Country Watch: Ukraine 2007 the worlds second fastest growing soft drinks market

Ukraine, buoyed by increasingly strong economic fundamentals, was the world's second fastest growing soft drinks market in 2007, trailing only Turkey. Euromonitor International identifies opportunity but warns against complacency.

According to Euromonitor International's latest figures, total soft drinks volume in Ukraine climbed 13.4% over 2006 to break the four billion litre mark. The carbonates sector flouted global market trends to grow a robust 9.4%, driven by an increasingly dynamic non-cola category, while bottled water and fruit/vegetable juice grew 15.7% and 18.4% respectively. In volume terms, bottled water is now running neck and neck with carbonates on 1.7 billion litres and is forecast to take number one spot in soft drinks next year. Meanwhile, fruit/vegetable juice volume reached a healthy 630 million litres in 2007 and is forecast to register one billion litres by 2012. As recently as 1997, the soft drinks market in its entirety barely scraped above one billion litres. The short to medium-term outlook is, therefore, looking upbeat for a market that has emerged strongly from protracted periods of economic and political turbulence.

There is, however, one black cloud looming on the distant horizon and it has to do with demographics. Specifically, Ukraine has an ageing population that is projected to shrink in size by some 40% in 50 years. In fact, over the next two decades Ukraine's population stands to dwindle by around 12 million (the current population is 46 million). You only need to look at the under 15 age band to see the problem. Specifically, children under 15 years old account for only 14.1% of the population, which is one of the lowest proportions in the world. In India, for example, some 30.8% of the population are under 15 and as a result, the labour pool in that economy will swell by upwards of one million people a year over the coming two decades. Not so in Ukraine, where the labour pool is set to get increasingly shallow. Undoubtedly, this demographic pressure could prove a threat to the current economic success of Ukraine and for the soft drinks industry it poses both a risk and an opportunity.

The risk, clearly, is that demand in the longer term will shrink along with the population. It is, therefore, crucial that the industry acts intelligently to exploit the growth opportunities that are present in the current economic, demographic and cultural context. Time will not run out overnight in Ukraine and there will still be plenty of opportunity over the coming decade to invest proactively. Furthermore, although the population is set to get smaller, this does not necessarily imply that consumer demand in value terms will get smaller too. In fact, an older population can be an attractive value added consumer target for beverages, with the longer and freer leisure time of older people, together with their health and nutritional requirements, driving potentially strong demand for tailored categories of soft drinks. This is both a challenge and an opportunity for Ukraine's soft drinks industry and the key will be to follow closely the trajectory of the demographic, introducing consumers to new products that suit the profile of their generation. Brand loyalty will be very important going forward, which means that segmentation under a strong brand umbrella will become increasingly central. Complacency, fuelled by Ukraine's current strong economic performance, is a danger. For the more savvy players, long-term strategic business planning is the best way forward and the time to start acting is now.

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