Some 18 months ago George Osborne announced the introduction of the sugar levy in his 2016 Spring Budget.
The tax will come into force next April and will add 18p per litre to the cost of drinks with sugar content of more than 5g per 100ml, and 24p per litre to the cost of drinks with more than 8g per 100ml.
According to tax and spending forecasts released earlier this year, the levy will raise around £385m a year, but this is less than initially anticipated, due to many companies reformulating products to incorporate less sugar before the levy comes into force.
Demand for choice
Soft drinks in numbers
of operators would look to stock lower-sugar alternatives
of operators rate their soft drinks offering as market-leading
of consumers say the range of soft drinks is important when choosing where to eat or drink out
Source: CGA Peach Business Leaders Survey
Despite full sugar soft drinks still representing more than 70% of the market according to CGA, there has been a clear move towards low/diet sugar soft drinks, which have gained a 1.2 percentage points (ppt) share of volume and now make up 28.7% of total volume.
For Lucozade Ribena Suntory category development manager Lee Cannon, the sugar levy will remain a big topic among producers for the foreseeable future. “The spotlight on sugar is at an all-time high, so the interest in low-sugar soft drinks behind the bar is ever increasing,” he says.
“With this in mind, publicans should be preparing their ranges now to ensure they are offering consumers a choice that meets changing demands.”
Coca Cola European Partners (CCEP) is another of the major brands to have refocused its portfolio. Although, like the majority of soft drinks producers, it was stripping sugar from its products long before the levy was announced and has increased the pace in light of the looming levy.
The company has invested £15m in its sugar reduction strategy since 2012 and has introduced 29 reformulated or new lower-sugar soft drinks since 2005.
“This underlines our commitment to sugar reduction across our portfolio, while helping pub and bar operators to increase sales by offering choice to their customers,” says CCEP’s trade communications manager Amy Burgess.
Operators take lead
Operators are also reacting in anticipation of the levy’s introduction. According to data from CGA’s Peach Business Leaders Survey, 57% will look to pass the increased cost of sugary soft drinks on to consumers, while 54% will look at stocking low-sugar alternatives.
“Some operators are trialling low-sugar variants as their lead offering, potentially with a view to removing full-sugar variants,” says CGA Strategy senior client manager Matthew Mullock.
“As natural sugars are not taxed and ranges are expanded, it is likely that focus on natural juice drinks will increase.”
However, the levy isn’t the only reason why soft drinks offerings are becoming increasingly less sweet.
According to the latest research from data analysis tool NVision, 79% of women and 71% of men are trying to moderate their sugar intake across their diet, and more soft drinks producers are reacting to this trend and diversifying their offerings.
“Recently there has been a rise in the importance of health and wellbeing, with consumers and operators paying more and more attention to the ingredients and nutritional contents of their food and drink choices,” says DaVinci Gourmet syrups senior brand manager Tom Noonan.
The treat factor
SHS Drinks marketing director Jo Sykes agrees the trend towards health and wellbeing cannot be ignored, but stresses consumers still want to treat themselves when purchasing soft drinks.
“Our consumer insights show that the choice of soft drink is actually driven primarily by the consumption occasion, with many consumers creating a credit/debit system whereby they opt for ‘healthier’ choices during the week, particularly at lunchtime, then treat themselves on social occasions when they regard the sugar content as less of an issue,” she says.
“This ‘treat factor’ is clearly something that licensees need to take into account to get the right balance of products in their soft drinks range.”
With this in mind, another major trend within the soft drinks industry this year has been the growth of premium soft drinks options and consumers looking to avoid alcohol. Around one in five people now choose not to drink alcohol altogether, and soft drinks can no longer be a mere afterthought for publicans. Producers are reflecting this shift with an increasing range of high-end products.
“Consumers frequently look for drinks that are more exciting and sophisticated while out and about,” adds CCEP’s Burgess, “Licensees can benefit from the rising popularity of premium soft drinks with our range of Schweppes Sparkling Juice Drinks, which offers a selection of variants including Grapefruit & Blood Orange and Lemon & Elderflower. Delicious as a stand-alone drink or mixer for cocktails and mocktails, they are a great addition to a soft drinks range looking to offer more choice.”
Not only has the growing preference of consumers for premium drinks led to CCEP creating new products, it has also changed the way in which the company markets its flagship Coca Cola brand. It recommends serving the drink in branded glassware, with ice and lemon, so that consumers feel they are buying quality.
“Guests want quality products, and with 75% of guests preferring the original glass bottle and 64% happy to pay more for the original glass bottle when ordering their Coca-Cola, offering a premium customer experience can help licensees build soft drinks sale,” Burgess adds.
Vimto out-of-home sales and operations director Nick Yates suggests that operators can add value to their soft drinks options through activation in the form of PoS and merchandise, and by paying extra attention to the serve. “Give your soft drinks as much consideration as a cocktail,” he advises. “Serve the drink in the right glass, with the right garnishes – it’ll help consumers to stay there for one more. Consumers are also willing to pay more for premium so by giving your drinks a premium look and feel, you can improve your bottom line too.”
The rising number of people choosing to eschew alcohol has also helped increase the diversity of offerings in the soft drinks
market. Last month, Club Soda organised the UK’s first-ever ‘mindful’ drinking festival in London. The one-day event was a celebration of all booze-free drinks, including craft beers, wines and lower-sugar sodas. More than 50 brands were involved in the event, including a number of craft sodas.
“There are a number of reasons for the growing popularity of the sector,” says Club Soda co-founder Laura Willoughby. “Alongside the growing health trend, you’ve got the idea that going out is still a sense of occasion and they want their drink to feel like part of that occasion whether it has alcohol in it or not.
“They don’t want it to be less of an experience and they don’t want it to be unhealthy, so having a glass of Coke or lemonade is unsuitable.”
“If a restaurant or pub fails to upsell a premium drink of any description then they are really missing out on a big audience,” she continues, “People still want to use their pubs and go out and be social, that hasn’t changed. What has happened is that people’s expectation of a good night out has changed.”
Despite this, soft drinks are still very much on the margins, with only 13% of operators rating their offering as market-leading, according to CGA. “With 55% of consumers regarding the range of soft drinks as important when choosing where to eat or drink out, there is a real gap that needs to be addressed,” Mullock says. “The increasingly health-conscious consumer will play a main role when operators consider expanding choice and increasing quality of ranges.”
To make more of the mindful drinking trend, Molson Coors’ spirits and soft drinks senior buying manager David Styring suggests acting on Britvic research and splitting soft drinks menus. “Britvic research last year found that 22% of customers would like to see menus split by full-sugar and low-calorie options,” he explains.
“Although this may seem extreme, it is worth operators at least considering adding notes in to their menu where drinks are low in calories.”