The Future of Beverages - The industry is being disrupted by significant trends with consumers, products, brands, and distribution. As niche ...
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The Future of
Beverages
The industry is being disrupted by significant trends with
consumers, products, brands, and distribution. As niche
players eat up more of the market share, established
companies must evolve to stay competitive.
The Future of Beverages 1From the traditional powerhouses to new entrepreneurial start-ups, non-alcoholic beverage
companies are operating in a whole new world as the industry is undergoing monumental shifts.
For example, with an eye on health-conscious consumers, PepsiCo purchased the sparkling
water company SodaStream in 2018, and after Coca-Cola moved into the tea market a decade
ago with its organic, fair-trade Honest Tea subsidiary, the company is dipping its toe in the
rapidly growing coffee segment by buying Costa Coffee in 2019. Meanwhile, new entrant Boxed
Water is nudging plastic bottles off the shelves with its paper-based packaging.
With today’s consumers thirsty for healthy and eco-friendly options, massive changes are
coming. In this paper, we take a close look at how consumer, product, brand, and distribution
trends are changing the beverage industry and how companies can become early adapters to
stay relevant in the long term.
Today’s Consumers Are Value-Driven
Individualists
Consumer demands have always affected what the beverage market offers, and today’s
demographics are triggering massive change. Generation Z—born between 1998 and 2017—will
come of age to become the main consumers of tomorrow’s products. By 2020, this age group is
expected to account for about 40 percent of all consumers.1 And by 2026, they will be the
largest generation on the planet. The result? More than $50 billion in buying power.
Catering to them with the right products will require having an in-depth understanding of
exactly what they are looking for and how they are looking for it (see figure 1). They have
abandoned conventional media with much less TV time than previous generations, and as the
first true digital natives, they are able to quickly adapt to new technology. It’s no surprise that
the smartphone is Gen Z’s most used device with about five hours per day.2
Figure 1
Gen Z consumers’ expectations differ from older shoppers
Value-affirming Option-oriented
• 70% say it is important that products are • 75% are more likely to buy if the experience
aligned with their beliefs. is personalized.
• 51% will avoid a company if it violates their
moral or ethical code.
Visual Connected
• They are more visual with the cognitive • 54% say influencers and vloggers have
portion of their brain more developed from
constant use of multimedia devices. Gen Z some influence.
• They are 1.3x more likely to purchase based
• The average attention span is 8 on the influencer vs. a traditional celebrity.
seconds—33% shorter than for Millennials. • 46% research items on their mobile devices
• 60% won’t use apps or websites that load before making purchases in a store.
slowly or are difficult to navigate.
Localized Authentic
• 41% do not trust big brands, compared with • Brands that are transparent and have built
31% of Millennials. trust can enjoy up to an 8% price premium.
• 77% prefer brick-and-mortar stores when • When it comes to ads, 63% prefer real
shopping. people rather than celebrities.
Note: Generation Z are those born between 1998 and 2017.
Source: A.T. Kearney Gen Z consumer study 2017
1
“Engaging Generation Z: Marketing to a New Brand of Consumer,” Ad Week, 27 November 2017
2
“How Obsessed Is Gen Z with Mobile Technology?”, The Center of Generational Kinetics
The Future of Beverages 1Gen Z prefers customized experiences, local brands, and personalized products, and they put
more weight on value affirmation, connectedness, authenticity, and local heritage. They seek out
brands that have strong values, and 41 percent of them do not trust big brands compared with 31
percent of Millennials.3 However, they do trust social media influencers such as popular bloggers,
YouTubers, and Instagrammers. They want many options, with not only appealing tastes and
designs but also sustainable products that are in line with their values. These value-driven
individualists pay attention to their health and consume sustainable products. For example, they
drink fewer alcoholic beverages and prefer products that don’t use artificial sweeteners.
Consumer goods companies must adapt to this new outlook of a generation that has a modern
value system and new expectations for a brand experience. Winning Gen Z as long-term
customers will require two moves. First, beverage companies must develop a shopping and
consumption experience that fosters emotional engagement and bonding with a community.
Second, it will require capitalizing on both existing data and new sources of information to
pinpoint consumer preferences and emerging trends. When big data becomes smart data,
customer loyalty and sales will both improve.
New Products: Health-Consciousness Options and
Premium Drinks
For years now, regulators and consumers have both been leaning toward health-conscious
beverages—a trend that will only become more relevant as the problem of obesity expands.
Around the world, more people are suffering from obesity, which is often associated with high
consumption of sugar (see figure 2).
Figure 2
Obesity is on the rise around the world
Prevalence of obesity
(% of global adult population)
35
30 % Overall trend
25 +9.1%
20
15
10
5
0
1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Africa Asia Latin America and the Caribbean North America and Europe Oceania World
Note: Obese is categorized as a body mass index of more than 30. Adults are those over the age of 18. Data is actual data until 2014 with extrapolation
through 2018.
Sources: Guideline – Sugars Intake for Adults and Children, World Health Organization; A.T. Kearney analysis
3
Vision Critical
The Future of Beverages 2These circumstances are alarming regulators. For example, the World Health Organization
recommends reducing the intake of free sugars to less than 5 percent of total energy intake,
and Public Health England is recommending regulatory action to reduce the industry’s
promotion of sugary products and raise awareness about the risks of consuming sugar. Taxation
is already being used to discourage sugar consumption and could become even more strict.
Norway, for example, has a long tradition of trying to deter sugar consumption, with a tax that
was introduced in 1922. In 2018, the sugar tax on beverages either imported into or produced in
Norway went up 42 percent to about 50 cents per liter for both naturally and artificially
sweetened beverages. Other examples from around the globe are Great Britain increasing their
sugar tax to £18p for >5g sugar in 1000ml and £24p for >8g in 1000ml, France with €7.5” per
hectoliter, or India with a 40% tax on sugar-sweetened beverages. Countries like Canada,
Malaysia, Vietnam, and the Philippines plan to implement or increase their sugar taxes in 2019.
Regulators are not the only ones with an eye on heath. Consumers are also fueling trends
toward health consciousness, which creates new market opportunities and triggers innovation.
An array of products are gaining popularity, including naturally flavored water, naturally brewed
tea, protein-based beverages, sports drinks, and functional beverages intended to create health
benefits, for example, with amino acids or vitamins and minerals.
The health trend can also be seen in a decreasing consumption of alcoholic beverages.
Norway again offers an interesting example (see figure 3). Alcohol consumption is already low
compared with most European neighbors, and it is declining, leading to the introduction of low
and non-alcoholic substitutes, including fermented drinks such as Gaffels Fassbrause,
non-alcoholic or low-alcohol beer such as Heineken 0.0, non-alcoholic cider such as
Kopparberg, and alcohol-free spirits such as Seedlip.
Premium soft drinks are also becoming more popular as consumers embrace alternatives such
as the adult soft drinks from Nix & Kix and craft sodas from Square Root London. Consumers are
also investing in appliances and ingredients to make their own spritzers and lemonades. Monin
is just one example of a company with such offerings.
Figure 3
Consumers in Norway are making healthier drink choices
Per capita consumption of soft drinks in Norway Soft drink consumption by volume in Norway
(liters) (million liters)
125 120
110
–1.4% 100
120 100
90
115 80
110 60
51
48
39
105 40
100 20
2011 2012 2013 2014 2015 2016 2015 2016 2017
Soft drink Coca-Cola Zero Pepsi Max
Sources: Nielsen, Statista; A.T. Kearney analysis
The Future of Beverages 3Overall, the market for traditional soft drinks and alcoholic beverages is shrinking as consumers’
pursuit of alternatives pushes the market toward healthy products, light soft drinks, and
non-alcoholic substitutes. To ride the wave of these trends and become a leader instead of a
follower, beverage producers will need to become more agile in their product innovations. What’s
needed is an effective system to continuously observe the market and track new trends. Knowing
your customer is important, but it is only a first step in this rapidly evolving environment. Product
development and rollout need to be as lean as possible to reduce time to market, and capabilities
for agile testing need to be built to ensure the sharpness of a new product’s positioning as well
as consumer acceptance. Finally, processes to adjust the initial launch plans must be in place to
ensure flexibility in responding to changing market needs. Forward-thinking companies that
introduce effective processes for their product launches will stay ahead of the accelerated
innovation cycle by quickly reacting to market trends and launching relevant products.
Brand Trends: Learn How to Swim with the Piranhas
In addition to product and consumer trends, the brand will also be a crucial success factor as
smaller companies—the so-called “piranha” brands—continue to take small bites out of the
market share of leading consumer goods firms.4 Small players such as Tito’s in vodka, Innocent
in smoothies, NOCCO in fitness drinks, and Chobani in yogurt drinks are stealing market share
from big players with a yearly revenue growth of up to 20 percent while the industry
powerhouses saw low or negative sales growth in 2016.
Niche brands are beginning to eat up the market
share of leading consumer goods firms. With the
right operating models, the big fish can learn to
swim with these small but powerful competitors.
So, what is fueling this trend? Consumers have developed more trust and confidence in smaller
brands, and the global wave of mass premiumization is rewarding distinctive brand attributes
and values (see figure 4 on page 5).
The piranhas are winning by following six mantras:
• Establish a sharp value proposition.
• Focus on an authentic brand.
• Build an asset-light business model.
• Be fast to launch and slow to expand.
• Maintain a risk-taking mindset.
4
See Swimming with the Piranhas and Reinventing the Mass Consumer Model at www.atkearney.com.
The Future of Beverages 4Figure 4
Consumers prefer small, local brands
% of respondents who say they have Preference for local brands by category
little or no trust (%)
Examples
Large Small Dairy products 54
corporations businesses Mineral and bottled water 35 Deer Park, Dasani
Biscuits, chips, snacks, cookies 32
Ice cream 31
57 United Kingdom 17
Breakfast cereals 30
56 France 22 Frozen meat and seafood 29
Chocolates and confectionery 28
55 United States 14 Paper products 25
55 Japan 53 Sauces and condiments 24 Luzianne,
Tea and coffee 23 Maxwell House,
52 Germany 17 Beer and wine 22 Samuel Adams,
Frozen meals 22 Sierra Nevada
25 India 28 Laundry products 21
12 China 31 Instant noodles 21
Household cleaning products 20
Surge,
Carbonated soft drinks 19
Mountain Dew
Haircare products 19
Oral care products 18
Skincare products 16
Bodycare products 16
Canned and tinned food products 15
Feminine care products 13
Pet foods 12
Vitamins and supplement 12
Baby food and formula 10
Energy and sports drinks 7 Zipfizz
Baby wipes and diapers 7
None of the above 14
Notes: Percentages are for beverages on a European level. N = >31,500 in 63 countries.
Sources: Nielsen; A.T. Kearney Gen Z consumer study 2017
• Think before you spend.
To respond, the big fish need to learn how to swim with them. Large established beverage
companies should reflect the piranhas’ brand image and imitate their strengths to protect their
market shares. Five countermoves can help companies stay competitive and relevant:
• Rethink new product development and rollout.
• Fight against the status quo internally.
• Look for organizational models that favor brand power.
• Find the best-suited brand ventures model.
• Create a more flexible asset model.
One way to swim with the piranhas is to build a sub-brand as Pepsi has done with Caleb’s Kola.
The craft soda, designed to meet consumers’ preferences, has a brief list of simple ingredients,
including sparkling water, Fair Trade cane sugar, and kola nut extract—matching the attributes
Gen Z consumers are looking for in transparency, sustainability, authenticity, and simplicity.
In addition to the niche brands, local brands are putting pressure on mass consumer products.
Cultural messages are much more authentic when they come from local players. While global
players must often adhere to marketing campaigns prescribed by their global headquarters,
local companies can make quick decisions that fit right into their local markets. Coming out on
top requires effective innovation processes. In addition, developing local sub-brands, acquiring
piranha brands, and targeted investments can keep the industry powerhouses ahead of the
brand trends in the long term.
The Future of Beverages 5Distribution: Think Direct-to-Consumer
Keeping up with trending products, a new generation of consumers, and growing brand
awareness also requires keeping up with distribution trends. Societal and mega trends in
mobility are fueling distribution trends around the world. The four mega trends in mobility are
demand for road safety, smart highways, urbanization, and the sharing economy.
Road fatalities have increased in several countries around the world, out of which 90 percent
can be traced back to human error. This triggers a call for safety, which in turn stimulates
research in autonomous driving, which could significantly lower distribution costs. Another
development stimulating autonomous driving is smart highways. Most new highways and traffic
signals are equipped with sensors to reduce congestion and improve existing infrastructure, for
example through fiber optic connections to enable driverless communication. Also, the
migration to densely populated areas fosters the demand for transportation, ride-sharing
services, and new means of transportation—a development that could lead to fewer people
owning cars and higher demand for deliveries.
Flexible and innovative channels are becoming
more relevant as e-commerce continues to grow.
Innovation and direct distribution creates access to
consumers and reduces dependency.
More producers are pursuing direct-to-consumer value chains—a disruptive development that
eliminates several steps of the classical value chain. Products could be delivered to consumers
directly from production. Warehouses could become redundant as automated trucks, robots,
and drones pick up and deliver goods on demand. And bulk distribution from central
warehouses to retailers could be eliminated. In this new world, all goods would be available in
online stores, and there would be no need for physical stores. For producers, this brings the
benefits of access to customer data, greater influence on the customer experience, and fewer
middlemen, where much revenue is lost.
Amazon Fresh is a good example with its door-to-door grocery delivery service. The grocery
and beverage service offers a wide assortment online with goods stored at Amazon distribution
centers and delivered to consumers’ doorstep within two to three hours. Nestlé’s ReadyRefresh
operates with a similar business model in the US beverage market. Households and businesses
can order online, selecting the beverages and the delivery frequency to suit their needs.
Storage is facilitated by regional distribution centers, and the beverages are delivered within a
specific timeframe. Some containers, such as three- and five-gallon water jugs, can even be
picked up when they are empty.
These distribution developments bring a wealth of opportunities, but also certain challenges.
Producers receive firsthand insights from their direct contact with consumers, and the
convenient services can lock customers into a routine (for example, a subscription model for
water). However, door-to-door delivery is still only viable in urban areas.
The Future of Beverages 6Distribution is a crucial topic that cannot be forgotten or underestimated. Forward-thinking
producers are implementing new technologies now to be the trendsetters while remaining
profitable and keeping customers satisfied.
How to Win
To remain relevant and competitive, beverage players must act in all four areas—customers,
products, brands, and distribution—and learn from other industries and from smaller
beverage companies.
The transformation journey begins with the customer. As individualism picks up and classical
segmentation loses relevance, all business-to-consumer companies must build capabilities to
not only gain access to relevant customer data but also to process it. To gain access, strengthen
partnerships with distributors and retailers; to make the most out of the data, complement
retrospective analysis with predictive modelling.
As a next step, product innovation cycles can be adjusted to align with consumer trends. Lean
processes (usually driven by lean and empowered teams) can reduce time-to-market, and
capabilities in agile testing can ensure that new products are relevant.
To communicate strong brands to the next generation of consumers, well-established beverage
companies can learn from their young, bold competitors. Brand authenticity is crucial for Gen Z,
so the brand must have a strong value proposition. If it is hard or even impossible to establish
this association for trendy new products with the core brand, consider acquiring smaller
competitors or launching a new internal brand.
In distribution, flexible and innovative channels are becoming even more relevant as
e-commerce continues to grow. Innovation and direct distribution can create access to
consumers and reduce dependency on a distribution network. However, do not rush to
eliminate well-functioning standard route-to-market models, and test new models intensively
since building new distribution models is an investment-intensive undertaking.
Authors
Axel Erhard, Adrian Kirste,
partner, Munich principal, Munich
axel.erhard@atkearney.com adrian.kirste@atkearney.com
Franziska Neumann, Marlene Kessler,
consultant, New York consultant, Düsseldorf
franziska.neumann@atkearney.com marlene.kessler@atkearney.com
The authors wish to thank Indira Banerjea (research expert, Düsseldorf) for her contribution to this study.
The Future of Beverages 7The Future of Beverages 8
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