2015 a 'Tipping-Point' Year For CSDs?
Challenges to key beverage categories (health) and retailing (online sales)
NEW YORK -- Next year could be "a critical tipping point" for carbonated-soft-drink (CSD) manufacturers to prove their staying power, according to an industry analyst's latest report.
Having attended a recent Wall Street beverage conference in New York, Bonnie Herzog of Wells Fargo Securities LLC said she "came away generally positive about the state of the beverage industry."
"We believe recent announcements and progress around an all-natural sweetener, as well as fountain equipment innovation from both Coca-Cola (Freestyle) and PepsiCo (Spire), are examples of encouraging signs about the industry's renewed focus on innovation," she said. "However, we continue to expect that the next one or two years could remain a challenge for CSD manufacturers given the evolving consumer tastes away from diet CSDs and ongoing macro headwinds. Bottom line: We believe 2015 could be a critical tipping point year for CSD manufacturers to prove their ability to innovate, cut costs and improve marketing spend and efficacy in order to ultimately reverse pressured U.S. beverage industry trends."
Among trends that threaten beverage sales in convenience stores, Herzog said, is a growing move toward online sales.
Joe Sheridan, the president and chief operating officer of grocer/distributor Wakefern-Shoprite, noted "the rapidly growing importance of online sales" to the grocery business.
"Sheridan oversees the largest retailer supermarket co-op in the United States with $14.1 billion in annual sales across 317 stores in nine states," Herzog wrote. "According to Sheridan, online grocery sales were up 32% last year with an average basket size of $170 (vs. $51 for brick and mortar stores) while online beverage sales were up 36% vs. overall category growth of 3%. Sheridan believes that food and beverage manufacturers will need to focus on the consumers' evolving 'personal supply chain' to ensure they remain relevant as the share of online grocery sales continues to grow."
Specific to the major beverage manufacturers, Herzog noted the following from the conference:
Coca-Cola: Stephen Moorhouse, Northern Europe vice president and general manager outlined the importance of having a customer-centric and customized approach to dealing with manufacturing and distribution in each individual market, reinforcing the broad benefit Coca-Cola realizes by having autonomous bottling operators with local knowledge and insight. Additionally, Moorhouse described plans to launch Coke Life in Great Britain this September following successful trials in Argentina and Chile, while smartwater will be introduced in Great Britain in August, the brand's first market outside North America.
PepsiCo: Al Carey, CEO of PepsiCo Americas Beverages, described his view on the two major headwinds the beverage industry faces today: Diet CSDs and flat total LRB (liquid refreshment beverages) growth vs. historical 3%-4% growth). PepsiCo is focused on growing its healthy/low-calorie businesses (currently about 50% of sales) through products like Sierra Mist with Stevia and Pepsi Next (using a Stevia/real sugar blend). However Carey believes these will remain "niche products."
Dr Pepper Snapple Group: Jim Trebilcock, chief marketing officer and executive vice president, described the three ways industry performance should be measured: volume share, dollar share (particularly important to retailers, as is traffic flow) and operating margin (key to create resources to reinvest in marketing and innovation). While Dr Pepper's TEN platform performance remains encouraging, Trebilcock did concede that the platform “will not be a home run.”
Sodastream: Daniel Birnbaum, CEO, described the two “megatrends” he sees impacting beverage sales: health and wellness, and consumer empowerment, or giving consumers the ability to choose and create a unique product suited for them. Together these trends have helped Sodastream machines generate the equivalent of 5 billion cans of CSDs in the past year. Further, he believes consumers want less sugar and more fruit/natural flavors.