Nigeria’s soft drink market shrinking due to health consciousness?

Xylitol, Aspartame and Stevia; these might sound like villains, however, they are sweeteners. Most individuals have been consuming them in some form since the first of them, saccharin – christened ‘‘the poor man’s sugar” formulated by German chemists over a century ago. Intriguingly, there are growing concerns over their potentially toxic effects. Diabetes, cancer, stroke, vomiting, dizziness – all have been cited as risks from sweetener consumption, yet none of these claims have stuck.

Today, sweeteners are a global industry worth hundreds of million of pounds. They are found in more than 6,000 products, from drinks and desserts to cakes, chewing gum and ready meals, according to a report by Dailymail.co.uk.

Recent study from Purdue University in Indiana emerged, arguing that diet drinks containing artificial sweetener-aspartame – are no healthier than their full-sugar counterparts and contribute to weight gain, diabetes and heart disease.

Consumers, due to health reasons, have become heavy eaters of fruits and vegetables which are sold fresh in grocery stores and are prevalent at roadsides. With a growing need for convenience among a larger working population, most well-informed consumers are now more health-conscious, while fruit drinks in packaged formats have increased in popularity.

Given the growing incidence of hypertension and diabetes in the country, middle- and higher-income consumers are keen to stave off these diseases by consuming fruit drinks they consider healthier than carbonates. Manufacturers are using the health benefits of fruit drinks as a strategy to drive growth.

What are sweeteners?

Sugar substitutes can be divided into four distinct groups with different health properties. Artificial sweeteners (such as aspartame and saccharin) are produced from chemical compounds that provide no calories, and are therefore referred to as non-nutritive sweeteners.

Sugar alcohols (such as sorbitol and xylitol) are derived from substances in many vegetables and fruits such as cherries. Novel sweeteners are the most recent addition to the sugar alternatives and mostly come from stevia extracts, a group of more than 200 shrubs and herbs in the sunflower family.

Artificial, sugar alcohol and novel sweeteners all taste many times – some hundreds of times – sweeter than sugar, so the amounts needed to create the same level of sweetness are dramatically lower.

The final group is the natural sweeteners such as fruit juices (fructose), agave nectar, honey and maple syrup, which are basically the same as sugar in terms of calorie and carboyhydrate content.

Industry growth

The Nigerian soft drinks market has continued to develop positively with all major categories showing robust growth in total volume and current value sales. This performance was underpinned by population growth, rising disposable incomes and other favourable economic indicators, but also driven by new launches, marketing activities and improvements in distribution.

According to Euromonitor, growth in total market volume sales was down in 2011, and slightly slower than the review period Compound Annual Growth Rate (CAGR). This was due to the elimination of government fuel subsidies at the start of 2012, which caused fuel prices to almost double overnight and had a negative impact on consumer spending power.

Besides this, increasing maturity in some categories and insecurity in the North caused growth in total soft drinks volume sales to slow.

With health and wellness becoming a growing trend in the soft drinks market, the impact of rising health awareness among consumers is becoming more visible in the performances of the fruit/vegetable juice and bottled water categories.

Consumers are becoming more brand conscious and interested in new products; a development that is expected to keep players on their toes with investment in research and innovation remaining paramount.

BusinessDay findings show that rising health awareness has bolstered demand for low calorie cola carbonates and non-cola carbonates products. Manufacturers of major soft drinks have said they have reduced sugar but you find out that there is nothing like reduced sugar and sugar-free variants because they contain ingredients like aspartame, which is harmful to health.

Soft drinks distribution

Off-trade channels continued to account for the lion’s share of total soft drinks volume sales in Nigeria in 2012, according to experts. On-trade soft drinks volume sales grew faster, partly because they were emerging from a much lower base but also because favourable economic conditions continued to bolster the development of the local foodservice market.

The expansion of major fast-food chains is a key driver of growth in on-trade volume sales. BusinessDay investigations show that independent small grocers remained by far the most important channel in terms of off-trade volume sales, followed by other grocery retailers (traditional open markets, street stalls/kiosks).

Supermarkets and hypermarkets have made modest gains during the review period, thanks to rising urbanisation and the expansion of chains like Shoprite and Spar, which offer wider soft drinks assortments and more competitive prices than other retailers.

Economic outlook

The outlook for soft drinks in Nigeria is favourable, with growth in total volume sales over the forecast period expected to be slightly faster than that recorded over 2007-2012, analysts believe. Rising disposable incomes and population growth will continue to underpin the positive development of the entire market, while new launches, marketing activities and improvements in distribution will also bolster demand in individual categories.

Economic growth and the growing influence of Western consumption trends will encourage Nigerians to trade up to higher quality and more expensive soft drinks, particularly healthier products.

Together with price hikes imposed to offset inflationary pressures, this trend should ensure that growth in total soft drinks constant value sales is slightly faster than growth in total volume sales, and markedly stronger than the constant value CAGR recorded during the review period.

 By: Anne Agbaje