Euromonitor International’s latest nonalcoholic beverages research, launched in fall 2022, showed a first glimpse into the volatile market ahead.
The global soft drinks industry was expected to exceed $900 billion in total sales in 2022. Three main drivers propelling demand are: record price inflation in major markets, ongoing recovery in the on-premise channel, and resilient growth in functional drinks—an area clearly showcased at Natural Products Expo West and East last year.
Volume sales of energy drinks remained impressive. The global category was expected to grow by 10% in 2022. Similarly, the study estimated a 6% growth rate for sports drinks. Strong performances were expected for reduced sugar, fruit-flavored sparkling soft drinks and flavored bottled water.
Over the next five years, the soft drinks industry will register a 3% compound annual growth rate (CAGR) in the retail sector (when measured in constant terms). Global on-trade volume sales should recover to pre-pandemic totals by 2024, and the industry is on track to eclipse $1 trillion in 2026.
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Beverages with benefits lead the way
No fast-moving consumer goods category is truly recession proof or inflation proof. But the price-premium functional beverage categories—energy drinks, functional bottled water, sports drinks—remain a pocket of vibrant growth. Even as price inflation slows consumption of major refreshment categories, the outlook for functional beverages remains extremely strong. In particular, the study projects energy drinks to grow at twice the rate of global retail soft drinks over the next five years.
It should come as no surprise that the biggest investments within the industry are in premium, functional beverages—brands that promise to deliver on a health and wellness function within a consumer’s routine. In August 2022, PepsiCo announced one of the biggest food and beverage deals in an otherwise quiet year for beverage mergers and acquisitions (M&A), taking a $550 million stake in the energy drink producer Celsius Holdings, a U.S. producer of hugely successful energy drinks and sports nutrition products. In November of 2021, The Coca-Cola Co. acquired the remaining stake in BODYARMOR, a $5.6 billion acquisition that added to the company’s sports drink portfolio.
Nestlé scaled back its presence in the high-volume regional bottled water segment, selling Nestlé Waters North America to private equity in 2021. But the company’s Nestlé Health Science division increased investment in the premium, functional drinks category. The company finalized an acquisition of Vital Proteins, a manufacturer of collagen-infused drinks and supplement powders, in February 2022. This joined Nuun, a functional hydration brand acquired in July 2021, and Orgain, a protein and collagen supplement producer acquired earlier in 2022.
If energy remains the functional leader, relaxation, sleep aids and nonalcoholic adult soft drinks like alcohol-free spirits, beer and wine are the next generation of new product development in 2022. The global market for CBD beverages has almost doubled since 2019, reaching $425 million in 2021. Beverage producers are incorporating adaptogenic herbs, mushrooms and other botanicals to expand the range of functional claims, need states and benefits explored in nonalcoholic options.
An independent streak in innovation, marketing
In contrast to packaged food, home care or beauty products, the global soft drinks industry remains fairly consolidated around established, leading suppliers. In 2021, the top five global producers accounted for a little under one-third of retail ready-to-drink (RTD) volume sales across all nonalcohol categories.
But this may be starting to change. The devaluation of traditional marketing mix in favor of social channels is leveling the playing field in terms of reach and engagement for regional and local producers. While direct-to-consumer sales remain difficult, platforms like TikTok and Instagram are hugely important to the discovery and trial of new beverages and functional concepts.
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All data in this article provided by Euromonitor International.
Howard Telford is the head of soft drinks at Euromonitor International, which he joined in 2010. In his role, he provides insights on consumer trends and market performance in the drinks industry across markets. Telford’s insights are regularly cited in a variety of national programs and publications, including CNBC, The Wall Street Journal, Bloomberg and Fortune, among others.
