September 27, 2024
Photo by Victoriano Izquierdo on Unsplash
How Can the Beverage Industry Overcome Market Challenges?
The beverage industry is facing challenges in the market and is in need of improvement across multiple channels.
According to IBISWorld, the decline in per capita soft drink consumption has significantly affected soda producers’ performance. Both regular and diet sodas have seen a drop in demand as consumers increasingly opt for healthier beverage choices, largely due to media reports highlighting the negative health impacts of sugary drinks. Although the rising popularity of energy drinks has provided some support to soda producers, it hasn’t been sufficient to drive overall revenue growth.
Specifically, the company reported that “industry revenue has declined at a CAGR of 1.5% over the past five years, to reach an estimated $42.0bn in 2024.”
Beverage Marketing Corporation also shared that although beverage sales in the U.S. still grew swiftly last year, volume declined compared to the year before, and elevated prices likely played a role. Inflation continued to be significant, and retail sales in 2023 did not increase at the same pace as in the previous two years. After exceeding 36 billion gallons in 2022, total liquid refreshment beverage volume dropped slightly below that mark last year.
In response, beverage brands have been looking for ways to compensate in order to once again bolster sales. One main path to success they have been utilizing is partnering with other brands, often across industries.
GlobalData explained recently that if beverage companies want to differentiate themselves, they need to innovate beyond their traditional markets. Major brands are increasingly partnering for innovative product launches to enhance marketing and drive sales. For instance, as previously reported, a collaboration between The Coca-Cola Company and Mondelez resulted in a limited-edition cola inspired by Oreo cookies, along with Oreo-flavored Coca-Cola cookies.
The data analytics company noted that these partnerships tap into existing fan bases to create excitement around products. It also highlighted Coca-Cola’s Fanta Zero Afterlife, a Halloween-themed apple drink featuring Beetlejuice packaging, as another example of engaging consumers.
Launching limited-edition flavors like this can generate urgency, motivating consumers to purchase before the product disappears. GlobalData reported that the “impact of these collaborations and limited-edition products is significant.”
GlobalData’s Q2 2024 global consumer survey revealed that consumers value unique product features, with 60% considering them “essential” or “nice to have,” illustrating the effectiveness of limited-edition offerings. With the global carbonates market projected to reach $521 billion by 2029, brands are increasingly pursuing creative partnerships to capture market share.
On a bright note for the industry, Forbes highlighted the rapid expansion of the ready-to-drink (RTD) beverage market, fueled by growing consumer demand for convenience, diverse options, and innovation.
RTDs have emerged as one of the standout success stories in the global alcoholic beverage industry, being the “only major category to record volume growth (+2%) in 2023,” coupled with a significant 6% rise in value, according to data from IWSR. However, the category remains highly fragmented and diverse, resisting a universal, one-size-fits-all strategy.
Emily Neill, COO of market research for IWSR, also explained that RDT brands face shorter product life cycles than traditional beverages, posing challenges for beer and spirits companies. Each market has unique taste preferences, making it difficult for a single RTD brand to succeed internationally. For example, a popular cocktail flavor in Mexico may not resonate with consumers in Brazil or Argentina. IWSR’s research highlights significant variations in flavor preferences across major beverage alcohol markets, complicating expansion efforts for RTD brands.
However, brands need to consider more than just flavor in terms of authenticity and brand appeal.
“We think that customers are tired of innovation just being more flavors. The innovation that we see winning and that we think will lead the long-term owners of the category are the brands that innovate on the best route to market (easy to find at right price for target customer) and the best brand experience that customers want to align with.”
Evan Burns, co-founder and CEO of The Finnish Long Drink, via Forbes
Circana has a few suggestions. A new analysis from the market research company highlights significant shifts in the beverage industry, creating opportunities for brands and retailers:
- Health-conscious demand: Consumers increasingly seek functional and convenient beverages, with rising competition from private labels and e-commerce channels.
- Market growth and innovation: The €160 billion Total Beverages market grew by 2.4% last year, driven by innovation in non-alcoholic options like functional and plant-based drinks.
- Sustainability and affordability: Nearly half of consumers prioritize eco-friendly packaging. Economic pressures lead to greater demand for promotions and private-label products.
- At-home experiences: The trend of “insperiences” (bringing “out-of-home experiences into the home”) is reshaping consumer engagement through home-based wine tastings and cocktail kits.
- Social responsibility: Brands are enhancing their image through partnerships focused on sustainability and promoting low/no-alcohol options, appealing to socially conscious consumers.
BrainTrust
Carol Spieckerman
President, Spieckerman Retail
David Biernbaum
Founder & President, David Biernbaum & Associates LLC
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Recent Discussions
Discussion Questions
How can beverage brands use consumer insights to foster loyalty in a health-conscious market?
What do brand collaborations in the beverage industry reveal about consumer behavior and future innovation?
How can traditional beverage retailers adapt to e-commerce trends to enhance engagement and meet the demand for unique products?
Poll
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One of the biggest issues with beverages is that there is so much choice, including from new brands. This has put a great deal of pressure on established players and created a huge battle for share of shelf. Traditional soda is particularly affected because, in many cases, it is not seen as a healthy option. Functional beverages have been a growth area, mainly because they offer added-value benefits. But these are now coming under more scrutiny. One of the keys is understanding consumer needs and consumption occasions and working out how brands and products align with these.
I’m sorry you lost me at “1.5% drop over the last five years”. This is not alarming. And since most of the cola companies on the water and energy drinks, I don’t see a significant storyline.
The beverage sector, along with its various offerings, resembles a chaotic circus filled with stages and tents, where elephants, tigers, and dancing bears are all crammed into a single ring.
I’m beginning to think that the term “beverage” has become too ambiguous to be regarded as a distinct “category.” It’s as absurd now as classifying all “food” under a single category.
Industry leaders must seek out a secluded cabin deep in the woods, free from distractions, to strategize on how to sort, re-categorize, and allocate space effectively.
The challenges are generational, in both alcohol and non-alcohol beverages. As a boomer, I still enjoy the original Coke, and a can of light name-brand beer. Younger generations are different from each other, but they all enjoy drinks. They like water, fizzy water, and flavored drinks. They also enjoy colorful drinks with fun names. Some favorites include spiked seltzer, nitro cold coffee, and energy drinks. There are many other types of drinks they like too.
There are many ways to improve but for right now, I’d like to see much better organized schematics, classifications, and ease in looking for and buying the type of beverage you want to purchase.
The beverage industry is completely oversaturated (see what I did there?). With so much competition, dilution is a natural outcome and the chances of creating the next sensation are diminishing. I don’t see how Oreo-flavored Coke is the answer but further consolidation and acquisition activity would seem to be on the horizon. If you can’t beat ’em, buy ’em!
This is exactly it. I haven’t drank soft drinks in 20 years. This collaboration won’t change that. Because I like the carbonation, sparkling waters have been the go-to for a long time. Now they are enhancing them with nootropics for better cognitive support when you drink it. I don’t think that if they put those in regular soft-drinks that I would go back to them. Still too sweet.
Nearly two decades ago, my client was one of the two largest global beverage brands. They faced similar challenges as soft drink purchases began to decline and alternative beverages gained popularity in California. Some of this emerging competition was healthier than soft drinks, but not all. I provided them with insights, and I’ll use some of them to answer the tree questions above.
Transparency. Beverage brands have loyal consumers who can help promote alternative drinks. Acknowledge that your core products may not appeal to everyone, which justifies introducing new options. Address health concerns directly in your advertising and packaging by highlighting features like reduced sugar and sodium. Be clear that while not all alternatives are better, yours are.
Innovation. Stay attuned to market trends and be open to collaborations with other companies. Instead of asking consumers what they want—since they may not know—observe their behaviors, preferences, and associations with health. Incorporate these insights into existing or new products. Position your brand within the consumer-created space rather than trying to establish a new one. Consumers reward brands that anticipate their needs, and potentially can become your brand ambassadors.
Distribution and Promotion. Enhance engagement by offering exclusive online products and personalizing shopping experiences based on consumer data in your current distribution. Explore currently underutilized distribution channels for your soft drinks. Connect with dieticians and nutritionists who will likely advocate for soft drink alternatives. Sponsor and sample the product at health-focused events and partner with organizations that promote healthy lifestyle choices. It’s a new space for you, acknowledge it by not recreating the soft drink model in a different beverage category.
resulted in a limited-edition cola inspired by Oreo cookies, along with Oreo-flavored Coca-Cola cookies
I usually try to stay on topic, but as a citizen – and a taxpayer – if this is the look of “overcoming marketing challenges”, I don’t think I want the beverage industry to succeed.
This may be “much ado about nothing.” It reflects the maturity & saturation of the market. It is starting to look like the wine market with the leading brand, Kendall Jackson, only garnering a 1% share of market. The challenges will continue, however the largest opportunities, namely water, energy drinks, health drinks, etc. have been captured. The future now is in the development of very targeted offerings. I am reminded that there are riches in niches.
Like many product categories, beverages operate in a crowded market. Some might say the category is confusing because there are so many choices, but if you looked at recent beverage companies annual reports, they are generating solid numbers. New innovation is found in data. The brands that leverage unconventional data sources to find new sub-category niches, will reap the rewards from hyper personalized drinks that offer consumers a moment of differentiated refreshment.
If it is not the actual drink that works against your health it is the horrific and endless packaging that will end up in landfill or the ocean. And much of the “healthy” drinks on offer are anything but.
Put RFK Jr. in charge of cleaning this up…I think this is a signature issue for him…mischief managed!
I’m sort of waiting to see a story about why cigarette consumption has been declining over the last few decades. Almost as if there is some sort of backlash against unhealthy food and beverage options.
I see three issues at play here, all related:
- The soft drink market in general, is so saturated with products that it’s no surprise that market share has been diluted for traditional brands and beverages.
- Consumers have been inundated about the bad health outcomes associated with highly sweetened beverages—diabetes, obesity, etc.
- Millennials and Gen Z were raised to drink water and more “healthy” options. They don’t have the same connections to legacy products that previous generations had because their parents, going back to point #2, avoided giving them sugary drinks and so forth.
The good news, is most soft-drink brands have done an excellent job pivoting to new products to attract the attention of health-conscious consumers. Another trend that I think will benefit this segment is what I’m calling the “war on alcohol.” The media, for the past couple of years, has been full of stories about the dangers of booze. The narrative that we’ve been lied to about drinking and even one drink is too much are everywhere. And, from what I’m reading, they are having an impact on the alcohol business as younger generations aren’t drinking liquor or beer and wine. There is an enormous opportunity here as long as companies are able to understand the market and update their assortments to match the latest demand.
As a Gen Xer with adult-onset Type II diabetes, the meds I’m on (which have done a tremendous job, thankfully) do say that alcohol will mess up my system. I’ve also got sensitivity to the newer sweeteners like acesulfame potassium, sorbitol, and xylitol – feels like food poisoning, and apparently around 10% of the population gets similar reactions. So coffee and basic water is all I look for when out of the house – and that even puts a damper on my QSR / fast food visits. I’ve bought more insulated beverage containers so I can just bring a cold drink wherever I go…
I haven’t quite crossed the diabetes threshold yet, BUT… I’m right there with you. Water, coffee and tea are my favorite beverages of choice.
I recall someone once telling me that The Coca-Cola Company had a 1% market share of the world drinks market and their aspiration was to get to 2%.
Since then I feel many new brands – not always owned by Coca-Cola or PepsiCo – have appeared – it is a very competitive market. Selling direct to consumers via social media platforms for home delivery may well have caught the behemoths by surprise.
Purchases for the ‘drink now’ arena may not be impacted in the same way – although if customers like a particular brand at home it may well be useful for the brand to be available in stores as well to keep customers loyal.
For brands selling direct to consumer, the understanding of customer location could help them to target specific retailers or stores where they should be placing their product.
Retailers could also leverage data intelligence provided by these brands to understand consumer preferences and personalize offerings, ensuring they meet the evolving needs of consumers.
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One of the biggest issues with beverages is that there is so much choice, including from new brands. This has put a great deal of pressure on established players and created a huge battle for share of shelf. Traditional soda is particularly affected because, in many cases, it is not seen as a healthy option. Functional beverages have been a growth area, mainly because they offer added-value benefits. But these are now coming under more scrutiny. One of the keys is understanding consumer needs and consumption occasions and working out how brands and products align with these.
I’m sorry you lost me at “1.5% drop over the last five years”. This is not alarming. And since most of the cola companies on the water and energy drinks, I don’t see a significant storyline.
The beverage sector, along with its various offerings, resembles a chaotic circus filled with stages and tents, where elephants, tigers, and dancing bears are all crammed into a single ring.
I’m beginning to think that the term “beverage” has become too ambiguous to be regarded as a distinct “category.” It’s as absurd now as classifying all “food” under a single category.
Industry leaders must seek out a secluded cabin deep in the woods, free from distractions, to strategize on how to sort, re-categorize, and allocate space effectively.
The challenges are generational, in both alcohol and non-alcohol beverages. As a boomer, I still enjoy the original Coke, and a can of light name-brand beer. Younger generations are different from each other, but they all enjoy drinks. They like water, fizzy water, and flavored drinks. They also enjoy colorful drinks with fun names. Some favorites include spiked seltzer, nitro cold coffee, and energy drinks. There are many other types of drinks they like too.
There are many ways to improve but for right now, I’d like to see much better organized schematics, classifications, and ease in looking for and buying the type of beverage you want to purchase.
The beverage industry is completely oversaturated (see what I did there?). With so much competition, dilution is a natural outcome and the chances of creating the next sensation are diminishing. I don’t see how Oreo-flavored Coke is the answer but further consolidation and acquisition activity would seem to be on the horizon. If you can’t beat ’em, buy ’em!
This is exactly it. I haven’t drank soft drinks in 20 years. This collaboration won’t change that. Because I like the carbonation, sparkling waters have been the go-to for a long time. Now they are enhancing them with nootropics for better cognitive support when you drink it. I don’t think that if they put those in regular soft-drinks that I would go back to them. Still too sweet.
Nearly two decades ago, my client was one of the two largest global beverage brands. They faced similar challenges as soft drink purchases began to decline and alternative beverages gained popularity in California. Some of this emerging competition was healthier than soft drinks, but not all. I provided them with insights, and I’ll use some of them to answer the tree questions above.
Transparency. Beverage brands have loyal consumers who can help promote alternative drinks. Acknowledge that your core products may not appeal to everyone, which justifies introducing new options. Address health concerns directly in your advertising and packaging by highlighting features like reduced sugar and sodium. Be clear that while not all alternatives are better, yours are.
Innovation. Stay attuned to market trends and be open to collaborations with other companies. Instead of asking consumers what they want—since they may not know—observe their behaviors, preferences, and associations with health. Incorporate these insights into existing or new products. Position your brand within the consumer-created space rather than trying to establish a new one. Consumers reward brands that anticipate their needs, and potentially can become your brand ambassadors.
Distribution and Promotion. Enhance engagement by offering exclusive online products and personalizing shopping experiences based on consumer data in your current distribution. Explore currently underutilized distribution channels for your soft drinks. Connect with dieticians and nutritionists who will likely advocate for soft drink alternatives. Sponsor and sample the product at health-focused events and partner with organizations that promote healthy lifestyle choices. It’s a new space for you, acknowledge it by not recreating the soft drink model in a different beverage category.
I usually try to stay on topic, but as a citizen – and a taxpayer – if this is the look of “overcoming marketing challenges”, I don’t think I want the beverage industry to succeed.
This may be “much ado about nothing.” It reflects the maturity & saturation of the market. It is starting to look like the wine market with the leading brand, Kendall Jackson, only garnering a 1% share of market. The challenges will continue, however the largest opportunities, namely water, energy drinks, health drinks, etc. have been captured. The future now is in the development of very targeted offerings. I am reminded that there are riches in niches.
Like many product categories, beverages operate in a crowded market. Some might say the category is confusing because there are so many choices, but if you looked at recent beverage companies annual reports, they are generating solid numbers. New innovation is found in data. The brands that leverage unconventional data sources to find new sub-category niches, will reap the rewards from hyper personalized drinks that offer consumers a moment of differentiated refreshment.
If it is not the actual drink that works against your health it is the horrific and endless packaging that will end up in landfill or the ocean. And much of the “healthy” drinks on offer are anything but.
Put RFK Jr. in charge of cleaning this up…I think this is a signature issue for him…mischief managed!
I’m sort of waiting to see a story about why cigarette consumption has been declining over the last few decades. Almost as if there is some sort of backlash against unhealthy food and beverage options.
I see three issues at play here, all related:
The good news, is most soft-drink brands have done an excellent job pivoting to new products to attract the attention of health-conscious consumers. Another trend that I think will benefit this segment is what I’m calling the “war on alcohol.” The media, for the past couple of years, has been full of stories about the dangers of booze. The narrative that we’ve been lied to about drinking and even one drink is too much are everywhere. And, from what I’m reading, they are having an impact on the alcohol business as younger generations aren’t drinking liquor or beer and wine. There is an enormous opportunity here as long as companies are able to understand the market and update their assortments to match the latest demand.
As a Gen Xer with adult-onset Type II diabetes, the meds I’m on (which have done a tremendous job, thankfully) do say that alcohol will mess up my system. I’ve also got sensitivity to the newer sweeteners like acesulfame potassium, sorbitol, and xylitol – feels like food poisoning, and apparently around 10% of the population gets similar reactions. So coffee and basic water is all I look for when out of the house – and that even puts a damper on my QSR / fast food visits. I’ve bought more insulated beverage containers so I can just bring a cold drink wherever I go…
I haven’t quite crossed the diabetes threshold yet, BUT… I’m right there with you. Water, coffee and tea are my favorite beverages of choice.
I recall someone once telling me that The Coca-Cola Company had a 1% market share of the world drinks market and their aspiration was to get to 2%.
Since then I feel many new brands – not always owned by Coca-Cola or PepsiCo – have appeared – it is a very competitive market. Selling direct to consumers via social media platforms for home delivery may well have caught the behemoths by surprise.
Purchases for the ‘drink now’ arena may not be impacted in the same way – although if customers like a particular brand at home it may well be useful for the brand to be available in stores as well to keep customers loyal.
For brands selling direct to consumer, the understanding of customer location could help them to target specific retailers or stores where they should be placing their product.
Retailers could also leverage data intelligence provided by these brands to understand consumer preferences and personalize offerings, ensuring they meet the evolving needs of consumers.