The slow growth of carbonates across the world has opened the door for new

beverages and brands. As consumers expand their soft drink expectations beyond

hydration, seeking new refreshing flavours and functional benefits, enhanced

waters, such as carbonated, flavoured and functional water and sports drinks,

stand to benefit.

Soft drink products more varied to meet consumer demand

The decline of carbonates across many developed markets and the increasing

penchant for regionally relevant soft drinks in emerging markets have opened the

door to a wide variety of soft drinks to grow. The ability to create drinks that

hydrate, refresh and provide a function has become an important growth driver.

Enhanced waters are positioned for successful growth

Carbonated, flavoured and functional bottled waters, along with sports drinks, are

unique in that they benefit from the healthy hydration provided by still bottled

water, while offering refreshment and/or function. These products feature a wide

range of flavours and formulations, allowing them to be produced and marketed to

meet the latest consumer trends.

Types and positioning of enhanced waters vary region by region

Strong consumption of enhanced waters in the US, Eastern and Western Europe,

Asia Pacific and Latin America further demonstrates the importance of this

category, but the popularity of each type of enhanced water, as well as the way

they are positioned, varies with each region’s consumer needs

Successful products can be marketed for multiple consumption occasions

Danone’s Aquadrinks division underscores the potential of enhanced waters in

many international markets. The ability for these enhanced waters to appeal to

consumers seeking healthier beverages, new flavours and functionality has been

key in broadening appeal and expanding use occasions.

Growth remains a long-term but profitable prospect

While the five year forecasts demonstrate decent growth, a long-term strategy to

focus on this area of soft drinks from major beverage manufacturers could boost

enhanced waters into a key growth category over the next decade.

EXECUTIVE SUMMARY

Health and wellness trend continues affecting soft drinks industry

2013’s performance was good in general terms; however, this year showed

increasing trends in health and wellness concerns within consumers giving more

careful thought to their purchasing decisions. Soft drinks industry shows that

health and wellness concerns benefitted categories like RTD tea, which had the

strongest growth during 2013, reinforcing the fact that consumers tend to

consume what they believe has more health benefits or at least is less harmful to

health.

Mexico’s government acts directly on soft drinks to combat obesity and

diabetes rates

The biggest event in the soft drinks industry during 2013 was the proposed new

tax that President Enrique Peña Nieto passed to the Mexican Congress in February

2012 targeting all sugar-sweetened beverages in an effort to reduce the ratio of

obesity and diabetes type 2 in the country, where 7 out of 10 adults are

overweight and 15% of the population above 20 years old have diabetes Type 2.

The proposed tax was approved by the Congress and by the Mexican Senate in

November of 2012, thus was to start levying the tax in January 2014.

Three major companies strongly lead competitive environment

The competitive environment in Mexico’s soft drinks industry is strongly

concentrated in three major companies Coca-Cola de México, Danone de México

and Pepsi-Cola Mexicana. These three account for the highest volume shares in

soft drinks by engaging in strong media efforts, having excellent distribution

networks and offering products that are perceived as high quality and/or well

priced. Therefore these company’s brands remain very popular amongst

consumers of all segments and ages in Mexico.

Off-trade channel is still the preferred channel to buy soft drinks

The off-trade channel still accounts for the bulk of soft drinks volume sales. Soft

drinks in Mexico are a very rooted custom amongst the Mexican population, and

the preferred channels from which to purchase them are the modern and

traditional trade channels where consumers can interact more with the potential

brands before deciding what to get. Moreover, an increasing price war amongst

many soft drinks categories makes consumers wait until the point of purchase to

decide on what to purchase.

Soft drinks expected to stabilise despite new tax on sugar-sweetened

beverages

Soft drinks is expected to have a good performance over the forecast period

despite the new tax imposed on sugar-sweetened beverages which account for the

majority of volume sales within the soft drinks category. Companies are expected

to invest efforts in manufacturing products that widen the soft drinks portfolio with

lesser priced options that do not contain sugar. This effort will help the category’s

growth despite the increasing prices of sugarised beverages.

November 7, 2014

The Backlash Against Sugar: The Facts

Analyst Insight by Gina Westbrook - Director, Strategy Briefings

Our new Strategy Briefing, The Sugar Backlash and its Effects on Global Consumer

Markets considers the impacts of this change on consumer behaviour; global ingredients

markets; consumer markets such as packaged foods, soft drinks and health and wellness;

company strategy and legislation. It's worth looking at current thinking on the pros and

cons of sugar to contextualise the research.

The demonisation of sugar

Sugar has endured a tide of negative public opinion as the amount of scientific research

linking the rise in sugar intake with obesity has increased. Governments are becoming

increasingly concerned about the rising cost of illnesses such as type 2 diabetes and cancer,

which have risen alongside weight gain. As fat is receding as the main culprit, recent media

coverage and public discussion are now laying the blame for the growth of obesity and

other health risks principally on sugary foods and drinks.

Sugar is now seen as a health risk by most, and as toxic as tobacco by some. This is leading

to the introduction of a raft of voluntary and legal measures to help control intake. The new

attitude is driving changes in consumption trends, including a conscious effort by

consumers to either reduce their intake of sweet foods and drinks, or eschew sugar

completely. Meanwhile, manufacturers are being forced to tackle the problem in various

ways, including gradually reducing the content of their products, using alternative types of

sweetener, or downsizing portions.

In emerging markets, the picture is – for now – quite different. Although educated, urban

consumers in markets such as China and India are becoming more health-conscious and

aware of the dangers of eating too much junk food and sugary drinks, for many of the

expanding middle classes, consumption of processed and branded food products – some of

which are very high in sugar content – is seen as a marker of affluence and therefore

desirable.

Fact versus opinion; the facts about sugar

In the media, sugar appears to have taken over from fat as public enemy number one.

Hardly a day goes past without a report on its negative effects. The question is, to what

extent is sugar (rather than substances such as saturated fats, salt or carbohydrates) the

cause of obesity, and how serious is the problem?

The scientific community and food and drink industries are divided in their opinions,

although some facts are undeniable. These include the following:

While not proven to be the principal cause of obesity, overconsumption of sugar is

contributing to the obesity problem, which in turn is leading to increased rates of

type 2 diabetes, heart disease and other health problems.

Eating too much sugar is the most important dietary factor in the development of

dental decay.

Refined sugars represent “empty” calories, with zero nutritional value.

Many soft drinks contain extremely high levels of sugar. For example, a can of

regular 7-Up contains 35g of sugar (equivalent to eight teaspoons).

Many savoury foods also have high levels of “hidden sugars”, such as ketchup,

pasta sauces, soups and ready meals.

Sugar can be said to be addictive in the sense that it releases dopamine in the brain,

a sensation akin to being rewarded. Increasing numbers of scientists are comparing

sugar to drugs that create a dependency, similar to alcohol and nicotine.

Arguments of the anti-sugar lobby

One of the first people to bring the adverse impact of fructose to the attention of the public

was Dr Robert Lustig, a childhood obesity specialist and author of the book “Fat Chance”.

In 2009, Lustig delivered a lecture called “Sugar: The Bitter Truth”, which had received 5.1

million views on YouTube by October 2014. In this (as well in as other highly publicised

articles, such as “The Toxic Truth About Sugar”, published in the journal Nature in 2012),

Lustig describes fructose as a “poison” which helps the body retain fat and therefore causes

obesity and type 2 diabetes.

Fructose and fructose-rich sugars (in particular HFCS) are generally considered to be more

detrimental to health than glucose and glucose-containing sugars. Currently, the Food and

Drug Administration (FDA) approves the use of HFCS with a maximum of 55% fructose

(although some types of HFCS, such as those used in certain types of bread, are only 42%

fructose and 58% glucose). However, sucrose (table sugar) is split 50-50 between glucose

and fructose, and conventional corn syrup is 100% glucose.

Once consumed, sucrose hydrolyses into fructose and glucose. Fructose and glucose hold

the same calorific values but it is thought that the two sugars are processed differently in

the body, causing different responses on ingestion.

Glucose (the body’s preferred source of energy) is metabolised within the gastrointestinal

tract, entering the bloodstream almost immediately. This causes blood sugars to rise and in

response the body releases insulin to help normalise blood sugar levels. Glucose molecules

bind to the insulin and are transported to cells that need extra energy. Any unused glucose

is deposited in fat cells, stored as fat.

Fructose is, however, poorly absorbed from the gastrointestinal tract and is almost entirely

metabolised by the liver. When too much fructose enters the liver, the liver cannot always

process it fast enough for the body to use it as sugar, so instead it is converted into glycerol,

a key component of triglycerides. A high level of free triglycerides in the blood is a key risk

factor for heart disease. The condition “fatty liver” is said to affect 70 million people in the

US.

Meanwhile, the rapidly absorbed glucose triggers strong spikes in insulin, the body’s main

fat storage hormone. Insulin resistance has been found to cause weight gain, lethargy,

difficulty concentrating, high blood pressure and, eventually, type 2 diabetes. Some studies

also suggest that insulin resistance could be a contributory factor in cancers and dementia.

The anti-sugar lobby believes that sugar is a much bigger problem than fat, as its

consumption releases dopamine in the brain, a sensation akin to being rewarded. Increasing

numbers of scientists are comparing sugar to drugs that create a dependency, similar to

alcohol and nicotine. In the book “Why Diets Fail (Because You’re Addicted to Sugar)”,

Nicole M Avena PhD and John R Talbott explain how sugar creates a repetitive craving.

An article published by the UK’s Daily Mail in September 2014 claimed that new research

has found sugar to be even worse for blood pressure than salt. The study, by scientists from

New York and Kansas, which was published in an article in the American Journal of

Cardiology, found that high sugar levels affect a key area of the brain (the hypothalamus)

that causes the heart rate to quicken and blood pressure to rise. Higher levels of insulin

caused by overconsumption of sugar may also speed up the heart rate.

Arguments of the sugar lobby

The sugar industry maintains that fears over fructose consumption are exaggerated and that

sugar should not be singled out as the main culprit in the obesity crisis. Sugar, they say, has

been consumed in natural forms for thousands of years and has not been proven to be

harmful. Indeed, according to the British Dietetic Association (BDA), while added sugar is

not necessary for a healthy diet, it is harmless in moderation.

The Corn Refiners’ Association claims that studies of sweeteners tend to focus on the

consumption of pure fructose. It states that in reality, fructose and glucose are consumed

together, which aids in satiety.

According to the American Beverage Association (ABA), US consumers are already

consuming 37% fewer calories in sugar from soft drinks than in 2000, and the overall

average number of calories per beverage serving is down by 23% since 1998. Therefore,

they maintain, sugary drinks cannot be the cause of growing obesity.

Obesity has also been linked with saturated fats and carbohydrates, as well as to sedentary

lifestyles. In fact, obesity rates have continued to climb, despite the fact that sugar

consumption in some markets (such as the UK) has fallen over the past decade. The sugar

industry believes that singling sugar out could harm wider health messages about achieving

a balanced diet.

The food industry argues that sugar is an essential component of processed foods because it

helps make products more palatable, providing texture and acting as a preservative. There

is no one ingredient that can replicate all of the functions of sugar in every product.

One argument against replacing fructose with zero-calorie sweeteners is that the brain

cannot be fooled into thinking sweeteners provide the body with energy. Therefore,

consumption of zero-calorie sweeteners can lead to higher sugar consumption later.

Summary: Arguments For and Against Sugar Reduction

For Against

Refined sugars have zero nutritional value and

are only of benefit if high amounts of energy

are needed quickly.

Sugar has been consumed in natural forms

throughout history and is harmless in

moderation.

Studies have linked high levels of fructose

with the growing problems of obesity, type 2

diabetes and heart disease.

Sugar is not solely responsible for the rise

in obesity – saturated fats, carbohydrates,

protein and sedentary lifestyles are also

contributory factors.

Too much sugar could lead to insulin

resistance, a precursor to type 2 diabetes which

can cause weight gain, lethargy, difficulty

concentrating and high blood pressure.

When fructose and glucose are consumed

together, they are said to aid satiety.

Sugar is addictive in that it releases dopamine

in the brain, a sensation akin to being

rewarded.

Sugar is an essential component of

processed foods as it helps make products

more palatable, providing texture and acting

as a preservative.

Sugar is a major cause of tooth decay Zero-calorie sweeteners are not an effective

replacement for sugar as they do not fool

the brain into thinking they are providing

the body with energy.

Source: Euromonitor International

For much more

This opinion piece lays out the background to the trends which have been identified by

Euromonitor International’s Strategy Briefing team in The Sugar Backlash and its Effects

on Global Consumer Markets.

Strategy Briefings offer unique insight into emerging trends world-wide. Aimed squarely at

strategists and planners, they draw on Euromonitor International’s vast information

resources to give top line insight across markets and within consumer segments.

- See more at: http://blog.euromonitor.com/2014/11/the-backlash-against-sugar-the-

facts.html#sthash.wCgEjLO7.dpuf

wistiaEmbed = Wistia.embed("fckr7s7hbu"); PepsiCo has recently launched two new products:

Pepsi True and Caleb's Kola. These are designed to take advantage of the mid-calorie soda trend,

paritally sweetened with stevia, and the craft soda trend. Both of these launches, in terms of their

marketing and distribution, are relatively experimental so it remains to be seen how these

products will perform. - See more at: http://blog.euromonitor.com/2014/10/analysing-pepsis-

new-product-launches.html#sthash.vVZieQbZ.dpuf

Share a Cole

Returnable Glass Bottles on the raise

Flavour is an essential tool for food and drinks producers, not only in delivering

palatability but also in positioning a product or targeting a specific audience. This

report assesses global flavour trends, looking at market sizes and segmentation,

and explores some of the themes impacting flavour development. Specific analysis

is also included on flavour trends in soft drinks, alcoholic drinks, dairy/ice cream,

confectionery and snacks, as these are among the most innovative categories.

More than just taste

Flavour is far more than just a way to alter taste. Specific flavour types can also

serve a variety of marketing roles, helping to position products, to target specific

demographics and to add excitement or value to finished foods and drinks.

Different regions deliver on volume or innovation

Although emerging markets are forecast to drive overall volume growth in

flavours, it is the developed markets that offer the best prospects for innovation

and New Product Development.

Consolidating industry creates flavour giants

Ongoing consolidation in the international flavours industry has created several

flavour giants with the financial wherewithal to continue driving advances.

Different contributions to health and wellness

Flavour is often used to enhance a health and wellness positioning. This can be

done by giving a more natural or organic positioning, by supporting the specific

health benefits and by adjusting taste to help incorporate functional ingredients.

Targeting customers through flavour

Flavour is also used to help direct products to the right customers. It can increase

appeal to specific consumer groups (eg age, ethnicities and genders), target

specific seasons or occasions, or improve authenticity for more discerning

customers.

The taste experience

The taste experience is another key factor in flavour choice. Specific flavours can

help add a more premium image to a product, increase the fun or novelty factor,

add a sense of nostalgia or deliver a feeling of escapism.

Contrasting themes to satisfy all demands

Different consumers seek different things from their flavour choices, so there are

some clear contrasts in the key themes, e.g. local vs exotic. However, in some

cases, these contrasts can start to merge, e.g. permissible (healthy) indulgence.

Naturals: both a threat and opportunity

Natural flavours are in significant demand, while growing use of flavouring

foodstuffs in place of flavour compounds could also pose a threat in the future.

65% of the anticipated US$100 bn growth in soft drinks over 2012-2018 is set to

come from categories perceived as natural: bottled water, RTD tea and juice. All

the same, demand for functionality is accelerating, with energy drinks taking share

from carbonates. Emerging markets, generating 95% of growth, have been the

global bright spot. As soft drinks consumption in developed markets reaches a

plateau and carbonates face a decline, will we enter what one might call the post-

carbonates world?

Emerging markets expected to deliver 95% of soft drinks

growth

As off-trade soft drinks consumption in developed markets reached plateau,

emerging markets are expected to deliver 95% of the anticipated US$100 billion

growth in value terms between 2013 and 2018.

49% of soft drinks are healthy soft drinks

Off-trade value sales of HW soft drinks reached an impressive 49% share of global

soft drinks in 2013. General wellbeing, energy boosting and weight management

are key growth platforms.

Carbonates in decline in developed markets - imagine the post-carbonates

world

Whilst the 2013-2018 forecasts are for positive but low growth for carbonates,

developed markets will see a decline. Looking beyond the forecasts, the health

concerns associated with carbonates in developed markets will spread to emerging

economies, necessitating a greater focus on building healthy soft drinks brands,

creating an opportunity for start-up businesses.

Functionality adds value and sought after product differentiation

65% of anticipated absolute growth of soft drinks is predicted to come from three

categories perceived as natural: bottled water, RTD tea and juice. At the same

time, the demand for functionality is accelerating, with energy drinks continuing to

take share from carbonates.

Power of regional players

Regional players are becoming hugely important, as their knowledge of local

consumers and their specific health needs, ability to offer lower unit prices and

deeply penetrate retail channels are key to winning strategies.

Multi-brand strategy key to success

The ability to establish a multi-brand strategy, based on a tailored offering in

developed markets as well as big multi-national or regional brands in emerging

markets, is likely to be the key to success for the glob

TCCC has made significant changes in its bottling operations, which is highlighted

in its re-franchising in the NA bottling operations and the birth of the new CCE in

WE. Coca-Cola FEMSA’s string of acquisitions has expanded its territories and

production capability. All bottlers are facing the challenge of the growth in diversity

of drinks, meaning portfolios are becoming increasingly complex. Operational

efficiency and expansion into foodservice are important strategies.

Actively refranchising

TCCC actively refranchised its global bottling operations with the establishment of

CCR in North America and independent bottler CCE in Western Europe.

US regional bottlers

While CCR may give TCCC better control over its brands and a better focus on

marketing, the use of regional independent bottlers is likely to maximise local

expertise.

Health and wellness challenge and opportunities

Consumer demand for healthy products is growing, while the sluggishness in sales

of cola carbonates represents a challenge for all bottlers. Bottlers are exploring

natural sweeteners for some key brands. Juice, RTD tea and bottled water show a

broad appeal in many markets.

Coca-Cola Hellenic gets listing in London and NY

Hellenic’s diverse geographic spread represents a strength, and its listing on

international stock exchanges will allow it to gain exposure in international capital

markets to fund further growth. Hellenic needs to look to develop a natural mineral

water brand in Russia to capture the boom.

Coca-Cola FEMSA acquisitive mood

Together with its parent company, Coca-Cola FEMSA appeared to be the most

active acquirer among its peers. The Filipino bottler acquisition marked a milestone

of going beyond Latin America. Its parent’s expansion in the foodservice and retail

sector demonstrated the manufacturers’ ambition to control beverage supply chain

in foodservice.

Developing own brands

Faced with consumer switching to still beverages, some bottlers might feel TCCC’s

NPD in still beverages is insufficient to offset the sluggishness in carbonates. In

some instances, bottlers could be a little bolder in developing their own still brands

and co-operating with other companies for more robust growth to all players.

TCCC has made significant changes in its bottling operations, which is highlighted

in its re-franchising in the NA bottling operations and the birth of the new CCE in

WE. Coca-Cola FEMSA’s string of acquisitions has expanded its territories and

production capability. All bottlers are facing the challenge of the growth in diversity

of drinks, meaning portfolios are becoming increasingly complex. Operational

efficiency and expansion into foodservice are important strategies.

Actively refranchising

TCCC actively refranchised its global bottling operations with the establishment of

CCR in North America and independent bottler CCE in Western Europe.

US regional bottlers

While CCR may give TCCC better control over its brands and a better focus on

marketing, the use of regional independent bottlers is likely to maximise local

expertise.

Health and wellness challenge and opportunities

Consumer demand for healthy products is growing, while the sluggishness in sales

of cola carbonates represents a challenge for all bottlers. Bottlers are exploring

natural sweeteners for some key brands. Juice, RTD tea and bottled water show a

broad appeal in many markets.

Coca-Cola Hellenic gets listing in London and NY

Hellenic’s diverse geographic spread represents a strength, and its listing on

international stock exchanges will allow it to gain exposure in international capital

markets to fund further growth. Hellenic needs to look to develop a natural mineral

water brand in Russia to capture the boom.

Coca-Cola FEMSA acquisitive mood

Together with its parent company, Coca-Cola FEMSA appeared to be the most

active acquirer among its peers. The Filipino bottler acquisition marked a milestone

of going beyond Latin America. Its parent’s expansion in the foodservice and retail

sector demonstrated the manufacturers’ ambition to control beverage supply chain

in foodservice.

Developing own brands

Faced with consumer switching to still beverages, some bottlers might feel TCCC’s

NPD in still beverages is insufficient to offset the sluggishness in carbonates. In

some instances, bottlers could be a little bolder in developing their own still brands

and co-operating with other companies for more robust growth