Premium profits from soft drinks

Femile friends having fun at sunset

Premiumisation is a trend which affects many categories and soft drinks is no exception, with the need for low sugar options and alternatives to alcohol and no sugar options among the trends driving the category.

The thirst for premium products shows no sign of abating and premiumisation isn’t one dimensional.
It can mean better quality products, more premium serves or packaging, or embody a more social purpose (environmental, socially conscious products). All soft drinks segments have an opportunity to drive additional value but the target should be younger audiences.
Millennials are most likely to buy premium products [Global Data, Premiumisation Report, 2018], demonstrating the importance of appealing to their needs.
To capitalise on this, soft drinks need to provide relevant offers in stores that can elevate the experience for this group, as experience is as important, if not more so, than the product itself. Tonics have been very successful here with Fever-Tree riding the craft gin trend and as spirits growth continues there is further scope for sales growth from emerging premium mixers such as London Essence.
There are many opportunities to review shopper needs and missions to add value to the category. Shoppers are increasingly looking for premium lifestyle experiences with the products they buy and after value adding success stories in categories, including chocolate (e.g. Godiva) and pet food (where owners are looking for the same quality of pet food as they would feed themselves) there is an opportunity to add value to water as highlighted earlier in the report. There is also more opportunity to add fun, theatre and more shopper engagement to improve the in-store experience of shoppers e.g. through slushy style drinks machines in relevant outlets.
Alcohol moderation is also gaining momentum, particularly with the younger Millennials and GenZ generations of adults who are the least likely to drink on a monthly basis – being more concerned about the impact on health and the cost of drinking alcohol.
There is a clear opportunity for soft drinks to play and increasingly important role in adult socialising occasions, including highlighting these products as a tasty alternative to the 0% beers that are gaining presence in the market. Adult soft drinks are currently worth £28.1m and have grown by 12% in the last 12 months [IRI Britvic Convenience 52 we 23.12.2018].
Between 2014 and 2015, premium segment growth outpaced total growth for several categories analysed by Nielsen, including soft drinks in the UK.
Less than one-third of global respondents (31%) say they consider a product to be premium because it’s expensive—a clear warning to companies who push up prices without providing a very clear value proposition to support the change.
The most commonly cited features of premium products are exceptional quality (cited by 54%) and superior performance (46%).
Products with environmental or social benefits have premium potential. Roughly four in 10 global respondents they’re very willing to pay a premium for products made with organic or all-natural ingredients (42%) or environmentally friendly or sustainable materials (39%), and 31% say they’re very willing to pay a premium for socially responsible products (Nielsen).
‘Premiumisation’ will be a key megatrend through to 2030. The classic drivers of premiumisation, the need to demonstrate success, demand for quality, showing that we have “made it”, still matter. Yet with even high-income consumers feeling increasingly stressed, insecure and older, there is a new opportunity for products offering consumers more time, greater safety and clear health benefits (Euromonitor).
The GlobalData 2016 Q3 global consumer survey found that 60% of consumers globally find trying new experiences more exciting than trying new products, while the 2017 Q4 global consumer survey found that 52% of consumers purchase premium/luxury products in non-alcoholic beverages occasionally to treat themselves.
With less than a third of surveyed consumers stating that they rarely or never purchase premium non-alcoholic beverages, there is a clear existing consumer base for brands to capitalise on with higher-quality credentials. Brands with non-alcoholic products should look to capitalise on this trend by looking to some of the efforts emerging from alcohol’s “craft” movement, adopting traditional or intricate production methods and making sure to emphasise provenance and storytelling. It will be important to remember that products cannot simply be more sophisticated, they must clearly communicate the source of this sophistication to differentiate from more standard soft drink competitors.
One challenge that brands may face, particularly in the soft drink sector, is the increasing retreat from sugar. Consumers are becoming increasingly health-conscious and looking to reduce their sugar intake, the GlobalData 2016 Q4 global consumer survey found that 43% of consumers are actively trying to reduce their consumption of products containing sugar and a further 44% consume them only in moderation. It should be borne in mind that products should thus walk a line between indulgent flavour and respecting sugar avoidance (inside-drinks).
In 2015 premium soft drinks grew by 75%, however, premium soft drinks still only make up 5% of the total soft drinks category (matthewclark).
Senior stakeholders from Diageo, Bacardi & Distil Ventures predicted the rise of no alcohol brands as a concern for the alcohol drinks trade and concluded that for businesses to keep up with changing consumer demands and expectations, a strong non-alcoholic offering should be made available.
Cucumber tonic water, ginger ale and pink grapefruit tonic, are just some of the premium flavours that brands offered last year, and we expect to see the popularity of these beverages continue to rise and expand in 2019.
The increasing demand for craft soft drinks is one of the major trends being witnessed in the global soft drinks market 2019-2023.
Artisan options
“Premium and artisan options are helping to drive the growth of soft drinks, with products like Appletiser proving popular whether being enjoyed on their own, or as an ingredient for cocktail or mocktail making at home,” says Amy Burgess, Senior Trade Communications Manager at Coca-Cola European Partners (CCEP).
Office for National Statistics’ Adult Drinking Habits in Great Britain report – 2017 shows that 20 per cent of adults in the UK are not drinking alcohol at all. The rising demand for premium soft drinks options can be linked to this; of those that don’t drink, over a quarter choose adult soft drinks as an alternative (Harris Interactive Survey, December 2018).
“With consumers frequently on the lookout for drinks that are more exciting and sophisticated that they can enjoy while others are drinking alcohol, it is more important than ever for retailers to offer a range of great-tasting, premium soft drink alternatives,” adds Burgess.
Though people are drinking less, those that continue to drink are prepared to pay more for an indulgent beverage (GlobalData). This has influenced the soft drinks market too, as more consumers are now looking for high-quality mixers to pair with their favourite spirits. As a result, CCEP’s Appletiser and Schweppes brands are both in growth in convenience (Nielsen).
“The premium soft drinks trend is particularly key for those looking to attract millennials, with one-third of 25-to-34-year olds saying they are happy to pay more for higher quality food and drinks (HIM),” adds Burgess. “Retailers should make sure they have a wide offering of premium drinks to cater to this growing market.”
Alcohol free
Andrew Turner, Director of Wine for Halewood Wines & Spirits, which manufactures Eisberg Alcohol Free Wine, says: “With as many as one in five people turning away from alcohol, it’s no wonder adult soft drinks are increasingly in demand.”
The alcohol free drinks sector is currently booming, and is now worth just under £40 million annually (Nielsen 16/07/2018). This gives a major opportunity for retailers to supply their customers with premium quality non-alcoholic beverages.
“As people start preparing for summer, wholesalers should be ready for a rise in demand for crisp, refreshing drinks,” adds Turner.
Summer means more impromptu social gatherings and alfresco dining, which calls for special drinks choices, even for those choosing to go alcohol-free.
“Retailers should be aware of the increasing demand for alcohol-free alternatives,” continues Turner. People choosing not to drink alcohol do not want to feel alienated on social occasions or restricted by choice, so they should be presented with a clear alternative everywhere they shop”.
To compete with, and even beat, the multiples on premium soft drinks, Turner suggests “Independents need to ensure the labels on alcohol-free products are as clear as possible, to make the buying process quick and stress free. This can provide an opportunity to upsell on alcohol-free products.”
80 per cent of wines are consumed within 24 hours, therefore providing the product to consumers at the perfect serving temperature helps to drive impulse purchases, Turner points out.
“Chilling the wines – especially during the warmer months – helps to meet expectations and improve loyalty,” Turner adds. “Adjacent shelf positioning and clear labelling will generate incremental sales.”