• Attitudes regarding sugar, sweeteners and other ingredients stifle category’s performance

• The negative health stigma associated with CSDs reaches India and other fast-growing markets

• The potential for better-for-you innovations to retain consumers is being tested in Germany

The potential contribution sweetened drinks make to the rise of global obesity created yet another challenging year for carbonated soft drinks in 2015. The category carries an unhealthy reputation in many markets, especially as consumers develop stronger preferences regarding calorie levels and ingredients, including sugar, sweeteners and artificial flavors or preservatives. This has led the world’s leading manufacturers, including Coca-Cola, PepsiCo and Suntory, to expand their portfolios to include products formulated with a range of sweeteners and more natural colors and flavors.

The evolutions in consumer ingredient preferences vary widely. In Italy, one of the world’s slowest-growing CSD markets, 45% of Italian adults who have reduced their CSD consumption have done so because the drinks contain too much sugar, 33% have cut back because they are worried about the health effects of artificial sweeteners, and 31% are drinking less because they believe CSDs contain too many artificial flavorings or preservatives. These attitudes are reflected in the drop in volume sales of CSDs within Italy.

Despite slowing CSD volume sales in many European markets, Germany is emerging as a model for the future of the category. Germany had 3% CAGR growth in retail market volume sales of CSDs in the last five years, and is the leading innovator globally in 2015. Unlike other countries where packaging and range extensions are the leading types of launches, 39% of German launches in 2015 were new products. Many of these new CSDs reflect the increase in better-for-you products, such as launches of organic varieties, products containing juice and CSDs sweetened with stevia.

Better-for-you innovations also will play a role in the future prospects of CSDs in the fastest-growing markets, where regulators and consumers alike are scrutinizing the category and its rumored health consequences. In the world’s fastest-growing CSD market, India, a committee headed by India’s chief economic advisor proposed levying a 40% “sin tax” on sugary soft drinks in late 2015. Tax proposals also have been introduced by governing bodies in the growing markets of Brazil and Indonesia.

Not all growing markets are taxing CSDs. Vietnam, the second-fastest growing CSD market, exempted CSDs from a tax on cigarettes, beer and spirits. Moreover, Vietnam’s rapidly developing CSD market was chosen as the debut country for Coca-Cola’s “Share a Feeling” promotion that features emojis on packaging and in advertising. The use of the expressive cartoon faces has a universal appeal, especially with the valuable demographic of younger, tech-savvy individuals.

Figure 4: Global market performance, carbonated soft drinks

Note: The size of each bubble represents the respective size of the market in volume

Source: AFREBRAS, ANFABRA, ASRIMDANE, Automatic Merchandiser, Beverage Digest, Convenience Store News, Economist Intelligence Unit, GfK Group, IBGE, INEGI, Information Resources Inc., Krajowa Izba Gospodarcza 'Przemysl Rozlewniczy', LSA Magazine, MAGRAMA, Ministry of Internal Affairs and Communications of Japan, The Nielsen Co., Nielsen Canada, Retail World, Statistics Canada, US Bureau of Labor Statistics, US Census Bureau, WAFG/Mintel

* Please note: the market size data referenced in this report is current as of January 31, 2016