Even though the U.S. remains the largest supplier and consumer of soft drink products, it appears as though this industry is also susceptible to reduced demand. Increased coercion from Congress has added additional pressure limiting the availability of carbonated soft drinks (CSD) in an effort to curb rising obesity rates and improve nutrition. The U.S. soft drink industry has seen a steady decline in sales volume over the past five years as consumers shifted to other alternatives.
Approximately 500 soft drink manufacturing and bottling companies produce in excess of 20.6 billion gallons of carbonated soft drinks annually. The three main players, Coca–Cola, PepsiCo and Dr. Pepper Snapple Group, account for over 80% of the domestic market share. Beverage–Digest reported the top ten soft drink companies accounted for $73.9 billion in retail sales in 2009. Within these companies, Coke remains the brand of choice, followed by Pepsi and Diet Coke, as depicted in the chart below.
The reduction and, in some cases, outright removal of soft drinks within secondary schools has been quite a blow for the soft drink industry. Congress is now regulating the types of drinks allowed in school vending machines in an attempt to reduce childhood obesity. Although state and local restrictions are responsible for a good portion of the declines, voluntary guidelines adopted by the beverage companies and their bottlers in 2006 have also been a factor. Coca–Cola, PepsiCo and Dr. Pepper Snapple Group pledged to eliminate the supply of full calorie soft drinks to schools by the 2009–10 school year, replacing them with lower calorie, healthier options in smaller packaging. As a result, shipments of CSDs to schools fell 72% between the first semester of the 2004–05 school year and the first semester of the 2009–10 school year, according to a report compiled by economic research firm, Keybridge Research LLC on behalf of the American Beverage Association.
Imports of soft drinks grew 3.7% from 2004 to 2009, accounting for an increased share of total domestic consumption. Imports exceeded 289 million gallons in 2009, totaling more than $1.4 billion. Switzerland accounts for the largest share of imports (34%), followed by Austria (25%) and Mexico (21%), according to the U.S. International Trade Commission.
U.S. soft drink consumption approximates 50 gallons per person annually; however, this number has been slowly declining in the past decade. This high per capita consumption elevates CSDs to the third largest food and beverage industry within the U.S. Demographics coupled with consumer income and spending levels are among the largest influencers of demand overall. A key demographic is 15 to 24 year olds, who primarily consume regular soft drinks, while 55 to 74 year olds are primary drivers of diet soft drink sales.
Soft drink companies are finding new ways to combat the declining domestic market by focusing on exports to key partner nations and emerging markets. In 2009, Canada imported 67% of U.S. exports. Mexico ranked second, with 7% of U.S. soft drink exports, while Japan accounted for 5%. Canada and Mexico benefit from their geographic proximity to the U.S., but other foreign markets are also a focus. Select international markets appear to be a bright spot for domestic soft drink companies looking to offset current declines in demand. Latin America, Africa and parts of Asia have shown rapid sales growth, with revenue up 4.8%. Brazil and India are two of the most promising international markets, where sales volume rose 13% and 22% respectively.
Soft drink production has fallen from 73% of all beverage sales to 68% of all beverage sales in 2009. Additionally, experts expect a drop in soft drink production from 68% of all beverage sales to 63% of all beverage sales by 2014. While anticipated to remain the most widely produced beverage for the near future, this industry is continuing to face increased competition from other products such as bottled water, fruit juices, fortified and enhanced options as well as the new market of sports and energy drinks. According to the U.S. Department of Agriculture, water consumption has increased to more than 33 gallons consumption per person as of 2009. From 2000 to 2008, the annual consumption of bottled water increased from 16.7 gallons per person to approximately 28.2 gallons by 2008. Comparatively, during the same period, carbonated soft drink consumption declined 6 gallons per person per year. However, the line of competition between carbonated soft drinks and other beverages is beginning to blur as manufacturers diversify product lines.
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