Cola - a nice little earner

Cola is more than just a fizzy flavoured water. Cola is a significant, dependable, high-margin, high-turnover retail product, i.e. a nice little earner.

According to the recent A C Nielsen Convenience report, cola represents 40% of soft drink sales, and soft drinks account for 60% of the total drinks market. Overall, the carbonated beverages category contributes nearly 10% to store sales - second only to cigarettes. Despite the dramatic growth in recent years of alternative beverages, cola products still have a greater share of the drinks market (23%) than energy and sports drinks combined (13% plus 8%). The convenience cola market is growing at over 3% pa.

Respondents to the 2001 survey by the Australian Association of Convenience Stores (AACS) still consider carbonated beverages a growth category, ranking 8th in the top 10 products with growth potential. Energy drinks ranked number 2. The opportunity for growth in the Australian market is there, with annual per capita consumption of soft drinks of 140 litres still well below that of the United States (240 litres).

In the broader route market, the highest-selling category is beverages, accounting for over 35% of purchases and over one billion dollars (wholesale); largely in three channels - franchised convenience stores (14%), corner store/deli (18%), and service stations (29%). In the BIS Schrapnel survey of 2001, 71% of respondents identified hot and cold beverages as a high profit maker. The next highest was confectionery identified by 56% of respondents.

The average margin for beverages is just over 40%, but on the premium range of cola products the margin is nearer 50%.

Brand matters

The overall dominance of the Coca-Cola brand in Australia is unassailable, with over $600m in total sales in 2001. At US$70 billion in sales, it is the world's most valuable brand. In the major convenience store networks, the top 10 skus in the soft drinks category are cola products, and the top 9 are Coca-Cola products, the 10th a Pepsi. Together they account for 60% of soft drink sales.

Diet Coke Diet 2l PET	2%
Coca-Cola regular 600ml PET	17%
Coca-Cola regular 2l PET	10%
Coca-Cola regular 1.25l PET	10%
Coca-Cola regular 390ml PET	6%
Diet Coke Diet 600ml PET	4%
Coca-Cola regular 375ml can	4%
Coca-Cola regular 15 x 375ml can	3%
Diet Coke Diet 1.25l PET	2%
Pepsi Max Sugar Free Diet 660ml PET	2%

Growth in the 600/660ml 'impulse' size has been the strongest at over 10% this year, and Pepsi brands grew nearly 20% in tier 1 convenience stores (AC Neilsen). "We expect strong growth in the petrol and convenience channel which is a significant opportunity for the Cadbury Schweppes brands, including Pepsi," says Daryl Henry, Managing Director, Food & Beverage, Cadbury Schweppes.

The other cola producers also see the channel as a growth opportunity. Jolt Cola is a niche brand that focuses on the impulse sizes - 500ml and 625ml PET, 340ml glass, and 375ml can. Another relatively new brand, LA Ice Cola, until recently mainly a supermarket brand, is now distributing into the route channel, including independent service stations.

New flavours & focused marketing There is no doubt the success of energy drinks and other 'functional' beverages have impacted the cola market. They appear to have additional benefits and attract higher prices. "But, cola with caffeine was the original functional drink," Harris Spyrou, Marketing Services Manager, P&N Beverages, reminds us.

Fiona Hamann, Corporate Affairs Manager, Coca-Cola, adds, "Global and local trends point to increasing choice amongst consumers across food, lifestyle and beverages. However, consumers who drink Coca-Cola have not stopped drinking Coca-Cola, but have broadened their repertoire.

"The Coca-Cola Company has responded in two ways. We have become more targeted in the way we market our lead brand, focusing on maintaining our relevance with youth. We have also broadened our range to meet consumers' requirements for choice with the introduction of diet Coke with lemon. In all markets where the new flavour has been launched, including Australia, it has delivered market share gains for diet Coke."

Cadbury Schweppes introduced Pepsi Twist last. "Pepsi Twist was the first innovation in the full sugar cola category and attracted 10% incremental sales in the United States. Innovation helped revive the cola category," says Daryl Henry. "The strategy behind Pepsi in the future will be to lead innovation in 2003 with several exciting new cola innovations planned."

The strategy makes sense. "Cola has a broader appeal than other flavours," says Peter Ballard, Jolt Corporation. "Jolt Cola was the original 'energy' drink introduced in the early 1990s. We use natural caffeine at a much higher level than other colas. Jolt Cola is targeted at people wanting to stay awake - students, computer people, younger professionals, cab drivers. We have a loyal customer and retailer base. The convenience/route channel is the main channel for growth due to the nature of the demographic."

Cola producers target the youth market in various ways. According to Harris Spyrou, "Research indicates 18-24 males are the biggest per capita drinkers of cola. LA Ice Cola was launched in 2000 using Pop Stars and other youth celebrities for brand identification. In keeping with this marketing strategy, LA Ice brand promotion this summer will target the youth market with entertainment and sport celebrities, and support at point of sale."

Similarly, "Cadbury Schweppes will continue to build teen relevance behind the Pepsi brand, utilizing the high profile marketing properties of Pepsi Taste Challenge and Pepsi Live, as well as offering combinations with global Pepsi properties, for example a Britney Spears CD with a Pepsi product," adds Daryl Henry.

"Coca-Cola has broken new ground using SMS and internet to facilitate rewards in its more recent national promotions," adds Fiona Hamann. And, customer loyalty to Jolt Cola is encouraged through the Jolt Club in which customers collect labels and redeem points for merchandise. This summer's new television advertisement to promote customer loyalty for Jolt Cola is aimed at the young cola-drinking demographic.

The importance of distribution

One of Coca-Cola's key success factors globally is its distribution system. In Australia, Coca-Cola Amatil is responsible for bottling, customer relationships and distribution, and delivers to 6,000 retail outlets in the convenience and petroleum channel.

"We want to make it easy for the retailer, and our solutions are tailored to suit," says Alec Wagstaff, Group Corporate Affairs Manager, Coca-Cola Amatil. "We deliver direct to route in the majority of cases, and our sales representatives visit across a wide distribution network. Some networks such as Shell and Caltex use their own warehouses and distribution, and the larger, more structured C-stores have their own refrigeration and manage their own stock. For smaller retail outlets, Coca-Cola Amatil provides refrigeration and maintains stock levels for them. Impulse consumption opportunities are created by investment in impulse refrigeration. We have made significant investments in refrigeration at cash points and checkouts in the past couple of years."

P&N Beverages has developed its own LA Ice fridges for route and C-stores. P&N installs and maintains the equipment, and stocks the full P&N range of beverages - energy drinks, waters, juices and soft drinks, as well as the LA Ice range.

Cadbury Schweppes is trialing an approach based on consumer insights about shopper behaviour in petrol and convenience stores both in Australia and overseas. "Many customers make their decision at the fridge, so having Pepsi Cola and Coke products ranged together optimises the entire cola category," says Daryl Henry.