Fruit juice, iced tea and bottled water grow in volume and value
South Africa's bottled water and iced tea categories grew in both volume and value in 2016, and RTD fruit juice also displayed positive volume growth, according to reports recently released by BMi Research.
©Joshua Resnick via 123RF
RTD fruit juice
BMi's RTD fruit juice report revealed that the category yielded a positive volume growth for the year 2016, which may have been attributed to the good fruits harvested during the course of the year. The category outperformed the struggling economy.
The following factors may have had an impact on the degree to which the category has grown in volume:
• Increase in fuel prices in the first quarter of the year and distribution costs
• Increase in sugar prices, affecting certain fruit juices
• Increase in packaging material costs, as oil prices recovers and rand weakens
• Limited consumer disposal income
• Scarcity of certain fruit in the market due to drought thus impacting on the range of certain fruit juice flavours available
Increasing inflation on food prices had an impact on consumer behaviour, therefore in 2016 there was an increase in the number of consumers purchasing non-perishable items in bulk, often during promotions. Evidence of this can be seen in the increase in larger pack sizes and the increase in carton packaging for long life fruit juices.
The industry selling price showed the highest growth rate since 2012. The lagged increase in price was attributed to the drought experienced in 2015 which caused a scarcity of fruit available in the market and an increase in imports.
Top-end retail remains the core channel for the RTD fruit juice category despite losing share to wholesale and exports. The depreciation of the rand against other foreign currencies expanded, which were witnessed during the course of the year may have encouraged players to expand their footprint across other African countries
The key metropolitan regions contributed to the mainstream of the market volume. The majority of players distribution channels are located within these regions which are than further distributed to other regions.
The short-life fruit juice category gained ground, gaining volume share of 54.5% versus 45.5% from the long-life fruit juice.
Bottled water
The bottle water report revealed that the category continued to grow in both volume and value in 2016. The category volume growth may be attributed to the following factors:
• Severe drought conditions led to shortages of water in some regions of the country. Consumers were forced to purchase more bottled water for drinking and household use.
• Shortages of clean drinking water from municipal tanks. Some regions received water from municipal tanks but where water was not clean enough for human consumption, consumers had to substitute that with bottled water.
• Severe drought and shortages of clean drinking water in neighbouring countries increased the volume of bottled water exported.
• An increase in the number of new players entering the market. Most regions experienced an influx of new local players supplying affordable bottled water products.
• An increase in promotional and marketing activities. It is hypothesised that an increase in product awareness increased usage.
• An increase in health awareness regarding sugar drinks. It is believed that the bottled water category is taking volume share over alternative beverages that are perceived to be less healthy.
• Shifts from other non-alcoholic beverage categories that are higher priced compared to bottled water, particularly as consumer spending remains under pressure
The category continued to be dominated by still unflavoured water. This sub-category is supplied by a variety of players in the market and is available in larger pack sizes. The still unflavoured water sub-category accounted for 64.4% of total volume sold in 2016, up from 64.0% sold in 2015. It is hypothesised that the sub-category took share from functional and sparkling water during the period under consideration as consumers needed water for household use given the municipal water shortages.
The functional water sub-category lost volume share, possibly due to pricing and depleted consumer spending on beverage products perceived as luxury items.
The retail industry, including forecourts, collectively continued to dominate the product distribution. The retail sector volume accounted for 56.8% of the total volume sold, down from a 57.2% share in 2015. The decline in retail volume share may be attributed to an increase in exports and wholesale volumes, as manufacturers looked for new markets and distribution channels.
The retail and forecourts sectors are characterised by promotional and marketing actives and are able to attract a large customer base because they have a wide variety of brands and products for customers to select from. The wholesale channel showed relative good growth in volume because of larger pack sizes and bulk packages.
The regional distribution of bottled water changed significantly in 2016. The category experienced high-volume demand in regions that were affected by drought compared to the three metro regions. The Gauteng region accounted for 38.5% of the total volume sold in 2016, followed in share terms by KwaZulu-Natal and the Western Cape. Consumers in these regions have above average disposable income and are more likely to be able to afford bottled water.
The non-major metropolitan regions accounted for 31.9% of volume in 2016 compared to 30.5% in 2015. The increase in volume may be attributed to shortages of clean drinking water in these regions. Players also focused more on areas close to their production plants in order to cut distribution costs, as bottled water margins are considered low compared to other non-alcoholic beverages.
Bottled water category volumes are expected to grow year-on-year in the short to medium term. The comparatively low growth forecast may be attributed to limited economic growth and consumer disposable income, as well as steep competition from other beverage categories.
Iced tea
The RTD iced tea report showed that the category has grown in popularity with consumers in South Africa, growing in both volume and value in 2016. It also performed well in a struggling economy, considering the annual gross domestic product (GDP) growth, which was 0.3% for South Africa. The average industry selling price saw a positive increase of 5.1% compared to 2015. This increase was below the annual consumer price index (CPI) rate of 6.6% for 2016. It is believed that this category has not yet reached maturity stage and will continue on a positive growth trajectory for the foreseeable future.
The category growth may be attributed to the following factors.
• New brands and products entering the market, thus increasing volume
• Brand extensions and the introduction of new flavours, attracting new consumers
• An increase in the distribution of iced tea to previously underserviced channels, such as wholesale
• Warmer temperatures in the country encouraging high demand for iced tea
• The weak Rand exchange rate against foreign currencies encouraging sales to export markets
• New, larger pack sizes launched during the second half of 2016 resulted in volume growth
• Players increasing their footprint in regions previously underserviced around the country, such as Eastern Cape with developments in Nelson Mandela Bay municipality.
The top end retail channel remained the leading supplier of RTD iced tea in 2016. Other channels that showed good growth are seen to have potential for future growth. These include the wholesale and export channels. Export is favoured particularly due to the weakened rand.
Gauteng remains the single largest consumer of iced tea, but lost some share to other major metro regions such as KwaZulu-Natal and the Eastern Cape in 2016 compared to 2015.