Global and local soft drink producers are aiming high and low in Colombia.
BY KAY TAMILLOW
The soft drinks sector in Colombia is seeing innovation at both the high and low end of the market, a reflection of the unequal income distribution in one of the region’s most dynamic economies. On one hand, middle and upper income consumers are looking for multinational brands offering both status and novel health benefits. On the other hand, manufacturers are placing more and more emphasis on “reaching down” to the low-income consumer, attempting to activate the spending potential of a huge segment of the population. The current competitive atmosphere in soft drinks is a salient illustration of this effect.
With real GDP growth forecast to be above 4 percent annually over the next five years, Colombia is one of the most dynamic economies in Latin America. As the economy expands and becomes more open, Colombians in the upper strata are looking more towards modern global consumer culture.
Thus, high-income consumers are setting their sights on more multinational brands, perceived to be more sophisticated and lending a touch of status to the buyer. They are also increasingly interested in the global health and wellness trend, and thus fortified and functional products. For example, consumers are seeking the status associated with high priced bottled water from distant locales, not to mention the health benefits associated with the mineral content. New brand Aigua de Ribes appeared in Colombia in 2012 to compete with established players Perrier, Evian and S. Pellegrino. In addition, vitamin enhanced bottle water is benefiting from this trend, and in 2012 multinational brand Glaceau Vitamin Water made its way into Colombia, being offered only in premium retailers such as Carulla supermarkets. Even local player Postobon is joining the competition, releasing Cristal Vitality water in two presentations, one with the green tea extract Teavigo and another with added B vitamins and calcium.
The expansion of premium, niche products may open the door for more premium products in the future, such as organic soft drinks (organic drinks are currently limited to coffee), specifically targeting high-income and aspiration consumers increasingly aligned with global trends.
At the same time, low-income consumers are of undeniable importance in Colombia. Colombia suffers from the nagging problem of income inequality, ranking as the third most unequal country in the world, behind South Africa and Ecuador (as measured by the Gini index - a standard measure of overall income inequality). According to 2010 figures from the World Bank, the top 20 percent of Colombians control 60 percent of the country's income. In contrast, the poorest 20 percent of Colombians account for just 3 percent of national income.
Thus, manufacturers are increasingly paying attention to the buying potential of the large segment of consumers at the base of the socio-economic pyramid in Colombia. Ajecolombia, the local subsidiary of the Peruvian Aje Group, has seen success with their low-priced, family-sized cola-carbonates (Big Cola) and fruit-flavored drinks (Cifrut) targeting low-income consumers. Aje now accounts for 2 percent of overall soft drinks sales in the country, after entering the market in 2007. While this may seem insignificant, it corresponds to sales of over $100 million in 2012.
Powder concentrates, long the low-income standard in soft drinks due to their low price and wide availability and small neighborhood stores, are seeing dynamism with increased fortification. The trend carries over into fruit-flavored drinks (no juice content), the cheapest of fruit/vegetable juice types in Colombia. Manufactures are hoping to lure low-income consumers away from homemade fresh fruit juices, a traditional staple drink in Colombia, toward more convenient packaged drinks that also offer the benefits of added vitamins and minerals often lacking in the local diet. Quala SA fortified its market-leading Frutiño line of powder concentrates in 2011 and in fortified fruit-flavored drinks, Productos Naturales de la Sabana SA launched Cosecha Vital and Productos Alimenticios Alpina SA launched Alpifrut in 2012. These joined a slew of other vitamin fortified fruit-flavored drinks aimed at low-income buyers, including Del Valle Fresh, Tutti Frutti Sunfrut, Tampico and Cifrut. Alpifrut is probably the most complete alternative, fortified, with Zinc, Vitamin B12, C and folic acid and targeted to accompany each daily meal.
In sum, Colombia is witnessing the arrival of value added and status oriented products aimed at a small group of wealthy and aspirational middle-class consumers looking for more sophistication, status and benefits. However, the demographic reality of unequal income distribution is pushing a high level of activity, new product launches and reformulation aimed at expanding consumption from low-income consumers. Vitamin fortified products have been key, bringing a very simple health and wellness concept to a large number of consumers and dynamism to more mature categories like powder concentrates.
Kay Tamillow is a Latin America research analyst at Euromonitor International. This article was written for Latinvex.
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