Analyst sees 2015 as ‘critical tipping point’ for carbonated soft drinks

23-Jun-2014 - Last updated on 24-Jun-2014 at 13:57 GMT

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Financial analyst Bonnie Herzog says she believes 2015 will be a ‘critical tipping point year’ for carbonated soft drinks brands to prove their ability to cut costs, boost marketing spend and efficacy to reverse negative trends.

After attending Beverage Digest’s Wall Street Smarts conference in New York this week, Herzog, who is senior analyst at Wells Fargo Securities, said she thought recent announcements on all-natural sweeteners, as well as fountain equipment innovation from Coca-Cola (Freestyle) and PepsiCo (Spire) were encouraging.

But she sees the next 1-2 years as a challenge for CSD manufacturers given evolving consumer tastes away from diet CSDs and ongoing macroeconomic headwinds.

“We believe 2015 could be a critical tipping point for CSD manufacturers to prove their ability to innovate, cut costs and improve marketing spend and efficacy to ultimately reverse pressured US beverage industry trends,” Herzog wrote.

Coke puts smart money on Smartwater…

Wrapping up insights from speakers in New York, Herzog said Coca-Cola Enterprises (CCE) VP and general manager for Northern Europe, Stephen Moorhouse, talked of plans to launch Coca-Cola Life in the UK this September with a slightly higher sugar, lower stevia blend than was launched in Argentina.

CCE also plans to launch Smartwater in Britain from August – with the territory the brand’s first market outside of North America.

Al Carey, CEO of PepsiCo Americas Beverages said the two major headwinds facing the industry were a decline in diet CSDs and flat total liquid refreshment beverage growth versus 3-4% historically.

Pepsi sees stevia-based sodas as ‘niche products’

Herzog said PepsiCo’s Carey spoke of growing the firm’s healthy/low calorie business (currently around 50% of sales) through products like Sierra Mist with Stevia and Pepsi Next – using a stevia/real sugar blend – but believes they will remain “niche products”, in his own words.

“Carey also affirmed the importance of innovation to drive pricing growth without volume declines, and indicated that the industry needs to move past the heavy promotional environment,” Herzog said, “since non-promotional CSDs are growing at 2.5% versus promotional CSDs declining by 3%.”

Daniel Birnbaum, Sodastream CEO, told the conference that he sees two ‘megatrends’ at work in the industry – health and wellness and consumer empowerment that enables them to create unique products.

He said this had helped Sodastream deliver the equivalent of 5bn cans of CSDs in the past year alone, adding that he believed consumers wanted less sugar and more fruit/natural flavors.

Finally, Paddy Spence, CEO of stevia-sweetened CSD brand Zevia said that stevia-sweetened product had moved from ‘fad’ to full ‘trend’ – especially among millennials who comprise 30%+ of Zevia’s buyers.