The Shifting Beverage Landscape
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IBDEA 2016 The Shifting Beverage Landscape March 19, 2016 Beverage Marketing Capabilities Beverage Marketing Corporation utilizes an integrated model for providing information, analysis and advice to beverage industry clients Unique Beverage Industry Expertise for Providing “Added-Value” to Selected Clients Cutting Edge Insights: New Age Emergence, Multiple Beverage Competition, Specialty Beer Opportunity, Bottled Water Dominance, Hyper-Category Competition, Micro-Marketing Age -2- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape Agenda I. Market Overview II. Key Trends III. Category Updates IV. Projections -3- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape State of the Industry – The Good and the Bad Beverage Headlines Liquid refreshment beverage market grows for second consecutive year in 2015 after flat performance in 2013 Carbonated soft drinks experience another modest sales decline in 2015 Bottled water continues its solid growth trend led by single-serve water segment Niche categories continue to outperform traditional mass-market categories Wine and spirits lead alcohol growth in 2015, and beer experiences slower growth performance -4- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape The economy continues to move in a positive direction with improved GDP growth and lower unemployment, but improvement has been slow due to severity of the recession Quarterly GDP Change Unemployment Rate 2010 – 2015 2000 – 2015 10% 9.6% 9.3% 9.0% 8% 8.1% 7.4% 6.2% 6% 6.0% 5.8% 5.8% 5.5% 5.1% 5.3% 4.7% 4.6% 4.6% 4% 4.0% 2% 0% 2010 2011 2012 2013 2014 2015 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: Beverage Marketing Corporation; Bureau of Economic Analysis, Department of Commerce, Department of Labor -5- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape Beverage stock performance was solid in 2015 – consistent with the performance of the overall stock market – but market has been rocky first quarter of 2016 Stock Price Performance 2010 – 2015 2010 2011 2012 2013 2014 2015 KO +15.4% +7.1% +2.8% +13.5% +6.3% +6.3% PEP +7.5% -2.2% +2.5% +21.2% +14.0% +8.9% DPS +24.2% +5.5% +11.9% +10.3% +34.7% +30.2% CCE +18.1% +1.1% +23.1% +39.1% +21.3% +1.2% COT +36.7% -29.7% +28.3% +0.4% -13.9% +57.0% Soft Drinks +14.6% +3.8% +8.6% +9.8% +11.6% +6.6% Beverages +15.0% +4.2% +10.1% +13.1% +14.1% +9.1% Consumer Goods N/A +10.0% +10.5% +12.8% +10.4 +3.9% Source: Beverage Marketing Corporation; Google Finance -6- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape Gasoline prices are almost a dollar a gallon lower than last year but to date have only had a modest impact on beverage consumption • Lower gas and oil prices are a net positive for the beverage industry • However, “thriftiness” under changing economic times is now the new norm Gasoline Prices 2010 – 2015 $5 $3.9 $3.8 $4 $3.7 $3.7 $3.7 $3.7 $3.7 $3.6 $3.6 $3.7 $3.6 14Q4 – 15Q4: $3.4 $3.5 $3.3 $3.4 -25% Growth $2.9 $2.9 $2.9 $3 $2.8 $2.8 $2.8 $2.6 $2.3 $2.2 $2 $1 $0 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 Source: U.S. Energy Information Administration -7- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape Consumer sentiment surpassed pre-recession levels in 2015 for the first time Annual U.S. Consumer Sentiment Index 1995 – 2015 105.8 107.6 103.2 104.6 95.2 92.2 93.6 89.6 92.9 89.2 87.6 88.6 87.3 85.6 Pre Rec Level 84.1 79.2 76.4 72.6 66.3 68.0 63.8 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Thompson Reuters/University of Michigan -8- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape The U.S. beverage market has experienced overall mixed performance since declines during the recession, but has now achieved back-to-back years of growth • Growth accelerated in 2015 over 2014 U.S. Total Beverage Market 2010 – 2015P Volume Change P: Preliminary Source: Beverage Marketing Corp. -9- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape Post-recession annual beverage revenues have been consistently positive, but the differential versus volume growth is narrowing U.S. Total Beverage Market Volume and Wholesale Revenue (Millions of Gallons and Wholesale Dollars) 2010 – 2015P 3.7% 3.1% 2.7% 2.7% 2.3% 1.7% 1.5% 1.5% 1.1% 0.8%0.9% 0.8% Change 0.0% -0.1% 2010 2011 2012 2013 2014 2015(P) 10/15 CAGR Volume Wholesale Revenue P: Preliminary Source: Beverage Marketing Corp. -10- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape In 2015, refreshment beverages led by bottled water and some niche categories are growing fastest U.S. Beverage Market – 2015P 2.9% 0.8% 0.5% Volume Change -5.2% Refreshment Traditional Beverage Tap Water Beverages Beverages Alcohol P: Preliminary Source: Beverage Marketing Corp. -11- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape In general, traditional mass market categories have struggled while niche categories have experienced growth • Bottled water is the primary exception of a mainstream category that has thrived The U.S. Liquid Refreshment Beverage Market 2015P 18.8% 10.1% 7.6% 6.1% 5.8% 5.5% Volume Change -1.1% -2.1% CSDs Fruit RTD Energy RTD Tea Value Sports Bottled Bevs Coffee Drinks Added Bevs Water Waters P: Preliminary Source: Beverage Marketing Corp. -12- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape Wines and spirits have been driving beverage alcohol growth with beer experiencing more modest growth The U.S. Beverage Alcohol – 2015P 2.5% 2.0% Volume Change 0.8% 0.5% Beer Wine Spirits Total Beverage Alcohol P: Preliminary Source: Beverage Marketing Corp. -13- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape Coffee continues to show healthy growth among traditional beverages thanks to success of single-cup brewers and popularity of coffee cafes like Starbucks and others The U.S. Traditional Beverage Market – 2015P 1.9% 0.8% 0.5% Volume Change -1.3% Milk Tea Coffee Total Traditional Beverages P: Preliminary Source: Beverage Marketing Corp. -14- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape One reflection of a healthy beverage industry consumption has been trending down in recent years • After many years of declines, tap water co 25% 20% 15% 10% 5% Estimated Tap Water Volume Growth 0% is the decline of tap water, and tap water -5% nsumption increased during the recession -0.5% -10% 2000 – 2015P -15% -6.7% P: Preliminary '00/01 Source: Beverage Marketing Corp. -4.0% 23.5% -15- '01/02 -5.3% '02/03 20.2% '03/04 -9.7% '04/05 -1.8% -10.9% '05/06 '06/07 7.4% 1.1% '07/08 '08/09 6.4% '09/10 -4.3% '10/11 -0.8% '11/12 -5.2% '12/13 '13/14 Copyright © 2016 Beverage Marketing Corp. '14/15(P) The Shifting Beverage Landscape Over the last five years, bottled water has increased its share of stomach by more than 4 share points, capturing the undisputed #2 position Volume Share of Stomach by U.S. Beverage Segment – Billions of Gallons 2010 – 2015P 100% = 59.3 100% = 61.7 Tap/Others Value-Added Water 12.9% 12.7% Energy Drinks 0.7% 0.6% 0.8% 1.0% Wine/Spirits 2.1% 2.2% Sports Bev 2.1% 2.4% Fruit Beverages 6.0% 5.0% Tea 6.0% 6.1% Milk 10.6% 9.2% Coffee 10.0% 10.8% 10.5% Beer 10.8% Bottled Water 14.8% 19.0% CSDs 23.3% 20.4% 2010 2015(P) P: Preliminary Source: Beverage Marketing Corporation -16- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape More non-alcoholic beverage categories grew in 2014 than declined, and niche categories generally outperformed large traditional categories 2015 Category Winners and Losers WINNERS* LOSERS** • Bottled Water •CSDs •RTD Coffee • Milk •RTD Tea •Fruit Beverages • Sports Drinks • Energy Drinks • Valued-Added Water * Volume increases ** Volume declines -17- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape More categories experienced improved performance in 2015 even when they declined 2015 Beverage Report Card IMPROVED WORSENED • Bottled Water •CSDs • Energy Drinks •Fruit Beverages • Milk •RTD Coffee •RTD Tea • Sports Drinks • Value-Added Water -18- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape Traditional Key Consumer Drivers Are Evolving Health and wellness Balanced nutrition Variety Flavors, seasonals, hybrids Convenience With product information -19- Copyright © 2016 Beverage Marketing Corp. The Shifting Beverage Landscape Beverages with health and wellness attributes are growing at a rate faster than those categories without such attributes U.S. Health/Wellness Beverage Market vs. All Others 2010 – 2015P Health/Wellness Market Growth 38.3 38.4 38.3 38.4 38.2 37.7 2011 – 2015P Year Wellness All Others 10/11 1.8% 0.4% 24.1 22.3 23.0 21.0 21.4 22.0 11/12 2.8% -0.4% 12/13 1.5% 0.3% 13/14 3.0% -0.4% 14/15P 4.5% -1.4% Billions of Gallons Billions of Millions of Gallons 10/15P 2010 2011 2012 2013 2014 2015(P) CAGR 2.7% -0.3% All Others Health/Wellness P: Preliminary Source: Beverage Marketing Corporation -20- Copyright © 2016 Beverage Marketing Corp.