Health and wellness is one of the most discussed trends in all Lithuanian FMCG industries and soft drinks products are usually recognized as one of the most impacted areas. Consumers, the argument goes, should avoid drinks perceived as unhealthy and either reduce their intake, abandon them altogether or seek a compromise by looking for healthier versions of the same drinks. However, in looking at Euromonitor International’s soft drinks data in Lithuania over the period of 2009 to 2014 (specifically, CAGRs – compounded annual growth rates) a rather different picture emerges. In fact, the best results were achieved by the same categories which have faced the most scrutiny. At the same time, categories appearing to be well-positioned to benefit from current healthy lifestyle trends were stagnating and even declining in some cases. Large marketing budgets and powerful branding have proven to be better indicators of growth than wellness positioning.
Energy drinks and carbonates could serve as good examples, where prevailing health and wellness trends in the industry have not been relevant to category growth despite publicity. The energy drinks category saw its image tarnished after a number of years of successful performance, and by now only the least informed drinkers are unaware of the health hazards which are associated with excessive energy drinks consumption. Yet this escalated public emphasis on the negative health impact of energy drinks did not prevent the category from showing strong results in 2011 and 2012 (30% and 18% total value growth respectively), so much so that the country’s politicians found it necessary to impose a ban on sales for shoppers under 18 in November 2014. Carbonates sales also continued advancing in both value and volume terms over the 2009-2014 period despite heightened concerns about excessive sugar intakes and diabetes. Firms adapted to current lifestyle trends by offering sub-brands in sugar-free and reduced sugar forms, but the sales of these subsets still pale in comparison to established versions. For example, low calorie cola carbonates’ share within total cola carbonates volume did not exceed 11% in 2014. In contrast, companies in Lithuanian carbonates are arguably the most bullish of all, suggesting that, at least in their belief, indulgent categories will thrive and adapt to current lifestyle changes despite public pressure.
The sluggish performance of categories commonly perceived as healthy is equally perplexing. At first glance, the RTD tea category has all it takes to succeed from a marketing point of view: many pleasant flavours, tolerable unit prices, good if not great distribution in stores. RTD teas are also perceived as healthy by Lithuanian consumers and Nestea (by Nestle SA) was among the first non-alcoholic drinks brands to replace sugar with a natural low-calorie sweetener, stevia, in 2012. However, this did not result in strong sales. After the re-launch and a promising start, sales of Nestea and the wider RTD tea category saw popularity waning in Lithuania mainly due to sluggish sales support and over dependence on price promotions.
Lithuania: Value and Volume Growth by Soft Drinks Category 2009-2014
Source: Euromonitor International
Note: Note: Bubble size denotes market size in 2014, LTL million
As another example, sports drinks, despite an overt wellness positioning, remain tiny in size in Lithuania with less than €2 million in value sales in 2014, as opposed to carbonates market worth €115 million, juice - €87 million and energy drinks - €22 million in 2014. Gatorade and Powerade, two of the world’s most recognized brands are no longer available in leading Lithuanian retail chains even though the market seems promising in demographic terms. A soaring number of predominantly young Lithuanians are taking up physical activity, which leaves them thirsty and open to technologically improved products. However, a combination of limited supply, lack of strong brands and prohibitive prices lead to weak results.
Strong branding, not low price, makes the difference
What about affordability? Is price the factor constraining Lithuanian consumers from healthier drinks? Juice brand managers have attributed the unimpressive performance of juice, another category which is clearly positioned as tapping into health and wellness trend, primarily to high retail prices, suggesting that juice has become a de facto luxury category. This argument, however, does not hold when price of juice is compared to energy drinks, with the latter costing more than twice as much in per-litre basis, according to data by Euromonitor International (€2.79 and €1.36 respectively). Even high-priced 100% juice at €1.58 comes nowhere close to energy drinks (€2.79) Over the years 2009 to 2014, cheap fruit –flavoured drinks with no juice content managed a CAGR barely above 1%, proving once again that low price in itself is not enough to attract shoppers. Additionally, the gap between unit prices separating juice and carbonates at 42% (€1.36 vs. €0.96 respectively) also does not appear big enough to explain relatively weak recent performance of juice.
Marketing budgets and the way they are used appears to be the answer. Two of the best performing categories over the years 2009 to 2014 were carbonates and energy drinks growing in value by a CAGR of 8.6% and 4.2% respectively, both of which have clear leaders with dominant market shares (Coca-Cola HBC Lietuva UAB with 48% of carbonates sales and Red Bull GmbH wit 37% of energy drinks market). Spearheaded by strong leaders, these sectors stand out from the rest of soft drinks categories with a much higher reliance on brands. It is not just marketing budgets that divide drinks into losers and winners, but also the way they are used. Brand managers of poorly performing categories were trying to resuscitate sales by slashing prices. In a sharp contrast, those responsible for better performing categories meanwhile invested continuously in a premium brand image.
Success stories of recent new product developments are also revealing. Perhaps the most talked-about campaign was organized by Coca Cola in 2014, Share a Coke, which put common names on its cans of drinks. While the investment required was significant, it was the idea itself that made the difference. Red Bull’s commitment to all things crazy and extreme is well documented, contributing immensely to sales of the drink despite concerns over nutritional content and health. Neither is the brand driven success of carbonates confined to big spenders: Selita ir Ko UAB succeeded by launching Selita Klasika, a drink which evokes nostalgic memories to the fizzy drink made during the soviet era. Nor does this only apply to Lithuania: Punane Sõstar nostalgic soft drink was launched in Estonia by A Le Coq AS with great results.
This hypothesis is further supported by strong growth rates of bottled water in recent years (5% in 2013 and even faster growth in 2014). The product itself has hardly changed, with little room for technological innovation in production processes and additives since consumers favour natural water products. What did change is the way bottled water is presented to consumers in Lithuania. Birstono Mineraliniai Vandenys ir Ko UAB attracted a lot of attention, targeting youth with its abrasive and daring ads for its Vytautas mineral water brand which not only resonated with consumers by going viral but also gained international recognition in ad awards. Other water bottlers’ ads are not as courageous but the shift from functional to emotional appeal is palpable. The purification of water is still mentioned, but at the core of new messages is “feel good” and not the quench of consumer thirst. Increased marketing activity and strong branding of bottled water companies contributed to the strong performance of the category more than prevailing health and wellness trends, and thus drove the water category to outperform both juice and RTD tea.
What conclusions can be drawn from the divergence of industry rhetoric and category performance? Given current trends, it appears that the Lithuanian soft drinks industry as a whole and stagnating categories in particular should recognize that many consumers base their purchasing decisions on brand image and impulse. Companies should act accordingly, meaning that health claims should not be at the forefront of communication, but rather as additional incentive to buy an already desirable brand. Creation and promotion of soft drinks brands should be more on an emotional rather than functional level. Furthermore, price slashing without creating brand value first only accelerates the race to the bottom without contributing long-term brand or category growth. Can currently under-performing categories and companies succeed? After all, the best performers are worldwide giants with large marketing budgets. In contrast, domestic companies either rely on their wizardry of domestic talent or keep these activities in-house. It will not be easy or quick, but recent results of local bottled water producers provide grounds for optimism.