Hold the papaya juice and bring on the Pepsi.
Health drinks made big inroads into the beverage market in recent years, but the crippling economic recession has brought that growth to a screeching halt as consumers have returned to their once true and cheap love, soda pop. The sweet bubbly beverage had a bigger jump in sales than bottled water, juices, sport drinks and most other segments did over the past 18 months, reports Mintel International Group, a market-research company. "Half of all buyers changed their nonalcoholic-beverage habits due to the recession," says Garima Goel Lal, an analyst at the firm. "Consumers shifted from more expensive beverages, such as energy drinks and ready-to-drink tea, to carbonated soft drinks."
Soda's sales pop up 2.5% in 2009, the first annual gain in five years added fizz to an otherwise flat market. During the same 12-month period, sales of milk and yogurt drinks declined nearly 15%, while fruit and vegetable juices, bottled water and sport drinks also fell. Of course, it wasn't all downward trends: energy-drink sales, for example, climbed about 6%, but this was a much slower pace than the more than 35% average annual gains posted in the previous four years.
While new flavors or catchy marketing surely influenced some consumer decisions, analysts say the overriding force was simple economics. "People stopped drinking the more expensive stuff and kept drinking soda ... because soda isn't that expensive," says Damian Witkowski, an analyst at Gabelli & Co.
Dr Pepper Snapple Group was one of the biggest beneficiaries from the shift as sales of its carbonated beverages climbed more than 6%, with its Diet Dr Pepper and Diet Canada Dry drinks posting percentage-growth gains in the midteens during the year, according to Mintel. Others posting big increases included Coca-Cola's Coke Zero, Cherry Coke Zero and Seagrams, as well as PepsiCo's Diet Mountain Dew and Diet Wild Cherry Pepsi.
So will sales of fizzy drinks continue to rise as the economy recovers? To cite the Diet Cherry Coke cheerleader himself, Warren Buffett, "Growth forges its own anchor," which simply means that the bigger you get, the harder it becomes to post big annual gains. "Carbonated soft drinks are still growing, but they're growing from a much higher base," says David Garfield, a managing director and leader of the consumer-products practice at AlixPartners, a global business-advisory firm.
Sales of carbonated beverages totaled $18.7 billion for the 12 months ending in ending May, according to the Nielsen Co. To put that number in context, it's $5 billion more than total milk sales over the same period. Bottled water, by comparison, rang up just $6.3 billion.
The general resurgence of soda, and the weakness of many nonsoda products, isn't necessarily a sweet song for soda companies, most of whom looked to capitalize on the healthy-drink craze by expanding their product lines and making large acquisitions into noncarbonated sectors, such as Coca-Cola's $4.1 billion purchase of Vitamin Water in 2007 and its $250 million acquisition of Fuze Beverage LLC, which makes energy and tea beverages and vitamin-enriched drinks. PepsiCo has done likewise, with its $3.3 billion purchase of Tropicana juices in 1998, the $370 million acquisition of South Beach Beverage Co. in 2000 and a $75 million purchase of Izze Beverage Co. in 2006.
To find growth today beverage makers are focusing more on expanded distribution, domestically and globally. They are also experimenting with different flavors and sweeteners, and beefing up their marketing campaigns.
Dr Pepper Snapple, for example, is in the process of rolling out its Dr Pepper brand to 14,000 McDonald's restaurants, and plans are in the works to relaunch its 7 Up brand with a new formula that will give it a "crisper and cleaner" taste. Says Andrew Springate, senior vice president of marketing at Dr Pepper Snapple Group: "We are pretty bullish on the opportunity for carbonated soft drinks." Of course, that doesn't necessarily mean that he's bearish on the economy.