the canadian soft drink industry

7/29/2019 The Canadian Soft Drink Industry

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The Canadian Soft Drink Industry

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Index

Introduction Industry Structure Performance Regulatory Framework Challenges and Opportunities Industry Association Agriculture and Agri-Food Canada Contact The Canadian Soft Drink and Ice Manufacturing Industry - Appendix A The Canadian Soft Drink Industry - Appendix B

Statistics for the Canadian soft drink, bottled water and ice manufacturing industries areaggregated under Statistics Canada's North American Industry Classification System (NAICS)31211 Soft Drink and Ice Manufacturing.

NAICS 31211 comprises establishments primarily engaged in manufacturing soft drinks, ice orbottled water, including that which is naturally carbonated. Such soft drink establishments makenon-alcoholic, carbonated, flavoured beverages, including fruit drinks and iced tea (bottled orcanned).

Beverages which contain flavours at a rate of more than one percent by weight (includingflavoured bottled water) are classified as soft drinks by Statistics Canada. Similarly, soda water,seltzer water and tonic water are also classified as soft drinks.

Although data for bottled water manufacturing is included in NAICS 31211, this profile does notcover bottled water manufacturing. A separate profile has been written for the Canadian bottledwater industry.

Establishments primarily engaged in manufacturing concentrates and syrups for the manufactureof carbonated beverages are included in Statistics Canada NAICS 31193 Flavouring Syrup and

Concentrate Manufacturing.

Statistics Canada does not provide separate statistics for the soft drink industry other than exportand import statistics and per capita consumption data. Statistics Canada data for NAICS 31211have been included for reference purposes at the end of this profile as Appendix A. Trade datafor soft drinks can be found inAppendix B.
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Introduction

The Canadian soft drink manufacturing industry makes and bottles non-alcoholic carbonatedbeverages, including fruit flavoured beverages, colas, ginger ales, ginger beers, root beers,bottled or canned iced tea and iced coffee, soda waters, tonic waters and other mixers. While the

term 'soft drinks' sometimes means different things to different people, for the purposes of thisprofile these soft drink beverages are referred to as carbonated soft drinks (CSDs). The industryalso makes other non-alcoholic beverages, including but not limited to, iced tea, iced coffee,dairy-based beverages, fruit juices and fruit drinks, bottled water, sports drinks and energydrinks.

The Canadian carbonated soft drink industry was historically based on a franchise system whichcharacterized the CSD industry worldwide. The system provided a bottler with a defined marketarea and exclusive manufacturing and distribution rights for certain CSD brands within that area.The bottler was restricted to purchasing the proprietary formula concentrates and/or syrups froma single source - the franchise company (franchisor) which held the registered trademarks of a

number of CSD brands. The franchisor established pricing policies and provided overallmarketing and brand promotion support. During recent decades, however, the major brand-owning CSD firms have been buying their former franchisee-bottlers, so that few independentbottlers remain today.

The industry serves primarily the domestic market. Although CSD sales account for a majorportion of the non-alcoholic beverage market, they have remained relatively flat or decreasedover the past few years.

A trend toward healthier beverage choices by Canadian consumers has caused the carbonatedsoft drinks (CSDs) industry to seek new ways to capitalize on the market.

Soft drink multinational corporations are bringing more alternative drinks to market. Many ofthese beverages, such as sports drinks, energy drinks, retail PET water, single-serve fruit drinks,juices, sparkling water, premium soda, dairy beverages, and ready-to-drink (RTD) tea and coffeepromise more than quenching thirst; they offer extra energy, essential vitamins and more"cachet".

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Industry Structure

The Canadian Soft Drink and Ice Manufacturing industry represented 4.8% of the total value ofsales of goods manufactured by the food and beverage industry, 4.5% of employment in thesector, and 3.2% of the number of food and beverage plants in 2009.

In 2009, 287 establishmentsFootnote [note 1](plants) in the Soft Drink and Ice ManufacturingIndustry shipped $4,032.6 million worth of product and employed 11,162 people. Canadian SoftDrink and Ice Manufacturing Industry exports totalled $127.3 million in 2009 (Figure 1). The
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Canadian market absorbed the remaining $3,905.3 million in domestic shipments and a volumeof imports worth $593.9 million. This industry has become a net importer since 2006.

Figure 1: Soft Drink and Ice Manufacturing Industry Imports, Exports and Sales of Goods

Manufactured, 2009

Expand: Description - Figure 1

Statistics Canada data for sales of goods manufactured for carbonated soft drinks is not available.However, using per capita consumption data and adjusting for trade, it can be estimated thatCanadian production was approximately 3.53 billion litres in 2009.Footnote [note 2]

The Canadian CSD industry is highly concentrated. Three of the four major brand owners aresubsidiaries of foreign-based multinationals and account for the overwhelming majority ofindustry production. A very small number of CSD manufacturers supply niche products.

According to Statistics Canada dataFootnote [note 3a], the majority of Soft Drink and IceManufacturing takes place in Ontario (85 establishments), British Columbia (62 establishments),Quebec (53 establishments), followed by Alberta (29 establishments), Manitoba (14establishments), Saskatchewan (14 establishments), Nova Scotia (12 establishments), NewBrunswick (8 establishments), Newfoundland and Labrador (7 establishments), and PrinceEdward Island (3 establishments).Footnote [note 4a]Statistics Canada's Business PatternsDatabase indicates that in 2009 production facilities ranged in size from small one-or two-personoperations to large plants employing up to 500 people.
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Production tends to be located close to large urban centres, although there has been a trend tolarger plants serving larger markets.

There are numerous CSD bottling and distribution centers across Canada to serve local domesticmarkets. Manufacturing is located in major cities in Canada, with a large number of distribution

warehouses located across the country. Bottling and distribution systems in the bottlingcomponent of the industry are highly automated and very efficient.

Product concentrates (flavours, etc; in liquid and powdered forms) are brought into bottlingplants where sweeteners are added to make syrups. Then water and carbon dioxide are added andthe resulting drinks are bottled. Some syrup is sold to foodservice operators for "fountain" sales.

Key commodity inputs needed to make carbonated soft drinks include concentrates, sugar (caneor beet), glucose/fructose, aspartame, acesulfame-potassium, caramel colour, sodium benzoate,phosphoric and citric acids, caffeine, seasonings, carbon dioxide and specially treated water.(Glucose/fructose is a generic term for high fructose corn syrup or HFCS, now more commonly

referred to as 'corn sugar'.) The industry uses about 20 times as much corn sugar as it doescane/beet sugar as the sweetening agent. Except for water, the bulk of raw inputs for this industryare imported, mostly from the U.S. However a small portion of the corn sugar is supplieddomestically.

The industry has faced an array of price increases. The cost of aluminium (for cans) has recentlyincreased substantially thus having a negative impact on profits. The increase in demand for cornfor use as fuel ethanol has contributed to increased grain costs both in Canada and the U.S., thusdriving up the cost of corn sugar as well.

The majority of carbonated soft drinks are sold in aluminium cans and PET bottles. They are also

sold in bulk in the foodservice industry through soda fountains. Only a very small portion ofCSDs are still packaged in glass bottles, and these are usually packaged in smaller sizes, due tochanging consumer preferences and lifestyles as well as increased costs associated withtransporting heavy, low-volume glass containers versus high volume-to-packaging ratio PETbottles and aluminum cans.

Products are sold through retail stores for the "take home" market and through hotels, restaurantsand institutions (HRI) and vending machines for the "on-premises" market. Foodservice plays animportant role in CSD sales as consumers on-the-go add carbonated soft drinks to their fast-foodand restaurant purchases. The "take-home" market is the larger segment, accounting for anestimated two-thirds of sales.

The majority of carbonated soft drink companies have embarked on a diversification strategy tobecome total beverage companies by offering a range of products (i.e. CSDs, bottled water,juices, fruit flavoured beverages, dairy-based beverages, iced tea, RTD iced coffee, sports drinksand energy drinks).

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Performance

Domestic Market

From 1999 to 2009, sales of goods manufactured by the Soft Drink and Ice Manufacturing

Industry increased 31.7% from a value of $3,062.3 million to $4,032.6 millionFootnote [note3b].

From 1999 to 2009, per capita consumption of CSDs declined 14.0% from 121.8 litres to 104.7litres. Per capita consumption declined by 1.2% between 2008 and 2009.Footnote [note 5]

According to Beverage Marketing Corporation, carbonated soft drinks (CSDs) continued toaccount for the largest beverage category both in volume and in per capita consumption in spiteof losing ground to healthier and more popular non-alcoholic beverages, such as tea. Measuredby volume, sales of CSDs made up about 16.3% of all non-alcoholic beverage sales in 2009(Figure 2).

Figure 2: Share of Canadian Non-Alcoholic Beverage Market by Volume, 2009


From 2008 to 2009, total CSD sales volume remained relatively stable at 3.53 billion litres(Table 1).

Table 1: Canada's Non-AlcoholicFootnote [note 6]Beverage Market, Share of Volume

Billions of Litres Share of Volume % Change
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Table 1: Canada's Non-AlcoholicFootnote [note 6]Beverage Market, Share of Volume

Billions of Litres Share of Volume % Change

*CSDs: Carbonated soft drinks.** Assumes 48 grams of coffee per litre.*** Includes tap water, vegetable juices, sports drinks and miscellaneous others.Source: Beverage Marketing Corporation

2008 2009 2008 2009 2008/09

CSDs* 3.5 3.5 16.5% 16.3% 0.0%

Coffee** 3.4 3.6 16.0% 16.6% 5.0%

Milk 2.7 2.8 12.8% 12.7% 0.4%

Tea 2.6 2.8 12.2% 12.9% 7.3%

Bottled Water 2.4 2.3 11.1% 10.6% -3.4%

Fruit Beverages 2.0 1.9 9.4% 8.7% -6.0%

Subtotal 16.7 16.8 77.9% 77.6% 1.0%All Others*** 4.7 4.9 22.1% 22.4% 2.8%

Total 21.4 21.7 100% 100% 1.4%

The domestic market continues to be the most important for this industry. Domestic marketdemand has grown to the point where there are now more than 30 different brands and amultitude of flavours distributed throughout Canada.

Based on data from The Nielsen Company, the value of Canadian domestic retail sales for'flavoured soft drinks' in 2009 grew 7.7% to $1.4 billion from a value of $1.3 billion in 2007.

Statistics Canada data show that the Canadian market for the Soft Drink and Ice ManufacturingIndustry totalled $4.5 billion in 2009.

The industry has experienced intense price competition with the expansion of private label salesand decreasing consumer demand for CSDs. Price reductions have been an important element toenable the industry to maintain its dominant market share in a beverage market where the choiceof products is increasing. During the recent difficult economic climate, price reductions are stilloccurring, especially in the retail grocery sector where chains have reduced prices to encourageconsumers to visit their establishments. However, with increasing aluminium, corn, andtransportation costs, the industry may be under pressure to reverse this trend.

Euromonitor forecasts that the Canadian CSD market will continue to decrease as consumerpreferences for healthy lifestyles increases. However, with 60% of sales of carbonated softdrinks coming from consumers aged 50 and overFootnote [note 7], an older Canadiandemographic could fuel a resurgence in CSD sales.

CSD sales tend to be seasonal, with higher consumption occurring during the hotter summermonths. Unusually cold or rainy weather during the summer months can have a negative impacton sales.
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Strong competition by industry firms for market share has brought about industry consolidationand cost cutting by major industry players. In order to reduce marketing and transportationexpenses, to utilize existing capacities more efficiently, and to increase share in the marketplace,industry players have employed strategies such as mergers and acquisitions to acquire brands inmultiple beverage categories, including CSDs, bottled water, flavoured drinks, juices, dairy

beverages, and sport drinks.

Due in part to the impulse nature of many purchasing decisions, competition is based on brandname, advertising and promotion, product quality, and cost. Shelf image is an importantconsideration and market promotion plays a significant role especially among the larger firms.

Value-added is a measure of the value of an establishment's outputs minus the cost of inputs.Value-added in the Soft Drink and Ice Manufacturing Industry fluctuated between 1999 and2009, from a low of $1,037.1 million in 1999 to a peak of $1,886.8 million in 2009Footnote[note 3c]. The proportion of value-added to sales of goods manufactured was 46.8% in 2009.This figure is higher than the Canadian food and beverage industry as a whole for which the

proportion of value-added to the total value of sales of goods manufactured in 2009 was 36.4%.Footnote [note 4b]

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Employment

From 2004 to 2009, employment in the Soft Drink and Ice Manufacturing Industry increased11.3% from 10,033 employees to 11,162 employeesFootnote [note 8](Figure 3). Between 2005and 2007, employment increased, but then declined again due to a tightening economy.

Figure 3: Soft Drink and Ice Manufacturing Industry Sales of Goods Manufactured andEmployment, 1999-2009
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The overall decline in employment was accompanied by an improvement in labour productivityfor the Soft Drink and Ice Manufacturing Industry from 2005 onward as measured in output perproduction worker. A reduction in the number of employees and a streamlining of operationsalong with other cost-cutting measures has improved industry productivity. In making theseimprovements, the industry better positioned itself to compete in the domestic market againstother beverages and in foreign markets such as the U.S.

Data from Statistics Canada on employment specific to the soft drink manufacturing industry isnot available. According to the Canadian Beverage Association, the non-alcoholic refreshmentbeverage industry employs 12,000 people across Canada in manufacturing, bottling anddistribution centers.

Investment

Data from Statistics Canada on investment in the CSD industry is not available. This industry isvery capital intensive and because bottling facilities are highly automated, capital investmentsare estimated to be valued in the hundreds of millions of dollars.

Profitability

Profitability is affected by the prices firms have to pay for inputs to production. In order tomaintain profits, manufacturers are under increased pressure to improve productivity and cut


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costs. For the CSD manufacturing industry, increasing costs for sweeteners derived from corn,increased energy and transportation costs and increased packaging costs have affected the cost ofproduction. The value-added per production worker provides some indication of profitability.Since 2005, the value-added per production worker in the Canadian Soft Drink and IceManufacturing industry increased from $321,000 thousand to $369,000 thousand in 2009

Footnote [note 3d]. Profitability for the Soft Drink and Ice Manufacturing industry has improved,especially since 2005 (Figure 4).

Figure 4: Soft Drink and Ice Manufacturing Industry Value-Added Per Production

Worker, 2004-2009

Expand: Description - Figure 4Top of Page

Trade Performance

The Canadian CSD industry serves mostly the Canadian market.

Between 2000 and 2010, Canadian exports of carbonated soft drinks declined 40.6% from avalue of $168.4 million (191.0 million litres) to a value of $100.0 million (150.4 million litres)Footnote [note 9](Figure 5). This decline was mainly due to the rising value of the Canadiandollar which has made domestic product more expensive relative to products from othercountries. A difficult economic climate has also recently contributed to lost sales.

Canada's main export destination for carbonated soft drinks has been the U.S. with 2010 exportsvalued at $97.0 million representing 97.0% of total soft drink exports. This was a sharp decline

of 45.7% from 2005 when exports to the U.S. peaked at $178.8 million. The decline in exports tothe U.S. can also be attributed to the strengthening Canadian dollar.

Figure 5: Exports and Imports of Soft DrinksFootnote [note 10], 2000-2010
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All health and safety standards under theFood and Drug Regulations are enforced by theCanadian Food Inspection Agency (CFIA). The CFIA is also responsible for the administrationof non-health and safety regulations concerning food packaging, labelling and advertising.

TheFood and Drug Regulations set out conditions regarding health, quality, composition and

labelling requirements that would apply to non-alcoholic beverage manufacturers just as theywould to other food manufacturers so that consumers will have confidence in the safety of theproducts they purchase.

Caffeine

Division 16, Table VIII, Item C.1of theFood and Drug Regulations provides for the addition ofcaffeine to foods. Health Canada has recently granted clearance for the use of caffeine in allcarbonated, flavoured soft drinks, not just for use in cola-drinks, as was previously the case.Beverage manufacturers are now permitted to add up to 150 parts per million (ppm) of caffeineto non-cola carbonated flavoured soft drinks while a maximum of 200 ppm continues to be

permitted for cola-type carbonated soft drinks. Health Canada states that allowing the use ofadded caffeine at up to 150 ppm in these additional non-cola carbonated flavoured soft drinksdoes not pose a health risk to consumers. However, Health Canada has urged manufacturers tovoluntarily list and display total caffeine content on all non-cola products that did not previouslycontain caffeine but where it has now been added. At present, there have not been any non-colaCSDs introduced into the Canadian market that have been so augmented with added caffeine.

Energy Drinks

In the fall of 2011, Health Canada released aProposed Approach to Managing CaffeinatedEnergy Drinks. Comments from stakeholders on the proposed approach were required by

November 15, 2011. Health Canada also publishedGeneral Guidance for Temporary MarketingAuthorization for FoodsandCategory Specific Guidance for Temporary MarketingAuthorization - Caffeinated Energy Drinks. Energy drinks were previously regulated underHealth Canada'sNatural Health Products Regulationsas natural health products.

Health Claims

A health claim is any representation in labelling or advertising that states, suggests, or impliesthat a relationship exists between consumption of a food, or an ingredient in the food, and health.

All health claims are subject to subsection 5 (1) of theFood and Drugs Actwhich prohibits false,

misleading or deceptive product representations. In Canada, specific health claims are permittedfor foods (including beverages). The term "food" is defined in theFood and Drugs Act.

Foods (including beverages) are permitted to make a function claim when used under thespecific conditions set out in Table 8-2 of theCFIA's Guide to Food Labelling and Advertising(GFLA).Function claims are claims about the specific beneficial effects that the consumptionof the food or a constituent of the food (i.e. nutrient or other component) has on normalfunctions or biological activities of the body. Permitted variations on function claims can be
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found in Table 8-2 of the GFLA. Manufacturers of foods/beverages may wish to make a newfunction claim but must have scientific evidence to validate the claim prior to its use on foodlabels or in advertisements. The Food Regulatory Issues Division of AAFC can provideassistance to manufacturers considering making a new function claim or another claim requiringa pre-market submission to Health Canada.

For more information on regulatory issues or information on making health claims, pleasecontact theFood Regulatory Issues Division.

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Mandatory Nutrition Labelling

On December 12, 2007, nutrition labelling became mandatory on most pre-packaged products.Exemptions can be found in section [B.01.401 (2)] of theFood and Drug Regulations. Productslose their exemption status if a health claim or nutrient content claim is made.

For more information on food regulatory issues visit theFood Regulatory Issues Division.

Consumer Packaging and Labelling Act

TheConsumer Packaging and Labelling Act, also enforced by the CFIA, requires that pre-packaged foods either imported or made in Canada, must not bear any false or misleadinginformation regarding its origin, quality, performance, net weight or quantity.

Pest Control Products Act

Under thePest Control Products Actand regulations pursuant to this Act, Health Canadadetermines which pesticide sprays are approved for use and how they are to be used. Firms checkpesticide residue levels in their products to ensure that they are within regulation levels.Consumer awareness of pesticide residues and their impacts on human health and theenvironment is increasing.

Environment

With respect to the environment, food and beverage manufacturers must meet all federal laws(e.g. theCanadian Environmental Protection Act, theCanadian Environmental Assessment Act)and each province's legislation and regulations.

One environmental issue that food and beverage manufacturers in general have faced is wasteremaining from packaging after it has fulfilled its intended purpose. Reductions in containerweight can result in reductions in fuel used by large trucks as well as wear and tear on tractortrailers when hauling product to market, with the added environmental benefits of reducing theamount of used materials as well as reducing emissions of greenhouse gases and other airpollutants
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Waste reduction is important everywhere and particularly for large urban centres that are rapidlyusing up their landfill capacity and are experiencing difficulty and expense in finding,developing and ultimately being able to use acceptable new landfill sites. Reduction of materialsin secondary packaging (e.g. cartons) can potentially provide both financial and environmentalbenefits. There are some difficulties with reducing bulky packaging. Plastics and cardboard can

help protect foods during transportation. There is a trade-off between the volume of packagingmaterials (complete with graphics, etc.) needed to identify brands and increase the attractivenessof a product on the one hand, while minimizing packaging requirements from an environmentaland cost control point of view, on the other hand.

Beverage manufacturers have been at the forefront of post-consumer recycling of used beveragecontainers in all Canadian jurisdictions for many years. On average over 70% of used beveragecontainers are captured for recycling (one of the highest rates for any food product).

Similarly, reductions in waste go hand-in-hand with cost savings as food and beveragemanufacturers make increasing use of plastic, rather than wooden, pallets. Although more

expensive to buy, plastic pallets, which can be made from recycled plastic, can be used manymore times than wooden pallets which tend to get mangled fairly quickly by fork lifts and thenmust be handled by waste diversion programs.

Prior to plant construction, food and beverage manufacturers must meet municipal zoningrequirements. A proposal to build a new state-of-the-art plant or to substantially enlarge anexisting facility could result in hearings to assess environmental impacts before construction mayproceed. Provinces and municipalities have to be satisfied that systems will be put in place forwaste water treatment. Major beverage manufacturers already take a pro-active approach bydeveloping "best practices" with respect to the environment, for example reducing their energyand water usage as well as their creation of both solid and water waste.

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International context

Overall, there is a trend to internationalize regulations through general trade treaties, and theindustry will face the challenge of looking at regulations that could be harmonized, eitherbilaterally with the U.S. or multilaterally through the World Trade Organization and CodexAlimentariusFootnote [note 13].

Organic Products

Organic CSDs represent an emerging market that is showing potential for growth. Capitalizingon Canadian consumers' growing desire for organic foods and beverages that areenvironmentally friendly, some Canadian CSD companies have extended the organic foodmovement to CSD products which are marketed as high-quality products produced in a way thatencourages sustainable agriculture.
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As producers and retailers continue to raise awareness about organic beverages to gain marketshare, the coming years may see more CSD manufacturers tap into this niche market as the trendtoward organic and green products continues to expand in Canada and abroad.

The Organic Products Regulations came into force on June 30, 2009. These regulations aim to

protect consumers against false or misleading organic claims and to support the continuedgrowth of the Canadian organic industry. Certification to the Organic Production Systemstandards is mandatory for organic products that are being used in interprovincial andinternational trade, and for products bearing the "Canada Organic" logo. Suchinterprovincially/internationally-traded products must be certified by a CFIA-accreditedcertification body and must bear the name of the certification body.

The Organic Products Regulations allow for the following organic claims:

Only products with organic content that is greater than or equal to 95% may be labelledas "Organic" or bear the organic logo shown below;

Multi-ingredient products with 70-95% organic content may have the declaration:"contains x% organic ingredients." These products may not use the organic logo and/orthe claim "Organic".

Multi-ingredient products with less than 70% organic content may only contain organicclaims in the product's ingredient list. These products may not use the organic logo.

The following web sites provide additional information:

Organic Products RegulationsCFIA accredited certification bodiesOrganic Production Standards

Agriculture and Agri-Food Canada Organic web Site

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Challenges and Opportunities

Challenges
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In a rapidly changing business climate, the carbonated soft drink manufacturing industry, as wellas other food and beverage manufacturing industries, must address a number of challenges if it isto continue to grow and prosper.

The concentration of major retail chains has continued to be a challenge to the CSD industry and

has resulted in a higher degree of competition for shelf space. For CSD manufacturers, thedomestic market will likely continue to be the most important market for the foreseeable future.The Canadian market is small, but sophisticated, and extremely well served which means thatcompetition will continue to be strong.

During the past decade, the growth of warehouse club stores that emphasize value, as well as theincreasing concentration of the distribution sector in general, have increased pressure onmanufacturers to reduce prices and focus on efficiencies. Furthermore, the introduction andincreasing prevalence of private or own-label products by retailers have further pressuredmanufacturer margins and increased retailer leverage. Although making goods for private labelleaves retailers in control of the "brand equity" resulting from consumer loyalty and leaves lower

margins for manufacturers, it has provided real growth opportunities for some small- andmedium-sized manufacturers without requiring the expenditures needed to launch their ownbrands. These market forces will continue to be a challenge in the future.

Although retail concentration has increased over the years, CSD manufacturers enjoy a widervariety of distribution channels than many other manufactured food products, channels that theymust continue to exploit. The industry distributes its products through supermarkets and grocerystores, drug stores, convenience stores, gas stations, mass merchandisers and warehouse outlets.Restaurants and fast-food chains are also major purchasing points for CSDs. Vending is anotherdistribution channel for CSDs, making it available to consumers at strategic locations.

Increased competition from other non-alcoholic beverages, in particular bottled water, but alsobeverages such as fruit/vegetable-based drinks, energy drinks, sports drinks and relaxationdrinks, has given consumers more beverage choices. Changing consumer preferences anddemographics, with a larger segment of older consumers who are increasingly concerned abouttheir own health, and concerns about obesity have resulted in an increased demand for newproducts. The industry has responded to this challenge by offering consumers of CSD products agreater assortment of diet soft drinks and flavours and also by expanding their line of beveragesoutside of the CSD segment and into other beverages such as juices and bottled water, as well asfunctional beverages such as sports and energy drinks. The industry has also reduced prices, cutcosts and improved efficiencies to remain competitive in the marketplace.

Higher oil prices have resulted in increased packaging costs (PET plastic) and highertransportation costs and distributions costs. Escalating costs for corn have impacted uponingredient costs (corn sugar) for the CSD industry. The cost of aluminium, which had increasedin earlier years, declined in 2008 due to the downturn in the U.S. economy. In response to theseinput cost fluctuations, the industry's bottling and distribution systems have become highlyautomated and very efficient. CSD companies enter into contracts with suppliers to stabilizecosts in a volatile market.


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Concerns about childhood obesity have recently focussed attention on the CSD industry,including suggestions that the overconsumption of sugar-sweetened beverages (which includeCSDs) can contribute to childhood obesity Footnote [note 14]. However, the scientific consensusis that obesity is the result of energy imbalance over a period of time and that many factors, suchas individual behaviours, environmental factors, and genetics may lead to this imbalance

Footnote [note 15]. A recent peer-reviewed scientific consensus statementFootnote [note 16]onweight management noted that "all components of energy balance, including energy intake andexpenditure, interact with each other to impact body weight." Footnote [note 17a]The statementcontinued with a notation that "energy balance itself is very complex and this complexity alsostrongly refutes the popular belief that the obesity epidemic is a result of a few 'bad foods'."Footnote [note 17b]It is interesting to note that a 2006 Statistics Canada analysis of Canadians'food and beverage intake in 2004 Footnote [note 18]shows that CSDs represent only2.5%Footnote [note 19]of the total caloric intake of Canadians and 2.8% of calories foradolescents aged 14 to 18 years.

The beverage industry supports healthy eating habits and an active lifestyle. In 2004, in advance

of any provincial/local school nutrition policies, the Canadian Beverage Association adoptedvoluntary guidelines for its members on the sale of beverages in elementary schools andexpanded the guidance in 2006 to also include middle and secondary (high)schools. Theseguidelines restrict the sale of beverages to elementary and middle schools to bottled water, low-fat milk, and 100% juices, and restrict the sale of beverages in high schools to a slightlyexpanded list of offerings beyond those allowed in the lower school levels, but capping such lowor calorie free beverages to a maximum of 50% of the beverage offerings. These additionalbeverage offerings are also restricted in their size (maximum 355 ml containers) and caloriecontent (maximum 70 calories/250 ml). Many Canadian Beverage Association members alsopromote physical activity and an active lifestyle through partnerships with organizations such askaBOOM and ParticipACTION, as well as through a variety of member-led initiatives.

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Supply Chain Management

Like other food and beverage manufacturers, the CSD industry is using GS1 Canada. GS1Canada is a member organization of GS1, a global organization with over 100 members with thegoal to develop standards and solutions to improve supply chain management.

Canada's previous national electronic product registry/catalogue known as ECCnet, developed bythe Electronic Council of Canada, has merged with and is now administered by GS1 Canada.

The registry facilitates e-commerce by ensuring the integrity of product data using internationalstandards of data exchange. As part of its e-commerce development, food and beveragemanufacturers are developing the capability to track and trace their products throughout the foodchain to specific batches at manufacturing plants and will eventually be able to trace batchesback to their origin.

Environmental Challenges
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Since 1979, the CSD industry has reduced the amount of plastic used in its two-litre PET bottlesby 31% and reduced the weight of its aluminum cans by 27%. Footnote [note 20]Packagingmaterials used by the industry, including cardboard, plastics, and aluminium, are eitherrecyclable or re-usable. Bottle deposit laws and other regulations to ensure recycling and re-useof packaging are a significant regulatory concern to the CSD industry. The industry has been

actively involved in provincial recycling efforts throughout the country since the mid-1970s andis an active participant in environmental stewardship organizations across Canada.

Recycling regulations on containers vary from province to province. In virtually all Canadianprovinces and territories, aluminum cans and PET containers used for carbonated soft drinks andother beverages are collected for recycling. In some jurisdictions, e.g. Manitoba, Saskatchewan,Alberta, British Columbia and the Atlantic provinces, consumers pay levies on beveragecontainers at the point of sale to cover costs of their respective container recovery system. Insome provinces/territories, a deposit is charged and a potential refund of 5 to 30 cents providesan incentive to consumers to return the container to a collection center. All packaged beverages(except those consumed 'on-premise', for example at a restaurant or other such away-from-home

location) are included in such programs. In other jurisdictions, CSD containers are collected in aMulti-material Collection system (e.g. curbside blue box programs). According to the CanadianBottled Water Association (CBWA), 97% of the population in Canada has access to recyclingfacilities.

Opportunities

As a whole, the beverage industry is encountering new opportunities and challenges. Changingconsumer demands and preferences require new ways of maintaining current consumers andcustomers and attracting new ones. Amid ever-increasing competition, beverage companies mustintensely court customers, offer high quality products, efficiently distribute them, ensure safety,

and keep prices low - all while staying nimble enough to exploit new markets by launching newproducts.
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Consumer Trends

Non-Alcoholic Beverages in the United States

January 2011

International Markets BureauMARKET INDICATOR REPORT | JANUARY 2011

Global AnalysisThese reports cover a wide variety of subjects and countries of interest to the sector. New reportswill be posted regularly. If you wish to be on e-mail distribution in order to receive the reportsmore quickly, or to comment on any of the reports, please [email protected].

INSIDE THIS ISSUE

Executive Summary Market Data Industry Observations

o Fortified/Functionalo Better-For-You Beverageso Naturally Healthyo Organic Beverageso Hot Beverageso Sports Beverageso Milk Beverageso Soft Drink Beverages

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EXECUTIVE SUMMARY

2009 marked the second year of unprecedented declines in the overall beverage market, signalingthat the economy and decreased consumer spending continues to have a significant impact onbeverage purchases. The overall United States (U.S.) liquid refreshment beverage market shrankby 3.1 percent in volume in 2009.

The economic downturn in the U.S. has refocused consumer behavior on value, leading them tochoose private label products and discount store venues. In addition, U.S. consumers are seeking
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reduced calorie, reduced sugar, and functional value-adds in the beverages they consume. As aresult, numerous new beverage products are entering the market.

Enhanced water, fortified/functional, and performance enhancing beverages are diversifying thebeverage sector like never before. Enhanced and functional trends are leading the juice and juice

drink category, as more manufacturers are recognizing and responding to the health and wellnesstrend by creating innovative, enhanced functional beverage products. In 2009, juices containingsuperfruits led consumer trends, and are expected to do so again in 2010. Consumer knowledgeis maturing and many consumers now perceive a juice containing superfruits to be good forthem. Superfruit juices can be pricey, but this has not deterred U.S. consumers. As the economyrebounds, consumers will be more willing to pay a premium when they believe there is afunctional benefit.

Traditional and new wave caffeine beverages are popular with several demographics. New teaand coffee formulations, as well as energy drinks, account for a large share of sales in thebeverage sector. Value propositions, combined with health benefits, have helped sustain the tea

industry through the recession. Coffee customization has been driving sales in this sub-sector.Ready to drink (RTD) coffee beverage sales have experienced double digit growth, and thattrend is expected to continue. Iced coffee drinks have become so popular that even theMcDonald's chain now offers its own version of the productMcCaf Frapps. The companyannounced that April sales grew 4% in 2009, and they are partially attributing these sales tobeverages, which includes their Frapp. Many caffeine-based drinks have flooded the market inthe past year, and have been a consumer hit.

Sport drink sales are forecasted to grow by 1% in 2010, with an annual growth, between 2010-2013, of 0.25%. The two biggest players in this category experienced either negative or nogrowth for the 52-week period ending February 21, 2010. Sport drinks have become quite mature

in the U.S. market, and consumers increasingly prefer fortified/functional bottled waters andteas.

"Vanilla was among the best selling flavors in 2009 and the trend is expected to continue."

DID YOU KNOW?

U.S. parents are increasingly concerned about the nutrition and sugar content of the productsconsumed by their children.

Goat's milk was the fasted-growing drinking milk sub-sector in 2009, with 6.1% value growth.

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MARKET DATA

Non-Alcoholic BeveragesUnited States Market SalesUS $millions

2005 2006 2007 2008 2009

Fresh Coffee 5,651.4 6,021.1 6,460.4 6,986.7 7,599

Instant Coffee 659.2 625.6 608.4 619.5 638.9

Ready-To-Drink (RTD) Coffee 776.3 947.3 1,154.7 1,153 1,085.8

Black Tea 706.8 723.9 739.3 753.3 767.8

Green Tea 235.7 246.6 256.2 265.4 275.8

Fruit/Herbal Tea 581.4 594.7 604.2 615.1 627.8

Other Tea 18.4 32.3 52.4 68.6 96.4

Flavoured Powder Drinks 378.6 353.4 362.2 368.7 376

Organic Beverages 669.6 717.7 760.7 775.2 769.1

Organic Hot Drinks 233.6 264.2 297.2 316 329.7

Organic Soft Drinks 436 453.5 463.5 459.2 439.4

Better-for-you Beverages 13,785.7 14,284 14,411.4 14,486.3 14,810

Better-for-you Reduced Caffeine Hot Drinks 779.1 758.2 742.1 741.9 756.9

Better-for-you Reduced Caffeine Soft Drinks 1,508.4 1,463.1 1,197.1 1,042.8 902.6

Fortified/Functional Beverages 15,175.2 17,781.7 20,258.4 21,348.2, 22,154.3

Fortified/Functional Hot Drinks 195.4 189.9 187.8 185.5 185.1

Fortified/Functional Soft Drinks 14,979.8 17,591.8 20,070.6 21,162.7 21,969.2

Naturally Healthy beverages 16,332.9 17,052.4 18,276.6 19,060.6 19,079.2

Naturally Healthy Soft Drinks 15,729.4 16,420.2 17,616.1 18,373.1 18,348.8

Naturally Healthy Bottled Water 7,7274 8,051.9 8,538.6 8,870.6 8,634


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Naturally Healthy Fruit/Vegetable Juice 7,921.1 7,769.9 8,406.8 8,763.5 8,915.8

Naturally Healthy RTD tea 484.5 523.6 572 625.3 671.6

Drinking milk products 28,687.71 28,380.63 31,649.06 33,109.95 29,161.07

Soy beverages 854.1 907.8 975.3 1,040.3 1,093.3

Health and Wellness Beverages 45,963.4 49,835.8 53,707.2 55,670.3 56,812.6

Source: Euromonitor International

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INDUSTRY OBSERVATIONS

Consumer expenditures on non-alcoholic beverages in the U.S. amounted to US $81.6 billion in2009, up from US$80.4 billion in 2008. The compound annual growth rate (CAGR) from 2004 to2009 was 4.4%.

The combined total sales of mineral water, soft drinks and fruit and vegetable juice in the U.S.for 2009, equaled US$71.4 billion, up from US$70 billion in 2008.

Canada is the fifth-largest exporter of non-alcoholic beverages (HS code 20020) into the U.S., ata value of CD$11,543,508 in 2009. This figure represents 4% of market share.

Health and wellness beverages in the U.S. drove growth in the beverage sector in 2009 by morethan US$3 billion in sales, over the 2008 figure of US$55.6 billion.

The U.S. consumer is concerned and knowledgeable about how the things they consume impacttheir health and as a result, these consumers want their favourite beverages to be available insafe, non-plastic (bisphenol-free) containers.

When it comes to flavours, cranberry is still a favourite amongst U.S. beverage consumers. In2009, more than 130 new beverages containing cranberry or cranberry flavouring werelaunched in the U.S. However, vanilla was among the best selling flavors in 2009 and this trend isexpected to continue.

In 2009, the leading claim in the U.S. for new berverage launches was that a product wasupscale. However, for the three months ending May of 2010, the leading claims were naturaland single serving. Of the top 10 claims, no artificial colour has newly appeared, with 9% of thenew drinks launched making this claim.

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Fortified Functional Beverages

Market Data

Fortified/functional (FF) beverage sales in the U.S. reached US$22.1 billion in sales for 2009. Thisis a growth of 3.8% from 2008. While total retail sales have grown steadily since 2005, actualvolume growth has been steadily falling. This is attributed to an increase in per unit pricing.Fortified/functional bottled water and fortified/functional energy drinks were the fastest-growing FF beverage subsector in 2009.

Consumer Trends

Functional/fortified drink products, targeting specific consumer demographics, are enjoyingsuccess, with manufacturers introducing new sub-brands for these niche markets. Consumersbecame more interested in fortified/functional, over better-for-you (BFY) beverages. The mostpopular sub-category is energy drinks, targeted to young consumers. Popular formulations forthese beverages include vitamin and mineral fortifications, antioxidants or high polyphenol

content, green tea, caffeine or berries. Gatorade Co Ltd led in this sector with a 27% marketshare in 2009. Products that are fortified/functional, but also lower in sugar and calories, will bewell-positioned to grow.n

Refrigerated juice and juice drinks earned more than US$4.4 billion in sales for the 52 weeksending November 1, 2009. That number is down by 1.3% from the previous year. The orange

juice segment wass down 4.1%, with refrigerated orange juice leading the sub-sector, with morethan US$2.6 billion in sales.

Functional juice beverages, for adults and children, are being increasingly sought by the U.S.consumer. Reduced and no-sugar juice and juice drink products, are also gaining in popularity.Expect to see more and more products on the shelves with zero-calorie sweeteners like stevia,agave syrup, or agave nectar.

Retail Trends

Refrigerated juice and juice drinks were purchased mainly through supermarkets, drugstoresand mass merchandise outlets (excluding Wal-Mart).

The top five fortified/functional beverage brands are, in order of popularity: Gatorade, Glaceau,Red Bull, Monster and SoBe.

Unit prices rose slightly in 2009 among fortified/functional beverages, due to the cost ofenhancements and functional additives. Prices seem to be holding steady, as private labelproducts are increasingly entering this sector. It is predicted that, as the economy rebounds,

consumers will be willing to pay a premium for fortified/functional beverages.

Canadian Performance

Canada is the sixth-largest exporter of unfermented, unspirited fruit and vegetable juicebeverages (HS code 200980) into the U.S., with a value of CAD$19.3 million in 2009. This figurerepresents 6.5% of market share.


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Competition

The Gatorade Company Ltd, led the fortified/functional beverages sector, with a 27% marketshare in 2009, while Energy Brands Inc and Monster Beverage saw the biggest share increases in2009. Coca-Cola Company and Red Bull North America Inc. round out the remaining top five

most popular manufacturers. PepsiCo has acquired 34% of market share in the top 10 products list, while the Coca-Cola

Company captured 17%, in 2009.

United States Top 10 Fortified/functional Beverages - Brand Market Shares - Retail Sales % breakdown

Brand Company name (GBO) 2005 2006 2007 2008 2009

Gatorade PepsiCo Inc 36.6 32.9 29.7 25.4 22.8

Glacau Coca-Cola Co, The - - 7.9 8.9 9.7

Red Bull Red Bull GmbH 7.1 7.1 7.5 7.8 7.8

Monster Hansen Natural Corp 2.3 3.9 4.6 5.7 6.7

SoBe PepsiCo Inc 7 6.6 6 5.9 4.9

Powerade Coca-Cola Co, The 6.2 5.4 5.2 4.5 4.1

Propel PepsiCo Inc 3 5 5.6 4.5 4.1

Rockstar Rockstar Inc 1.6 2.2 2.7 2.9 3.2

Minute Maid Coca-Cola Co, The 4.7 4 3.5 3.3 3.2

Tropicana PepsiCo Inc 3.5 2.9 2.6 2.4 2.2


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Better-for-you Beverages (BFY)

Market Data

For 2009, the BFY beverage sector registered US$14.8 billion in sales, a growth of 2.2% over2008 figures.


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In the U.S. better-for-you (BFY) beverage sector, reduced sugar juice drinks experienced thestrongest growth, at 15%, garnering US$128 million in sales for 2009. Overall, the BFY reducedsugar carbonates comprised over 75% of total sales of the BFY beverages sector.

Sales of BFY beverages are forecasted to increase by 3.8% in constant value terms between 2009and 2014, to reach US$15.3 billion in 2014.

Consumer Trends

Reduced sugar, no-sugar, and juice drink products are gaining in popularity. Expect to see moreproducts with zero-calorie sweeteners like stevia, agave syrup, or agave nectar.

American consumers are turning to "no calorie" or "low calorie" carbonated drinks. As a result,these consumers are responding positively to reduced sugar and fat content claims displayed onpackaging, and are shying away from high calorie, high sugar content. Further, sales of reducedsugar cola carbonates grew faster than reduced sugar non-cola carbonates.

Retail Trends

Unit prices, across nearly all BFY beverage categories increased in 2009, due in part to increasesin the cost of raw materials and production.

The most popular BFY beverage product is Diet Coke, with a 29% share in 2009. Additionally,another Coca-Cola product (Coke Zero), rounds out the top three products, enabling them tocapture over 34% of total BFY beverage market sales. Diet Pepsi, from Pepsi Co., is the second-most popular BFY beverage, with 16.4% of sales in 2009.

Competition

The Coca-Cola Company accounted for nearly 35% of sales in the BFY beverages category in2009.

United States Top 10 Better-for-you Beverage - Brand Market Shares - Retail Sales - % breakdown


Diet Coke Coca-Cola Co, The 32.2 31 30.5 29.2 29

Diet Pepsi PepsiCo Inc 19.5 19.1 18 16.9 16.4

Coca-Cola Zero Coca-Cola Co, The 1.1 1.9 3 4.6 5.4

Arizona Ferolito, Vultaggio & Sons 1.5 1.6 2 2 2.2

Lipton Unilever Group 1.3 1.3 1.6 1.8 1.8

Snapple Cadbury Plc - - - 1.4 1.4


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Starbucks Starbucks Corp 1.3 1.2 1.2 1.2 1.1

Fruit2O Sunny Delight Beverages Co - - 0.9 0.9 0.9

Maxwell House Kraft Foods Inc 1 0.9 0.8 0.9 0.9

Folgers Procter & Gamble Co, The 1.2 1.1 1 0.8 0.8


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Naturally Healthy Beverages

Market Data

Naturally healthy (NH) beverages in the U.S. reached US$19.08 billion in sales in 2009, up fromUS$19.06 billion in 2008. NH soft drinks is the biggest performer in this sector, with US$18.3

billion in sales. NH other hot drinks experienced the highest growth in 2009, increasing 46% to reach US$9.8

million in 2009. The NH beverage sector is expected to grow by 3.8% between 2009 and 2014, to reach US $19.8

billion in constant value terms in 2014.

Consumer Trends

U.S. consumer knowledge of naturally healthy products is growing and has helped drive growthin certain categories, namely superfruit juice, tea and RTD tea.

Bottled water sales declined by 2.7% in 2009 after years of consecutive growth. This decline isdue to the growing backlash surrounding the harmful environmental impact of plastic bottles.The economy has also forced consumers to cut spending, with many opting for tap water inreusable bottles over purchasing bottled water.

Many Americans are being drawn to tea for its natural health benefits and are increasinglyseeking out tea products, such as white and red tea.

Retail Trends

Unit prices of NH soft drinks were steady in 2009, except for superfruit juice, such aspomegranate and acai, and RTD tea, which increased slightly. Superfruit juices are available inthe produce sections of many traditional grocery outlets. The top five NH beverage brands in2009, were Tropicana, Poland Spring, Simply, POM Wonderful and Minute Maid.

Heavy saturation of the market, recession-wary consumer spending, and private label growthare having a negative impact on the NH beverage market.


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Exports of mineral and aerated waters to the U.S. equaled sales of CAD$13 million in 2009,down from CAD$19.8 million in 2008.

Exports of various forms of fruit juice from Canada to the U.S. equaled CAD$56 million in valuein 2009.

Vegetable juice exports to the U.S. in 2009 equaled CAD$1 million in value.Competition

Nestl Waters North America led NH beverages, with a 13% market share in 2009. Coca-Cola Co.was the second-leading manufacturer with a value share of almost 13%.

United States Top 10 Naturally Healthy Beverages - Brand Market Shares Retail Sales % breakdown


Tropicana PepsiCo Inc 8.8 8 7.7 7.3 7

Poland Spring Nestl SA 4.6 5.3 5.4 5 4.7

Simply Coca-Cola Co, The 1.3 1.6 2.5 3.1 3.8

Minute Maid Coca-Cola Co, The 3.2 2.8 2.9 2.7 2.6

Arrowhead Nestl SA 2.6 2.8 2.8 2.3 2.2

Deer Park Nestl SA 2.1 2.4 2.5 2.2 2.1

Crystal Geyser Otsuka Pharmaceutical Co Ltd 2.1 1.9 2.3 2.1 2.1

Dannon Coca-Cola Co, The 3.9 3.7 2.5 2.1 2.1

Ocean Spray Ocean Spray Cranberries Inc 1.4 1.3 1.4 1.8 2

V8 Campbell Soup Co 1.4 1.3 1.4 1.6 1.9


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Organic Beverages

Market Data

In 2009, U.S. organic beverage sector sales reached US$769 million, a drop from US$775.2 in2008.

Organic beverage sales in the U.S. are forecast to grow to US$855 million in 2014 in constantvalue terms, reflecting a CAGR of 2.1% over the period 2009 to 2014.

Organic green tea experienced the highest growth, with 6% in current value terms in 2009.Consumer Trends

Many U.S. consumers were not able to justify spending extra money on high-priced organicbeverages in 2009, as they were forced to tighten their food and drink spending.

Those U.S. consumers who are still purchasing organic beverages see them as a superior productand accept the premium prices.

Retail Trends

The bulk of the organic beverages sector in the U.S. is comprised of smaller, niche companies.Unit prices of organic beverages continued to increase in 2009 because organic ingredients aremore expensive. Kraft Foods Inc. has an expansive distribution network and is able to leverageits strong resources to enhance its organic presence in the U.S. However, it is forecast thatgrowth in the organic beverages sector will come from smaller niche companies, such as HonestTea and Hansens, as they are in a position to provide greater promotion of their brands. The topfive organic beverage brands are Starbucks, Celestial Seasonings, Welch's, Ocean Spray andTropicana.

Many companies have discontinued their lines of organic fruit juices due to little success in thesector.

Competition

Starbucks led organic beverage sales in 2009, with an 11% market share. Hain Celestial GroupInc's Celestial Seasonings teas secured second place in the U.S. organic beverage market with4.7% of sales. Private label organic beverage sales captured almost 15% of sales in 2009, whileothers in the sector accounted for almost 69% of sales in that same year.

United States Organic Beverages - Brand Market Shares - Retail Sales - % breakdown


Starbucks Starbucks Corp 8.3 9.5 10.8 10.9 11.2

Celestial Seasonings Hain Celestial Group Inc, The 4.7 4.7 4.6 4.6 4.7

Welch's National Grape Co-operative Association Inc - - 0.4 0.4 0.4


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Ocean Spray Ocean Spray Cranberries Inc 11.7 11.3 11.1 4 -

Tropicana PepsiCo Inc - 5 6.2 - -

Florida's Natural Florida's Natural Growers - - 3.7 - -

Private label Private Label 15.3 15.5 15.3 14.9 14.8

Others Others 60 53.9 48 65.3 68.9


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Hot Beverages

Market Data

Hot drink sales in the U.S., in 2009, reached US$10.4 billion. This represents growth of 7.3% over2008. Since 2005, this sector has been growing on average 6% per year.

Within this sector, coffee sales reached US$8.2 billion, tea sales equaled US$1.8 billion andother hot beverage sales were US$376 million in 2009.

The value growth of hot drinks surpassed volume growth during 2009 due to higher unit pricesfor coffee and tea.

Consumer Trends

U.S. hot beverage consumers desire portable and convenient ways to enjoy hot drinks. Fair trade, single source, organic and rainforest alliance brands were all very popular with the

U.S. consumer in 2009.

U.S. coffee drinkers are showing a renewed interest in instant coffee, based on its convenience,portability and lower price point.

A number of products are being launched, in the U.S., that carry an ethical label. This is inresponse to consumers' increased awareness of the working and living conditions of individuals

who reside in developing countries.

In 2009, a greater number of U.S. consumers of hot drinks, such as chocolate and malt-basedpowder drinks, prepared them at home. This trend, however, mostly affected the coffee sector.

Retail Trends

Supermarket/hypermarket outlets continue to dominate distribution in the hot drinks market. Fresh coffee beans, often considered to be of higher quality, became more widely available in

mass distribution outlets, such as Dunkin' Donuts and Starbucks. Grocery stores are drivingdecreased pricing in this sector. Consumers are favouring supermarkets/hypermarkets to make


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their coffee purchases, as opposed to smaller grocers. This is due primarily, to the increasedavailability of popular brands such as Dunkin' Donuts and Star-bucks insupermarkets/hypermarkets, in combination with heightened price sensitivity, and theincreasing desire for one-stop shopping. Vending in coffee has slowly been declining, asconsumers prefer to enjoy a cup of coffee at a specialty shop. Growth in specialist coffee shopoutlets slowed in the past couple of years, with companies such as Starbucks closing over 600stores in 2009. This trend of downsizing among specialty shops in the U.S. is expected tocontinue.

Hot tea is gaining in popularity, particularly the white tea variety, because of its flavour andpurported health benefits. The average unit price of tea beverages in the U.S. rose by 2% in2009, due to increased demand for premium brands and the jump in global tea prices. Someteas, like white and roobios, were only sold through specialty and health food stores, but this ischanging, as they are increasingly available in supermarkets and hypermarkets. Away-from-

home tea consumption is growing, as more restaurants are serving specialty and premium teas.Foodservice outlets are also introducing tea lattes to their menu offerings. Tea specialist outlets,like Argo Tea, are growing in popularity. While loose leaf teas are increasingly found insupermarkets/hypermarkets, they are more likely to be purchased in specialty tea shops, or

from producers, directly over the Internet. Unilever is one of the largest consumer packagedgoods companies in the world, and has greater distribution and bargaining power with retailers,which is why its teas can be found in most supermarkets/hypermarkets, discounters andconvenience stores. Sustainable packaging has become a concern for both consumers andmanufacturers, causing packages to be redesigned, and spurring the introduction ofbiodegradable and 100% recyclable cartons. Teas, like white, roobios and oolong carry higheraverage unit prices. The top five tea brands are Lipton, Celestial Seasonings, Bigelow, Twinings,and Traditional Medicinals.

Average unit pricing in the other hot beverages sector increased by 2% in 2009. These increaseswere due to rises in commodity prices of cocoa and sugar. Ovaltine led in the malt-based hotdrinks category, however, it is not widely available throughout the U.S. Retail outlets, such as

Ghiradelli and Hershey's, remained popular sources for malt and chocolate-based powderdrinks, however, these are not widely available throughout the U.S.


Canada is the top exporter of black tea, fermented and partly fermented, in packages notexceeding 3 kg (HS code 090230) into the U.S. with CAD$23,227,470 in 2009. This represents25% of market share.

The U.S. imported green tea totalling CAD$92 million in sales for 2009. Of that, Canada was thethird top supplier, behind China and Japan, with sales to the U.S., equaling CAD$10 million.

Canada is the top exporter of roasted coffee (including decaffeinated) with CAD$192 million inmarket sales for 2009, an increase in sales of CAD$60 million over 2008.

Competition

Major companies own the leading brands within the hot drink sector. Kraft Food led coffee retail sales in 2009, with a value share of 18%, followed closely by JM

Smucker, with a share of 17%.


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Unilever led sales of tea in the U.S., in 2009, with a 22% market share and was followed by HainCelestial, with 17%, and RC Bigelow, with 16%.

Folgers brand of coffee showed respectable sales in 2009, capturing 13% market share. In the other hot beverages market, Nestl led sales in 2009, with 23% of market share, followed

by ConAgra Foods, with 13%.

United States Top 10 Hot Drink Beverages - Brand Market Shares - Retail Sales % breakdown

Brand Company name (GBO) 2006 2007 2008 2009

Folgers JM Smucker Co, The - - 10 10.3

Maxwell House Kraft Foods Inc 5.6 5.3 6.1 6.3

Starbucks Kraft Foods Inc 4.3 4.4 4.6 4.7

Eight O'Clock Eight O'Clock Coffee Co 2.9 3.4 3.5 3.7

Lipton Unilever United States Inc 3.8 3.9 3.8 3.7

Celestial Seasonings Hain Celestial Group Inc, The 3.1 3.1 3.1 2.9

Bigelow RC Bigelow Inc 2.7 2.7 2.8 2.8

Starbucks Starbucks Corp 2.6 2.7 2.8 2.8

Dunkin' Donuts JM Smucker Co, The - - 2.1 2.4

General Foods International Coffee Kraft Foods Inc 1.5 1.4 1.5 1.4


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Sports Beverages

Market Data

Sports drinks and energy drinks in the U.S. are predicted to grow by 2% in total volume between2008 to 2013, reaching 6.7 billion litres.

Protein powder sales captured 40% of the sports nutrition market in 2009, while protein ready-to-drink products accounted for 6% of sales.


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Consumer Trends

For energy drinks and shots, consumers are looking for greater functionality, including alertness,improved mood, balanced energy, hydration and antioxidant capacity. These consumers are alsointerested in mental acuity, increased concentration ability, and physical stamina.

When it comes to sports drinks, U.S. consumers are looking for products that give themsustained energy for longer periods of time. In addition, consumers want these drinks to bemulti-purpose, providing pre, post and overall support when it comes to their workout regime.L-taruine, creatine, protein, amino acids and vitamin B are just a few of the fortified/functionaladditives manufacturers are putting in their sports drinks. Sports drinks have become quitemature in the U.S. market and consumers increasingly prefer fortified/functional bottled waters

and teas. Ready-to-drink sports nutrition beverages have gained acceptance among U.S. consumers, in

part due to the growing popularity of the Muscle Milk RTD nutritional beverage.

Retail Trends

Fifty-nine per cent of sports nutrition products in the U.S., are bought through health foodstores and direct selling.

The Muscle Milk brand was the number one sports drink in the U.S. for 2009. The company thatmakes Muscle Milk is targeting women, positioning the product as a daily convenient nutritionalbeverage, rather than a physique bulking supplement.

Certain manufacturers have targeted non-specialist retailers, such as convenience stores,parapharmacies/drugstores and supermarkets/hypermarkets to drive product sales. These massretail channels are appealing due to their potential to capture casual athletes who currently usethese products infrequently or not at all.

Whey protein is one of the most widely distributed sports beverage products, and is available inchannels ranging from health food shops to cash and carry/warehouse clubs.

Competition

The top protein RTD beverages sold in the U.S. in 2009 were: Muscle Milk (Cytosport Inc.), EAS(Abbott Laboratories Inc.), and MET-Rx (Rexall Sundown Inc.).

The top protein powder products are Optimum Nutrition (Optimum Nutrition Inc.), EAS (AbbottLaboratories Inc.) and GNC (General Nutrition Centres Inc.).

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Milk Beverages

Market Data

Drinking milk sales in the U.S. fell in 2009 by US$3.9 billion. This 12% dip is attributed to acombination of lower pricing, and high feed prices. In 2009, an oversupply of milk occurred inthe U.S., due to the weakened global economy reducing the worldwide demand for milk.


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Goats' milk was the fasted-growing milk sub-sector in 2009, with 6.1% value growth. Next in thesector was soy milk, with a sales growth of 5.1% in 2009. Private label products dominated inthis sector.

Milk sales in the U.S.are forecast to be flat between 2009 and 2014.Consumer Trends

U.S. parents are increasingly concerned about the nutrition and sugar content of the productsconsumed by their children. As a result, the Ovaltine brand, with its healthy image, led the malt-based hot drink sector in growth in 2009.

When it comes to the U.S. milk consumer, chilled milk dominates. This could be due in part dueto the consumer's perception that chilled products are "fresh" products.

As more and more Americans become lactose intolerant, traditional milk sales are declining.However, this has provided an area of growth for soy milk products. Soy milk sales arecontinuing to grow at mid-single-digit rates.

Retail Trends

Private labels dominate drinking milk products. U.S. schools are removing carbonated beverages from their vending machines and other

beverages are taking their place, including single-serving flavoured milk drinks.

Dairy producers have begun to introduce shelf-stable varieties of flavoured milk drinks.Canadian Performance

Canada is the top exporter of milk (HS code 040120) into the U.S., with a value of CAD$809,296in 2009. This figure represents 95% of export market share. Within the milk sector, Canada is theUnited State's top import source for buttermilk, with value sales for 2009 reaching US$12

million.

Competition

Associated Milk Producers Inc., a private U.S. cooperative, transforms 6 billion pounds of milkinto various dairy products each year. This organization boasts McDonalds as one of its retailcustomers, while they also supply milk to food manufacturers.

The Land 'O' Lakes cooperative produced 12.7 billion pounds of milk in 2009, with sales reachingUS$10.4 billion. The organization boasts income growth of 30.9% in that same year.

Dairy Farmers of America had sales equaling US$11.7 billion in 2008 and US$8 billion in 2009.This organization claims to be the largest dai

the canadian soft drink industry

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