Heavyweight producers of non-alcoholic beverages say about half of their sales now come from either no-sugar or low-sugar versions, but inflation in input costs and packaging is pressuring margins with the cost of recycled PET plastic used in bottles up fivefold compared with two years ago.
Big players in Australia such as Coca-Cola Europacific Partners, Asahi and PepsiCo are all facing the same pressures.
The rise in input costs is also affecting smaller companies such as Nexba, which has been riding the anti-sugar wave since being set up in 2010 by founders Troy Douglas and Drew Bilbe.
Nexba, which has broad distribution coverage now in large supermarket chains such as Woolworths and Coles, is headed for annual sales of more than $40 million this financial year with its no-sugar beverages.
Nexba’s Mr Douglas said the group’s sales of drinks such as kombucha were growing fastest. “The better-for-you movement is driving the growth,” he said.
He said by October, Nexba’s products would be in nine other countries, mainly in the United Kingdom and Europe, as the export market grew strongly, complementing its strong Australian business.
Mr Douglas said Nexba was also having to contend with inflationary pressures in packaging and freight costs, but was offsetting some of those rises by stepping up expansion and producing more volume.
“We’re in a position where we’re able to negate some of that by getting bigger,” Mr Douglas said.
Former David Jones chief executive Paul Zahra is one of the investors in Nexba.
Geoff Parker, the chief executive of the Australian Beverages Council, whose members include big players Asahi Lifestyle Beverages (formerly Schweppes Australia), Coca-Cola Europacific Partners, PepsiCo and The Coca-Cola Company, said packaging and freight costs were up between three to five times compared with pre-pandemic.
The cost of recycled PET plastic was five times higher.
A report by KPMG commissioned by the Australian Beverages Council on behalf of the four big producers said that in calendar 2021, no and low-sugar options made up 50 per cent of all the beverages produced. Those beverage portfolios also include bottled water products. The ratio is up from 47 per cent in the previous year.
Mr Parker said there had been an acceleration in innovation and marketing of no-sugar and low-sugar versions.
“They are stepping up. They are doing more,” he said.
“We call it portfolio renovation”.
The Australian Beverages Council represents small, medium and large companies which combined produce about 95 per cent of the industry’s volume. In 2016, United Kingdom legislators voted to introduce a levy on sugary drinks to combat childhood obesity in a surprise move.
Mr Parker said both supply chain costs and raw material costs were rising. He said the costs of shipping containers had risen by a factor of five while the cost of fuel and pallets had jumped sharply.
“It’s everything. The increases have been significant,” he said.
The Australian soft drinks market has gone through major corporate changes in the past few years, the biggest being when Coca-Cola Amatil was taken over by Coca-Cola Europacific Partners in a $9.8 billion deal in April last year.
After 51 years on the ASX, Coca-Cola Amatil, Australia’s largest non-alcoholic beverage bottler, was swallowed up by Coke Europe. Coca-Cola Amatil shareholders overwhelmingly voted in favour of the $13.50-a-share offer.
Extracted from AFR