Insight

Sign of the Times

Read more about the latest trends and M&A activity in healthy and functional drinks

Ross Colbert

Ross Colbert

Advisory Managing Director, KPMG US

+1 212-997-0500

Robert Glowniak

Robert Glowniak

Managing Director, Advisory, KPMG US

+1 312-665-2614

The Hard and Fast Liquid Refreshment Beverage Category is Finally Shaking Up

In this quarter’s Food & Beverage newsletter, we are taking a deeper dive into the liquid refreshment beverage (LRB) category, which includes all non-alcoholic beverages. This segment contains the two largest beverage categories in US by volume, bottled water and carbonated soft drinks (CSD), each comprising of a market share of more than 30%. Today, total LRB sales is approx. $204 billion across the food service and take-home channels, up 13% year-over-year.

In 2021, we saw strong sales across several categories in the LRB segment even as the return to on-premise consumption failed to meet its projections. The at-home consumption channel carried the category and was able to offset the softness experienced by on-premise. Over the two year pandemic period, the CAGR for on-premise fell to -5.6%, while the CAGR for off-premise grew to 3.5%, resulting in a total CAGR of -0.2% and total volume CAGR of 0.7%. This signaled a strong recovery in the latter part of the pandemic period as LRBs in the US saw 13% year-over-year growth in 2021.

Post COVID-19, many food & beverage companies are still figuring out how to navigate the pandemic’s lasting impact to changes in consumer preferences. The return to normalcy, and consumer's focus on health and wellness, have left many LRB companies scrambling to innovate in order to adapt to current category trends, something that had had not been a recent focus for the larger players in the segment.

As consumers move away from high calorie and sugary options (CSDs, juice, sports, and energy drinks) towards healthier beverages, companies will need to be focused on investments in R&D and using M&A to fill portfolio gaps within fast-growing categories such as healthy hydration and plant-based functional drinks.

Consumer behaviors continue to transform the beverage landscape

  • Hard Seltzers & Flavored Malt Beverages (FMBs) are Exploding
  • Brewers are Building Non-Alcoholic Beverage Portfolios
  • Soft Drink Companies are Launching FMBs
  • Functional Beverages 2.0
  • Plant-Based Beverages are the Fastest Growing Segment
  • Large scale consolidation of water in North America
  • Significant can shortage continues in the US
  • Consumers continue to prioritize premium options
  • E-Commerce is now business critical as At-Home consumption accelerates



Hard Seltzers & Flavored Malt Beverages (FMBs) are Explodin



Brewers are Building Non-Alcoholic
Beverage Portfolios



Soft Drink Companies are Launching FMBs

 
 



Functional Beverages 2.0



Plant-Based  Beverages are  the Fastest  Growing  Segment



Large scale consolidation of water in North America

 
 



Significant can shortage continues in the US



Consumers continue to prioritize premium options



E-Commerce is now business critical as At-Home consumption accelerates

The Next Wave... Which LRB  Categories are Hottest?

Consumer tastes in the US are shifting towards no and low calorie beverages


LRB categories performed well in 2021 showing its resiliency after a weak 2020.

  • CSDs witnessed an upward trend after 16 years of consecutive declines
  • Niche categories including ready-to-drink (RTD) coffee, flavored water, and energy drinks, all experienced double- digit growth
  • Bottled water, one of the largest LRB categories, performed well experiencing 12.5% growth from a year ago
  • As we navigate economic downturns in 2022, some interesting trends have emerged in the LRB category. While all signs point to no and low calorie options taking market share, CSDs have seen significant dollar value growth in 1H:22
  • While flavored water options saw very strong growth in 2021, that impressive growth slowed to a more manageable level in 1H:22 and is expected to continue on a more cautious growth trajectory throughout the rest of the year

We hope you find this information valuable, and as always, feel free to reach out if you would like to discuss in further detail. To read the full report, download the PDF below.


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