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Hemphill Talks Beverage Market Outlook

Insights on bottled water, CSDs, energy drinks from CSP’s Cold Vault Forum
Gary Hemphill
Photograph: CSP Staff

CHICAGO — There has been a mix of good and bad news for the U.S. beverage market in the past few years.

The total U.S. beverage market grew for the fifth consecutive year in 2018 but saw slow growth in the first half of 2019. Carbonated soft drinks (CSDs) experienced improved performance in 2018 but declined slightly for the 14th consecutive year, and declines have continued into 2019. Bottled water widened its gap over CSDs in 2018 as the largest beverage category in the United States, driven primarily by the single-serve PET segment.

Gary Hemphill, managing director and chief operating officer of research for Beverage Marketing Corp., highlighted these trends and more in September at CSP’s 2019 Cold Vault Forum in Chicago when he spoke to convenience-store retailers and beverage manufacturers. New York-based Beverage Marketing Corp.’s data looks at all channels, not only convenience stores, and measures growth by volume.  

CSDs and bottled water

The distance between bottled water and CSDs is growing. Bottled water is the biggest volume share gainer, while CSDs have been the largest share loser in the past five years, Hemphill said.

Bottled water had a 16.5% share in 2013 and CSDs had 21.1%. In 2018, bottled water had a 22% share and CSDs were 19.4%. In the first half of 2019, bottled water had a 23% share, with CSDs at 18.7%.

Revenue for CSDs, though, have increased modestly in the past five years due primarily to higher prices and changing packaging mix, Hemphill said. On a dollar basis, CSDs continue to be larger than bottled water.

Improvements in diet sweeteners and product relaunches have helped improved the performance of “diet” drinks. While diet had 26% of the CSD category in 2018, it had grown to 27.4% by the first half of 2019, according to Beverage Marketing data.

Considering the factors acting against CSDs, the subcategory's performance has been good, Hemphill said. Some of its challenges have been heightened consumer demand for healthier refreshment and variety, legislation and messaging against CSDs from government and regulatory agencies, tax threats aimed at reducing consumption and an increasingly crowded marketplace with a stream of competitive products and categories emerging.

Sports and energy drinks

The sports drink category experienced a slight decline in the first half of 2019.

Energy drinks have experienced a surge in growth in the past two years, with innovation accelerating in both energy and sports drink categories, Hemphill said.

In sports drinks, BodyArmor is the first viable “third brand” in the category for a couple of decades thanks to a modern image, famous athlete endorsements and premium positioning, Hemphill said. It has proven so promising that Atlanta-based Coca-Cola Co. acquired a minority stake.

Energy drinks have seen a new subcategory emerge: performance energy drinks. These include Bang and Reign (Monster), which have exploded in the past year, he said.

Alcohol

Wine and spirits have been driving beverage alcohol growth as beer’s decline has continued, turning total beverage alcohol performance negative from 2018 to the first half of 2019, Hemphill said.

“The beer industry faces headwinds both inside and outside the category,” he said.

However, beer sales are trending up by 1.2% in c-stores, according to a report by Chicago-based IRI for 2018.

Some trends in the alcohol market include “sober curious” beverages with lower ABV options and growing e-commerce and home delivery businesses for alcohol, Hemphill said.

For alternative adult beverages, including malt beverages that are not beer (such as hard seltzer), Hemphill said he’s projecting about 20% growth in 2019.

Millennials have become a driving force in wine sales and now are the largest consumer segment at about one-third of total customers, Hemphill said.

Growth projections

Among refreshment beverages, the strongest growth is predicted for bottled water, value-added water, energy drinks and ready-to-drink teas and coffee, Hemphill said.

Products in emerging categories, which account for 3% of the total refreshment category today, could become the successful brands of the future, Hemphill said.

Niche categories include kombucha, energy shots, plant water, probiotics, cold-brew coffee and premium mixers.

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