Howard Telford, head of soft drinks research at Euromonitor International, told attendees at BevNET Live in New York City this month that sales in the US beverage industry have grown 14% to $450bn in the last five years and a majority of beverage stakeholders are optimistic the trend will continue.
But, he added, “over this timeframe, we haven’t actually been drinking a whole lot more packaged beverages,” which means what consumers are reaching for is changing dramatically, as is the price they are willing to pay.
“Looking at the combined sale of everything from alcohol to soda, wine and spirits have seen a bump over this time period and that is mainly been at the expense of craft mass market beer in the US. There has also been a much bigger swing away from dairy, away from packaged juice and away from, as you all know, carbonated sweetened beverages,” he said.
The biggest beneficiary from these declines, in terms sales growth is ready-to-drink tea, and in terms of volume is still bottled water, with flavored seltzer making a strong showing in the past two to five years as well, Telford said.
The next five years
Looking forward, he expects in the next five years sales will follow this trend with sales of kombucha and ready-to-drink tea leading the way with a projected compound annual growth rate of 14%.
Bottled water also will continue to climb with sales of flavored bottled water projected to grow 8-9% followed by carbonated water at 6%, still bottled water at 4%, tonic water at 2-4% and coconut and plant-based water at 2-4%.
Much of this growth comes from consumers seeking alternatives to higher calorie, sugar sweetened beverages and the perception that water is a healthy alternative, Telford said. As such, water has woven its way into consumers’ daily lives the same way that hot coffee has with consumers reaching for a bottle or a cup at the start of their day, at lunch, at work and after work.
Is trouble on the horizon for water?
Consumer interest in water also has inspired many manufacturers to try and tie their products to the category, even if they are not a natural fit – such as with the emergence of so-called plant-based waters, Telford said.
But, he warned, this connection could backfire if the plant-based water and regular water segments continue to grow.
“We know there are a lot of products tied to water and an increasing number of beverages calling themselves water, but when I sit through regulatory sessions” focused on defining natural as a way to stem the ever-rising tide of class-action suits associated with the word, Telford said he cannot help but “wonder about how liberal we have been with the application of the term water on packaging,” and if it will follow the same path as ‘natural.’
He also warns that water could soon reach a tipping point in terms of sustainability issues, and specifically single-use packaging.
“That is an issue that is No. 1 perhaps on the agenda at the moment in Europe, and I think this is on the agenda now, here, and will gain traction,” he said.
Could spirits, beer and wine follow soda down the same path?
Another significant shift that Telford says he is watching is a move to more “mindful, superior drinking,” which could hit hard the liquor, beer and wine segment while opening up opportunities for nonalcoholic alternatives.
“We aren’t just drinking to get wasted anymore,” Telford said.
He explained that consumers are more conscious of the sugar and level of alcohol in beer, wine and spirits and so if they opt for these beverages, they increasingly are picking elevated options or ones associated with an experience.
Better-for-you flavored pre-mixes are benefiting from this because they allow those drinking alcohol to do so more slowly and more socially, while also providing an option to those who choose not to consume alcohol.
Sophisticated sodas, such as ginger ales and tonics, and seltzers also are seeing a lift from this trend, which Telford projects will represent a $9 billion opportunity in the next five years.
Functional beverages continue to rise
Just as consumers are seeking better-for-you options when they indulge, they are looking for more function from their everyday beverages as well, which Telford says is leading to a rise in plant-based beverages.
These include milk-alternatives, plant-based protein drinks, kombucha and probiotic drinks, and caffeinated beverages, as well as products with adaptogens, collagen, botanicals and traditional medicinal plants, he said.
“If you look at our data from our health industry surveys, we are spending a lot on over-the-counter pharmaceuticals, but we are spending more on vitamins, dietary supplements and sports nutrition products that allow us to take a more proactive rather than reactive approach to our health. I think consumers are preparing to accept beverages as a part of that in a much bigger way,” he said.
Beyond the next five years
While many of these trends are already taking root today, Euromonitor also has identified several trends that it thinks will start to be more important in five years than they are today, Telford say.
These include a more intentional and prevalent use of organic ingredients, a greater focus on sustainability in sourcing, packaging and manufacturing, and products created for specific diets, such as the low-FODMAP diet, which is still niche but shows strong signs of growth, he said.
Ultimately, Telford said, that the beverage industry has many avenues for growth, even as some legacy categories continue to dwindle.