1. The slow growth of carbonates across the world has opened the door for new
beverages and brands. As consumers expand their soft drink expectations beyond
hydration, seeking new refreshing flavours and functional benefits, enhanced
waters, such as carbonated, flavoured and functional water and sports drinks,
stand to benefit.
Soft drink products more varied to meet consumer demand
The decline of carbonates across many developed markets and the increasing
penchant for regionally relevant soft drinks in emerging markets have opened the
door to a wide variety of soft drinks to grow. The ability to create drinks that
hydrate, refresh and provide a function has become an important growth driver.
Enhanced waters are positioned for successful growth
Carbonated, flavoured and functional bottled waters, along with sports drinks, are
unique in that they benefit from the healthy hydration provided by still bottled
water, while offering refreshment and/or function. These products feature a wide
range of flavours and formulations, allowing them to be produced and marketed to
meet the latest consumer trends.
Types and positioning of enhanced waters vary region by region
Strong consumption of enhanced waters in the US, Eastern and Western Europe,
Asia Pacific and Latin America further demonstrates the importance of this
category, but the popularity of each type of enhanced water, as well as the way
they are positioned, varies with each region’s consumer needs
Successful products can be marketed for multiple consumption occasions
Danone’s Aquadrinks division underscores the potential of enhanced waters in
many international markets. The ability for these enhanced waters to appeal to
consumers seeking healthier beverages, new flavours and functionality has been
key in broadening appeal and expanding use occasions.
Growth remains a long-term but profitable prospect
While the five year forecasts demonstrate decent growth, a long-term strategy to
focus on this area of soft drinks from major beverage manufacturers could boost
enhanced waters into a key growth category over the next decade.

2. EXECUTIVE SUMMARY
Health and wellness trend continues affecting soft drinks industry
2013’s performance was good in general terms; however, this year showed
increasing trends in health and wellness concerns within consumers giving more
careful thought to their purchasing decisions. Soft drinks industry shows that
health and wellness concerns benefitted categories like RTD tea, which had the
strongest growth during 2013, reinforcing the fact that consumers tend to
consume what they believe has more health benefits or at least is less harmful to
health.
Mexico’s government acts directly on soft drinks to combat obesity and
diabetes rates
The biggest event in the soft drinks industry during 2013 was the proposed new
tax that President Enrique Peña Nieto passed to the Mexican Congress in February
2012 targeting all sugar-sweetened beverages in an effort to reduce the ratio of
obesity and diabetes type 2 in the country, where 7 out of 10 adults are
overweight and 15% of the population above 20 years old have diabetes Type 2.
The proposed tax was approved by the Congress and by the Mexican Senate in
November of 2012, thus was to start levying the tax in January 2014.
Three major companies strongly lead competitive environment
The competitive environment in Mexico’s soft drinks industry is strongly
concentrated in three major companies Coca-Cola de México, Danone de México
and Pepsi-Cola Mexicana. These three account for the highest volume shares in
soft drinks by engaging in strong media efforts, having excellent distribution
networks and offering products that are perceived as high quality and/or well
priced. Therefore these company’s brands remain very popular amongst
consumers of all segments and ages in Mexico.
Off-trade channel is still the preferred channel to buy soft drinks
The off-trade channel still accounts for the bulk of soft drinks volume sales. Soft
drinks in Mexico are a very rooted custom amongst the Mexican population, and
the preferred channels from which to purchase them are the modern and
traditional trade channels where consumers can interact more with the potential
brands before deciding what to get. Moreover, an increasing price war amongst
many soft drinks categories makes consumers wait until the point of purchase to
decide on what to purchase.
Soft drinks expected to stabilise despite new tax on sugar-sweetened
beverages
Soft drinks is expected to have a good performance over the forecast period
despite the new tax imposed on sugar-sweetened beverages which account for the
majority of volume sales within the soft drinks category. Companies are expected

3. to invest efforts in manufacturing products that widen the soft drinks portfolio with
lesser priced options that do not contain sugar. This effort will help the category’s
growth despite the increasing prices of sugarised beverages.

4. November 7, 2014
The Backlash Against Sugar: The Facts
Analyst Insight by Gina Westbrook - Director, Strategy Briefings
Our new Strategy Briefing, The Sugar Backlash and its Effects on Global Consumer
Markets considers the impacts of this change on consumer behaviour; global ingredients
markets; consumer markets such as packaged foods, soft drinks and health and wellness;
company strategy and legislation. It's worth looking at current thinking on the pros and
cons of sugar to contextualise the research.
The demonisation of sugar
Sugar has endured a tide of negative public opinion as the amount of scientific research
linking the rise in sugar intake with obesity has increased. Governments are becoming
increasingly concerned about the rising cost of illnesses such as type 2 diabetes and cancer,
which have risen alongside weight gain. As fat is receding as the main culprit, recent media
coverage and public discussion are now laying the blame for the growth of obesity and
other health risks principally on sugary foods and drinks.
Sugar is now seen as a health risk by most, and as toxic as tobacco by some. This is leading
to the introduction of a raft of voluntary and legal measures to help control intake. The new
attitude is driving changes in consumption trends, including a conscious effort by
consumers to either reduce their intake of sweet foods and drinks, or eschew sugar
completely. Meanwhile, manufacturers are being forced to tackle the problem in various
ways, including gradually reducing the content of their products, using alternative types of
sweetener, or downsizing portions.

5. In emerging markets, the picture is – for now – quite different. Although educated, urban
consumers in markets such as China and India are becoming more health-conscious and
aware of the dangers of eating too much junk food and sugary drinks, for many of the
expanding middle classes, consumption of processed and branded food products – some of
which are very high in sugar content – is seen as a marker of affluence and therefore
desirable.
Fact versus opinion; the facts about sugar
In the media, sugar appears to have taken over from fat as public enemy number one.
Hardly a day goes past without a report on its negative effects. The question is, to what
extent is sugar (rather than substances such as saturated fats, salt or carbohydrates) the
cause of obesity, and how serious is the problem?
The scientific community and food and drink industries are divided in their opinions,
although some facts are undeniable. These include the following:
 While not proven to be the principal cause of obesity, overconsumption of sugar is
contributing to the obesity problem, which in turn is leading to increased rates of
type 2 diabetes, heart disease and other health problems.
 Eating too much sugar is the most important dietary factor in the development of
dental decay.
 Refined sugars represent “empty” calories, with zero nutritional value.
 Many soft drinks contain extremely high levels of sugar. For example, a can of
regular 7-Up contains 35g of sugar (equivalent to eight teaspoons).
 Many savoury foods also have high levels of “hidden sugars”, such as ketchup,
pasta sauces, soups and ready meals.
 Sugar can be said to be addictive in the sense that it releases dopamine in the brain,
a sensation akin to being rewarded. Increasing numbers of scientists are comparing
sugar to drugs that create a dependency, similar to alcohol and nicotine.
Arguments of the anti-sugar lobby
One of the first people to bring the adverse impact of fructose to the attention of the public
was Dr Robert Lustig, a childhood obesity specialist and author of the book “Fat Chance”.
In 2009, Lustig delivered a lecture called “Sugar: The Bitter Truth”, which had received 5.1
million views on YouTube by October 2014. In this (as well in as other highly publicised
articles, such as “The Toxic Truth About Sugar”, published in the journal Nature in 2012),
Lustig describes fructose as a “poison” which helps the body retain fat and therefore causes
obesity and type 2 diabetes.

6. Fructose and fructose-rich sugars (in particular HFCS) are generally considered to be more
detrimental to health than glucose and glucose-containing sugars. Currently, the Food and
Drug Administration (FDA) approves the use of HFCS with a maximum of 55% fructose
(although some types of HFCS, such as those used in certain types of bread, are only 42%
fructose and 58% glucose). However, sucrose (table sugar) is split 50-50 between glucose
and fructose, and conventional corn syrup is 100% glucose.
Once consumed, sucrose hydrolyses into fructose and glucose. Fructose and glucose hold
the same calorific values but it is thought that the two sugars are processed differently in
the body, causing different responses on ingestion.
Glucose (the body’s preferred source of energy) is metabolised within the gastrointestinal
tract, entering the bloodstream almost immediately. This causes blood sugars to rise and in
response the body releases insulin to help normalise blood sugar levels. Glucose molecules
bind to the insulin and are transported to cells that need extra energy. Any unused glucose
is deposited in fat cells, stored as fat.
Fructose is, however, poorly absorbed from the gastrointestinal tract and is almost entirely
metabolised by the liver. When too much fructose enters the liver, the liver cannot always
process it fast enough for the body to use it as sugar, so instead it is converted into glycerol,
a key component of triglycerides. A high level of free triglycerides in the blood is a key risk
factor for heart disease. The condition “fatty liver” is said to affect 70 million people in the
US.
Meanwhile, the rapidly absorbed glucose triggers strong spikes in insulin, the body’s main
fat storage hormone. Insulin resistance has been found to cause weight gain, lethargy,
difficulty concentrating, high blood pressure and, eventually, type 2 diabetes. Some studies
also suggest that insulin resistance could be a contributory factor in cancers and dementia.
The anti-sugar lobby believes that sugar is a much bigger problem than fat, as its
consumption releases dopamine in the brain, a sensation akin to being rewarded. Increasing
numbers of scientists are comparing sugar to drugs that create a dependency, similar to
alcohol and nicotine. In the book “Why Diets Fail (Because You’re Addicted to Sugar)”,
Nicole M Avena PhD and John R Talbott explain how sugar creates a repetitive craving.
An article published by the UK’s Daily Mail in September 2014 claimed that new research
has found sugar to be even worse for blood pressure than salt. The study, by scientists from
New York and Kansas, which was published in an article in the American Journal of
Cardiology, found that high sugar levels affect a key area of the brain (the hypothalamus)
that causes the heart rate to quicken and blood pressure to rise. Higher levels of insulin
caused by overconsumption of sugar may also speed up the heart rate.
Arguments of the sugar lobby
The sugar industry maintains that fears over fructose consumption are exaggerated and that
sugar should not be singled out as the main culprit in the obesity crisis. Sugar, they say, has
been consumed in natural forms for thousands of years and has not been proven to be

7. harmful. Indeed, according to the British Dietetic Association (BDA), while added sugar is
not necessary for a healthy diet, it is harmless in moderation.
The Corn Refiners’ Association claims that studies of sweeteners tend to focus on the
consumption of pure fructose. It states that in reality, fructose and glucose are consumed
together, which aids in satiety.
According to the American Beverage Association (ABA), US consumers are already
consuming 37% fewer calories in sugar from soft drinks than in 2000, and the overall
average number of calories per beverage serving is down by 23% since 1998. Therefore,
they maintain, sugary drinks cannot be the cause of growing obesity.
Obesity has also been linked with saturated fats and carbohydrates, as well as to sedentary
lifestyles. In fact, obesity rates have continued to climb, despite the fact that sugar
consumption in some markets (such as the UK) has fallen over the past decade. The sugar
industry believes that singling sugar out could harm wider health messages about achieving
a balanced diet.
The food industry argues that sugar is an essential component of processed foods because it
helps make products more palatable, providing texture and acting as a preservative. There
is no one ingredient that can replicate all of the functions of sugar in every product.
One argument against replacing fructose with zero-calorie sweeteners is that the brain
cannot be fooled into thinking sweeteners provide the body with energy. Therefore,
consumption of zero-calorie sweeteners can lead to higher sugar consumption later.
Summary: Arguments For and Against Sugar Reduction
For Against
Refined sugars have zero nutritional value and
are only of benefit if high amounts of energy
are needed quickly.
Sugar has been consumed in natural forms
throughout history and is harmless in
moderation.
Studies have linked high levels of fructose
with the growing problems of obesity, type 2
diabetes and heart disease.
Sugar is not solely responsible for the rise
in obesity – saturated fats, carbohydrates,
protein and sedentary lifestyles are also
contributory factors.
Too much sugar could lead to insulin
resistance, a precursor to type 2 diabetes which
can cause weight gain, lethargy, difficulty
concentrating and high blood pressure.
When fructose and glucose are consumed
together, they are said to aid satiety.
Sugar is addictive in that it releases dopamine
in the brain, a sensation akin to being
rewarded.
Sugar is an essential component of
processed foods as it helps make products
more palatable, providing texture and acting
as a preservative.
Sugar is a major cause of tooth decay
Zero-calorie sweeteners are not an effective
replacement for sugar as they do not fool

8. the brain into thinking they are providing
the body with energy.
Source: Euromonitor International
For much more
This opinion piece lays out the background to the trends which have been identified by
Euromonitor International’s Strategy Briefing team in The Sugar Backlash and its Effects
on Global Consumer Markets.
Strategy Briefings offer unique insight into emerging trends world-wide. Aimed squarely at
strategists and planners, they draw on Euromonitor International’s vast information
resources to give top line insight across markets and within consumer segments.
- See more at: http://blog.euromonitor.com/2014/11/the-backlash-against-sugar-the-
facts.html#sthash.wCgEjLO7.dpuf
wistiaEmbed = Wistia.embed("fckr7s7hbu"); PepsiCo has recently launched two new products:
Pepsi True and Caleb's Kola. These are designed to take advantage of the mid-calorie soda trend,
paritally sweetened with stevia, and the craft soda trend. Both of these launches, in terms of their
marketing and distribution, are relatively experimental so it remains to be seen how these
products will perform. - See more at: http://blog.euromonitor.com/2014/10/analysing-pepsis-
new-product-launches.html#sthash.vVZieQbZ.dpuf
Share a Cole
Returnable Glass Bottles on the raise

9. Flavour is an essential tool for food and drinks producers, not only in delivering
palatability but also in positioning a product or targeting a specific audience. This
report assesses global flavour trends, looking at market sizes and segmentation,
and explores some of the themes impacting flavour development. Specific analysis
is also included on flavour trends in soft drinks, alcoholic drinks, dairy/ice cream,
confectionery and snacks, as these are among the most innovative categories.
More than just taste
Flavour is far more than just a way to alter taste. Specific flavour types can also
serve a variety of marketing roles, helping to position products, to target specific
demographics and to add excitement or value to finished foods and drinks.
Different regions deliver on volume or innovation
Although emerging markets are forecast to drive overall volume growth in
flavours, it is the developed markets that offer the best prospects for innovation
and New Product Development.
Consolidating industry creates flavour giants
Ongoing consolidation in the international flavours industry has created several
flavour giants with the financial wherewithal to continue driving advances.
Different contributions to health and wellness
Flavour is often used to enhance a health and wellness positioning. This can be
done by giving a more natural or organic positioning, by supporting the specific
health benefits and by adjusting taste to help incorporate functional ingredients.
Targeting customers through flavour
Flavour is also used to help direct products to the right customers. It can increase
appeal to specific consumer groups (eg age, ethnicities and genders), target
specific seasons or occasions, or improve authenticity for more discerning
customers.
The taste experience
The taste experience is another key factor in flavour choice. Specific flavours can
help add a more premium image to a product, increase the fun or novelty factor,
add a sense of nostalgia or deliver a feeling of escapism.
Contrasting themes to satisfy all demands

10. Different consumers seek different things from their flavour choices, so there are
some clear contrasts in the key themes, e.g. local vs exotic. However, in some
cases, these contrasts can start to merge, e.g. permissible (healthy) indulgence.
Naturals: both a threat and opportunity
Natural flavours are in significant demand, while growing use of flavouring
foodstuffs in place of flavour compounds could also pose a threat in the future.
65% of the anticipated US$100 bn growth in soft drinks over 2012-2018 is set to
come from categories perceived as natural: bottled water, RTD tea and juice. All
the same, demand for functionality is accelerating, with energy drinks taking share
from carbonates. Emerging markets, generating 95% of growth, have been the
global bright spot. As soft drinks consumption in developed markets reaches a
plateau and carbonates face a decline, will we enter what one might call the post-
carbonates world?
Emerging markets expected to deliver 95% of soft drinks
growth
As off-trade soft drinks consumption in developed markets reached plateau,
emerging markets are expected to deliver 95% of the anticipated US$100 billion
growth in value terms between 2013 and 2018.
49% of soft drinks are healthy soft drinks
Off-trade value sales of HW soft drinks reached an impressive 49% share of global
soft drinks in 2013. General wellbeing, energy boosting and weight management
are key growth platforms.
Carbonates in decline in developed markets - imagine the post-carbonates
world
Whilst the 2013-2018 forecasts are for positive but low growth for carbonates,
developed markets will see a decline. Looking beyond the forecasts, the health
concerns associated with carbonates in developed markets will spread to emerging
economies, necessitating a greater focus on building healthy soft drinks brands,
creating an opportunity for start-up businesses.
Functionality adds value and sought after product differentiation
65% of anticipated absolute growth of soft drinks is predicted to come from three
categories perceived as natural: bottled water, RTD tea and juice. At the same
time, the demand for functionality is accelerating, with energy drinks continuing to
take share from carbonates.

11. Power of regional players
Regional players are becoming hugely important, as their knowledge of local
consumers and their specific health needs, ability to offer lower unit prices and
deeply penetrate retail channels are key to winning strategies.
Multi-brand strategy key to success
The ability to establish a multi-brand strategy, based on a tailored offering in
developed markets as well as big multi-national or regional brands in emerging
markets, is likely to be the key to success for the glob
TCCC has made significant changes in its bottling operations, which is highlighted
in its re-franchising in the NA bottling operations and the birth of the new CCE in
WE. Coca-Cola FEMSA’s string of acquisitions has expanded its territories and
production capability. All bottlers are facing the challenge of the growth in diversity
of drinks, meaning portfolios are becoming increasingly complex. Operational
efficiency and expansion into foodservice are important strategies.
Actively refranchising
TCCC actively refranchised its global bottling operations with the establishment of
CCR in North America and independent bottler CCE in Western Europe.
US regional bottlers
While CCR may give TCCC better control over its brands and a better focus on
marketing, the use of regional independent bottlers is likely to maximise local
expertise.
Health and wellness challenge and opportunities
Consumer demand for healthy products is growing, while the sluggishness in sales
of cola carbonates represents a challenge for all bottlers. Bottlers are exploring
natural sweeteners for some key brands. Juice, RTD tea and bottled water show a
broad appeal in many markets.
Coca-Cola Hellenic gets listing in London and NY
Hellenic’s diverse geographic spread represents a strength, and its listing on
international stock exchanges will allow it to gain exposure in international capital
markets to fund further growth. Hellenic needs to look to develop a natural mineral
water brand in Russia to capture the boom.
Coca-Cola FEMSA acquisitive mood
Together with its parent company, Coca-Cola FEMSA appeared to be the most
active acquirer among its peers. The Filipino bottler acquisition marked a milestone

12. of going beyond Latin America. Its parent’s expansion in the foodservice and retail
sector demonstrated the manufacturers’ ambition to control beverage supply chain
in foodservice.
Developing own brands
Faced with consumer switching to still beverages, some bottlers might feel TCCC’s
NPD in still beverages is insufficient to offset the sluggishness in carbonates. In
some instances, bottlers could be a little bolder in developing their own still brands
and co-operating with other companies for more robust growth to all players.
TCCC has made significant changes in its bottling operations, which is highlighted
in its re-franchising in the NA bottling operations and the birth of the new CCE in
WE. Coca-Cola FEMSA’s string of acquisitions has expanded its territories and
production capability. All bottlers are facing the challenge of the growth in diversity
of drinks, meaning portfolios are becoming increasingly complex. Operational
efficiency and expansion into foodservice are important strategies.
Actively refranchising
TCCC actively refranchised its global bottling operations with the establishment of
CCR in North America and independent bottler CCE in Western Europe.
US regional bottlers
While CCR may give TCCC better control over its brands and a better focus on
marketing, the use of regional independent bottlers is likely to maximise local
expertise.
Health and wellness challenge and opportunities
Consumer demand for healthy products is growing, while the sluggishness in sales
of cola carbonates represents a challenge for all bottlers. Bottlers are exploring
natural sweeteners for some key brands. Juice, RTD tea and bottled water show a
broad appeal in many markets.
Coca-Cola Hellenic gets listing in London and NY
Hellenic’s diverse geographic spread represents a strength, and its listing on
international stock exchanges will allow it to gain exposure in international capital
markets to fund further growth. Hellenic needs to look to develop a natural mineral
water brand in Russia to capture the boom.
Coca-Cola FEMSA acquisitive mood

13. Together with its parent company, Coca-Cola FEMSA appeared to be the most
active acquirer among its peers. The Filipino bottler acquisition marked a milestone
of going beyond Latin America. Its parent’s expansion in the foodservice and retail
sector demonstrated the manufacturers’ ambition to control beverage supply chain
in foodservice.
Developing own brands
Faced with consumer switching to still beverages, some bottlers might feel TCCC’s
NPD in still beverages is insufficient to offset the sluggishness in carbonates. In
some instances, bottlers could be a little bolder in developing their own still brands
and co-operating with other companies for more robust growth