In the realm of nonalcoholic drinks, consumers spend more money on carbonated soft drinks than anything else. The sector is dominated by three major players, which together control nearly 80% of the global market. Coca-Cola is king of the soft drink-empire and boasts a global market share of around 50%, followed by Pepsi at about 21%, and Cadbury Schweppes (Dr Pepper and Seven Up) at 7%.
For years the story in the nonalcoholic sector centered on the power struggle between Cola War principals Coke and Pepsi. But as the pop fight has topped out, the industry's giants have begun relying on new product flavors (e.g. cherry, vanilla) and looking to noncarbonated beverages for growth. Pepsi may no longer vie for Coke's carbonated crown, but it has been winning battles on this new competitive front. The company's purchase of The Quaker Oats Company and its Gatorade brand put Pepsi in the #1 spot in the noncarbonated beverage category, adding Gatorade's 73% share of the sports drink market to its Tropicana, All Sport, and Lipton tea holdings. Coke's noncarbonated holdings include Minute Maid, Powerade, and Nestea, among others. Cadbury Schweppes' purchase of Snapple is further indication of the industry trend toward noncarbonated beverages.
Other companies found success with fruit drinks ( Ocean Spray Cranberries ), sports drinks, and teas ( Ferolito, Vultaggio, & Sons ). Even Anheuser-Busch introduced 180, a nonalcoholic energy drink.
The fastest growing product line is bottled water. With about $8 billion in annual sales, both large and small companies are getting into the act. Nestlé currently dominates, claiming nearly half the bottled water sales in North America. But other smaller players are finding niche markets through "enhanced" water. That's where companies add vitamins, herbs, and other additives that supposedly reduce stress, increase concentration, and improve endurance.
The key for all of these companies is differentiation. The giants have new flavors and new appearances (Sprite Remix) for the traditional slow-growth sodas as they wade into the dizzying ocean of juices, water, and dairy drinks now available. Whatever company cultivates the greatest brand awareness in the minds of the consumer (think Nike and gym shoes) will crowd out competitors as it enjoys long-term growth.
Like its nonalcoholic counterpart, a few key players that dominate the global field control the alcoholic beverage industry. Characterized by maturity and low growth, it struggles against a global health kick and heavy price competition.
Beer is the industry's top seller. Major brewers include Anheuser-Busch, with Budweiser and its newer brews such as Michelob Ultra and World Select. As the #1 brewer in the world, Anheuser-Busch can afford to experiment. It teamed with Bacardi to produce the Bacardi Silver malternative. SAB Miller Plc, the world's #2 brewer, pursues a different strategy. Rather than extend its product line, it is growing its flagship Miller brand both in the US and overseas. Europe has witnessed a third strategy for global expansion -- acquisitions.
Interbrew's purchase of Whitbred plc, Bass , and Brauerei BECK , helped grow the company into the world's third-largest brewer. Other brewers also have joined the buying bandwagon: Brazil's Cervejaria Brahma's spent nearly $4 billion in mid-2000 to purchase cash-strapped rival Antarctica Paulista to create AmBev . Also in 2003 Heineken purchased Österreichische Brau-Beteiligungs to form Brau Union in Central Europe. Consolidation is also on the collective minds of wine and spirits manufacturers. Takeover speculation is swirling around Australia's troubled wine producer Southcorp , which has seen profits tumble amid a vine-shriveling drought. One possible suitor is Australian brewer Foster's .
While Australia deals with drought, California vintners in the past year have developed a surplus of grapes, leading to cheaper wines. Wine lovers have stocked up on $2 bottles of California wine, which in part may explain why these and other Sunshine State vintages now make up 10% of the UK wine market.
Spirits manufacturers may not pray for rain to ensure profits, but they do fall prey to consolidation fever. Diageo , the world's #1 producer of alcoholic drinks (beer, spirits, and wine), together with France's Pernod Ricard (the #3 distiller), turned out to be the big winners in the industry-wide scramble to purchase Seagram Company's drinks business. The Diageo-Pernod Ricard duo outbid the tandem of Bacardi and Brown-Forman (maker of Jack Daniels), after #2 distiller Allied Domecq dropped out of the race. Left out in the cold on the Seagram deal, Bacardi now may issue stock to the public after 100 years of family ownership. Having an opportunity to buy into the manufacturer of the world's #1 rum will no doubt interest Diageo, Allied Domecq, and others.
The maneuverings of Bacardi should be instructive for the industry. Other spirits manufacturers and brewers must find the proper blend of market muscle and money to succeed in an industry increasingly unrestrained by geographical boundaries.
