• by Karlene Lukovitz , March 14, 2008

Carbonated soft drinks continued to lose share to bottled waters, ready-to-drink teas and energy drinks last year, according to a new report from Beverage Marketing Corporation.

Carbonated soft drinks' share of total volume within the U.S. non-alcoholic beverage marketplace has been declining for several years, and last year dropped to 48.1%--from 50.1% in 2007, reports BMC, a research, consulting and financial services firm for the global beverage industry. Volume declined 2.6%, to 14.7 billion gallons.

Meanwhile, plain bottled water consolidated its No. 2 position with continued growth, albeit at a slower pace. Volume rose by 6.9% to 8.8 billion gallons, and share rose by 1.5 points, to 28.9%.

The biggest percentage growth was in other "functional and enhanced" beverages with healthy perceptions, although these still command small shares by volume:

• Flavored and enhanced waters were up 30.6% in volume to 547 million gallons, and up 0.4 points in share to 1.8%.

• Energy drinks were up 24.7% to 303 million gallons, and up 0.2 points in share to 1%.

• Ready-to-drink teas were up 15% to 875 million gallons, and up 0.4 points in share to 2.9%.

Fruit beverages held third position--but feeling the heat from the up-and-comers, saw volume decline by 3% to 4 billion gallons, and share decline by 0.5 points to 12.8%.

Sports drinks, in fourth position, saw volume rise 2.5% to 1.4 billion gallons, but had flat share (4.4%).

Ready-to-drink coffee saw relatively little growth (1.4% to 45 million gallons, and flat share at 0.1%).

The trend to functional/enhanced drinks will continue in the years ahead, says BMC chairman and CEO Michael C. Bellas. "Consumers now want different beverages at different times and for different reasons, whether it's an energy boost during the workday or reinvigoration after a workout," he comments.

Looking at performance within the top 10 brand trademarks (meaning all types of beverage lines under the same brand/trademark name), Coca-Cola carbonated beverages remained in the No. 1 volume position, but their gallon volume declined by 2%, and their share by 0.5% to 15.2%. The parent company's Sprite and Minute Maid lines also declined (-3.6% in gallons and -0.2 points in share, to 3% for Sprite; -11.7% in gallons and -0.3 points in share, to 1.8% for Minute Maid).

However, Coca-Cola's Dasani brand saw 8.5% growth in gallons and gained 0.1 point in share, to 1.9%. Also, the company's overall still-beverage volume grew by 8%, bolstered by last year's acquisition of Glaceau, makers of Vitamin Water, Fruit water, SmartWater and Vitamin Energy.

Pepsi carbonated lines lost 4.3% in gallons and 0.5 points in share (down to 9.5%), and PepsiCo's Mountain Dew share was down slightly, from 4.4% to 4.3%, despite a 0.1% gain in gallons.

PepsiCo's Gatorade (including the new G2 line) had flat share (3.6%), but gained 1.3% in gallon volume--and Propel, the enhanced water line associated with this trademark, saw volume jump by 16%. Aquafina water had gallon-volume growth second only to Dasani's (up 6.9%), and its share rose 0.1 point to 2.2%.

Dr Pepper--the only brand line in the top 10 not owned by Coca-Cola or PepsiCo--lost 2.5% in gallons and 0.2 points in share (down to 3.8%).

While consumer preferences in non-alcoholic beverages are clearly shifting somewhat, it's important to note that overall volume rose by just 1.3% last year--and that 1% of that growth is attributable to population growth, points out NPD Group EVP Harry Balzer.

"The carbonated drinks still dominate; it really comes down to shifts in market share" that include preferences toward some newer variations of beverages that were in most cases already familiar, Balzer says. "We all love to try new things--but especially if they're variations on things we already know."

For example, many energy drinks are "lightly" carbonated, and carbonated soft drink consumption, while declining at lunch and dinner, has been growing at breakfast, he notes. Both reflect an existing demand for a quick source of caffeine as a change from coffee--just as bottled waters (including flavored/enhanced versions) are still variations on water.

NPD's ongoing National Eating Trends research--wherein 5,000 consumers report everything they eat and drink over the course of 14 days--requires 53 categories for food, but just seven categories for beverages, Balzer notes. "This tells us that there is not really much diversity in beverages--that there's a great need for new versions of beverages."