NEW YORK (April 9, 2010) – Nearly three in four U.S. consumers plan to spend the same or less on non-alcoholic beverages for at least 12 months, according to a new study by AlixPartners LLP, the global business advisory firm. Carbonated soft drinks will feel the pinch the most, with nearly 25% of consumers nationwide saying they plan to reduce consumption in the category, adding up to a potential $1.3 billion in lost revenue for the industry.
The poll of 1,000 consumers was conducted in late February. Juices and coffee are the only categories expected to see higher consumption, with all other categories studied – teas, sports drinks, bottled water and carbonated beverages – showing expected declines. AlixPartners estimates that the U.S. non-alcoholic beverage sector – a $197 billion market -- could see a revenue loss of $2.7 billion due to lower consumption.
The report found similar demand pressures in the alcoholic beverage sector, with 89% of consumers responding that they plan to spend the same or less over the 12-month period. Some 26% of the respondents said they would spend less on beer, representing a potential $3.5 billion in lost revenue. Similar expectations are seen in both the wine and spirits categories, which along with the decline in beer consumption, could result in lost revenue of $5.2 billion, out of the $147 billion U.S. market.
“The findings show that in today’s economy, beverage companies will continue to struggle in generating top-line growth,” said David Garfield, a managing director of AlixPartners and leader of the firm’s Consumer Products practice. “Given flat demand, and little flexibility on pricing, it’s imperative for the global beverage companies to aggressively improve their cost structures. Otherwise, a number of industry players, particularly weaker ones, could be in financial jeopardy quite soon. For some, it could literally be a matter of survival.”
Surprisingly, the consumer poll discovered that rising environmental consciousness among U.S. consumers is not translating into sales demand. Among purchasing attributes, “eco-friendly” was ranked least important in both the alcoholic and non-alcoholic categories, far behind “taste,” “quality” and “price.” The “eco” attribute also was far outpaced by “brand,” “availability,” “pack size” and “healthy” as demand drivers.
“Price and taste remain the key factors in driving consumer behavior in the beverage category,” said Raj Konanahalli, a director in AlixPartners’ Consumer Products practice. “Everything else takes a back seat, despite the millions of dollars invested by the industry in making beverage products more environmentally sustainable.”
The AlixPartners 2010 Beverage Industry Review was undertaken to gauge anticipated buying behavior and the drivers of beverage choice in both the non-alcoholic and alcoholic beverage categories. In addition to the consumer poll, the study examined the financial performance and fiscal health of multiple industry players globally.
The report found, for example, that cost of goods sold throughout the beverage industry continue to climb as a percentage of sales, with the average COGS rate in the non-alcoholic beverage sector now topping 49%. In the alcoholic beverage sector, it has reached 53%.
The industry analysis also found that about one in five non-alcoholic beverage companies – and 35% of alcoholic beverage companies -- are in danger of failing within the next 24 months, given their precarious financial positions and high total debt.
Though the 20% figure in the non-alcoholic sector represents a drop from the 26% of companies in such a weak financial position a year earlier, the 35% recorded in alcoholic beverages is up significantly from 19% a year earlier.
“The beverage market environment is not getting any easier, in light of the consumer expectations we found and external factors that could further squeeze demand, such as the so-called ‘obesity sugar tax’ push,” said Darren Morrison, a director in the firm’s Consumer Products practice and co-author of the study. “As such, the survivors will be companies who get the most creative in building scale to generate new revenue sources, while wringing costs out of their businesses.”
Morrison cited market value erosion as a running industry theme, with one-third of non-alcoholic beverage companies and half of alcoholic beverage companies generating negative total shareholder returns over the past three years. Further, both categories remain far below their peak revenue-growth years of 2007 and 2003, respectively. Non-alcoholic beverage companies, for example, posted a collective 1.8% revenue decline in 2009 versus 13.8% growth in 2007.
About the Study
The AlixPartners 2010 Beverage Industry Review was augmented by a consumer poll conducted Feb. 18-19, with 1,000 U.S. consumers. Respondents were selected from among those who have volunteered to participate in online surveys and polls. The data are weighted to reflect the demographic composition of the adult population. Participants were asked, among a host of questions, to estimate their planned frequency of beverage purchases compared to the previous 12 months (spend same, spend more, spend less); rank key attributes that drive their beverage choices; list their favored purchase locations by beverage type; and evaluate the importance of brands versus private label.
About AlixPartners
AlixPartners LLP is a global business-advisory firm offering comprehensive services to improve corporate performance, execute corporate turnarounds, and provide litigation consulting and forensic accounting services. The firm’s specialty is urgent, high-impact situations when results really matter. The firm has more than 900 professionals in 14 offices across North America, Europe and Asia. The firm can be found on the Web at www.alixpartners.com.