquisition in 2008, and Rockstar is a relatively new brand in the UK market. The company is also trying to increase sales of its flagship brand, Irn-Bru, by advertising heavily in the North East of England.

Financial ResultsIn the year ending in January 2010, AG Barr posted a revenue of 201.4m, a rise of 18.7% compared to the previous year. Its pre-tax profit levels stood at 24.5m in the same report.

Red Bull Company LtdCompany StructureHeadquartered in Austria, the independent Red Bull Company has fared extremely well in a very competitive marketplace. Its Austrian parent company is called Red Bull GmbH. At the end of 2009, Red Bull employed 6,900 people in 160 different countries. As with many energy drinks, Red Bull relies heavily on sponsoring athletes and sporting events for a significant section of its marketing, particularly in the region of extreme sports and Formula One motor racing.

Current and Future DevelopmentsRed Bull recently launched Red Bull Cola, a cola made from 100% natural ingredients. The Red Bull Energy Shot was also launched in the last year, to compete with rival brands in the emerging energy drink market.

Financial ResultsIn the year ending in December 2009, Red Bull witnessed a 224m turnover and pre-tax profits of 22.3m.

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Competitor Analysis

Other CompaniesGlaxoSmithKline PLCThe global pharmaceutical giant had an overall turnover of 28.40bn in 2009, which is considerably higher than other companies in the marketplace. However, a very small proportion of the companys turnover comes from their soft drink products (Lucozade and Ribena). Lucozade has seen much change in its product range in recent years; it now has several flavours in its energy portfolio, including a new cherry flavour. On top of this, the Lucozade Alert product was relaunched in February of 2009 to compete with Red Bull and Relentless energy drinks. Finally, the Lucozade Sport brands have witnessed change; the classic Lucozade Sport brand has changed to Lucozade Sport Body Fuel, and is available in four flavours. The old Lucozade Hydro-Active product has been changed to Lucozade Sport Lite and is available in two new flavours, Summer Berries and Lemon & Lime. Finally, the old Lucozade Sport with Caffeine product has changed to Lucozade Sport Fuel & Focus, but is still available in the same flavour as before, lemon.

Cott Retail Brands LtdCott Retail Brands Ltd is a UK subsidiary of the Cott Corporation which is based in Canada. In the 1990s, the brand expanded into the UK and acquired two bottling plants, and it now employs 700 UK staff. The company provides many retailers with own-brand cola, and also has the Ben Shaws and Old Jamaica brands in its portfolio.

Nichols PLCThe most famous brand in the Nichols portfolio is undoubtedly Vimto, which has been established for over 100 years. The company has two divisions; soft drinks and dispense. The soft drinks division is made up of the Vimto, Orangina and Panda brands and the leading dispense brand is Ben Shaws, which Nichols acquired in 2010. It is important to note that Nichols only owns the on-trade dispense operations of the Ben Shaws brand.

OUTSIDE SUPPLIERSThere are a relatively small amount of ingredients required to produce concentrates or carbonates. Therefore, the manufacturing and bottling process is a relatively simple one, especially for larger companies who have invested in top quality machinery to speed up the process. However, ingredient lists have been expanding including new products that try and emphasise natural products for a healthier brand image.

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Competitor Analysis

IngredientsThe staple ingredient of carbonated soft drinks is carbonated water. Added to this is a mixture of sugar or sweeteners, flavourings, colourings, preservatives and extra ingredients like caffeine, taurine or additional vitamins. Some branded products like Coca-Cola and Irn-Bru have secret recipes or ingredients. Irn-Brus recipe is only known by two people and locked up in a bank vault in Scotland. The increasing demand for healthier carbonates has resulted in two changes to the market. Firstly, demand for carbonates containing exotic and high-quality fruit juices has risen. Secondly, consumers have been turning to Zero or Diet versions of drink to cut down on personal sugar consumption. These three trends have affected the types of ingredients being used in the carbonates market.

PackagingA lot of money is spent by soft drinks companies on the image of their brands and their packaging is an important part of this, reinforcing their values. This is apparent in relation to classic beverages such as Coca-Cola, but also many emerging energy drink brands. Coca-Cola successfully built an image around a glass bottle, to create a product based on nostalgia and a certain element of prestige. Not many other brands have managed to achieve this, yet offering a glass bottle in restaurants could allow companies to create a higher-end, desirable brand image. There have been reports in the media that a can which can be resealed was launched by a niche energy drink in early 2010 in the UK, but this is yet to develop into a major trend. The innovation could be useful for energy drinks that are served in 500ml cans, yet there is little scope for a standard 330ml can that can be resealed. Almost all sports drinks have a sports cap a lid that seals liquid in the bottle whilst also allows the consumer to access the liquid quickly without unscrewing a lid. Most bottled water brands also use the sports cap mechanism, as consumers tend to want to drink on the go.

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Competitor Analysis

MARKETING ACTIVITYMain Media Advertising ExpenditureThe carbonated and concentrated soft drinks industry spent a total of nearly 76.9m between September 2009 and September 2010, according to Nielsen Media Research, on main media advertising expenditure. Operators in the total drinks market, including alcoholic drinks companies, spent 328.3m in advertising during this period. This indicates that the carbonated and concentrated sector held a 23.4% share of expenditure on advertising for the drinks industry. This share is affected by the Coca-Cola brand spending a considerable amount on marketing. The soft drinks categories that are eligible in this report are listed in Table 4.2, along with advertising expenditure figures for 2009 and 2010.

Table 4.2: Main Media Advertising Expenditure on Carbonates and Concentrates by Type (000), Years Ending September 2009 and 20102009 Carbonated (excluding mixers) Mixers Sports/energy Cordials Total Source: Nielsen Media Research, 2010 40,068 649 17,129 7,266 65,111 2010 42,281 2,143 25,140 7,317 76,880

Between 2009 and 2010, all sectors of the carbonates and concentrates market have enjoyed an increase in advertising expenditure. However, some sectors enjoyed more significant increases than others for example, the increase in advertising expenditure relating to cordials was relatively small, whereas the rise in expenditure for sports/energy drinks was greater, both proportionally and actually.

Individual Brands and SectorsCoca-Cola is consistently the highest spending soft drinks brand when it comes to main media advertising. Brand-wise, Lucozade has increased its advertising expenditure compared to 2009, matching its expansion of its product portfolio.

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Competitor Analysis

Table 4.3: Main Media Advertising Expenditure on Carbonated and Concentrated Drinks Brands (000), Year Ending September 20102010 Cola Range Coke Zero Diet Coke Coca-Cola Pepsi Max Total Other Carbonates Appletiser Irn-Bru Diet Irn-Bru Tango Dr Pepper Fanta Old Jamaica Ginger Beer Rubicon Exotic Sparkling Schweppes Sparkling Range Shloer Other Total Mixers Britvic Mixers Fever Tree Schweppes Ginger Ale Schweppes Indian Tonic Water Schweppes Tonic Water Other 93 201 219 290 1,332 9 737 128 1,394 634 1,214 2,259 548 343 2,198 291 453 10,199 2,930 5,765 19,089 4,298 32,082

Table continues...

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Table 4.3: Main Media Advertising Expenditure on Carbonated and Concentrated Drinks Brands (000), Year Ending September 2010...table continued2010 Total Squash/Cordial Ribena Robinsons Other Total Sport/Energy Drinks Gatorade Lucozade Alert Lucozade Alert Plus Lucozade Energy Lucozade Sport Lucozade Sport Lite Powerade Red Bull Red Bull Shots Relentless Relentless Energy Shot Other Total Source: Nielsen Media Research 431 493 3,762 7,751 402 1,756 1,321 4,832 1,965 230 809 302 25,140 5,779 1,511 27 7,317 2,143

The main focus for the Coca-Cola brand was its original product brand, with just over 19m being spent on this alone and 27.8m being spent on all Coca-Cola products for the year. Spending for Pepsi was focused around the Pepsi Max product, with 4.3m being spent on advertising it.

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Competitor Analysis

The other carbonates table is topped by Fanta and Schweppes ranges of sparkling drinks, including lemonade. The Irn-Bru advertising budget for both diet and normal versions has increased in comparison with 2009. Dr. Pepper is one of the only carbonated brands to have seen its advertising expenditure drop in 2010. Since 2009, advertising expenditure on mixers has seen a significant rise; part of the reason behind this has been Schweppes dramatic increase in advertising expenditure across its whole range of mixers, particularly on its Tonic Water. The sport and energy drink market has been the major success story of the past few years, as product innovations and new brands continue to emerge in the UK market. Relentless, the Coca-Cola brand, has seen spending on advertising reach over 1m. The increase on advertising expenditure in the market has been spurred on by the development of the energy shot market. The advertising expenditure level for concentrates has seen a small rise since 2009. Ribena has spent slightly less on advertising in 2010, whilst Robinsons has seen a large rise in the same year compared to 2009.

Other Marketing ActivitiesAdvertising in the soft drinks market is heavily monitored by Ofcom, the governments media watchdog. The market is heavily monitored because many soft drinks appeal to children. Therefore, Ofcom has banned any junk food advertisements being displayed on television during programming aimed at children, and also during general entertainment shows that would appeal to a significant audience of under-16s. Soft drink brands sponsor many sporting events and individual sportspeople. Some of the key sponsorships are listed below: Robinsons sponsors of the historic Wimbledon tennis tournament since 1934. Coca-Cola sponsors of the London 2012 Olympics and Paralympics, as well future football World Cups. Red Bull the company entered its own team in Formula One racing, and has continued investment in a number of extreme sports. On top of this, they sponsor a number of individual sports stars, from football to surfing participants. Pepsi they sponsor many individual sportsmen, whole events and sporting associations. Powerade a sponsor of the England Rugby team and individual sportspeople, such as Jessica Ennis. Lucozade the official drink of the football Premier League and other sporting events, such as the London Marathon.

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Strengths, Weaknesses, Opportunities and Threats

5. Strengths, Weaknesses, Opportunities and ThreatsSTRENGTHS The nature of the soft drinks market featuring an array of strong, powerful brands ensures continued demand for its products. Significant advertising spends and high-profile campaigns from large brands benefit the overall market. The market is diverse with many sectors including, for example, health, energy and concentrated drinks and thus offers consumers great choice. Low ingredient and manufacturing costs leading to high profit margins make the market potentially lucrative for a wide variety of companies. Economies of scale are available to all large companies, thus cutting down costs.

WEAKNESSES As consumers become more health conscious, sales of carbonated drinks that are high in sugar and contain artificial additives or flavourings might suffer. Existing consumer brand loyalties could make it difficult for new products to break into the market. Brands have their profit margins squeezed by large supermarkets and multiples, retailers who can command a low price for products. It is easy for shops to produce their own-brand versions of existing products, to compete with well-known branded goods. Up to 30 pub closures are being recorded every week in the UK; this means that on-trade distribution, where soft drinks can command a higher price, is shrinking in size.

OPPORTUNITIES There is space for new brands and innovative products within the market the recent emergence of the energy drink sector demonstrates this. Brands are easily transferable into the international market; profits can be hugely increased by taking this step once a brand has succeeded in the UK market.

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Strengths, Weaknesses, Opportunities and Threats

Most carbonates involve a fairly versatile recipe which means that they can be adapted into diet, healthier or flavoured versions. Many retailers, not traditionally viewed as drinks vendors, are investigating if introducing soft drinks would increase their profits HMV is stocking soft drinks in its store after a successful trial earlier this year. Companies now have the opportunity to improve their brand image by addressing environmental concerns, by being a market leader in changing their packaging or introducing a large-scale recycling scheme. The Olympic Games in London will undoubtedly provide the soft drinks industry with a boost in 2012. Although the official advertising and sales will be provided by Coca-Cola, other drinks brands have an opportunity to increase their sales particularly in London.

THREATS Soft drinks brands are continually under threat from cheaper retailer own brand versions of their products. The cola market dominates the carbonates market; PepsiCo and Coca-Cola both have huge shares of the cola market, thus limiting opportunities for new companies. New product launches for smaller companies could be overwhelmed by large brands advertising and marketing budgets. Marketing to children has been tightly regulated in recent years, and regulations could become even stricter in the future. Many pressure groups are looking to pinpoint reasons for rising obesity levels, and soft drinks could be included amongst products deemed responsible.

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Buying Behaviour

6. Buying BehaviourCONSUMER PENETRATIONAccording to the figures in Table 6.1, all types of soft drinks have seen a fall in consumer penetration since 2007. This is especially noticeable in relation to mixers, which have witnessed a decline of more than 10% in consumer penetration.

Table 6.1: Penetration of Soft Drinks by Type (% of adults), 2003, 2006, 2007 and 20102003 Concentrated Soft Drinks Squash/cordial Carbonated Soft Drinks Colas Mixers Other carbonates Other Soft Drinks Juices Bottled water 59.2 50.8 58.5 55.4 57.6 56.1 47.6 n.a. 62.0 37.0 62.4 60.0 35.4 62.2 57.9 35.5 60.1 53.9 31.5 59.1 68.8 68.4 67.4 64.4 2006 2007 2010

prompted as fizzy soft/energy drinks, excluding colas

Source: Target Group Index (TGI) Kantar Media 2003, 2006, 2007 and 2010

It is important to point out that a significant proportion of sales of carbonates come from children the TGI only features surveyed responses of people aged 15 or over.

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Buying Behaviour

Table 6.2: Penetration of Colas and Other Carbonates by Sex, Age, Social Grade, Marital Status, Working Status and Location (% of adults), 2010Other Carbonates 59.1 62.5 55.9 86.2 75.1 72.1 63.6 58.5 45.6 37.6 47.4 56.0 60.5 61.6 62.7 55.5

Colas All adults Sex Men Women Age 15-19 20-24 25-34 35-44 45-54 55-64 65+ Social Grade A B C1 C2 D E Marital Status Married/civil partnership/living as a couple Single Divorced Widowed Separated Working Status Full-time 30+ hours per week All part-time Not working (excluding retired/invalid) 65.4 60.2 63.8 54.3 65.0 43.1 21.5 52.6 46.7 53.5 56.6 54.6 54.7 45.5 72.1 72.9 72.1 66.7 54.7 41.5 21.4 56.6 51.3 53.9

57.8 72.4 45.6 35.4 59.0 66.5 61.8 68.2

Table continues...

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Buying Behaviour

Table 6.2: Penetration of Colas and Other Carbonates by Sex, Age, Social Grade, Marital Status, Working Status and Location (% of adults), 2010...table continuedOther Carbonates

Colas Working Status (cont.) Not working retired/long term illness/ disabled Region Scotland North West North Yorkshire and Humberside East Midlands East Anglia South East Greater London South West Wales West Midlands prompted as fizzy soft/energy drinks, excluding colas

28.6 57.6 53.9 52.7 54.6 55.6 57.3 54.3 57.1 47.0 50.9 50.5

41.4 59.4 58.0 59.3 61.0 59.8 62.4 57.8 59.3 55.5 58.7 62.4

Source: Target Group Index (TGI) Kantar Media Q4 (July 2009-June 2010) 2010

When breaking the data down by age, the 15-34 group are more likely to drink cola (penetration around the 72% level), with penetration levels falling from 66.7% for people aged 35-44 to 21.4% for people aged 65+. For other carbonates, the penetration level for 15-19 year-olds was 86.2% this figure falls for each older age group, and stands at 37.6% for people aged over 65. Single people have a noticeably higher penetration level than those in a relationship, divorced, widowed or separated for both cola and other carbonates. For cola, penetration levels for people who were not single did not go above 55%, yet the penetration level for single people stood at 65%. For other carbonates, levels were at 72.4%, yet the next highest figure was 59% for people who are separated.

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Buying Behaviour

All other sections see fairly evenly distribution of penetration levels; however, men are slightly more likely to purchase cola and other carbonates than women. People who are in social grades B to D are more likely to by cola and other carbonates than people in grades A and E. Meanwhile, penetration levels did not vary greatly for different regions.

Table 6.3: Penetration of Concentrates and Mixers by Sex, Age, Social Grade, Marital Status, Working Status and Location (% of adults), 2010Squash and Cordial All adults Sex Men Women Age 15-19 20-24 25-34 35-44 45-54 55-64 65+ Social Grade A B C1 C2 D E Marital Status Married/civil partnership/living as a couple Single Divorced Widowed 64.8 67.9 59.6 52.2 32.6 28.2 30.2 34.8 55.4 63.1 66.0 66.2 64.7 61.1 45.6 37.9 31.9 28.4 25.1 25.3 72.6 71.1 72.0 70.1 64.0 57.4 52.5 25.7 26.8 26.8 27.3 34.9 36.2 37.0 62.4 66.2 27.6 35.2 64.4

Mixers 31.5

Table continues...

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Buying Behaviour

Table 6.3: Penetration of Concentrates and Mixers by Sex, Age, Social Grade, Marital Status, Working Status and Location (% of adults), 2010...table continuedSquash and Cordial Marital Status (cont.) Separated Working Status Full-time 30+ hours per week All part-time Not working (excluding retired/ invalid) Not working retired/long term illness/disabled Region Scotland North West North Yorkshire and Humberside East Midlands East Anglia South East Greater London South West Wales West Midlands 56.7 66.3 62.2 66.6 69.1 68.1 65.3 55.3 68.1 65.9 69.1 33.2 33.8 30.5 34.1 31.8 30.0 34.5 26.4 32.2 27.7 27.6 68.5 68.2 67.4 54.7 30.7 33.9 25.2 36.0 67.5 29.0

Mixers

Source: Target Group Index (TGI) Kantar Media Q4 (July 2009-June 2010) 2010

By age, the highest level of penetration for squash and cordial is seen amongst 15-19 year-olds, and the lowest levels of consumer penetration are seen for those aged 65 or above. However, the highest levels of penetration for mixers are for those aged over 65, and the lowest levels are seen amongst those aged between 15 and 19. The level of consumer penetration of mixers is high for those in social grade A, yet much lower than other social grades for squash and cordials.

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Buying Behaviour

Most other categories are fairly evenly spread, yet women are slightly more likely to buy squash and mixers than men. The majority of regions are fairly even in their penetration levels, apart from Scotland and Greater London having notic

soft drinks (carbonated & concentrated) 2011

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