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Slow Growth of Low Calorie Carbonates Requires Change in Focus in Latin America

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Euromonitor International Bio

As evidenced by continued volume decline of carbonates in many developed markets, global obesity remains the most impactful factor on soft drinks. This is also true in Latin America, where carbonate penetration is high, but growth is beginning to slow. Consumer preference for carbonates in this region, combined with concerns about obesity amongst a growing adult population should translate into high growth for “diet” and “light” carbonates, but instead, some consumers are moving away from carbonates entirely. Faced with reinvigorating the category, carbonate manufacturers have focused on sweetener blends to create low-calorie replacements for full flavoured counterparts. But, despite innovations in ingredients, no diet carbonate “tastes like the real thing.” By focusing on taste, manufacturers force consumers to compare diet beverages to non-diets, a proposition that fails as consumers instead switch to other beverage categories. Instead, manufacturers should focus on creating healthier carbonates that add value via functionality rather than attempting to market poor facsimiles.

Growth for low calorie carbonates slows

Latin America leads all global regions in carbonates consumption with almost 47 billion litres purchased off-trade in 2012. Carbonates also lead all other soft drink categories in the region, outpacing bottled water by nearly 7.5 billion litres. However, the category’s growth is starting to slow. After posting an off-trade volume CAGR of 3.8% from 2002-2007, carbonates dropped to 1.4% from 2007-12. Saturation and maturity are contributing factors to this slowing of growth, but manufacturers also attribute this to increased consumer concerns over health and obesity issues.

This worry over health, combined with the growth of the adult population and increases in consumer purchasing power, indicates an ideal market for low calorie carbonates. As consumers age, more and more become concerned with the health effects of sugary beverages. Given the popularity of carbonates in the region, reduced sugar or “diet” carbonates such as Coca-Cola Light or Guaraná Antarctica Zero seem to be the solution for consumers with health concerns. However, as indicated in the chart below, reduced sugar carbonate consumption growth is beginning to slow across the region.

Latin America: Reduced Sugar v. Full-Flavoured Carbonates, Off-trade Volume Growth
Latin America - Reduced Sugar v. Full-Flavoured Carbonates Off-trade volume growth

Source: Euromonitor International

Companies such as Coca-Cola, PepsiCo and AB InBev have all heavily invested in reduced sugar carbonate innovation and marketing, promoting and releasing zero calorie versions of their drinks. Coca-Cola Zero, launched in Argentina, Brazil, and Mexico in 2007, helped buoy the category during its peak growth, and quickly became the region’s largest reduced sugar carbonate brand in 2011, holding the top spot in 2012. However, despite strong early performance, Coca-Cola Zero’s growth slowed, with only 4% volume growth from 2011-12 across Latin America’s three largest carbonate markets: Argentina, Brazil, and Mexico.

In these markets, many consumers are switching to other beverage categories as a healthier option. Both Argentina and Mexico saw strong growth in flavoured bottled water with Argentina surpassing 1 billion litres in off-trade volume in 2012 and Mexico nearing 1.5 billion litres. In the same year, Brazil’s fruit/vegetable juice category posted double digit off-trade volume growth (11.2%) for the first time since 2006-07. As these categories flourish while carbonate growth slows, manufacturers have focused on the innovating the reduced sugar carbonate category to win them back.

Adventures in formulation

Amidst this landscape, Coca-Cola has revaluated the flavour and formulation of its low sugar carbonate offerings. In Brazil, one of Coca-Cola’s most important markets, the company discontinued Coca-Cola Light in 2010 and introduced Coca-Cola Light Plus, a fortified reduced sugar cola carbonate. The beverage uses the similar artificial sweetener blend of Coca-Cola Zero (aspartame and acesulfame potassium), but is also fortified with B vitamins as well as zinc and magnesium. The drink was marketed toward women and highlighted the fortified formulation that gave consumers more than just “zero calories”. The beverage was regarded with both optimism and scepticism by news outlets and online reviewers. On the one hand, supporters embraced the idea of a beverage providing an active health component, rather than simply lowering or removing calories. On the other hand, critics were quick to point out that the addition of some vitamins and minerals hardly made the beverage “healthy”. But after a two year run, Coca-Cola Light Plus failed to meet Coca-Cola’s expectations and was discontinued in 2012.

While the fortified cola experiment failed in Brazil, there could be potential in a more functional cola carbonate. Energy drinks are the fastest growing soft drink category in Latin America, posting an off-trade volume CAGR of 25% from 2007-12. This performance is indicative of a growing demand for functional soft drinks. Coca-Cola Light Plus, while fortified, failed to deliver on any sort of functional claim – or at least not on any claim that resonated with consumers. But, there could be opportunities for low calorie colas with a more active weight loss function. In Japan, PepsiCo and Kirin Brewery Company have launched “fat blocking” colas with their Pepsi Special and Kirin Mets Cola brands. Both products are low in calories, but also contain an indigestible form of dietary fibre (dextrin) that supposedly reduces the absorption of fat in the body. While consumers may be sceptical about the efficacy of the beverage, the pro-functionality consumer climate created by energy drinks in Latin America may present an ideal time for new functionalities to be introduced.

On the other hand, ingredients such as dextrin and acesfulfame potassium can raise red flags for consumers seeking more natural and healthy beverages. Both Coca-Cola and Pepsi are examining the possibilities of natural low-calorie carbonates by using stevia in some markets. Stevia is a plant grown largely in South America, with virtually zero calories and roughly 300 times the sweetness of sugar. Unfortunately, similar to its artificial counterparts, the plant has a strong, off-putting aftertaste. Pepsi is using stevia in a blend of its mid calorie Pepsi Next for the Australian market and Coca-Cola has announced a blend of stevia and sugar to create a low calorie version of Sprite in the United Kingdom and France. Coca-Cola is also examining the possibility of using stevia in a new formulation of Coca-Cola Light in Argentina. Aside from the low calorie aspect of the beverage, these drinks attract consumers due to stevia being a natural ingredient – unlike artificial sweeteners aspartame, sucralose, and acesulfame potassium. Many consumers are wary of the potential side effects of artificial sweeteners, and Coca-Cola is hoping this new natural formulation will assuage those fears. But, the drawback of stevia is the same drawback for all low calorie soft drinks: taste.

A change in focus is needed

This issue of taste is the biggest hurdle for carbonate manufacturers. Creating a drink that tastes as good as its full flavoured counterpart seems to be virtually impossible, yet many brands continually advertise that their newest products “taste like the real thing.” But, in order to grow the low calorie carbonates category, a change in focus may be necessary, especially in Latin America. The full sweetness of products like Coca-Cola, Pepsi, and Antarctica are part of the carbonate experience – an everyday indulgence that has become a part of Latin American culture. In order for consumers to discount this taste, a value proposition must be added to take its place.

Energy drinks did not become popular due to taste. Instead, the product’s function was more important than flavour in consumer purchasing decisions. Similarly, “green juice” (a blend of green vegetables such as kale and spinach) is not consumed solely for liquid refreshment; it is coveted for its health properties. For manufacturers to convince calorie-conscious consumers to switch to low-calorie carbonates, they will need to provide a value outside of taste – and stop creating lesser imitations. Coca-Cola Light Plus was a good attempt, but fortification is much different from active function.

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