For the first time in three years, most of the UK is enjoying a half-decent summer. And while the public digs out shorts and sun cream, the soft drinks market is heating up as well. Sales are up 6% in the convenience channel (Nielsen ScanTrack Total Impulse 12 months to June 12, 2010) and manufacturers are predicting a future so bright, retailers will need sunglasses.

According to Britvic sales director Murray Harris, the outlook is particularly bright for convenience stores. "The convenience channel is growing faster than grocery, with growth coming predominantly from symbol outlets. In terms of how retailers are feeling, our latest research has found that 50% of retailers say their soft drinks sales have increased over the previous 12 months."

GlaxoSmithKline category controller Mark Sterratt, who recently launched a new raspberry variant of Ribena onto the market, says that there's no doubt that the heatwave in June and July has helped to lift sales. "The market is back in growth after a tough time, and if the good weather continues the category will have a very strong year," he says.

Coca-Cola Enterprises wholesale trade manager Darren Goldney says that the independent channel has driven the entire soft drinks market, and that colas and carbonates have performed extremely well. "Some well-established markets have grown this year with carbonates doing better than in previous years," he says.

Rubicon head of marketing Adrian Troy agrees that carbonates are the shining stars. "There's been a 7% value sales growth in carbonates in the past year," he says. "The sub-category has really picked up in the past 12 months."

It's not just Coca-Cola and Rubicon that are celebrating an uprise in the fortunes of the carbonates market. Vimto recently relaunched the Sunkist range with several new blends and is seeing the benefits. Vimto brand manager James Nichols says that the brand extensions won't stop there.

"Both the market and the Sunkist brand needed a shake-up and we believe that its new look will bring younger people to the market," he comments.

Nichols adds that Vimto may also move into the lucrative energy drinks market later this year. "It's important to keep diversifying and growing a brand," he adds. "And given the popularity of the category, it's a natural progression for us."

High energy

Vimto's confidence in the sports and energy sub-category is not unfounded. The sector was one of the few areas that has shown growth no matter how badly the entire soft drinks category performs. The sub-category saw 10% year-on-year value sales growth in the 12 months to May 15, 2010 (Nielsen) and one of the star performers in sports and energy, Red Bull, says that it shows no sign of stopping.

Red Bull trade communications manager Tom Smith says that the sector has benefited from today's more active lifestyles. "Consumers have less time and have more hectic lifestyles so they are looking for a functional drink that will help get them through the day," he says.

Smith adds that the energy market now needs to concentrate on offering more consumption occasions rather than new products. "The market will grow when it becomes clear to consumers when the appropriate occasion or function is for a particular product," he adds.

To help capitalise on these additional occasions, Red Bull along with other energy brands introduced energy shots to the market last year.

Although officially classified as a food supplement, the shots are being marketed by companies traditionally associated with soft drinks. Smith says that there is still some work to be done to help the public accept them, though. "It's still an emerging sub-category and the public need to know when to consume it rather than expecting it to be a substitute for an energy drink," he says. "They're meant to be kept separate to soft drinks, at the till point, so that the market isn't cannibalised and rather brings in incremental sales."

Drop by drop

One area of the soft drinks market that has experienced a tough couple of years is the bottled water sector. In 2007 and 2008 it dropped 3% and 9% in sales value respectively, according to Nielsen. The market stayed flat throughout 2009, so has the future for bottled water finally dried up?

Earlier this year, a YouGov survey revealed that 60% of UK adults thought that bottled water was a waste of money, preferring to drink tap water. The survey also showed that only 27% of respondents drink bottled water in an average day.

YouGov's research director James McCoy says: "The water market has experienced exponential growth over the past 10 years, but signs are that this may be coming to an end. The recession, innovations in home filtering and the popularity of Brita-style products, have contributed to the renewed faith in tap water over bottled."

Leading the way
The British Soft Drinks Association (BSDA) has a new chief executive, Roger White, who has big ambitions for the soft drinks industry. 
White, who is also chief executive of AG Barr, took over in mid-June and will be BDSA president for the next two years. He wants see the soft drinks industry continue to prosper as well as make progress on the sustainability objectives it has set itself. "The industry's success is built on innovation and significant product support across all areas of marketing, development and sustainability," he says. "For this success to continue we want to develop strong partnerships with our suppliers and with customers in the retail sector in order to provide consumers with the maximum choice and convenience. We are keen to ensure that government does not impose unnecessary regulations on the industry, and in particular we do not want to see new or discriminatory taxes." 
White says that the soft drinks industry should be stressing the importance of hydration. "Many people do not drink enough, and may feel lethargic and rundown as a result. But we should never lose sight of the fact that soft drinks should be consumed as part of a balanced diet. 
The industry supports GDA labelling to ensure that consumers have the information they need so they can make informed choices." He adds that the BDSA will also be promoting responsible marketing and retailing of energy drinks following a code of practice that encourages manufacturers to print warnings on products that are high in caffeine.
 "We recognise that when it comes to drinks with a high caffeine content, there are questions regarding children and we have published a code of practice on the subject." Energy shots are another matter. "It is up to each manufacturer to decide how to classify energy shots, whether as a soft drink or as a food supplement," he adds. "There are strict rules about how energy shots may be promoted or marketed. As a responsible industry, we think that is correct."
According to the manufacturers, however, bottled water's demise has been greatly exaggerated. Nestlé Water head of consumer marketing Jenny Brown says that while 60% may see bottled water as a waste of money, 40% don't and she is happy to concentrate on keeping those consumers loyal. But she does believe that the market needs to evolve in order to grow. "There needs to be a more affordable range in the market," she says. "While some people will pay premium prices for premium products, there needs to be an affordable product that consumers will pick up on the go and not feel like they are spending more than they should."

Harrogate Spring Water managing director Paul Martin says that the bottled water market was hit hard in the past two years and is only now recovering. "The bottled water market has had a wake-up call in the past couple of years," he says. "The tide turned against the entire sector in 2007 and it forced us to work harder. I don't think sales will reach the heights of five years ago, but achieve more of a slow steady growth. The UK public is still massively under-hydrated compared with other European countries so the growth is still there."

Isklar UK spokesman Deane Ingram says that a combination of the good weather and improving economy has led to a resurgence in sales of bottled water in recent weeks, helping to turn the tide for the sub-category. "As we're slowly coming out of recession, it is evident that consumer confidence is returning and discretionary spending on bottled water is increasing," he says. "Plus the improved weather is seeing more consumers visit the high street, growing impulse purchases of bottled water."

Ingram adds that even though consumers have more money to spend, price will remain a key concern when it comes to purchasing bottled water. "It is expected that the UK market will slowly return to the levels of consumption seen a couple of years ago, but pricing will remain a key factor, with promotions becoming more vital as manufacturers and retailers look to drive value back into the category," he says.

Brand owners have some conflicting advice on whether retailers are stocking enough bottled water. Nicholls believes that store owners should cut back their ranges. "This category already receives too much space in impulse. Retailers need to cut down on brands, offering no more than two or three options," he says. "I'm not saying that retailers shouldn't try new water products that are released onto the market, but rather keep a core range and occasionally try new products without risking being left with unsold stock."

Nestlé's Bond, though, believes that bottled water needs more of a focus in independent stores. "Retailers need to look at Tesco Express and Sainsbury's Local and how their water fixtures are set out for maximum impact," she says. "Store owners should combine these elements with what sets them apart from other stores the community feel. If they can balance those two then sales will soar."

She adds that bottled water should make up at least 20% of a soft drinks fixture, which should be increased to 40% in the summer months. She also suggests multi-siting as much as possible. "Retailers should have bulk displays, impulse displays and secondary chillers that carry all sizes of bottled water."

What's your function?

One area of water that has done well over the past year is functional water. According to the Britvic Soft Drinks Report, the sector saw an increase of 4% in value sales and 9% in volume in 2009.

Britvic's Harris says that the sector can benefit from the public's quest for function along with hydration. "Functional drinks, such as V Water, are increasingly popular with consumers who are looking for water products with additional health benefits on top of hydration," he says.

Coca-Cola's Goldney says that the sub-category has had big success in the US and believes that this will transfer to the UK. "Although there is some work to do on the sector, I think that if it's introduced gradually and in small steps, it will be welcomed by both retailers and consumers," he says.

Neuro Drinks business development manager Anthony Johnston believes the sector's appeal lies in its simplicity: "Functional drinks give consumers an easy and affordable delivery system of essential nutrients that help to enhance health and well-being to meet their demanding lifestyle."

Goldney is quick to dispel any comparisons between functional water and energy shots, however, which were also introduced into the UK after seeing sales success in the US. "Energy shots haven't performed as well as expected in the UK as there is a misconception on the public's part and they don't seem to be quite sure about what they are for, whereas functional water is more straightforward the information on the bottle is more accessible and retailers can stock them in the chiller next to the other soft drinks, rather than alone on the counter."

Rubicon's head of marketing Adrian Troy maintains that functional waters haven't found their place yet, but he is certain that it will happen. "Consumers aren't seeing the benefits of functional waters in the same way that they have for sports and energy drinks," he says. "It will happen eventually, but just not yet. People really respond to energy drinks and what its function is. Brands need to keep pushing the benefits of functional waters, but it will still take some time for it to really take hold."

retailer opinion
"Thanks to the good weather, soft drinks sales have been fantastic. 
Water is showing the biggest growth across the sector, which is unusual for me. If someone had told me 10 years ago that bottled water would be sold in shops I wouldn't have believed them. 
I think that bottled water is attracting new customers to soft drinks rather than taking them from other areas, which obviously results in more sales for the entire category. "I think the reason bottled water sells so well is because we like to feel as if we're drinking healthy products and water is obviously the healthiest soft drink we have on the shelves." 
Chris Sharrinton, Spar Helston, Cornwall
To help boost functional waters within the convenience store channel, Coca-Cola has launched a mixed case option for Glaceau Vitamin Water that will enable retailers to achieve the "rainbow effect" with all of the available variants. Goldney explains the logic of this launch: "Retailers who want to just try functional waters to see if they will sell in their store won't want to buy six cases to fill out the entire range, so this way they have a smaller amount of all variants that is more affordable and doesn't take up space in the store room."

Down the line

If brands that make up the once troubled water market are enthusiastic about their sector, how do manufacturers in other soft drinks areas see products performing throughout 2010?

Vimto's Nicholls is confident that success will be sustainable. "All areas of the category will do really well this summer," he says. "I think there will be more innovation in sub-categories and the clear lines between sectors will begin to blur, creating new blends to help grow the market."

Adrian Troy agrees that crossovers are key to the category's continued growth. "The past year was the lightest in terms of market innovation, but that was because businesses were being cautious," he says. "They will continue to be somewhat cautious, but there will be more new flavours launched than in the past 12 months, offering more choice to the consumer and creating more interest."

Britvic's Harris also believes that the good times will continue and that the recent sales growth is not a temporary rise. "Our research shows that 22% of retailers believe soft drinks will drive sales growth in the next 12 months," he adds. "So, overall, we're very pleased with the prospects for soft drinks in convenience stores."
top tips
Carbonated remains the poor relation of the bottled water market. According to Nielsen figures, it makes up just 7% of the plain water category. 
Iskar's Deane Ingram says that the reason the ratio is so in favour of still is because the latter is more universal and meets hydration needs for all occasions. Ingram says that carbonated water comes into its own around the Christmas season as consumers like to have a bottle at home to serve at parties. "Sparkling water consumers are generally looking for a product to complement good food and wine," he says. 
He adds that Isklar wants to make sparkling water the choice for those looking for an on-the-go drink. "We are keen to position sparkling water as an alternative choice for consumers on the move," says Ingram. 
Nestle's Jenny Brown says that retailers should stock just one or two carbonated options. "Carbonated water is always looked upon as quite small but its customers are loyal," she says. "Store owners should carry a couple of lines to satisfy these consumers."
ones to watch.. 
Get snappy 
Britvic is launching a 7Up on-pack promotion offering consumers the chance to win a Polaroid Two digital camera every hour. Consumers enter the 'Simple Pleasures' competition online and the promotion runs until October 4. It is designed to increase awareness of the brand while driving sales. 
tel: 0845 7581781 

Take your pick 
Ribena has unveiled a new text-to-win competition that gives consumers the chance to win £1,000. The 'Pick your Own' promotion which runs until October is part of a £2.5m investment in the brand and will be supported by TV and outdoor ads. The promotion will run across the entire Ribena range. 
tel: 0870 241 5132 

Keep it tropical 
Navson has added a new variant to its Peela range of ambient fruit juices. Its latest flavour, pineapple, is available now in a 250ml bottle. The entire Peela range is also now available in a 1ltr sharing-size bottle. The juices contain no added water, sugar or preservatives. rrp: 250ml 99p; 1ltr £1.79
 tel: 0845 644 0992 

Quick thinking 
Calypso soft drinks has released a new range of carbonated fruit juice drinks in time for new school year. Rapidz are available in three flavours: cola, iron brew and lemonade. The range is made up of 50% fruit juice with no added sweeteners, making it school compliant. rrp: 65p tel: 01978 668400 

Pick a pack 
Coca-Cola has released a range of multipacks exclusively for independent retailers. The range features Coca-Cola, Diet Coke and Coke Zero in four x 330ml can multipacks. The four-packs are available to retailers in both plain and pricemarked packs. rrp: £1.49 tel: 08457 227 222
Category check-up
To help retailers make the most of their soft drinks offering and improve sales, Coca-Cola has created a 10-minute soft drinks MOT. 
It takes the form of a written questionnaire that asks store owners about the brands they stock, what their best-sellers are and what the slowest sellers are. 
The results give the retailer a score across various aspects of the category. Retailers can then use this score to assess if they are properly utilising the space they have. Coca-Cola wholesale trading director Darren Goldney says that retailers can fill out the MOT at their leisure and decide how best to use the results. "It's something that retailers can complete quickly and instantly to see what score they get in each particular area," he says. 
"We wanted a straightforward method to help retailers take a good look at their soft drinks fixtures, who might otherwise be wary of doing it in front of one of the field sales team." Goldney adds that the aim of the MOT is not to push a particular brand but help retailers maximise the potential of the whole sector. 
"It runs across the entire category, not just Coca-Cola products," he says. "If sales of the category improve then all brands will benefit, including Coca-Cola." Coca-Cola will be rolling out the MOT from September and it will be available from both the wholesale channel and field sales teams. "It's designed to drive a feeling of competitiveness among retailers and make them care about their soft drinks area," adds Goldney. 
"They can assess their score, see which areas they can improve and apply it to help grow sales."
top 10
1Coca-Cola 2Diet Coke 3Lucozade Energy 4Evian mineral water 5Oasis 6Cherry Coke 7Dr Pepper 8Pepsi Max 9Ribena 10Pepsi Cola Source: Kantar Worldpanel