Downturn Takes Fizz Out of Soda

Asia’s economic woes continue to unravel as sale of nonalcoholic beverages experienced a slowdown last year and will continue to slow on into 2009. According to the Canadean Soft Drinks Service—a market research company established by a former Financial Times journalist—growth in nonalcoholic drink sales are slowing in some Asian countries and declining in others. India’s sales increased 8.5% in 2008 down from a 10% increase in 2007. China’s sales increased 15.4% in 2008 down from a 16.4% increase in 2007. Finally, Russia’s sales declined 2.6% in 2008 from an increase of 13.2% in 2007.

But major players in the nonalcoholic beverage industry remain undeterred in the face of faltering numbers.

“Times like these are not an excuse to sit back and ride the storm,” Muhtar Kent, Coca Cola Co.’s CEO said in a recent report in the The Wall Street Journal (which can be read here). Coke just launched a major advertising campaign to promote its signature cola and has been building its juice business globally for at least the past four years. In September 2008, the Atlanta-headquartered beverage giant announced its $2.4 billion bid for Chinese juice company Huiyuan, which is based in Beijing. “Almost 40% of our volume growth is coming from still beverages—juices, teas, waters, sports drinks,” Mr. Kent told an audience at the Foreign Correspondents Club Japan in May 2008. Clearly, juice is where the industry’s money is at, and Coke is not the only company that thinks so.

PepsiCo, has also been acquiring juices despite declining growth rates in its industry. The company purchased 75% of Russia’s leading branded juice company, JSC Lebedyansky, in August 2008. But PepsiCo stands to lose more money during the soda slowdown because of products such as Doritos, Frito-Lays and Rice-A-Roni. The company’s sale of fatty items such as chips run contrary to the popular industry trend of diet foods and drinks, which might explain why its net income fell last year by 9.2% to $1.58 billion. The loss hasn’t stopped PepsiCo’s interest in becoming a key player in China, however. In November 2008, the company announced it would be investing an additional $1 billion in China over the next four years.

For more numbers about PepsiCo and its planned expansion in China, please look here. To greater understand how the world economy will affect supply and demand of Asian products, such as soda read REVIEW contributor Abe De Ramos’s article here.

Saul Sugarman is a REVIEW new media intern and master's student at University of Hong Kong's Journalism and Media Studies Centre.