Dispatches from The Packaging Conference

Niche categories bring the action in beverages

10-Feb-2015 - Last updated on 10-Feb-2015 at 17:03 GMT

Niche categories such as coconut water are outperforming the overall beverage market.

In the beverage industry, niche categories are outperforming the rest of the market, wine and spirits are on the upswing, and beer has rebounded slightly, mainly thanks to craft beer’s cachet.

Those were some of the key trends that Gary Hemphill, managing director and COO, Research at Beverage Marketing Corporation, highlighted in a presentation at The Packaging Conference in Atlanta.

Overall, sales of liquid refreshment beverages rose 1% from 2013 to 2014, Hemphill said. Carbonated soft drinks (CSDs) continued to trend down, while bottled water enjoyed continued growth.

“New beverage product introductions have been on the rise for the past five years, after declining in 2009,” he noted. “In 2014, there were 4,500 SKUs (stock-keeping units or individual items).”

CSDs still sliding

Although CSDs “have been taking their lumps” both in the press and in sales reports, overall calorie consumption attributed to beverages is down, Hemphill said. In addition, while 2014 was the 10th consecutive year of declining sales volume for CSDs, sales slid only 1% in 2014 vs. 3% in 2013.

Coca-Cola Life is a new product that blends stevia and sugar in a reduced-calorie beverage.

“Years ago, people had thought diet soft drinks would be the savior of the category, but in fact, the reverse of that occurred,” Hemphill said. “Diet soft drinks were down by 6% in 2013 and by 5% in 2014.”

Meanwhile, he said, consumption of regular soft drinks actually increased slightly last year.

Hemphill explained that diet soft drinks have two challenges: One is that consumers are increasingly avoiding sugar substitutes because they believe the ingredients may be bad for their health. The other is taste: whether artificial or natural, no sugar substitute — even stevia — has successfully overcome aftertaste issues to most consumers’ satisfaction.

One soft drink segment that is generating buzz is craft sodas, such as Joia and QKola. “They’re piggybacking on the success of craft beer,” Hemphill said.

Dispensing wisdom

He said innovations in dispensing equipment, such as Coke’s Freestyle machine and Pepsi’s Spire, have buoyed CSD consumption somewhat. But one new development could have a noticeable impact on packaged soft drinks and thus the packaging industry, Hemphill warned. Coming soon for home use: the Keurig Cold Cup dispenser.

“Coca-Cola has a 10% share (in this business),” Hemphill noted. “In consumer research, about 21% of those surveyed said they’d be ‘seriously interested’ in buying the machine. That equals about 3.3 billion servings.”

Nevertheless, he said, the market for CSDs is not likely to spring back to life any time soon. Many consumers are switching or have switched to other beverages because of health concerns and a taste for variety.

Bottled water is experiencing particularly strong growth. Partially fueling the 7% uptick bottled water enjoyed last year is aggressive pricing that has kept bottled water an attractive choice. Of the three available formats – direct delivery, 1- to 2.5-gallon jugs, and PET single-serve bottles – the latter comprises of two-thirds of the bottled water market by volume, and more than that in dollar value.

“Here’s another figure that may surprise you: We’re seeing double-digit growth in sales of domestic sparkling water,” Hemphill said. He added that consumption of private label bottled water is rising as well.

“By 2016, sales of bottled water will surpass sales of carbonated soft drinks in most major US markets,” he said.

HPP juices the juice segment

Fruit beverages have experienced five straight years of declining sales, with a 3% drop in 2014, Hemphill noted.

Nutrient-dense, high-priced juices that are cold-pressed or made by high-pressure processing (HPP) are the only bright spot in the category, he said. “That’s a growth area, but it’s a small segment. From 2009 through 2014, that segment had a 2.8% compounded annual growth rate (CAGR).”

Suja HPP juices are continuing to gain market share despite their premium price.

Suja and BluePrint are two of that segment’s rising stars.

Other beverage categories that are experiencing minimal to moderate growth include sports drinks (such as Gatorade and Powerade), energy drinks (Red Bull, Monster, Rockstar), and ready-to-drink (RTD) tea and coffee beverages.

Hemphill said milk consumption has declined on a volume basis over the past five years, but industry campaigns such as Get Real and #MilkTruth are trying to market milk as a health food. In particular, chocolate milk is being positioned as a good source of protein and “refueling” after a workout.

Among alcoholic beverages, beer consumption has been trending downward, but craft beers are becoming ever more popular, Hemphill said.

“The volume of craft beer sales continues to climb,” he said. “It grew 12.6% between 2013 and 2014, and 2014 marked the fourth consecutive year of double-digit growth for the segment.”

Wine and spirits are growing incrementally, Hemphill said. Both of those segments tend to appeal to older consumers, with the exception of flavored spirits, which appeal to an older demographic.

Role of packaging

Plastic — particularly PET — is the packaging material of choice for most beverages, he said. “Cans are down a bit, and glass is flat to down,” Hemphill said.

“In CSDs, we’ve seen a move to smaller pack sizes (e.g., 8-packs of 8oz cans),” he pointed out. “Those are more profitable, but they drive down the volume numbers, so it’s kind of a wash.”

In addition, he said, “Packaging innovations (such as unusual container shapes or high-impact graphics) have been gaining in importance to distinguish both categories and brands from their competitors.”