Why growth is sluggish in the non-alcoholic beverage industry

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Falling demand

The non-alcoholic beverage industry is facing challenges. Carbonated beverage volumes are falling, primarily in developed markets. Beverage Digest indicates a 3% fall in 2013 overall carbonated soft drink (or CSD) volumes in the US, making it the ninth straight year in which demand has declined. Previously, US CSD volumes declined by 1.2% and 1% in 2012 and 2011, respectively.

CSD per capita

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Key indicator—per capita consumption

The per capita CSD consumption in the US fell to about 675 8-ounce servings per person in 2013, from 701 8-ounce servings in 2012. Reduced consumption reflects the declining volumes and a slower rate of US population growth.

One of the reasons for the continued decline in soft drink volumes over the past few years is weak consumer spending, caused by adverse macroeconomic conditions, especially in the US and Europe.

Health concerns

Another major reason is the shift in consumer preferences toward healthier products. Carbonated soft drink makers have faced severe criticism from health officials, governments, and communities alike for the ill-effects of high sugar content, artificial sweeteners, and other harmful ingredients in their products, including those in diet soda variants. Consumers are also more conscious of the health risks associated with soft drinks such as obesity and nutritional deficiencies, especially in youth. As a result, they’re opting for other beverages that are non-carbonated and have fewer calories.

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The World Health Organization suggests that sugar should account for only 5% of total energy intake per day. That’s around 25 grams of sugar per day for an adult of normal body mass index. Health officials feel that this percentage should be even lower for a better quality of life. A single soda can contains around 40 grams of sugar.

The soda tax

Mexico, which has the highest rates of obesity in the world, has imposed a 10% tax on sugary beverages to discourage the consumption of these drinks. There is a strong possibility that many other countries will introduce a soda tax to reduce sugar consumption through carbonated drinks.

In the next part of this series, we’ll discuss how soft drink makers including The Coca-Cola Company (KO), PepsiCo, Inc. (PEP), Dr Pepper Snapple Group, Inc. (DPS), and Monster Beverage Corporation (MNST) are sustaining business under such challenging conditions. Coca-Cola and PepsiCo are part of the Consumer Staples Select Sector SPDR ETF (XLP).

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