Global Share of Throat & Wallet

Share of the Global Throat and Wallet

December 2009

© Euromonitor International

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Global Throat and Wallet

Introduction

Setting the Scene

Dairy in Focus

Last Decade in Focus

Human Need for Fluids

Demographic Dividend in Drinks

Conclusions

Definitions


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• This briefing on the global market for packaged beverages covers the following products:

Scope

Introduction

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DisclaimerMuch of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors

Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies’ opinions, reader discretion is advised


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• This report opens Euromonitor International’s series of new global briefings on the world’s drinking habits.

• The Drinking Habits series is an attempt to investigate the importance of branded packaged drinks to humans’ daily need for fluid. By taking 2.2 litres a day as a conservative estimate of the recommended liquid intake, we build up a picture of how the world drinks, past, present and future. Most importantly, we track the contribution of branded packaged beverages as a share of total liquid consumption.

• The analysis sheds more light on what, in effect, is the degree of opportunity for growth in commercialised soft, hot, alcoholic and dairy drinks, in different regions around the world.

• A closer look into the “share of throat and wallet” reveals striking regional disparities in the importance of branded packaged drinks: from highly saturated Western European and North American markets to the fast maturing regions of Eastern Europe and Latin America. Crucially, data from the emerging Asian economies and Middle East and African markets expose a pool of untapped opportunity.

• From questions on “What the world drank, drinks and will be drinking” and “Where the world buys its drink” we move to the questions of how manufacturers react to evolving consumer demands and adapt their offerings. We investigate the changes in leading companies’ product portfolios, as they develop new categories, innovative ingredients and packaging.

• In short, the Drinking Habits series is a map identifying opportunity zones in commercialised drinks.

Objectives of the Drinking Habits Series

Introduction


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• “Share of Global Throat and Wallet” is the first in the series of briefings on Global Drinking Habits.• With the global financial crisis intensifying competition for the money the world spends on beverages, Euromonitor

International analyses the contribution of branded packaged beverages to total liquid consumption.• As part of the study, consumer profiles for different drinks categories are analysed, in order to understand how

investors might benefit from demographic dividend.• We examine if, in a world with ageing population, adult-profile soft drinks categories will be the safe bet for high

profile strategic investment over the next 10 years.• We also assess if adult-profile categories need to raise their segmentation game to increase their appeal to wider

consumer groups within the adult population and, even more importantly, to reach out to the children’s consumer group (aged 0-14) – which accounts for one in every four people on the planet.

• Further to this, Euromonitor International interrogates the disparity between branded packaged drinks consumption and recommended total intake, and identifies three different geographical zones where branded drinks consumption has reached different levels of maturity.

• Both branded and unbranded balances of consumption are analysed on the global scale over the past decade, at present and as a key opportunity for new business in the future.

Objectives of the Global Share of Throat and Wallet Report

Introduction


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• The ageing of the global population reflects declining birth rates in key regions, notably Eastern and Western Europe.

• However, although population growth rates are slowing, there are still a significant number of countries with youthful populations, such as India and Mexico.

• Correctly targeting and then harnessing youthful and ageing demographics in specific countries is one of the biggest challenges ahead for all segments of the drinks industries.

• Alcoholic and non-alcoholic drinks do not always operate in different competitive playing fields. Beer, for example, has a quasi soft drinks status in some regions.

• Critically, the money channelled into alcoholic drinks has a direct bearing on disposable income available for soft, drinks hot drinks and dairy beverages.

• Milk drinks are regarded as a staple product and have shown strong resilience to the effects of the current economic contraction.

• When Lehman Brothers collapsed in September 2008 and the Western banking sector slipped into crisis, the contagion spread quickly to all corners of the world. Descent into a worsening global economic climate has been a pivotal force since 2008. Few could have predicted the depth of the crisis, which had its roots in the US sub-prime mortgage market.

• In this uncertain macro-economic landscape, competition for beverage share of throat and wallet has never been more intense.

• Global consumption of packaged branded non-alcoholic drinks is equivalent to around 0.5 litres a day in 2009, against the average human’s need for 2.2 litres of liquid, based on World Health Organization recommendations.

• There is, however, significant disparity between regions, with packaged drinks accounting for two thirds of required liquid intake in industrialised markets, compared with around one tenth in the largely untapped emerging markets of Asia, the Middle East and Africa.

Economy Human Fluid Need

Alcoholic vs Non-Alcoholic vs Dairy Demographics

Key Findings

Introduction


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Introduction

Setting the Scene

Dairy in Focus




Conclusions

Definitions


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• Globally, some 1.4 trillion litres of commercial packaged beverages were consumed in 2009, including both the on-trade and off- trade, equivalent to around 4 litres per capita per week.

• An unprecedented global financial crisis has intensified competition for the money spent on beverages. Share-of-throat is now a major cross-industry strategic challenge, as purse strings tighten from London to New York to Sydney.

What Does the World Drink in 2009

Setting the Scene


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• Hot tea accounts for the largest share of actual global RTD retail beverage consumption, but its share of wallet is weak.

• Hot coffee, for example, accounts for double the value of tea, but only 59% of the volume.

• This is indicative of the coffee industry’s more effective premiumisation, fuelled by strong worldwide development of café culture.

• Beer, driven by standard lager, holds the largest share of spending, accounting for one fifth of global beverage expenditure.

• Collectively, alcoholic drinks account for a substantial 45% share.

Global Picture: Throat & Wallet Disparity as 2009 Unfolds

Setting the Scene

Note: Shares are part-year estimates.


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• Development of new business is the key to building a stronger share of throat position, and in 2009 the most significant rises were generated by bottled water and hot tea. Collectively, these two sectors accounted for more than three out of every 10 litres of actual beverage volume growth, based on provisional 2009 results.

• Hot tea accounted for 17% of actual volume growth in 2009, but drought conditions in India, Kenya and Sri Lanka in 2009, which collectively account for over half the world’s total tea production, are set to push tea prices up, potentially to an all-time high. There will, therefore, be pressure on demand in the short term.

Tea and Bottled Water Driving New Beverage Business

Setting the Scene


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• The most striking result of 2009 is the across the board losses in drinks value. In one year, on the back of the global financial crisis and fluctuations in US$ exchange rates, the drinks businesses lost over US$55 billion in value. All major categories contributed to this loss in value.

• In some categories, like milk, loss in value was also driven by a decline in international commodity prices.

Value Losses Across the Board in 2009

Setting the Scene


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Beer Domestic lager has gained consumers from the imported lager category as consumers trade down, benefiting both volume and value sales. Economy lager also enjoys the benefit of being largely present in the off-trade.

Wine With less money to spend, consumers are cutting down on buying champagne, as it is too expensive and is seen as a luxury. Champagne is the biggest loser in alcoholic drinks as a result of the recession.

Spirits The trading-up trend is weakening, and consumers are trading down to mid-priced and economy brands. Local spirits such as cachaça in Brazil and soju in South Korea benefit as lower priced alternatives to international spirits.

Milk Milk’s staple status and greater affordability – linked to a decline in international commodity prices – allowed sales to grow in volume despite the current economic recession.

Coffee Resisting downward pressure from the deteriorating global economic climate, the category is expected to generate strong sales, even in contracting fresh coffee markets.

Tea Black tea looks well positioned to weather the global financial storm. Low unit prices and multiple brands in the traditional tea markets will see consumption remain stable.

Bottled Water A backlash against still bottled water in developed markets was in place before the economic downturn; however, the crisis is accelerating the decline. Functional bottled water is still niche and therefore still has significant potential.

Concentrates Low unit price and geographical spread will see concentrate volumes actually increase globally. This will be driven in two directions: low-sugar/functional ingredients in developed markets, and emerging market consumption.

Key Drinks Fortunes in Economic Downturn

Setting the Scene


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Emerging Markets are the Lynchpin of Opportunity to 2010

Setting the Scene


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• Performance in first and second tier emerging markets will play an increasingly important role in the development of the forecast global picture.

Longer Term Trends in the Share of Throat

Setting the Scene


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Introduction

Setting the Scene

Dairy in Focus




Conclusions

Definitions


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Dairy Sales Growth Slows in 2009

Dairy in Focus

• Global retail sales of drinking milk products declined marginally in retail value in 2009. This decline was mainly prompted by a moderate drop in milk prices, as a result of lower demand and large production stocks.

• When milk prices peaked in early 2008, farmers increased production which, as a result of weaker demand during the second half of 2008 and in 2009, prompted a fall in prices of 3% at global level.

• Demand in volume, however, remained fairly stable, as a result of relatively low prices and the staple commodity status of milk in most countries.

• In countries like Ukraine, for instance, chocolate confectionery sales declined by over 13% in retail volume, as consumers cut expenditure on non-essential food products. Demand for milk products, on the other hand, declined by a mere 1%, as Ukrainians focused on affordable staple products consumed on a day-to-day basis.

• Private label’s share grew by over one percentage point to reach 23% in 2008, and is expected to continue to growth throughout 2009, as price gains increasing relevance among cash-strapped consumers.


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• Drinking milk products are regarded as a staple in the diet of many countries. This, along with milk’s relatively low price, makes these products quite resilient to recession, as consumers tend to cut down on other, non-essential items, such as indulgence products.

• Sales of drinking milk products grew by 2% in retail volume in 2009; slightly faster than in the previous year. Demand for drinking milk products is being underpinned by lower global milk prices, which makes this commodity more affordable to consumers.

• Despite lower commodity prices being only partly passed on to consumers, there was still a cost reduction in milk products across regions.

• Demand for health and indulgence continued to be a recurrent theme in innovation in 2009, and drove demand in categories such as flavoured milk drinks and soy beverages, which grew by 5% and 7%, respectively, in retail volume in 2009.

• Demand for soy beverages continues to grow in emerging markets, driven by middle class consumers in urban areas. Retail sales of these products grew by 12% in China and 14% in India in 2009, a trend that is likely to continue in the medium term.

Crisis Impact on Dairy

Dairy in Focus


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Dairy Retail Volume Growth 2009-2014

Dairy in Focus


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Dairy: One Market, One Strategy

Dairy in Focus

• Robust growth in the Middle East and Africa and Asia-Pacific will continue beyond 2009, particularly in markets such as China and India.

• Manufacturers should adapt their long-term strategies accordingly, prioritising those markets where organic growth will be strongest.

• International manufacturers should therefore adopt a dual strategy in order to maximise growth at a global level.

• On the one hand, they should extend standard priced packaged milk lines to developing markets, using local inputs, where possible, to minimise costs and final retail prices.

• Manufacturers should not overlook the fact that maintaining relatively low prices is crucial to allowing middle class consumers to trade up from fresh to packaged milk in emerging markets.

• Innovation should focus on vitamin enrichment and the introduction of low-fat lines targeting middle class consumers in fast growing urban areas.

• On the other hand, the industry should enhance the premium content of brands in more mature markets, through the addition of additional health properties.

• The development of hybrid “super-premium” brands, combining indulgence, health, organic and fair trade properties, will be crucial to expanding the consumer base of drinking milk products in more mature markets, where health, social or organic properties are no longer enough to expand sales when marketed separately.


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Introduction

Setting the Scene

Dairy in Focus




Conclusions

Definitions


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• Soft drinks were a stellar growth industry in the past decade, but significant pressure from the worldwide financial crisis is set to narrow cross-industry performance disparities over the short to medium term.

• A decade ago, the portfolios of major soft drinks companies, notably Coca-Cola and PepsiCo, were heavily loaded with carbonates. This has changed significantly due to strong development of a broader spectrum of categories. This is a strategic revision that is clearly visible in share of throat, with bottled water, notably, accounting for 16% of global beverage consumption in 2008, compared with less than 10% in 1998. Fruit juice, a strong good-for-you category, also made a significant, albeit more modest gain over the past decade.

• The highest profile share-of-throat loser has been carbonates, reflecting wider rejection of sugary drinks, especially in developed markets, as consumers look to fight obesity and avoid bad-for-you consumption choices.

• Beer lost ground in the five years to 2003, but investment in more effective segmentation, combined with aggressive pricing, triggered a return over the following 5-year cycle, and it is the only alcoholic drinks category gaining share within the industry.

Bottled Water Posts Big Gains Share of Throat



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• Significant investment from the major multinational soft drinks companies, especially in the emerging markets, fuelled the upward surge of bottled water. High yield packages (5+ litres) have been a particularly important spur, the result of poor potable water availability in key high volume markets, such as Mexico and China, and a corresponding increase in consumer sophistication and spending power.

• Among the new generation of niche, value-enhancing categories, star performers have been RTD tea, energy drinks, flavoured milk, drinking yoghurt and soy. Each of these is now competing for daily liquid intake. However, recession across the industrialised markets is likely to put pressure on demand, at least in the short term.

• RTDs (premixes) were a dynamic category of alcoholic drinks between 1998 and 2003, but growth slowed to 2008 due, firstly, to growing consumer concern over alcohol content and related consumption by young people and, secondly, to growth in energy drinks, which signalled a new era of mixability (mainly with vodka), especially in the on-trade.

Niche Adult and Functional Drinks Hit Rapid Streak of Growth



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• Wine and spirits both registered declines in their share of wallet, reflecting an increasingly difficult operating environment for premium drinks in the world’s richer nations. Beer held firm over the review period, with strong segmentation offsetting aggressive pricing.

• Despite the global sluggishness of carbonates, the category saw share of wallet drop by only one percentage point over the period 1998-2008, underscoring effective positioning from industry leaders Coca-Cola and PepsiCo.

• Bottled water made big value gains, accounting for one in every US$14 of drinks spending in 2008, compared with less than one in 20 a decade earlier.

• Shares of spending in hot tea and coffee are substantially below volume shares, which indicates that more effective premiumisation remains a key challenge for the tea industry in particular, potentially through stronger investment in niche formats, such as green and herbal tea.

• In dairy, weaker participation of milk was partly offset by the development and premiumisation of flavoured milk and drinking yoghurt, which fuelled a collective share of 3% in 2008.

Wine and Spirits Losing Share of Wallet



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• The hot coffee industry significantly raised its global game between 2003 and 2008, and much of the credit lies with Starbucks. The premiumisation of coffee in the on-trade has filtered positively into the off-trade. Indeed, while Starbucks has suffered in its domestic market, growth continues in the international arena, particularly in emerging markets.

• In alcoholic drinks, beer has outperformed wine year-on-year for over a decade, illustrating a key shift in consumption culture. The global disparity would have been wider had it not been for upbeat wine growth in key Asian and Eastern European markets, which offset declines in Western Europe.

• The importance of emerging value added niche categories, notably RTD tea, functional drinks, flavoured milk, drinking yoghurt and soy beverages, is clearly visible from their upbeat retail growth curves over the past decade. Notwithstanding a tougher operating environment over the short term, these categories will continue to be the target of significant new investment.

• Drinking yoghurt’s value growth was underpinned by consumers trading up from low-priced standard milk lines – with limited scope for differentiation – to premium specialised health-orientated dairy drinks. This trend was particularly apparent in developed markets.

New Generation of Value-enhancing Categories Raise Profile



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A Decade of Change for Global Share of Throat 1998-2008



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Introduction

Setting the Scene

Dairy in Focus




Conclusions

Definitions


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• To replace lost fluids, the average human, according to World Health Organization recommendations, needs 2.2 litres of non-alcoholic liquid a day, of which water should ideally be the primary source. Of course, humans need to modify their liquid intake depending on activity, climate and health criteria. 2.2 litres is, therefore, no more than a rough guideline.

• In 2008, global per capita consumption of commercially produced non-alcoholic drinks totalled 132 litres, representing 16% of the recommended annual intake. The implication is that tap water and other unbranded liquids fuelled a substantial proportion of the balance.

• The disparity between branded consumption and recommended total intake sheds some light on the steep rise of bottled water demand over the past decade. Crucially, demand has increased substantially in poorer regions of the world where potable water infrastructure is weak.

• The unbranded balance of consumption has narrowed only slightly over the past decade, and remains a key opportunity for new business going forward.

Global Picture: The Human Fluid Need



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• Alcoholic drinks, which are usually excluded from calculations when assessing the fulfilment of the human need for liquid, reduce the non-commercialised drinks consumption even further.

• In 2008, global per capita consumption of commercially produced packaged alcoholic drinks totalled 35 litres per person per year.

• Together with commercialised non-alcoholic packaged drinks, this reduces the unbranded/non-commercialised drinks proportion to below 80%.

• Within alcoholic drinks, the share attributed to beer is increasing steadily, whilst spirits are on the decline. The shares of wine and other, smaller categories have been stable over the years.

• Milk and soy drinks are on a slow but steady rise. Drinking yoghurt and flavoured milk drinks’ shares of throat are increasing sharply, whilst sour milk drinks are steady.

• 2008 was the year in which the share of carbonates in global share of throat started to decline. This is the only major category within soft drinks seeing a decline.

• Every category in hot drinks is still growing in importance on the global scale.

Adding Alcoholic Drinks into the Mix


Note: Total = 803 litres per person per year= 2.2 litres per person per day


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• In 2008, packaged non-alcoholic drinks accounted for over 66% of the recommended human fluid intake in the industrialised markets of North America, Western Europe and Australasia.

• This is indicative of the strength and breadth of retail consumer culture in the richer nations, and is a key reason why the beverage arena in those markets is so competitive.

• Saturation of branded beverages means that growth has increasingly been achieved by increasing market share.

• A key trend is that packaged drinks accounted for just over 60% of recommended liquid intake in 1998, growing to over 66% a decade later.

• However, this share is forecast to contract by 2013. The end of the growth curve can be explained, first, by projections of a slow return to recovery in the macro-economies of the industrialised markets and, secondly, by a growing propensity toward tap water due to environmental concerns.

• Soft drinks peaked in 2005-2007, and are now declining, mostly on the back of declines in carbonates but also in bottled water and fruit/vegetable juice.

• Dairy share of throat contracted slowly but steadily over the last decade. This trend is likely to continue in the next five years.

Global Picture: Human Fluid Intake, Saturated Zone



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• Adding alcoholic drinks into the mix reduces the unbranded, unpackaged balance of drink consumption even further: an average 637 litres per person per year of commercialised alcoholic, hot, soft and dairy drinks was consumed in 2008.

• North America tops the charts, with 705 litres of branded liquid per capita in 2008. Australasia is second, with 638 litres of commercialised drinks per person in 2008. Western Europe lags further behind, with 569 litres.

• Over the last decade, an average person in North America added over 55 litres of commercialised drinks to their yearly intake. At the same time, an average person in Western Europe and Australasia increased their intake by 42 litres each.

• Additional volumes came mostly on the back of increases in soft drinks consumption.

• Dairy was a main casualty in Western Europe and North America, but not in Australasia.

• Alcoholic drinks’ share is declining in Western Europe but is still fairly stable in North America and growing in Australasia.

• Hot drinks are performing well in Australasia and North America, but stagnating in Western Europe.

The Importance of Alcoholic Drinks in Saturated Markets



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• In the emerging markets of Latin America and Eastern Europe, packaged non-alcoholic drinks accounted for around 22% of recommended liquid intake in 2008, up from 16% a decade earlier.

• This steep rise bears testimony first to the high level of investment in the drinks industry since 1998 and, second, to the strong growth of retail consumption culture.

• Crucially, the region is far from reaching saturation point. Indeed, using the industrialised markets as a benchmark, per capita consumption of branded non-alcoholic beverages has potential to increase by upwards of 300 litres.

• Forecasts to 2013 indicate growth of around 24 litres.

• The growth potential of these maturing markets is at the core of why all major multinational beverage companies are looking to strengthen their regional positions, from Moscow to Mexico City.

Global Picture: Human Fluid Intake, Maturing Zone



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• Adding alcoholic drinks into the mix reduces the unbranded, unpackaged balance of drink consumption even further: an average 257 litres per person per year of commercialised alcoholic, hot, soft and dairy drinks was consumed in 2008.

• Latin America averaged 338 litres of branded liquid per capita in 2008. Eastern Europe lags far behind, with only 177 litres.

• Over the last decade, an average person in Latin America added an impressive 83 litres of commercialised drinks to their yearly intake. At the same time, an average person in Eastern Europe increased their intake by 67 litres.

• Additional volumes came mostly on the back of increases in soft drinks consumption in Latin America, and in alcoholic drinks, most notably beer, in Eastern Europe.

• Soft drinks and alcoholic display the biggest disparity in drinks consumption in the two regions. An average person in Latin America in 2008 consumed 205 litres of soft drinks and 57 litres of alcoholic drinks. At the same time, an average consumer in Eastern Europe drank only 15 litres of soft drinks, but 102 litres of alcoholic beverages.

Pick and Mix Categories in Maturing Markets



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• The low impact of packaged non-alcoholic drinks in Asia-Pacific and the Middle East/Africa is striking, with branded products accounting for little more than one in every 10 litres of recommended liquid intake in 2008.

• Low actual liquid consumption across much of Africa and some of the poorest countries of Asia goes some way to explaining the weakness, but it is also a reflection of a widespread culture of unbranded beverage consumption.

• The opportunity for growth of branded beverages is, by implication, vast. For example, if the mature zone is used as a benchmark, per capita consumption has potential to increase by as much as 100 litres over the medium to long term.

• Given the size of the population in this untapped area, estimated at some 5 billion people, or 71% of the world total in 2008, the growth potential for all beverage sectors is substantial.

Global Picture: Human Fluid Intake, Untapped Zone



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• Unlike in regions with saturated and maturing commercialised drinks markets, adding alcoholic drinks into the mix reduces the unbranded, unpackaged balance of drink consumption only marginally: an average 98 litres per person per year of commercialised alcoholic, hot, soft and dairy drinks was consumed in 2008.

• The two regions display very similar share of throat profiles: Asia-Pacific averaged 100 litres of branded liquid per capita in 2008, and the Middle East and Africa 95 litres.

• However, Asia-Pacific’s commercialised drinks market was much more dynamic than the market in the Middle East and Africa. Over the last decade, an average person in Asia-Pacific increased commercialised drinks consumption by 40 litres a year, compared with only 15 litres in the Middle East and Africa.

• Additional volumes came mostly on the back of increases in soft drinks consumption, but also in alcoholic drinks and dairy.

Only Pockets of Opportunity for Alcoholic Drinks



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Introduction

Setting the Scene

Dairy in Focus




Conclusions

Definitions


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• There was a significant global expansion of the adult population over the period 1998-2008, which created a natural platform of growth for emerging categories, such as RTD tea, RTD coffee, functional drinks and soy beverages. A large number of new legal drinking age consumers coming into the 20-39 age band also created opportunities for the alcoholic drinks industry.

• Increasing concern for age – or rather its effects on health – has boosted demand for functional milk and probiotic drinking yoghurts, a trend that is having a positive impact on dairy drinks sales at a global level.

• Critically, the global population is continuing to age, especially in the industrialised markets and Eastern Europe. By implication, this means there will be a burgeoning 40+ age band over the next 10 years. Harnessing the consumption demands of this population will be one of the key challenges across the drinks industries.

• The world’s key youthful demographics are in Latin America, Asia-Pacific, and the Middle East and Africa. Critically, although the world’s population is ageing, some of the biggest investment in the short to medium term will be channelled into emerging markets with a more youthful profile.

Ageing Global Population Is Fuelling a Boom in Adult Drinks


CSDs, fruit juice,concentrates, dairy Bottled water, RTD tea/coffee, functional drinks, beer,

pre-mixes, wine, spirits, hot coffee and tea

Key burgeoning age bands going forward


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Youthful Populations Drive Multi-profile Drinks 1998-2008

• The decline in global throat participation of adult profile drinks between 1998 and 2008 reflects, firstly, youthful demographics in key emerging markets of Latin America, Asia and the Middle-East/Africa, and, secondly, a global surge in bottled water consumption, which has a multi-profile consumer base.

• The global development of packaged water, in bulk, family and single-serve sizes, has offset a slowdown in carbonates. Equally, there has been significant segmentation activity in fruit/vegetable juice, together with new investment in the niche categories of flavoured milk, drinking yoghurt and soy beverages. Collectively, lunch box consumption for children has increased across each of these sectors.

• Both hot tea and hot coffee, two fundamentally adult profile sectors, have lost share of throat over the past decade. Indeed, bringing new consumers on stream is a key challenge for the hot beverage industry. In alcoholic drinks, gains in the share of throat of beer have been countered by slowdowns in wine and spirits. However, as a result of the recession, in 2008 and 2009, beer has seen its worst performance of the last decade, as Eastern European markets, such as Russia, which have been driving global beer growth, are seeing declines.


Adult Profile Drinks in Share of Throat Context

Note: Adult profile beverages are broadly defined as Alcoholic drinks, Hot drinks, Functional drinks, RTD coffee and RTD tea.


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Premiumisation Buoys Spending on Adult Drinks 1998-2008

• The drop in share of wallet of adult profile drinks has been less than in throat over the past decade, due in large measure to the growth of premium adult soft beverage sectors, such as energy drinks, RTD tea and RTD coffee. Adult profile drinks have also been buoyed by the effective premiumisation of hot coffee, especially since 2003.

• In alcoholic drinks, RTD premixes were a niche growth sector until 2003, cannibalising some value from wine, spirits and beer, above all in the young adult market. However, both the wine and spirits category have enjoyed healthy value growth over the past few years, due to consumers trading up to premium drinks.

• Carbonates remain the dominant value sector in multi-profile beverages. The less precipitous decline in wallet share versus throat share is indicative of weaker penetration by second tier brands at the global level.

• Over the course of the review period, bottled water overtook fruit/vegetable juice to become the second ranked multi-profile sector. Crucially, the good-for-your-family beverage playing field has become more competitive year-on-year

• Women are proving to be the most dynamic consumer segment behind the increasing importance of adult consumption in dairy drinks. They are health-orientated in their choices and happy to try new dairy drink lines offering properties benefiting the skin and the digestion, driving growth at sector level in more developed markets.


Adult Profile Drinks in Share of Wallet Context

Note: Adult profile beverages are broadly defined as Alcoholic drinks, Hot drinks, Functional drinks, RTD coffee and RTD tea.


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• The global 0-15 age-band contracted by 1% over the 2003-2008 period, against growth of 13% in the over 65 band. This is a reflection of declining birth rates in key population enclaves across Western and Eastern Europe.

• In Russia and Germany, for example, under-15s account for only 14% of the population.• In the major markets of China and the US, populations are also ageing, with the under-15s accounting for little more

than one in every five people. In the case of China, this has led some economists to speculate that the country might grow old before it grows rich.

• The world, of course, is far from homogeneous, and there are a number of major emerging markets where populations are youthful. Among the most important are India and Mexico, where the under-15 age band accounts for almost one in every three people. In practical terms, this means that the labour pool is likely to increase by around one million people a year in both countries between 2010 and 2025.

Children Still Account for One in Four of the Global Population


Key 0-14 populations:MexicoIndiaSaudi ArabiaPhilippinesSouth AfricaEgyptIndonesia


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• The child population in the saturated markets (North America, Western Europe and Australasia) is forecast at 157 million in 2010, less than in Latin America and substantially below totals in the Middle East and Africa, and Asia-Pacific. This sheds light on the likely direction of new product development in children’s drinks over the short to medium term. Globally, children (aged 0-14) account for more than one in every four people on the planet.

• The number of children is declining in Asia-Pacific, while growth is flat in Latin America, but both regions are identified as a key focus for new investment, notably in carbonates, fruit juices, concentrates and liquid dairy. Between 2008 and 2010, carbonates, for example, are forecast to generate 2 billion litres of new consumption in Asia-Pacific and 3 billion litres in Latin America. By contrast, demand is forecast to slide by 3 billion litres in North America.

• Until children reach teenage status, it is their parents who make the key consumption choices. However, concern over sugary drinks tends to be less invasive in the emerging markets, which is why the big cola players will look to shore up their positions over the next five years.

• In the developed markets, there will be stronger promotional and marketing activity behind the nutritional benefits of child-oriented drinks.

Emerging Markets Are Key to Growth in Child-profile Drinks



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• The over-14 teenage market is a key consumer base for energy drinks, sports drinks, carbonates and any beverage product with a sociable and fun profile. It is, arguably, one of the toughest markets to crack in the beverage industry. Equally, this population group is estimated to be one of the biggest soft drinks consumers in per capita terms. The rewards of successful product development are, therefore, very high.

• The Middle East and Africa and Latin America are the only regions where the teenage market is growing in size, indicating that investment in new product activity is likely to be high in the future. Conversely, a sharp drop in Eastern Europe’s teenage population is expected, with a related knock-on effect on teenage profile products.

• In the richer industrialised regions, the teenage population growth rate is flat, but investment will continue to be high in energy drinks and fun-profile products. This age band tends to be the least concerned about good-for-you products because, critically, they are largely making their own consumption choices, unlike the under-15s.

Teenagers – a Tough, but Lucrative Consumer Base to Crack



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• The legal drinking age varies between countries and regions, but broadly speaking the over-19 age band is the key focus for all alcoholic drinks categories. It is increasing in size in all regions of the world, notably in Latin America. In Mexico, for example, the adult pool is forecast to grow by upwards of one million a year to 2020. Beer, in particular, is forecast to harness this demographic windfall.

• Latin America and Asia-Pacific will also see the largest actual growth in consumption of wine and spirits to 2010. These sectors are likely to become increasingly competitive, with white spirits, notably vodka, looking to win more ground on brown spirits among the newest generation of legal drinking age consumers.

• It is striking that Western Europe sits second only to Asia-Pacific in the size of its over 65 population, projected at 78 million in 2010, compared, for example, with 40 million in Latin America. This population of retired adults is time-rich, which equates favourably with multi-occasion drinks, particularly hot tea, hot coffee and hot chocolate. This consumer segment is also a “golden niche” for functional innovation in dairy drinks, as older consumers are happy to pay a premium for products adapted to their specific nutritional needs.

Time-rich Retirees are Key Growth Age Band in Europe



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• In 2009, financial crisis and demographic pressures have intensified competition for the money spent on beverages.• Three of the top five sectors in terms of share of throat are broadly geared to an adult consumer base, namely hot

tea, hot coffee and beer.• Despite the economic recession, innovations in dairy drinks have continued to target adult consumers with specific

needs. Many adults place even more importance on health during periods of economic contraction, as the pressure to look good and healthy increases for fear of losing their jobs. New product developments in 2009 have focused on the introduction of lactose-free properties, cardio-vascular health-friendly soy lines and vitamin-enriched weight-control dairy drinks.

• Bottled water is the main multi-profile sector, but has come under pressure in the developed markets due to concern over throwaway plastic bottles and their impact on the environment. This negative lobbying has also gained limited momentum in emerging markets.

• Carbonates, despite strong pressure, look like sustaining a significant share of both wallet and throat, with children and young adults remaining the key consumer base.

• Further, the adult categories of wine and spirits, which have lower shares of throat, continue to be key drivers of spending.

Adult Profile Drinks Sustain High Participation



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Introduction

Setting the Scene

Dairy in Focus




Conclusions

Definitions


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• Reduced milk demand over the past decade has been offset in the dairy industry by successful development of the value-added products flavoured milk and drinking yoghurt. Both categories have become strong competitors for good-for-you and functional soft drinks.

• Premiumisation has also been important in the coffee industry, driven by the on-trade.

• This has raised the competitive stakes for hot tea, which has so far been slow to develop a successful premium tier at a global level.

• Consumer confidence globally is running at its lowest ebb in years, and this is impacting marketing strategies.

• Coca-Cola’s “Open Happiness” campaign, for example, is a move to tap into desire for optimism at a time of bleak macro-economic conditions. Also, the introduction by Starbucks of a new range of hot tea is a bid to capture the same type of stress-free aspiration.

• In alcoholic drinks, there is also a related trend towards escapist consumption as macro economies deteriorate.

• Segmentation within categories has become increasingly important to share-of-throat gains.

• In beer, for example, there has been highly effective development of economy, standard and premium segments. In times of boom and bust, this has enabled consumers to cross-trade, depending on their available disposable income.

• Targeting women, children and older consumers is becoming a norm, especially in saturated markets, not only in terms of marketing but also packaging, ingredients and colours.

• Growing consumer awareness of health issues has been a major determinant of share-of-throat over the past decade, illustrated by significant upturns in categories with a better-for-you image, such as bottled water, RTD tea, soy beverages and low-calorie drinks.

• Milk, historically a beneficiary of health consumption, has been hit by the latest growth trends, firstly, because there is greater beverage competition, and secondly, because concern over cholesterol levels has weakened demand.

Segmentation Health and Wellness

Comfort consumption Premiumisation

Key Industry Drivers

Conclusions


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• In the comparatively untapped zones of the Middle East and Africa, and Asia, branded products still account for only one in every 10 litres of recommended liquid intake.

• The growth potential of this region, with a combined population of some 5 billion people, is vast. Crucially, this region, more than any other, is likely to be the target of stronger positions by multinationals across the beverage industries.

• In the maturing markets of Latin America and Eastern Europe, the packaged drinks industries are far from saturation.

• Branded products accounted for around 22% of recommended liquid intake at the close of the review period, up from 16% a decade earlier. A commensurate rise in share is possible over the next 10-year period, driven by high levels of investment from the major multinationals.

• Portfolio diversity has become increasingly important across the drinks industries. Coca-Cola and PepsiCo, for example, used to be heavily weighted towards carbonates, but both have moved aggressively into a much broader range of categories over the past decade.

• This has radically changed the share-of-throat picture, with bottled water and functional beverages becoming increasingly high profile. This has raised the competitive bar for hot drinks, dairy drinks and mainstream soft drinks.

• In the world’s developed markets of Western Europe, North America and Australasia, packaged non-alcoholic drinks accounted for around 66% of recommended human fluid intake in 2009, up from just under 60% a decade earlier.

• The upward curve has, however, hit a brick wall, indicating saturation. This means that brand growth will increasingly be driven by market share, in turn raising the share-of-throat competitive stakes to 2010 and beyond.

Portfolio Diversity Saturated Zone

Maturing Zone Untapped Zone

Diversity in Share Of Throat & Wallet

Conclusions


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Introduction

Setting the Scene

Dairy in Focus




Conclusions

Definitions


48


• All values expressed in this report are in US dollar terms, using a fixed exchange rate (2008, unless otherwise stated).

• 2009 figures are based on Q2-Q3 2009 research and are, therefore, part-year estimates.• 2009-2014 figures for Hot Drinks and Soft Drinks are based on preliminary research findings as of Q3 2009. Final

2009-2014 figures for Hot Drinks and Soft Drinks will be published by Euromonitor International in December 2009.• All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data

are expressed in current terms; inflationary effects are taken into account.• All volumes expressed in this report are in million litres and ready-to-drink (RTD) million litres.• Share of Throat – volume sales of beverages.• Share of Wallet – value sales of beverages.• Product coverage:

• Alcoholic Drinks• Hot Drinks• Liquid Dairy• Soft Drinks

General Definitions

Definitions


49


Alcoholic Drinks Definitions

Definitions

Alcoholic Drinks coverage:• Beer: An alcoholic drink usually brewed from malt, sugar, hops and water and fermented with yeast. Some beers are

made by fermenting a cereal, especially barley, and therefore not flavoured by hops. Alcohol content for beer varies – as much as 14% abv (alcohol by volume), although 3.5-5% is most common. Beer is often loosely classified by the nature in which it is made: Top fermented (ie ales, bitters, wheat beers, stouts, porters etc) Bottom fermented (ie all lagers). Note: pre-mixed beers such as beer/lemonade, beer/whisky or beer/tequila mixtures are excluded from the data. These are included in flavoured alcoholic beverages (FABs). Beer is the aggregation of lager, dark beer, stout and LABs/NABs.

• Cider/perry: Cider is made from fermented apple juice, while perry is made from fermented pear juice. Both artisanal and industrial cider/perry are included.

• RTDs/High-strength premixes: This the combination of RTD and high-strength premixes. RTD stands for ready-to-drink. Other terms which may used for these products are FABs, alcopops and premixes. The RTDs sector is the aggregation of malt-, wine-, spirit-based and other types of premixed drinks. These drinks usually have an alcohol content of around 5%, but it can be as high as 10% abv. Premixes containing a high percentage of alcohol of around 15%+ combined with juice or any other soft drink are included here. These are usually marketed as a product to be drunk neat with ice, to mix with an energy drink and/or to make cocktails. Fruit-flavoured, vodka-based spirits with an alcohol content of between 16-21% are classified here. Examples: Alizé, Ursus Roter, Berentzen Fruchtige, Kleiner Feigling.

• Wine: This is the aggregation of still and sparkling light grape wines, fortified wine and vermouth and non-grape wine. In terms of alcohol content, light wine usually falls into the 8-14% abv bracket, while fortified wine ranges from 14% to 23% abv. For this study, low- and non-alcoholic wine is also included in the data (attributed to each sector as appropriate).

• Spirits: This is the aggregation of whisk(e)y, brandy and cognac, white spirits, rum, tequila, liqueurs and other spirits.


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Hot Drinks Definitions

Definitions

Hot Drinks coverage:• Coffee: The aggregation of fresh and instant coffee.• Tea: Tea types and consumption habits differ greatly – as a result, Western countries will focus more upon black tea,

whereas Asian countries (mainly Japan, China and South Korea, but also India, Thailand, Vietnam, Malaysia and Indonesia) will focus more upon green and “flavoured” varieties. The three main categories of tea are black, green, and oolong. Within each of these categories there are many varieties. Green teas, black teas and oolong teas come from the same tea plant species, the difference being the processing of tea. Black tea undergoes several hours of oxidation during preparation (accelerated by heat and humidity) whereas oolong tea is partially fermented and green tea is steamed to stop oxidation.

• Other hot drinks: Only malt- or plant-based powders, granules, blocks or tablets mixed with milk or water are included. The packaging usually recommends either milk or water, but consumers do not always follow this for different reasons, for example cultural reasons, and dietary or cultural requirements. These products can be consumed hot or cold. The packaging often has serving recommendations.

• Note: Flavoured powder milk drinks are excluded to avoid double-counting, as such powdered drinks are usually mixed with milk.


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Liquid Dairy coverage:• Milk: This is the aggregation of fresh/pasteurised, long-life/UHT and goat milk. Note: Powdered milk (dehydrated)

used in place of fresh or long life milk or goat milk and infant milk formula is excluded.• Flavoured milk drinks: This is the aggregation of dairy-only flavoured milk drinks and flavoured milk drinks with fruit

juice. Note: Flavoured powder milk drinks are excluded.• Soy beverages: This is the aggregation of soy milk and soy drinks. Note: Only RTD liquid products are included. Soy

powder is excluded.• Drinking yoghurt: This is the aggregation of regular drinking and functional drinking yoghurt.• Sour milk drinks: Includes kefir, lassi as well as buttermilk and whey drinks. Kefir is significant in Eastern Europe. A

cultured-milk beverage, kefir has a creamy consistency and slightly sour taste. Kefir is prepared by culturing fresh milk with kefir grains/ granules which are a natural mother-culture. Traditionally, butter milk is the slightly sour, residual liquid which remains after butter is churned, ie milk from the butter or buttermilk. It is usually flecked with tiny spots of sweet, creamy butter. The flavour of buttermilk is similar to yoghurt. Commercial buttermilk is nowadays made by adding a lactic acid bacteria culture to pasteurised sweet milk, and it may or may not have added butter flecks. The milk is later left to ferment. Low/reduced fat sour milk drinks are also included here.

• Note: Coffee whiteners, condensed/evaporated milk, flavoured, functional condensed milk and cream are excluded.

Liquid Dairy Definitions

Definitions


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Soft Drinks Definitions

Definitions

Soft Drinks coverage:• Carbonates: Euromonitor International defines carbonates as all non-alcoholic drinks into which carbon dioxide gas

has been dissolved, and therefore the drink is carbonated. Carbonates are an aggregation of cola carbonates and non-cola carbonates, whether regular or low-calorie.

• Fruit/vegetable juice: This sector only includes still drinks. Carbonated varieties are included in the non-cola carbonates subsector. Juice flavoured milk drinks and fruit shakes are excluded. However, fruit/vegetable drinks that contain a minimum amount of milk are included within this sector. This sector is the aggregation of 100% juice, nectars (25-99% juice content), juice drinks (up to 24% juice content) and fruit-flavoured drinks.

• Bottled water: This sector includes sparkling water, spring water and purified/table water. This is the aggregation of still bottled water, carbonated bottled water, flavoured bottled water and functional bottled water.

• Functional drinks: This is the aggregation of sports drinks, energy drinks and elixirs. Health and meal replacement drinks, such as Slim Fast and Pedialyte, are not included. Powder energy drinks are excluded and are included within the powder concentrates subsector.

• Concentrates: This is the aggregation of liquid concentrates and powder concentrates. RTD concentrates volumes are calculated by applying an average conversion ratio for each country to “as sold” liquid and powder volumes. The conversion ratios for liquid and for powder are specific to each country and can be viewed alongside “as sold” volumes in the appendix of each country report.

• RTD tea: This is the aggregation of still RTD tea and carbonated RTD tea. • RTD coffee: Includes packaged ready-to-drink coffee. This sector does not include coffee flavoured milk drinks.

Leading brands in off-trade volume include Georgia, Nescafé and Suntory Boss.• Asian speciality drinks: Asian speciality drinks are traditional drinks or national specialities commonly found in Asia.

This is the aggregation of Asian cereal-pulse based drinks, Asian juice drinks and other Asian speciality drinks.


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Global Share of Throat & Wallet