Sector Insight: Smoothies - Five-a-day helper

Consumers are turning to smoothies to get their recommended daily intake of fruit and veg.

THE BACKGROUND

In the quest to consume five portions of fruit and vegetables a day, drinks are proving an increasingly popular way in which consumers can get closer to achieving their recommended intake. As the public has started to turn away from high-calorie carbonated soft drinks in favour of waters and juices, smoothies in particular have taken off, with value sales rising dramatically from £21.5m in 2001 to an estimated £134m this year - which includes an impressive 70% growth over last year, according to Mintel.[QQ]q Smoothies are now in a position to move beyond their origins as a niche product and take on the mass market. There is plenty of scope for growth, as less than one-third of the UK's adults currently buy them, and Mintel suggests there is now enough capacity in the market for three price segments to develop: premium, mass and budget/own-label. However, they are being held back by one major obstacle: the current relatively high price of smoothies means most consumers still view them as an irregular, luxury item, restricting their appeal from broadening further.

Sales of healthier, more natural drinks are on the increase as consumers pay more attention to their food and drink consumption and try to cut down on carbonated drinks. These products also fit the convenience criterion often found in the food sector, providing a quick, healthy fix. Most 250ml smoothies claim to be the equivalent of two daily portions of fruit and vegetables, although the Department of Health says that they count as only one.

Simple fruit smoothies are the most commonly purchased type, accounting for about 80% of the market in value terms. While functional smoothies, often containing added vitamins and herbs, have experienced the most growth, they remain a small sub-sector, with a value share of 11%. Dairy smoothies - containing yoghurt - have proved the least successful type, as they face extra competition from yoghurt and probiotic drinks.

The category is dominated by independent manufacturer Innocent, which has a market share of more than 60%; its nearest rival, PepsiCo-owned PJ Smoothies, is way behind on 19%.

Innocent has benefited from strong branding and a unique, quirky positioning since its launch in 1999. The company has built brand recognition with its distinctive design and humorous labelling, and has maintained interest through extensive NPD, including seasonal flavours and limited-edition smoothies. Thickies - its dairy smoothies containing probiotic yoghurt - and functional Super Smoothies have also been added to its line-up.

While its marketing initially focused on small events and extensive sampling, it has invested in TV advertising since 2005 to broaden its appeal. It also introduced children's smoothies to tap into the lunchbox market in the same year.

'Initially our ads were aimed at bringing more drinkers into the category by telling them that there is lots of fruit crushed and squeezed into every carton and bottle,' says Innocent marketing director Jamie Mitchell. 'We are now looking at educating people about our drinks' natural health benefits.'

Although PJ Smoothies (originally Pete and Johnny Smoothies) is trailing Innocent, last year PepsiCo acquired the firm and has invested in and relaunched the brand, which means it may prove to be more of a contender in the future. Its audience tends to be younger and less affluent than Innocent's and, as its drinks are made from fruit concentrate, its positioning is slightly different. The relaunch included the introduction of new variants and sizes.

With the market mostly sewn up by these two brands, few others have yet made a name for themselves, although this year Ella's Kitchen smoothies launched and are now listed in Sainsbury's and Waitrose. The key point of difference with these smoothies is that they use organic fruit, and are much thicker as they use only crushed fruit and no juice. They are aimed at the children's market, with two variants called The Red One (containing strawberries, bananas, apples and raspberries) and The Yellow One (made from mangoes, bananas, apples and apricots).

'We have developed our brand and products so that they connect with children, at their level, across all their senses,' says Paul Lindley, founder of Ella's Kitchen. 'The textures, branding, choice of packaging and even the product names were inspired by kids.'

Lindley knew that gaining listings in this market would be hard and struck a deal with Viacom Brand Solutions, Nickelodeon's sales house, through which airtime was exchanged for a share of revenue over a set period. 'It meant that as a start-up brand, we were able to reach more than 3m kids in our first six months through its channels. This made a big difference to the initial buyers,' he says.

Smoothies could benefit from the new Ofcom rules, which will put a stop to the advertising of foods high in fat, salt or sugar being allowed to advertise during children's programmes.

Generally these products have proved to have the strongest following among students and young professionals and, accordingly, it is 15- to 19-year-olds and 25-34s who are most likely to drink them. Distribution is better in urban areas and so consumption is highest in London and the South, although this will probably broaden as availability improves in other locations.

Future growth is predicted to continue at very impressive - albeit slightly slower - rates, with the public focus on healthy eating showing no signs of abating. Mintel forecasts that by 2011 the smoothies sector will be worth £235m, an increase of 76% (61% in real terms) from 2006. Volume sales are predicted to rise by 186% over the same period.

SMOOTHIE BRANDS BY VALUE AND MARKET SHARE

2006 2003
pounds m % pounds m %
1 Innocent 83.0 62 11.2 27
2 PJ Smoothies 25.0 19 14.1 34
Own-label 23.0 17 14.9 36
Others 3.0 2 1.2 3
Total 134.0 100 41.4 100

Source: Mintel


SMOOTHIE TYPES BY VALUE AND MARKET SHARE

2005 2001
pounds m % pounds m %
1 Fruit 63.2 80 15.7 73
2 Dairy 7.9 10 5.2 24
3 Functional 7.9 10 0.6 3
Total 79.0 100 21.5 100

Source: Mintel


SOFT-DRINK CATEGORIES BY VALUE AND MARKET SHARE

2005 2000
pounds m % pounds m %
DIRECT COMPETITORS
1 Juice and juice drinks 2846 24.4 2091 23.0
2 Bottled water 1700 14.5 1148 12.6
3 Smoothies 79 0.7 8 0.1

INDIRECT COMPETITORS
1 Carbonates 5876 50.3 5191 57.1
2 Energy/stimulant drinks 1049 9.0 615 6.8
Other* 137 1.2 39 0.4
Total 11,687 100 9092 100

Source: Mintel *Includes sports drinks


ADULT CONSUMPTION OF FRUIT AND VEGETABLE JUICE OVER PAST 12 MONTHS (%)

2006 2004 2002
All consumers 56.3 56.0 58.8
Heavy consumers 6.1 5.3 5.0
Medium consumers 13.4 12.5 11.6
Light consumers 36.8 38.1 40.2
No fruit or vegetable juice 43.7 44.0 41.2

Source: BMRB, GB Spring 2003 & 2005, 2006 Q3 (April 2005-March
2006)/Mintel
Base: 25,000 adults

ANALYST COMMENT - PAUL TARLING, SENIOR MARKETING ANALYST, ZENITH INTERNATIONAL

When most developing drinks markets mature, the entrance of competing brands and the emergence of own-label products help to drive down prices and companies can often struggle to maintain value in the category.

Retailers' own-label smoothie products are becoming increasingly prevalent and bigger pack sizes should help suppress prices. With brands including Stute and PJ Smoothies positioned as more affordable offerings, the market may well experience strong downward price trends.

Despite these pressures, the UK smoothies market may find itself more resilient to deflationary trends than other emerging soft-drinks categories. The high cost of fruit and the noticeable difference on product quality of using poor ingredients has can be prohibitive to new entrants and encourage existing producers to maintain their prices.

Innocent's strength and premium positioning will prove key to maintaining value in the category. The connection it has developed with consumers from the outset is virtually impossible to replicate. From its annual Fruitstock festival to the use of blogs and its regular woolly-hat charity campaign over Christmas, Innocent has built a brand that consumers are willing to pay a premium to be a part of.

But a strong brand will not be enough to sustain pricing levels, with NPD essential to stimulate consumer interest and retain a premium positioning. Innocent's launch of a superfruits variants and plans to use compostable plastic bottles should help.

If current trends continue, the UK's smoothies category may develop into a three-tier market, with Innocent firmly at the top.

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