One of the most leading companies producing soft drinks for the Australian market is Coca-Cola Amatil which manufactures and market products like Coca-Cola, Fanta and bottled water (Shum, Woo & Lee, 2017). The success of this company is its ability to work with customers, innovate and provide the market with great new products under a complex supply chain community (Baker & Friel, 2014). However, over the last few years, Coca-Cola Amatil revenue stream and profits have declined due to the existing structural decline in the sale of their core products. This has had adverse impacts on Coca-Cola Amatil’s performance, especially conventional drinks namely Coca-Cola and Fanta. As the demand for carbonated conventional soft drinks declines, there has been a sharp increase in the demand of bottled water and products that are considered healthier (Delgado, 2013). These changes in consumer tastes and preferences driven by changing lifestyle trends necessitated a research study to investigate what Coca-Cola Amatil can do better to come up with a beverage that matches the current and future needs of its existing and potential customers. Australian soft drink and beverage industry have been full of turmoil. Therefore, as people become more aware of what is good for their health, consumer preferences have changed and sugary drinks have become largely avoided (Schram, et al., 2015). This has been the reason for Coca-Cola’s deteriorating finances. Health concerns have affected the consumption of sugar-sweetened carbonated soft drinks. As a result, Coca-Cola Amatil is experiencing a decline in the sales of its core products namely Coke and Fanta. On the other hand, the demand for water, energy and sports drinks has increased as customers shift to healthier alternatives. It is worth noting that fruit juices have not had relative success as compared to water because many juice products contain artificial sweeteners and customers are weary of anything that is chemically produced. To address these health concerns, Coca-Cola Amatil must reinvent its core products in addition to providing these products in smaller packaging. Also, the company must capitalize on the growing demand for water, energy and sports drinks in order to offset the deficit caused by a decline in sales of its conventional carbonated soft drinks.
Introduction
Soft drink and beverage industry have been one of the best performing market segments in the world. The beverage industry is spread and has products with very high demand across the globe. Investing in this industry has a higher probability of becoming highly profitable and producing good returns. Over the years, the soft drink industry has showed modest progress despite being inhibited by a variety of factors such as changing user tastes, health concerns and demand-driven needs (Devlin & Davis, 2017). More consumers tend to demand less of carbonated soft drinks and increase their demand for bottled water and drinks that are considered healthier. In addition, price war between the big players and other private labels appears to hamper revenue progression and expected profit restrictions. Despite these threats to the industry, the growing popularity of higher charge energy drinks and sports drinks has created the market diversity that focuses more on consumer diets and low-sugar drinks. As a result, the global market for soft drinks has had an annual increase of 0.7% over the last one decade to reach slightly over $4.3 billion (Lal et al., 2017).). The nature of competition in this industry has caused manufacturers to undertake aggressive discounting strategies to attract new and retain existing customers. This is due to the fact that soft drinks are discretionary beverages that have weak consumer sentiments that typically have a huge impact on sales. As Popkin and Hawkes (2016), concludes, the main players that will eventually come under pressure are the supermarkets and retail chains that attempt to expand their private labelling for soft drinks.
Soft Drink Industry in Australia
The food, beverage and accommodation industry is a major contributor to the Australian economic growth as it provides almost one million jobs and generates revenue of over $74 billion per year. Physically, the industry’s location is mainly aligned with the population dispersal along South Wales, Victoria and Queensland (Colchero et al., 2015). Western and South Australia then account for the next biggest market share of the industry establishment with the south production being supported by its location and the presence of major trade lines. The Northern Territory and Tasmania represent significant lower shares due to the low population base.
In Australia, the market is a good representation of the global market, especially for Coca-Cola products. The soft drink manufacturing business is highly concentrated in the eastern seaboard states and close to major population centres. IBIS World identifies over 250 key success factors (KSF) for the industry but three of which are considered to be the most important (Popkin & Hawkes, 2016). These factors include control of the largest distribution arrangement, economies of scale, and supply contracts in places of key inputs.
Popular beverages and drinks in Australia
This industry primarily focuses on the production of soft drinks (both carbonated and non-carbonated) energy drinks and sports drinks. To some extent, the industry does may also include the production and bottling of water and fruit juice drinks. In terms of brands, Aussie six-pack is a famous drink invention that has had the largest market share in the country. The alcoholic brands originated from different countries such as Brazil, Japan and Ireland. The Japanese invented Sake, Ireland conjured Guinness while Brazil brought cachaca and caipirinha to the world. However, the most iconic alcoholic drinks in Australia include the Illusion Shaker, Cask Wine, and Coopers Pale Ale, Bundy ‘n’ Coke, Passion pop, and Penfolds Grange (Shum, Woo & Lee, 2017). However, in the non-alcoholic drinks market, there are 13 most common top summer drink recipes that the Aussies love most (Brand-Miller & Barclay, 2017). These beverages include a variety of Slushie, lemonade, cordial and smoothie. According to Baker and Friel (2014), sugar-sweetened drinks such as soft drinks and fruits juice account for only 3% of the overall intake in the market.
Management styles of soft drink industry in Australia
In Australia, statistics show that the most commonly consumed non-alcoholic drink with no dairy product is water, followed by sugar-sweetened soft drinks while fruit juices and low-calories drinks are less consumed (Niebylski, et al., 2015). Today, about 45% of all water0-based beverages sold in Australia belong to the kilo-joule varieties which compares to only 20% in about two decades ago. Falbe, Rojas, Grummon & Madsen (2015), explains that the shift in sales can be used to explain the change sin consumer’s purchasing patterns. In terms of economic development, retailing of beverages (soft drinks, fruits juices and bottled water) comprise of businesses worth $1.05 billion from groceries and convenience retailing industry while $456 million is generated from bars, cafes and restaurants. The industry generates over 16,000 full-time jobs and another 50% part-time jobs.
Real Drivers of the Soft Drink Industry in Australia
Manufacturing of beverages does not start exactly at the factory. There is a long and varied distribution chain that sees the industry create numerous jobs that contribute to the growth of other related industries and the economy at large. There are other industries that support beverage manufacturing includes the following real household disposable income, convenience, health and culture. In general, Australians have experienced a significant growth in real GDP ranging to above 4% since 2004 to 2012 and over 2% past 2015 (Falbe, et al 2015). This increase in disposable income allows the citizens to have more money for dining out, parting and going out for lunches. However, the decline in real wage from 2012 has limited the ability of more Australians to spend more money on luxuries foods and beverages. In return, this decline in the purchasing power parity has, in turn, affected the revenue growth for fast food and beverage industries over the last five years.
Modern Australians normally have an increasingly busy life that makes them unable to prepare a meal in their homes. The demand-drove fast food and beverages have increased the consumer’s desire for parked food. Cafes and restaurants are expected to take a huge market share from hotels as consumers shift from formal dining and choosing more convenient café-styles for meals and snacks. According to Lal et al (2017), Consumers have become more health conscious of what they eat and the demand for quality food and beverages have underpinned the industry performance. A business that offers diverse meals, cuisines and drinks as fast foods as premium ingredients always perform better as the unsatisfied consumers search for even better quality.
According to Popkin and Hawkes (2016), the fierce competition in the industry especially on price has been the main factor that has limited its growth. Price changes in restaurants meals, take away and soft drinks have moved closer to the Australian CPI (weighted average price increase). This means that the cafes and restaurants, as well as other takeaway services, have less space to increase their mark-up to inflation. The drinks and beverage industry operate as a monopolistic industry where a slight change in price may not guarantee an increase in sales.
The pop culture has benefited the beverage and drink industry in Australia by a huge margin. According to Ashurst (2016), the existing public awareness and advertising on fashionable restaurants, cafes and bars have sent a very strong message that has further been enhanced through internet consumer reviews sites like Urbanspoon. The Australians have also developed a trend that aims at attracting high-quality drinks and beverage that has been supported by numerous televised cooking and entertainment shows such as Kitchen Rules and Masterchef.
Coca-Cola Amatil’s performance and challenges
One of the most leading companies producing soft drinks for the Australian market is Coca-Cola Amatil which manufactures and market products like Coca-Cola, Fanta and bottled water (Shum, Woo & Lee, 2017). The success of this company is its ability to work with customers, innovate and provide the market with great new products under a complex supply chain community (Baker & Friel, 2014). However, over the last few years, Coca-Cola Amatil revenue stream and profits have declined due to the existing structural decline in the sale of their core products. In 2016 fiscal year, the Australian drinks accounted for 68% of the total fundamental earnings before interest and tax amounting to $638 million.
Sparkling Beverages Company that accounts for 67% of the total volume of product sold. The key issues affecting this company is that there has been a decline in the demand and sale of fizzy drinks in the last one decade as the Australian begun to be health conscious on what they ingest. In 2016 alone, the volume sold decreased by 5% which indicates that a general decline in the demand for carbonated drinks and beverages (Santoiemmo, 2014). However, Sparkling Beverages focused on soft drink such as colas and lemonades and introduced more drinks for the consumer to enjoy a variety of carbonated drinks. Therefore, from 2014, the company has had a stable market growth despite the fall in demand for conventional drinks from other companies (Murakami et al., 2014).
Over the past five years, the consumption of carbonated soft drinks has declined significantly. This has had adverse impacts on Coca-Cola Amatil’s performance, especially conventional drinks namely Coca-Cola and Fanta. However, as the demand for carbonated conventional soft drinks declines, there has been a sharp increase in the demand of bottled water and products that are considered healthier (Delgado, 2013). These changes in consumer tastes and preferences driven by changing lifestyle trends necessitated a research study to investigate what Coca-Cola Amatil can do better to come up with a beverage that matches the current and future needs of its existing and potential customers. The following is a report of the findings of interviews conducted with the representatives of Coca-Cola Amatil as well as customers across various cities in Australia addressing these concerns.
High Sugar Levels Raise the Awareness of Health Concerns
Emerging scientific evidence suggests that sugar-sweetened drinks are one of the key predictors of diabetes (Ristovska, Dmitrovska, & Najdenkoska, 2012). This is besides increasing the risk of getting a heart attack. The findings of the interviews seem to concur with these scientific findings that are increasingly informing the purchase decisions of customers regarding beverages, specifically soft drinks. The representatives of Coca-Cola Amatil indicated that the demand for conventional drinks has declined over the past years. Apparently, retailers mainly supermarkets and grocery stores are making large orders of water and sparkling beverages whilst cutting down of sugar-sweetened drinks such as Fanta and Coca-Cola. These changes in customer tastes and preferences were confirmed by the findings of interviews conducted with the customers. The majority of the customers argued that they are worried about suffering from lifestyle health conditions such as obesity and diabetes. Currently, over one million Australians have been diagnosed with diabetes including 130,000 people with type 2 diabetes (Baker IDI, 2015). It is a cause for worry for the company because many soft drink customers are shifting to healthier alternatives such as water and fruit juices. The high price of juices is prohibitive for most customers as a result a slight decline in the purchasing power (Meulen, 2013). Therefore, many have resulted to consuming water rather than taking carbonated sugar-sweetened soft drinks.
It is worth noting that sparkling beverages such as colas and lemonade are also becoming popular because they are considered as “diet” soft drinks (Juvonen, Virkajärvi, Priha, & Laitila, 2011). Demographically, sparkling water is the hottest non-alcoholic drink among the Millennials who have become increasingly conscious about their dietary intake. Millennials are individuals born in the 21st century, which is after the year 2000. This trend is attributed to increasing access to information as a result high Internet-connectivity and the ubiquitous nature of smartphones in Australia (WHO, 2008). In literal sense, the information is on the finger-tips of the Millennials. Almost every Millennial in Australia owns or has access to a smartphone with internet connectivity. Further investigations revealed that social media has had an impact on how people receive and share information. More importantly, the emergence of brand influencers, brand ambassadors and trendsetters has boosted the craze for low-sugar soft drinks to a whole new level (Zimmerman & Deborah, 2015). Influencers on social media platforms such as Pinterest, Twitter and Instagram influence the purchase decisions of millions of followers every day, with a large majority of the nutritional influencers supporting the shift to water and fruit juices. Prior to the invention of social media, whose precedence was set by MySpace, in the early 2000s, mainstream media channels such as the broadcast and print media were the primary, if not, the only source of information (Tuten & Solomon, 2014). This explains why information disseminated through these communication channels appears to affect older generations above 35 years. For years, beverage companies such as Coca-Cola Amatil have sponsored advertisements on TV and Radio in addition to the print press to reach this demographic group who rely on these communication channels for information (University of Melbourne, 2014). In that respect, popular TV shows such as Masterchef and Kitchen Rules have had tremendous impact on how this demographic group perceive sugar-sweetened soft-drinks. All in all, there is a genuine shift in how people in Australia perceive sugar-sweetened soft drinks.
The company representatives also argued that the carbonated soft drinks are reaching a tipping point, both in retail and on-trade sales. Customer health concerns driven by social concerns about calories, sugar content and artificial ingredients, particularly sweeteners are forcing customers away from this product category (M., Downs, & Jan, 2014). The company representatives further argued that this shift has had an impact on their supply chain management practices. For instance, factories are producing more of water and sparkling beverages than conventional soft drinks, particularly Coca-Cola and Fanta. Moreover, this has affected inventory management and demand forecast management because the distributors are stocking less of sugar-sweetened soft drinks and increasing their inventory capacity for water and sparkling beverages. Sparkling beverages have gained popularity as a result of their low sugar content. The majority of cola products are branded as diet cola as they have 70% less sugar and do not include artificial sugar sweeteners (Baker IDI, 2015).
With regard to gender, female customers were the most affected by emerging scientific findings that diets high in sugar can lead to lifestyle health conditions such as diabetes and obesity (Villanueva, 2011). This was expected because women are largely concerned about their body shape and health than men. A large percent of the female customers were concerned about consuming diets high in sugar because of the links with obesity. A woman’s physical outlook is as important as their overall health. Popular culture has created an image of an ideal woman’s body as being lean (Malik, Popkin, Bray, Despres, & Hu, 2010). Fashion models and celebrities go-on-diet to achieve a lean body image. The majority use unconventional diets, with a significant majority shunning sugar-sweetened products. Hence, any diet that packs a high content of calories is losing its appeal. This has been the fate of Coca-Cola and Fanta over the past five years. This product category, carbonated soft drinks, is losing its appeal among women hoping to maintain a lean body shape. It no wonder sales have plummeted although the introduction of sparkling beverages has compensated for this decline.
Some of the customers complained that sugary drinks give a false feeling of being full and contribute to an increase in average body weight. Indeed, added sugar, especially artificial sugar, is highly fattening (Crammond, et al., 2013). Liquid sugar supplies large amounts of simple sugar such as fructose, which do not lower the hunger hormone ghrelin in the same way as glucose. Moreover, simple sugars do not stimulate the satiety centers in the brain same way as glucose (Sharma, Hauck, Hollingsworth, & Siciliani, 2014). As a result, the brain is unable to control a person’s calorie intake. Therefore, the individual is likely to consume more than the body can adequately digest and use. The proliferation of this information among the consumers of soft drinks has had adverse impacts on how they perceive soft drinks. It is now possible for customers to make healthy dietary choices by avoiding products high in added sugar (Meulen, 2013). Over the years, scientists have emphasized the need to consume more water and avoid sugary drinks. As expected, the marketers have utilized this valuable information to adjust the product portfolios of soft drink companies. It is therefore important for Coca-Cola Amatil to embrace this trend and lower the sugar content in their conventional drinks. It is clear that the customers are seeking healthier alternatives and sparkling water has become a choice for many customers.
Health concerns changing people’s Attitudes towards Soft Drinks
According to the Australian Bureau of Statistics (2012), customers have become increasingly choosy when it comes to non-alcoholic drinks. The majority of the Millennials and young adults are seeking fruit juices and diet drinks more than regular soft drinks. Over the past ten years, the demand for carbonated sugar-sweetened soft drinks has been on the decline. The emergence of scientific evidence linking high sugar in-take with health conditions such as obesity and diabetes raised concerns among the consumers. It took a while before the new-found information could influence their perception of soft drinks. However, over the past five years the increasing Internet connectivity coupled with popularity of smartphones has accelerated the decline because information has become more accessible. As a result, customers began seeking alternatives that were considered to be healthier. The majority of the customers shifted to fruit juices and water (Thow, Downs, & Jan, 2014). In an attempt to stem the decline, soft drink manufacturers such as the Coca-Cola Company began marketing diet soft drinks. For a while, the diet soft drinks were viewed as the beverage industry’s saving grace. Unfortunately, the reality was far from this optimistic observation. Instead of stemming the decline in sales of sugar-sweetened soft drinks, diet sodas experienced an even bigger decline (Australian Bureau of Statistics, 2012). This was a result of a growing trend in Australia to consume healthy drinks. Over the past five years, Australians have consumed more water, energy drinks, and teas instead of carbonated soft drinks. It is a worrying trend for Coca-Cola Amatil because its core products are losing popularity. Worse still, the company’s attempt to introduce diet soft drinks appears to have achieved underwhelming results despite being poised as the next product line that will open up more opportunities for the company to develop a sustainable competitive advantage.
It is evidently clear that health concerns change people’s attitudes towards buying soft drinks and beverages. More precisely, the soft drink customers want healthier products (Sacks, Veerman, Moodie, & Swinburn, 2011). Unfortunately, carbonated soft drinks have never been positioned as healthy products. As a result, the customers are moving away gradually from this product category. To put this into perspective in the Australian context, it is important to provide statistics that clearly show the decline in the sales of carbonated soft drinks as well as diet soft drinks. In years preceding 1998, Australians consumed an average of 54 gallons of carbonated soft drinks annually. Now, they are consuming 33.8 gallons of the same product (Australian Bureau of Statistics, 2012). At the same time, the consumption of soft drink has declined in the past five year, including a 3.5% decline in 2012 and 2.6% tumble in 2011.
The worries of the customers regarding the health impacts of consuming carbonate soft drinks were captured by the interviews I conducted with the customers. Over 50% of the respondents asserted that they had stopped taking carbonated soft drinks as a result of experiencing a negative impact of high-sugar intake (Hall, et al., 2016). For some, the impact was direct, whereby the individual suffered from a health condition related to the consumption of carbonated sodas. In other cases, the impact was indirect in the sense that the individual knew someone, a friend or a close relative, that is struggling to cope with a health condition associated with the consumption of carbonated soft drinks. The consumers affected both directly and indirectly had shifted to water and fruit juices. Carbonated soft drinks were also swapped for energy drinks and teas. This observations was confirmed by the company representatives who I interviewed. They all concurred that they have been experiencing a surge in the demand of water whilst the carbonated soft drinks are staying in the shelves longer. The majority have had to alter their inventory management practices to prevent holding capital in slow moving products like carbonated sodas.
The customers also asserted that water was their most preferred option because they were cautious of the fruit juices available in the supermarkets because the majority were sugar-sweetened brands. As such, a few resulted to making their own fruit juices at home to ensure no sugar additives were included. However, some confessed that the process of making and storing fresh juice was a bit of a challenge. As such, water was the most convenient option because it is readily available, even in supermarkets and dining outlets (Meulen, 2013). About 60% of the women who I managed to interview were carrying a bottle of water. Out of these respondents, only 20% had carried fresh fruit juices that they had made at home. Other than taking water and fruits juices, some confessed to taking low-calories drinks. This is because there is a growing popularity of low-calorie products in general across Australia. High calorie foods such as fast foods are also losing popularity along with soft drinks. These two product lines were inseparable a few years ago when every fast food offered a combination of both at an affordable price. Today, this trend has changed because high calorie foods and drinks are losing their popularity due to growing health concerns among Australians.
1.) What are people’s preferences of selecting a soft drink nowadays when considering their health?
2.) What are their opinions in regards of high sugar level and soft drinks?