Soft-drink volume fell 2.1% in 2009

A drop in U.S. soft-drink sales slowed last year as consumers migrated from pricier juices and teas back to less-expensive soda in the down economy, reported The Wall Street Journal. Soft-drink volume fell 2.1% in 2009, compared with a 3% decline in 2008 and a 2.3% drop in 2007, according to the report, citing Beverage Digest.

And fortified waters and sports drinks saw steep volume declines last year, said a separate report by Ad Age. Overall, the beverage category declined 3.1% in volume in 2009.

Soda sales have fallen for five years in a row, and the cumulative decline has erased gains made by the industry between 1996 and 2004, the peak year for U.S. sales, said the Journal.

The moderation of decline was a spot of good news for the industry, said the report. But John Sicher, editor and publisher of Beverage Digest, told the newspaper that he expects soft-drink volume to continue to decline by about 1.5% to 3% annually over the next five to 10 years.

Sicher said he expects some consumers to move back to more expensive bottled beverages as the economy improves. Others are likely to shy away from soft drinks because of worries about sugar and other nutrition issues.

"The carbonated category faces continued headwinds from the health, wellness and obesity concerns, and also the potential negative impact of soda taxes," he added.

Volume slid to about 9.4 billion cases last year from 10.24 billion cases in 2004, said the report. Coca-Cola remained the No. 1 soft drink in 2009, but its market share fell 0.3 percentage point to 17%. After years as the third most-popular soda, Diet Coke reached a near tie with Pepsi-Cola for the No. 2 spot, with 936.3 million and 936.4 million cases, respectively. Diet Coke and Pepsi-Cola both scored a 9.9% market share last year.

Among the top 10 soda brands, only Diet Mountain Dew, marketed by PepsiCo Inc., and Diet Dr Pepper, marketed by Dr Pepper Snapple Group Inc., posted volume growth.

Coca-Cola Co. chairman and CEO Muhtar Kent has said that restoring U.S. soft-drink growth in is a key priority of the company's "2020 Vision" growth plan, reported the Journal, and Eric Foss, CEO of PepsiCo's North American beverage operations, told investors earlier this week that he expects the company's broad beverage portfolio to grow, but the soft-drink segment to continue to decline.

Overall, the U.S. market for nonalcoholic beverages—including soda, bottled water, sports drinks, fruit drinks, energy drinks and other drinks—fell 3.1% last year, according to the report, citing Beverage Marketing. It was the second year of decline in a row, and more drastic than the 2.1% drop in 2008.

Michael Bellas, Beverage Marketing's chairman and CEO, said "the worst may be over" for the beverage industry after a dismal 2009 marked by high unemployment and broad consumer malaise. But Bellas added that he sees a bright spot in recent months as declines in sales of energy drinks and sports drinks have leveled out. "This is a recovery led by the younger consumer that still has a job," rather than baby boomers who have lost savings and fundamentally changed their buying habits, he told the paper.

Bottled-water sales declined for the second year in a row, after a decade of growth. Nestle Pure Life, a line of water traditionally sold in mass retailers such as Wal-Mart Stores Inc., logged a 14.6% increase in volume, an indication of popularity of comparatively inexpensive multipack water.

"The challenged economy is undoubtedly the single greatest factor that's impacted the performance of refreshment beverages in each of the last two years," Gary Hemphill, managing director and chief operating officer at Beverage Marketing, told Ad Age. "It's possible this could continue into 2010. It's a little bit premature to say, but it's not beyond the realm of possibility."

Hemphill said that while his company does not specifically measure tap water, it is safe to say that consumers have been turning to the cheap alternative. Prior to the recession, tap-water consumption had been trending downward for decades, said the report.

According to Beverage Marketing, value-added water and sports drinks were the two hardest hit categories, with volume declines of 12.5% and 12.3%, respectively.

Value-added water was dragged down by Coca-Cola's Vitaminwater brand, which saw a 13% decline. PepsiCo's SoBe Lifewater brand, however, jumped 63% on the strength of the SoBe Lifewater Zero launch, which uses the company's stevia-based PureVia sweetener. Though the SoBe launch is still a small player in the overall category, it does indicate that consumers are willing to pay for products they view as healthier, which bodes well for both PepsiCo and Coca-Cola, said Ad Age, as the beverage giants race to introduce products with natural sweeteners.

PepsiCo's Gatorade, which was repositioned as G with a splashy campaign last year, was a major factor in the decline of the sports-drink category, said the report. Volume decline was 15.5% at Gatorade, which is the largest player in the category, compared to a 1% drop at the smaller Powerade label. Gatorade's share of volume fell 0.5% among the leading beverage brands, though it maintained its position as the fifth-largest overall beverage brand.

Carbonated soft drinks, the largest beverage category, declined 2.3% in volume, showing a rebound from last year's 3% decline; 2009 marked the fifth consecutive year of declines in the category. Flavored diet soft drinks, such as Diet Mountain Dew and Diet Dr Pepper, proved most popular with consumers and were the only two brands to see growth in 2009, according to a separate report from Beverage Digest. Dr Pepper and Fanta were the only other brands that did not show declines, with flat volume share, the report said.

Consumers are more likely to trade down to private-label colas from Pepsi and Coke than they are from difficult-to-duplicate flavored soft drinks like Mountain Dew and Dr Pepper. But, Hemphill added, soft drinks in general could be viewed by consumers as an affordable alternative to pricier categories like value-added water.

Coke and Pepsi both saw volume and share declines, according to Beverage Digest. Coke lost 0.3 share points paired with a 4% decline in volume, while Pepsi lost 0.4 share points and volume declined 5.5%. Diet Coke also closed the gap with Pepsi in volume share, with both brands now claiming a 9.9 share of the market. A year ago, the two brands were 0.3 share points apart.

Ready-to-drink tea and energy drinks were the two strongest-performing categories, growing volume by 1.2% and 0.2%, respectively. And, surprisingly, bottled water saw a relatively modest 2.7% volume decline. High penetration of private-label brands and value pricing from Nestle Pure Life helped boost the category, said the report. Nestle Pure Life saw a 14.6% jump in volume, compared to double-digit declines for the pricier Aquafina and Dasani brands.