Carbonated sweetened drinks, often referred to as “soda,” have been a dominant economic force around the world for more than a generation. Yet as a younger generation arises to create their mark on this world, they are looking for beverage alternatives that are perceived to be healthier than a can or bottle of soda.
Despite a majority of people actively trying to avoid drinking soda, sugar sweetened beverages are the single largest source of added sugars in the American diet,with the average American drinking nearly 42 gallons of sweetened beverages a year, the equivalent of 39 pounds of extra sugar every year.
Over the past 30 years, the rate of diabetes in US adults has nearly tripled, while soda consumption has doubled. It takes just 6 months of sugary drink consumption to develop fatty spots on the liver that can lead to future health concerns. Individuals who drink one to two sugar-sweetened beverages per day have a 26 percent higher risk for developing type II diabetes. Yet despite these challenges, the soda industry trends are remarkably spiking upwards for the next decade.
Changing Preferences Create New Soda Industry Opportunities
- PepsiCo, Coca-Cola, and other soda makers are developing new beverages for the soda industry that are brands which are perceived to be healthier.
- Single-serve products are also helping to either stabilize or grow certain brands, such as the smaller 8 ounce cans of soda or certain water products.
- Changes in recipe development or the addition of new soda products, such as 1893 by PepsiCo, alter the consumer perception of soda, making it more of a “treat” or “experience” than a need to consume.
- Soda makers are looking to create lower-calorie beverages to help avoid the obesity issues in high consumption countries, but this also means making more money while selling less soda.
- In 2014, the American Beverage Association pledged to cut calories in their products by 20% by the year 2025.
- Diet soda products are also being reformulated to match changing consumer needs, with PepsiCo recently offering Diet Pepsi without aspartame.
- Look for low- or no-calorie sparkling water products, non-GMO juices, and added personalization to beverages from soda makers in the coming years to help fill in the sales gaps that may form from a reduction in sugary carbonated beverage consumption.
- According to Forbes, the increases in research and development are because soda consumption has reached a 30 year low.
People are recognizing that soda consumption could be dangerous to their health. It is recommended that the average person have a maximum of 9 added teaspoons of sugar in their diet per day, yet just one 20 ounce bottle of soda will generally have the equivalent of 16 teaspoons of sugar. As people recognize the need to take control over their diet and caloric intake, the soda industry recognizes the need to adapt to these changing preferences. Look for new products to hit the market in the next decade that are similar to Dasani sparkling water, sparkling juices, and other more “authentic,” “natural,” or low-calorie products to keep the industry alive.
Why Consumer Preferences Are Changing
- It is estimated that the US pays $190 billion in additional medical costs due to obesity, of which the soda industry is seen as a major contributor.
- In 2004, it was estimated that children in the US were obtaining nearly 250 calories per day from sugary carbonated sodas. For adults, that figure has been as high as 9%.
- In recent survey data from Pew, up to 90% of children in the US consume at least one carbonated soda on any given day. 50% of adults, including those who are actively avoiding soda consumption, will drink at least 1 carbonated soda.
- 5% of US adults drink 3+ sodas per day, receiving an average of 550 calories in doing so. In comparison, a 125g serving of cheesecake is 401 calories.
- The risks of gout development also rise with the consumption of one can of soda per day. For women, it’s a 75% increased risk.
- And then there’s the fact that children under the age of 5 consume the same amount of soda as senior citizens age 60 or above.
If you’ve ever seen a kid with a bottle of root beer, then you’ve likely seen them binge drink that soda. The fact is that we establish our habits in our younger years. Kids who regularly drink 1-2 cans of carbonated soda per day become adults who consume 2-3 cans of soda per day. As Millennials begin to establish households and raise families, they’re seeking to alter the health habits they once had because they can see the damage it is causing. Yet active avoidance doesn’t guarantee a lack of sales for the soda industry. Even when there are “sin taxes” placed on soda, 1 in 2 US adults will have at least one can of soda today. The end might be coming for the soda industry in terms of carbonated sweetened beverages, but it won’t be for awhile.
The Soda Industry Is Still Churning Along
- Although there is active avoidance of soda, the industry itself is seeing a stable $75 billion in annual sales. Part of this is due to price increases, but there is also the introduction of smaller servings and alternative products to thank for the stable sales figures.
- This is because the average American is still consuming 450+ cans of soda per year. With an average price point of $0.75 per can, that’s $337.50 in sales per person, per year in the United States. For a family of four, that’s $1,350 per year for the soda industry.
- When personalized marketing is added to the new or changing products provided by the research and development teams in this industry, sales increases of 1% on even the sugar-sweetened carbonated beverages have occurred.
- According to Business Insider, “the rise of craft beverages additionally gives big companies the chance to cash in on drinks with hipster credibility.” Look for the soda industry to get involved with craft beers and specialty products, like hard root beer, either through mergers and acquisitions or co-branding opportunities.
- Ready-to-drink tea is another beverage option that the soda industry is looking at very seriously. When sugar-sweetened carbonated beverages were stable or stagnant, tea saw a 6.5% increase in sales volume from 2014-2015.
- Indra Nooyi, CEO of PepsiCo, told investors in October 2015 that carbonated soft drinks are a thing of the past. According to reporting from the Associated Press, Nooyi expects the future of PepsiCo to rely on the sales of bottled tea and their packaged snacks.
Part of the reason why you may continue to see stable sales or even growth within an industry that people are actively trying to avoid is its convenience. Soda is everywhere. You can grab some at a quick service restaurant, when you purchase gas for your vehicle, or in the vending machine at work. Sugar is also potentially as addictive as cocaine, which makes it a habit that is hard to kick for many. Traditional brands in this industry will continue to struggle against niche concepts, like coconut water or pressed juices, so look for those brands to include those new concepts in the coming years. Coke as a soda might struggle, but Coca-Cola has more than 1,000 brands in its portfolio. It will continue to thrive.
How Coffee Could Change Everything for the Soda Industry
- During the 5-year period from 2010-2014, U.S. volume sales of ready-to-drink coffee sold through all channels increased 48.1%, from 50.6 million gallons in 2010 to 89.7 million gallons at the end of 2014.
- It is estimated the volume growth from 2014 to 2015 will be almost 19%, the largest-growing beverage format – but still a fraction of what the sales are of carbonated soft drinks.
- According to Mintel, growth in ready-to-drink coffee is expected to be just as strong through the end of the year 2020.
- New categories within this sub-industry, including cold brewing and artisan coffees, also help to create brand new categories that the soda industry could embrace with their brands.
- Crossover opportunities for the major soda makers with coffee-style energy drinks, like you currently see with Monster, Rockstar, and Starbucks, could also provide growth opportunities for the industry.
It’s hard to see coffee as part of the soda industry, but desperate times call for desperate measures. Tea and coffee are the two solid areas of beverage growth in the ready-to-drink market and carbonated sodas are on the decline. By embracing the consumption trends that have been established in the last 5 years, brands can look for new ways to encourage sales while phasing out older products that might not be receiving the attention they once did. Brands may come and go, but the companies within this industry are built to stay and coffee could be the answer to their problems.