Soft Drinks: Half-Year Update H1 2022

Delivery

This report comes in PPT.

Key Findings

Price increases are resulting in significant quarterly revenue increases for soft drinks producers

The consensus view of leading soft drinks producers in Q4 2021 through Q2 2022 is that substantial price rises (in the form of reduced promotional intensity and margin-friendly changes to product mix, as well as direct price increases to retailers) have been achieved with a minimal impact on volume sales to-date. Pricing action has largely been successful, driving strong revenue growth for leading brand owners and bottlers through Q2 2022.

In the second half of 2022, volume sales are likely to soften as the prospect of stagflation looms

However, the tolerance of consumers may be tested in the second half of the year. Soft drinks producers have moved faster than peers within consumer packaged goods in passing on price increases, utilising a much broader package mix and other revenue growth management options available. But further planned increases may test the resilience of consumers, particularly as the prospect of slowing output and “stagflation” (inflation plus a recession) increases.

Rising sugar and corn prices may force changes in innovation strategies and reformulation

Soft drinks producers have seen input costs rise in a variety of areas. High energy prices, tighter labour markets and higher commodity prices for aluminium, plastic resin, cardboard and other packaging materials have all had a significant impact on margins. In 2022, Russia’s war with Ukraine has contributed to an increase in corn prices (a key ingredient in artificial sweeteners), sugar and other food commodities, complicating product innovation and formulation decisions for producers.

Price increases and a resurgence of public health challenges could complicate on-trade beverage recovery

While retail bears the brunt of inflation, an environment of rising prices threatens the recovery of the on-premise beverage sector in North America and Western Europe in 2022, while ongoing public health challenges are restricting mobility in China and other parts of Asia. A significant resurgence of infections and subsequent restrictions on travel and mobility remains a key risk to the industry, even as attention shifts to the challenges posed by high inflation.