Battle of the bottles

The non-alcoholic beverages sector is primarily made up of soft drink manufacturing, which, at 56.8% of the total industry revenue, is worth $3,314 million. This is followed by juice, accounting for 32.7% and bottled water, at $460.6 million, or 10.5%.

Carbonated soft drinks are the cash cows of the industry, providing the necessary funds to invest in growth products, such as high energy drinks which are a small but growing product segment. Presently, the fastest growing segment is sports drinks, which are designed to re-hydrate and replenish electrolytes after or during sport. Sports drinks make up a small portion of the market compared to beverage markets in other countries, and are hence expected to continue to grow in the coming years.

IBISWorld forecasts that in the five years to 2012-13, industry sales revenue will increase at an average annual rate of 2.5% to $2,832.2 million. However, the effect on this portion of the industry will be offset by increased competition from bottled water and fruit juice.

Because individual consumers usually drink multiple beverage brands, bottlers are able to promote by targeting specific needs. The distinction between different types of water, for example, can be blurred, and is often maintained as much by marketing and labelling, as by differences in actual properties.

Natural spring water and purified water have been the fastest growing beverage types, with spring water accounting for 47% of industry revenue, with purified water accounting for 12%.

Functional waters are ones which have additives (such as electrolytes, vitamins and minerals), intended to stimulate energy, alertness, or give some other benefit above that of hydration, or to stimulate faster re-hydration. These compete as substitutes for soft drinks, as they are flavoured but do not have a high sugar content, which is attractive to health conscious consumers. Included in this segment are sports waters, flavoured waters, near waters, and enhanced waters which all often have added vitamins. As the industry matures and consumers become more informed, these sub-segments should become more clearly defined in the market.

Surveys by the Australian Bottled Water Institute, which represents 85% of all water bottlers, shows that young singles and couples are the dominant drinkers of bottled water. Bottled water drinkers are in general found to be more health conscious, contemporary and socially aware.

The market is characterised by a high degree of new product introductions. Many major players are expanding on their range, producing two or three products. Often these products are at different price levels, or are designed to appeal to particular segments of the market.

There has been some criticism of the industry in that it contributes significantly to waste, as people purchase a packaged product which could be obtained from a tap. Furthermore, the import of bottled water draws criticism due to the energy cost of transportation for a product which is readily available domestically. Still, the value of bottled water to consumers is evident in their willingness to purchase the product.

Keeping options open

Multi beverage companies generally produce both water and juice and usually carbonated soft drinks, generally earning higher margins from water.

The fruit juice drink manufacturing industry has benefited from greater health awareness in the community, which has stimulated increased consumption of fruit juice. Fruit juice is seen as a convenient substitute for fresh fruit, as it contains all of the vitamins present in fruit (though significantly less dietary fibre). However, competition has been strong, while rising fruit prices, as well as PET bottle costs, have been downward pressures on profit margins.

IBISWorld forecasts that over the five years to 2012-13, the fruit juice drink manufacturing industry revenue will increase at an average annual rate of 4.3%, to $1,770.7, with the focus on health and wellbeing particularly driving growth of enhanced juices and premium chilled juices, which contain fruit juice without preservatives and added sugar.

The prevalence of private labels has increased within the juice manufacturing industry over current period. This development may be of concern to existing producers with strong brand loyalty, as competition from cheaper products erodes their profitability.

Consumers are increasingly concerned with the calorific content of the beverages they are consuming and juices are being produced with a lower calorific content than regular brands. Use of particular fruits with well known health properties has also been uses as a means of highlighting the health benefit of the juice. While these fruits generally constitute a small proportion of all the fruit used in the beverage, their inclusion is highlighted to emphasize the health benefit of the product.

Lena Zak is the editor of FOOD Magazine.

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