As our data indicates, demand, especially in US market, for non-alcoholic beverages has been weak primarily due to declining demand for carbonated beverage under a shifting of consumers’ preference to non-carbonated beverages in the past several years. Sales and profitability of CSD products have thus been damaged in this shift and companies pursue new growth from non-carbonated beverage and in developing market.  

Sector’s current, trend, causes behind trend, and future

Current and Trend

1. Demand for CSD beverage has been weak and declining in major developed markets in the past several years.
2. An apparent shifting of consumers’ preference from dominating carbonated beverages to non-carbonated beverages has been clearly seen in this sector in US market in the past several years. While the resulted increase in sales of non-carbonated beverage seems to only partially offset the decrease in sales of CSD products in US market, the growth has been faster than the decline in CSD.
3. Due to still strong demand/less decrease for CSD products and increase in demand for non-carbonated products in developing markets, we have been positive growths in total volume in those markets, which helped to completely offset the decrease in developed markets.
4. We have been seeing the rising average price globally and as well in US market in the past several years. The rising average price has resulted from rising unit price and product mix’s shifting to higher price products.
5. The declining demand for CSD beverage hurt more the bottling only companies than brand beverage companies because the later possess larger flexibility in adjusting their operation and products/market focus including re-franchising their CSD business and also because the later can take fully use of benefit of sales’ shifting to higher margin products.  

Causes behind the trend

• Demographic changes and generally increasing income of consumers globally are always the basic drivers behind the growth in demand for beverages.
• Increasing awareness of healthy life among consumers, especially the developed market’s consumers, also presents the reason behind the consumption trend across food industry to healthier and more natural food.

 

Industry Future

• Gradually increasing disposable income of consumers, the accelerated recovery of economy, and economy development in developing market are all favourable factors to existing beverage companies in continuingly generating more revenues and making more profits.
• How to take advantage of new consumption trend of non-carbonated beverages may be dependent on how fast the trend shifts among consumers. The larger companies may be on better position in this changing beverage market.

General Financial Performance of Companies In the Sector

Home and office bottled water and coffee delivery demand seems to be steady but, according a typical company, the sales grow at small pace to probably driven more by increasing price than by increasing volume.

Consolidation activities have been increasing in the past several years as companies pursued scale advantage to deal with increasing costs. The typical gross margin seems to be 50%, which generates 5% operating margin (2018).

Market values this sector with a very positive enterprise price/EBI ratio of about 60-70 (interest/EBITDA of 30%).

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