Soft Drinks: Quarterly Statement Q3 2016

Strategy Briefing

About This Report

Sep 2016

Euromonitor’s Q3 Soft Drinks Forecast Model update demonstrates that a deepening recession in Brazil and weaker expected growth in the US were two key factors negatively impacting global prospects through 2020. Political uncertainty in Western Europe has also reduced expectations in the UK and Germany. Despite a modest reduction in global forecasted growth, major brand owners continued to invest in new products and targeted acquisitions to their portfolios over the past quarter.

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Soft Drinks: Quarterly Statement Q3 2016

Q3 forecast remains weaker than researched baseline

The latest quarterly update to the Soft Drinks Forecast Model shows another decline in expected growth over the next five years, with the 2020 value size now 0.3% smaller than initially expected, equivalent to US$11.5 billion, and two thirds of researched markets facing a downgrade in forecast growth.

Recession in Brazil impacts global expectations

Social, economic and political turmoil in Brazil has the most significant impact on the global soft drinks industry again this quarter, with little reason to revise expectations. The downgrade to Brazil alone accounts for more than 20% of the reduction in the global value sales forecast.

Slower GDP growth in the US this quarter

Weaker than expected growth in the US economy is another major contributing factor. Per capita GDP growth of 1.9% for 2016 has been revised down to 1.0%, resulting in a substantial reduction in income elastic soft drinks categories in the largest market for beverages.

Uncertainty weakens prospects in Western Europe

The long-term consequences of the expected UK exit from the EU are unknown, but uncertainty about the scope of potential trade and labour market arrangements in Europe has resulted in a GDP downgrade for the UK and other Western European markets, particularly Germany.

Starbucks and Coca-Cola push into high growth segments

The last quarter saw several interesting new products and smaller scale acquisitions. The partnership between Starbucks and Anheuser-Busch to produce a US RTD tea beverage in 2017 was among the highest profile deals of the last three month, while Coca-Cola Co invested in LA Libations, the manufacturer of Aloe Gloe aloe water, in June.

Key findings

Overview

Executive summary
GDP forecasts – revisions over l ast q uarter

Forecast Update

Forecast continues to slip from last year’s baseline
A more pessimistic growth forecast from Q2 2016 expected
Less than 2% value growth now expected in 2017
Q2 versus Q3 downgrades: Slowdown in US, UK and Germany
Major downgrades in Latin America and Russia
Hardest hit categories include bottled water and juice
Brazil’s slowdown is bad news for bottled water and juice
Top 4 soft drinks companies face exposure to downgraded markets
Market potential of India illustrates long term industry importance
Impact of the UK referendum depends on the terms of EU exit
Upside for local/regional players in upgraded emerging economies?
Threats to the soft drinks industry over 2015-2020

Industry Developments

Soft drinks companies diversifying to focus on healthier alternatives
A slowdown in carbonates leads companies to realign brand portfolios
Teavana announcement illustrates growth potential of RTD tea in US
Multinationals continue to invest in Brazil despite economic turmoil
Buying WhiteWave offers access to high growth, high protein categories

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