Product and Service

Companies included in non-alcoholic beverage-brand sector primarily produce and market concentrate and finished sparkling and still beverage by their owned brands.

Demand for Product and Service

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.  

The Sector

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

It seems that companies in this sector are experiencing changes in consumers’ taste and the transmissions of those changes across global markets as the total trend of consumers’ preference is shifting to non-carbonated beverage from traditionally dominating sparkling products. Sales volume data indicates that demand for CSD beverage has been declining globally with an annual rate of about 1% and the demand for non-carbonated beverage increased about 4% annually in the past several years. The global decline in demand for CSD is particularly due to large decline in developed market. For example, the decline in CSD beverage in US market led the whole volume in this market go down by 2-4% in 2016/17 while the decline seems to be being offset by picking up of non-carbonated beverage in 2018.  Globally, driven by increasing in developing market in both CSD and non-carbonated categories, the demand has been increased as indicated by 1-2% annual growth in volume. Accompanying with declining demand for traditional sparkling beverage, we have seen the average price has been rising at an about 2-3% rate globally in the past several years and the price growth rate is lower in US market (1-2%) during the same period. The rising average price has resulted from rising unit price and product mix’s shifting to higher price products.

As a result, as described above, of the changes in consumers’ shifting away from carbonated beverage in US market, the declining demand for CSD beverage hurt more the bottling only companies than brand beverage companies in this industry as indicted by these bottlers’ declining growth rate of can/bottle volume and shrinking gross margin according some of typical bottlers.

Due to strong demand and as well the fact that only a few of brands are dominating market, for those brands owners and manufacturers of beverages the gross margin and operating margin have been kept at high level and seemed to be being improved. In the past several years, with favourable product mix shifting to high price products and reducing commodity costs and business shifting to higher margin operating (franchise), the average gross margin of typical companies in this sector reaches almost to 60% and operating margin to 22%.

However, when talking about the bottlers who have no own brands, their gross margins seem to have decreased largely (down by about 600 basis points in gross margin and by 500 basis points in operating margins, according to a typical bottler). Obviously, the increased margin resulted from shifting of product mix as seen from brand companies was not transferred to bottling sector or at least to some of bottlers who were not able to flexibly adjust their business to adapt new changes in demand.

According our analysis, brand companies’ enterprise price/adjusted EBI is around 31 in a range of 29-35 with interest/EBI ratio of 7%.  Bottlers/private label companies’ enterprise price/sales is about 0.7 with gross margin of 34% and EBI/sales ratio of 0.5%.

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