A new report from Rabobank provides an overview of the five key megatrends which will shape the outlook for the global beverage industry in 2012, and highlights issues which are making this both the "best of times" and "worst of times" for industry players.
Rabobank's report, compiled by its global Food & Agribusiness Research and Advisory department, says that the industry will be driven by these five megatrends:
Volatility
Volatility and rising commodity prices are unprecedented, whether driven by changes in global weather patterns, shifts in farm land values or speculative investing, and the recent swings in raw material prices of soft commodities including sugar, coffee and citrus.
Emerging market demand
Emerging market growth is being led by a wave of new consumerism in BRIC markets. Shoppers have greater disposable income and are increasingly seeking out products and brands that fit a more aspirational lifestyle.
Bifuration of value
This is the 'splitting' of consumer demand, and it is growing across all beverage segments. Beverage consumers in developed markets are drawn to either end of the value spectrum, either my low prices and affordable quality, or by more expensive, super-premium brand positioning.
Strategic sustainable sourcing
This refers to the need for global beverage companies to build and manage a more cost-efficient globaly supply chain.
Convergence in distribution
Convergence across segment is accelerating with major soft drinks players moving into dairy, beer distributors acquiring wine and spirits distributors and breweries acquiring soft drinks brands. Convergence increases scale and creates greater supply chain efficiencies
The five megatrends are neither new nor unique to the beverage industry, notes the report.
On the contrary, these trends have been evident across the global food-bev supply chain for the last several years. What is different today is the impact that each is having on the global beverage industry, in the wake of the prolonged global economic recovery. The growing disparity between Old World economies and rapidly growing emerging markets increases the impact of these trends, and beverage companies must continue to innovate to find viable solutions.
Regardless of the drinks segment, each of these megatrends is expected to have a significant impact on the beverage industry in 2012 and beyond. However, not all segments will feel the impact of these megatrends in the same way. For instance, carbonated soft drinks companies are less vulnerable to volatility in raw material costs than juice companies.
Bifurcation is a consumer-driven trends where are increasingly choosing between low-value and super-premium segments. This trends is most influential in wine, where consumers have a wide variety of choices on both ends of the value spectrum, and mid-tier brands are often overlooked.
The convergence trend is visible to different extends throughout the world. Convergence between beer and spirits distribution in the US has just begun, as US beer distributors are starting to look beyond a stagnant beer market for new growth opportunities.
The world's thirst for protein drinks, prebiotics and other functional drinks has led to a burst in new product creations, with the convergence between soft drinks and dairy beverages attracting global beverage companies such as Coca-Cola, PepsiCo, Suntory and Danone.
In China, convergence between soft drinks and dairy segment is already well advanced; for example, it has helped to Super Milky Pulpy Juice to become Coca-Cola's latest billion dollar brand.
In 2010/11, PepsiCo acquired Russia's leading juice company, Lebedyansky, and its top dairy player Wimm-Bill-Dann, and had also entered a joint venture with Saudi Arabia's Almarai Dairy.
In addition, PepsiCo acquired Beyti (an Egyptian juice and dairy concern) and signed another JV with German dairy player Müller to exploit the US market.
The need to build sustainable sourcing to supply fast-growing emerging markets is affecting all segments, but global brewers have felt this impact more than others, as barely and malt supplies tend to be more localized.
Rabobank says that growth expectations contrast sharply across product segments and global regions, and explores the data which shows that developing markets such as India are seeing dramatic growth in spirits.
In another example, juice drinks and nectars were the fastest growing categories within the fruit juices segment, with Rabobank predicting a rise in global consumption of 3.5bn litres in 2012 to 70bn litres this year, with China, Russia and India spurring growth.
For 2012, the analysts predicted that fruit juices and nectars would see 9% and 4% growth respectively, but that orange and apple farmers were unlikely to benefit much, given that most growth was occurring in products with a sub 25% juice content.
Consumers were also looking for more exotic fruit juice flavors, while other product innovations combined juices with other beverage categories, in new nods towards the convergence trend. The emergence of smoothies is a good example. The benefits of this category combine different consumer trends in one drink, the report notes.
Other emergent formats included fruit juices mixed with carbonated soft drinks and fruit drinks with sports and energy drinks.
Rabobank concludes, "Beverage companies that have the vision and resources to take advantage of the five key megatrends are likely to see brighter days ahead in 2012."
