The following tale of corporate wrestling between two Goliaths of the soft drinks industry may seem far removed from the average baker on the high street, but stay with it.
PepsiCo, a third of the value of megabrand Coca-Cola five years ago, overtook its bitter rivals for the first time last December. Spotting a trend, the former diversified into healthier products, fruit juices and energy drinks. The latter was slow to react to changing consumer lifestyles, dithered and fell behind.
But why should the baker care about this hare-and-tortoise tale of tussling multinationals? The moral of the story is that consumers want healthier drinks options from their retailers – not just sugary carbonated drinks. And this trend is not restricted to the upmarket sandwich chains and food-to-go outlets, such as Pret A Manger. Bakery chain Greggs, for example, has seen success in its south east stores selling Fairtrade pure orange juices and fruit smoothies.
There are signs that classic drinks like cola are being outperformed in some outlets by juice drinks. Marks & Spencer’s Pure Juice, for example, is a big seller with the lunchtime sandwich trade, says Georgina Pickford, consumer insight director at TNS Worldpanel. Latest figures show expenditure on juices up 10% year on year, with cola up 5% and fruit carbonates down 4% (TNS Worldpanel, 52 w/e Jan 1, 2006).
“There are some interesting trends in the soft drinks market with a move away from carbonated drinks, and juices are really growing,” she comments. “We are seeing a move from juice drinks to pure juice drinks, and people are certainly wanting more wholesome products.”
This is a trend that PepsiCo cottoned onto quickly in acquiring number one orange juice brand Tropicana in 1998, nearly seven years ahead of Coca-Cola’s introduction of Minute Maid orange juice in the UK in June 2005.
And in February last year PepsiCo bought UK smoothies brand PJ Smoothies, credited as the first company to introduce smoothies to this country in 1994. Smoothies are the fastest growing part of the soft drinks category and the PJ brand accounts for about one-third of the UK smoothies market. One set of figures shows value sales of chilled juices up strongly, by about 17%, but smoothies were up a hefty 98% (IRI 52 w/e 3 Dec, 2005).
Last year Unilever launched its Vie smoothies brand with a flurry of marketing. But leading the charge in the smoothies category is Innocent, with nearly half the market. Since launching in 1998 the London-based company has rapidly become the number two chilled fruit drink behind Tropicana in the UK. Its drinks are sold in the likes of sandwich chain O’Brien’s, Starbucks, Bagel Factory and Eat, as well as independent bakeries through its regional and national wholesale suppliers.
But why should a healthy drinks option appeal to a typical bakery customer coming in for a pasty? “Consumers are definitely wanting to go to these outlets and find a healthier choice,” argues Innocent sales director Giles Brooke. Many people will ‘trade-off’ a sandwich or a pie against a product that offers them health benefits, he observes.
He views bakeries as a huge untapped outlet for healthier drinks. “We don’t think there’s a better time than now to be getting into bakeries and we want to help them improve their offering so that they are bringing in more healthy products, as well as giving them the opportunity to benefit from one of the fastest growing categories,” he states.
“In terms of craft bakeries we’re not in as many as we’d like. We are actually in a significant number of outlets that sell sandwich and pastry offerings, but we will be looking to get into even more.”
Changing consumer lifestyles have put sugary drinks and carbonated drinks, in particular, into long-term decline. Meanwhile, smoothies is the fastest growing category and Innocent was the number one chilled juice value growth brand over the last 52 weeks, accounting for 89% [IRI] of the growth on branded smoothies.
In the first three weeks of this year, the brand underwent some 30-50% increases above projected sales in foodservice outlets. This was on the back of Innocent’s £1m January marketing campaign, featuring slogans like ‘Tasty as pie, healthy as mung beans’.
The core range of 13 250ml drinks has a recommended retail price of £1.79; but lunchtime sandwich and drink promotions, best illustrated by Boots’ lunchtime meal deals, are a great way to increase volume sales of drinks, says Mr Brooke. He adds that Innocent’s position as market leader gives it strength to offer retailers good margins on its products. “I think the biggest opportunity with smoothies is the cash margin and we outsell our nearest competitor within smoothies by at least two-to-one,” he claims. “With such a strong unit rate of sale we can really improve cash margin for retailers.”
Greggs gets on board
Greggs has embraced the smoothies concept in the south east – the region with the strongest smoothies sales – and has sold The Big J smoothies in around 230 stores for nearly two years. The drink also sells in Cooks (formerly Three Cooks) bakeries nationally, coffee shops and independents.
The Big J MD Josephine Carpenter says price point has been a sticking point for bakeries in the past. But perceptions are changing, and its 250ml smoothie pack, which sells for £1 in Greggs, is particularly suited to bakeries.
“Over the years, as the smoothie market has grown, more and more bakers have come online,” comments Ms Carpenter. “Because smoothies are generally a more expensive soft drink, we wouldn’t have dreamt that they would have sold in a bakery in terms of the price point a few years ago. But now people are prepared to pay more for a smoothie because they know it’s good for them.” And, echoing Mr Brooke’s remarks, she says: “Bakers have told us that people will buy a sausage roll and a smoothie – there is a trade-off.”
But why should a baker choose The Big J over a more recognisable brand name like Innocent? “One of the main reasons people choose our brand – even though it’s a similar product – is the fact that we package it in a Tetra-Pak, which means it has a longer shelf-life,” she says. “It’s easy to keep and can be stored outside the refrigerator. When bakeries are trialling new products that can prove essential.” The company also sells 330ml bottles, juices and a Roald Dahl juice range with no additives or preservatives for children.
According to market research company Euromonitor (June 2005), natural ingredients and low sugar content in pure juices, compared to carbonates, appeals to health-conscious consumers. “Not-from-concentrate juice also owes its growing popularity to the combined benefits of high-juice content and convenience, which fits well with the current consumer trend favouring convenience beverages,” it said.
Colin Davis, commercial manager at Gerber Foods Soft Drinks, which manufactures, distributes and markets top-five juice drink Ocean Spray in the UK, as well as making own-label juice drinks, agrees that the juice content of a drink can play a part in the purchase choice.
“Ribena has 6% juice whereas Ocean Spray Cranberry Classic has 25% juice. It is predominantly for health reasons that consumers buy Ocean Spray.” The drink comes in a 500ml re-sealable cap bottle in three flavours – Cranberry Classic, Cranberry and Raspberry, and Cranberry and Blackcurrant. They are also available in 250ml can and 200ml carton formats.
Mr Davis says bakers should reassess their drinks range: “Although bakers will tend to stock waters they haven’t really embraced the juice market. They might have one or two juices, but they may be missing a trick by not offering a wider choice.”
According to Britvic’s category director Andrew Marsden, the key to driving sales is to stock the right range of big-name brands in the right formats, such as 500ml bottles.
So the answer to maximising the drinks offering might well rest with getting a balance between big name brands and niche, healthier options. “We recommend retailers stock for all ages; include still and carbonated drinks and, most importantly, identify and stock for drinking occasions that suit their customers,” concludes Mr Marsden.
Have sugary carbonated drinks had their day?
There is a sea change in the soft drinks market underway. The Union of European Beverages Associations, which represents the major soft drinks manufacturers, last month announced plans to curb its marketing to children.
The soft drinks industry will place a self-imposed ban on the marketing of soft drinks to under-12s, with a pledge to avoid directly appealing to children. It will also place limits on presence, branding and portion sizes in schools.
Chaired by PepsiCo’s Europe’s Stephen Kehoe, the association’s move signals the big players’ response to pressures from the European Union, state governments and consumer groups to curb obesity.
Long-term consumer lifestyle trends are also seeing shoppers moving away from sugary carbonated drinks towards perceived healthier options: juices, smoothies and waters. If this latest move to discourage children’s ‘pester power’ for sugary drinks proves successful, the trend is likely to continue.
SOFT DRINKS BY NUMBERS
Expenditure on juices was up around 10% year on year, with fruit carbonates down 4%
(TNS Worldpanel, 52 w/e Jan 1, 2006)
Value sales of chilled juices were up by about 17%; smoothies were the fastest
growing category, up 98% (IRI, 52 w/e Dec 3, 2005)
CRAFT BAKERY’S VIEW
Mike Holling is retail and sales manager at craft bakery Birds of Derby
Q. What is in your core range of drinks?
A. We offer a standard range of the most popular carbonated drinks, including Coke and Diet Coke, Fanta Lemon and Orange, low-sugar Ribena, still, sparkling and flavoured waters, and a pure orange juice. Ideally, I would like to have an own-label product, but because of the production required we can’t.
Q. Do you sell hot as well as cold drinks?
A. We sell more cold than hot drinks because not every store is set up to offer hot drinks, and seasonal changes will make a noticeable difference. We see a dramatic increase in the demand for cold drinks when the weather is hot, and sales can go up by 20% in a hot week.
Q. Do you change your drinks range much?
A. We will always look at new products. We have bean-to-cup coffee machines in selected stores, and you need a decent amount of skill to make a really good coffee. The shops sell flavoured waters from a local supplier in the Peak District. We think it is important to keep supply as regional as we can. Strangely, sales of still water far outstrip sparkling water.
Q. Do many purchases include a drink?
A. It really depends on the location. If it were one of our Expresso outlets (a food-to-go fixture designed for shopping centres), you would see a much higher percentage than in a standard Birds craft bakery shop.
Q. How important is merchandising for boosting turnover of drinks?
A. We have self-service refrigerated display units and we incorporate our sandwiches in them as well. By doing that the customer will link the product. If you’re buying a
sandwich and there’s a pure orange juice next to it, you’re going to make that link and buy the drink.