Soft Drinks in Canada - 2022 Market Summary

Soft drinks in 2021: The big picture

At the outbreak of COVID-19, modern grocery retailers benefitted from consumers panic-buying, leading to sales rising to two fifths higher than they were in the same week last year. Soft drinks such as carbonates, bottled water and juice, which are considered essential, particularly benefitted from this panic-buying. However, this sharp increase was followed by steadily declining interest and sales. In 2020 consumers spent less time shopping and travelling, leading to fewer purchasing occasions (such as waiting in line at a check out and on the work commute) in which brands could promote their products. This resulted in falling impulse purchases, which are typically important for carbonates and energy drinks. Convenience stores and forecourt retailers, which typically hold a large share of soft drinks, were particularly negatively impacted by this, suffering much more so than the less prominent supermarkets and hypermarkets. Nonetheless, most product areas within soft drinks performed well in 2020 in terms of the off-trade due to the closure of the foodservice industry for most of the year. This bolstered sales in the off-trade and led on-trade sales to plummet. In 2021, soft drinks will continue to perform well, but will indeed see slowed growth in comparison with 2020 as consumers return to their pre pandemic purchasing patterns and foodservice establishments.

2021 key trends

Two of the largest trends in terms of consumer preference and new product launches are the health and wellness trend and functional benefits. Prior to the COVID-19 pandemic, the health and wellness trend was gathering pace in Canada and this has been further bolstered since the outbreak of the virus. More and more consumers are becoming health-conscious and are opting for products that are sugar-free and are made from organic and natural ingredients. This has resulted in players to release new products that cater to these growing preferences. Likewise, consumers have been migrating between the product areas from carbonates for example, which are traditionally seen as being unhealthy, to healthier options such as juice and bottled water.

Likewise, the outbreak of COVID-19 has seen more consumers opt for products with functional benefits. Products that offer vitamins and immunity-boosting supplements in particular have increased in demand and seen players launch new fortified products to continue appealing to consumers amid the pandemic. Especially as many have seen their disposable incomes diminish in 2020 and 2021, players have needed more of an edge in order to remain relevant.

Competitive landscape

Alongside fluctuations in consumer demand, carbonates manufacturers have had to spend extra time and resources ensuring that their staff are safe when working. Closures have taken place at many bottling plants, due to confirmed cases of the virus, which, alongside the halt in production, means that the affected company must spend time cleaning and disinfecting the workspace. Coca-Cola was one such company that announced it would have to temporarily reduce or halt production on key brands within bottled water, energy drinks, and carbonates. For example, Coca-Cola Life and Coca-Cola Stevia have been phased out since 2020. Meanwhile, PepsiCo has been focusing on rapidly growing product areas such as functional bottled water, liquid concentrates, and energy drinks.

In general, the larger brands will fare better in 2020 and 2021 as they have the resources to adjust to changes in the competitive landscape and will benefit from their reputations and ubiquity in stores. As consumers are not absorbing much messaging other than COVID-19 related news, there is a drop in clicks for consumer social marketing and e-mail. Due to consumers being less exposed to marketing ‘noise’, the biggest brands will continue to penetrate the consumer consciousness. Additionally, as consumers are trying to limit their food shopping time, they will spend less time comparing products and instead opt for those that are familiar.

Retailing developments

Since the outbreak of COVID-19, discounters and supermarkets have been gaining share and strength. For example, FreshCo has opened up more stores in Western Canada and Food Basics has also established new stores. Discounters have been appealing to consumers who have seen their disposable incomes diminish in response to the pandemic as they offer lower-prices and frequent promotions. Meanwhile, supermarkets are attractive due to their large spaces, giving consumers the chance to safely social distance while they shop. They also stock more products meaning consumers can do all of their grocery shopping in one place and limit possible contact with the virus. Additionally, e-commerce has seen a drastic boost in sales since 2020 due to consumers turning to the channel to avoid unnecessary trips outside the home. The channel allows consumers to make more bulk purchases as well as easily compare offers. However, the share of e-commerce in Canada is very small and in 2021, despite the growth, will continue to only comprise a small portion of soft drink share. Thus, the transformation of sales is unlikely to fully mitigate the damage of the pandemic for most companies.

Foodservice vs retail split

Foodservice suffered significantly in 2020 due to temporary closures of establishments and consumers being unwilling to risk unnecessary social interactions. Many foodservice operators sought to mitigate the damage by offering takeaways (pick up and home delivery) and some are opting to do only this as reopening at reduced capacity would be more costly than only providing takeaways. Part of the losses in soft drinks from foodservice was due to a dramatic decline in fountain sales. Fountain sales were largely avoided by consumers due to being a potential source of cross-contamination and many major players, including Coca-Cola and PepsiCo, noted significant losses from foodservice and fountain sales in 2020. In 2021, foodservice will see a massive turn around, as establishments gradually reopen. Nonetheless, foodservice has remained suppressed during 2021, particularly when the new wave hit around April-May and new lockdown measures were reinstituted in many parts of Canada. It is expected to take until at least 2022 or 2023 for the foodservice to recover to pre pandemic levels.

What next for soft drinks?

Soft drinks has a bumpy road ahead towards recovery over the forecast period. Although it seemed at one stage in 2021 the pandemic was close to an end, recent developments suggest this will not happen until further in the future. However, rising vaccination rates, new public health measures as well as economic stimulus help paint an uncertain picture for soft drinks, with many successes but also many more threats to come. It is expected that the biggest challenge soft drinks will face will be in foodservice. The restrictions on venues placed to prevent the spread of COVID-19 will be relaxed only gradually and many consumers will still be wary of making unnecessary visits. This will lead to a slow recovery for foodservice and thus impact on-trade sales of soft drinks, which are a popular choice in on-trade channels. Likewise, the health and wellness trend is set to gather pace and create more challenges for both the off- and on-trade. The health and wellness trend in the country, particularly evident among millennials, has led to increasing concerns about the high sugar content of soft drinks, and this is only likely to become a greater concern. Nonetheless, one avenue for growth in soft drinks are products with functional benefits. This is largely due to the rising health and wellness trend that has been gathering pace since the outbreak of COVID-19. Consumers will continue to look for products with functional benefits such as immunity boosting properties.

The future performance of soft drinks could be further impacted by several planned legislation/regulations in the country. With sugar tax being passed in 2020, it is set to kick in at some point in the early forecast period after already being delayed. This could put further pressure on players with the introduction of taxes (or a 20% excise levy) on sugary drinks, to fight obesity and type 2 diabetes. Therefore, over the forecast period, producers will be eager to launch health and wellness variants including reduced sugar.

Marketing strategies such as traditional sampling, in-store promotion, and event marketing and activation will be either impossible or extremely limited in the foreseeable future as health and cross-contamination concerns continue to affect the category. As such, it is likely that there will be greater investment in digital and online approaches (following the example of Asia/China where internet and mobile retailing is more advanced). For example, many stores, such as Wal-Mart, now require additional information (such as a more detailed product description and pictures) to help strengthen their online presence. This development could be positive for smaller, niche brands in soft drinks as it creates a more level playing field for consumer attention. In stores, the larger, well-established brands tend to have a more dominant shelf placement, creating a lower trial rate and unpredictable sales conversions for smaller brands. This in turn creates challenges in sales forecasting and inventory management.