28 November 2016
On the day Donald Trump was elected America’s 45th president, Japanese-owned Lucozade Ribena Suntory (LRS) – the third largest soft drinks company in the world – quietly announced plans to change the pace of the soft drink industry’s relationship with sugar.
In the U.K., where soft drink makers have been under fire for fuelling the country’s growing obesity epidemic, the fact that products such as Lucozade and Ribena will be reformulated to fall below the newly minted national sugary drinks tax matters.
It matters because Lucozade and Ribena together have driven £1.2b in sales in 2016 to-date globally. And while fizzy drink sales are falling in the UK – energy drink sales are booming.
- In UK, energy drink sales increased by 155% between 2006 and 2014 – accounting for 600 million litres consumed in 2014, according to a recent report by Durham University, Action on Sugar and Queen Mary University of London.
- On average, they found adolescents in the UK consumed 3.1 litres of energy drinks per month –
- Many of those litres are laced with sugar as some energy drinks contain up to 20 teaspoons of sugar per 500ml.
We spoke with Peter Harding, Chief Operating Officer of Lucozade Ribena Suntory (LRS) and President of the British Soft Drinks Association (BSDA), to get a look inside the business.
What did LRS commit to?
LRS will cut 50 per cent of the added sugar in its non-alcoholic range of global beverages by July 2017.
This will have the most impact in the U.K. as three-quarters of the company’s drink sales are here – accounting for £510 million a year. While the company also produces the brands in Nigeria and Kenya.
In so doing, the global beverage maker becomes one of the first to set the pace in the now U.K.-wide race to avoid the sugary drinks tax.
And, increasingly, what’s becoming a global movement – with cities across the U.S. joining the sugary drinks tax chorus, ushering similar measure off the back of last week’s vote.
It also ensures the company won’t be hit by the tax when it comes into effect in 2018.
Why did LRS decide to cut sugar?
The brand found its mandate to change when Lucozade and Ribena were sold from GSK to the Suntory group in 2014.
“When we joined the group, one of the biggest pieces of work we started was [developing] low and no sugar formulations. We did so to meet new consumer trends in the marketplace. And because we had a strong sense of responsibility and that we needed to change. We needed to listen to stakeholders, NGOs, and what government were asking us to do. The first people we spoke to were the Department of Health, to see if we were stepping far enough ahead – if we were making a large enough leap, if they’d support what we were doing? That’s why having the support of Jeremy Hunt was so symbolic and significant.”
What implication did the sugary drinks tax have?
“The sugary drinks tax accelerated our work,” Harding says.
Under the new tax, producers that don’t reformulate before 2018 will be required to pay the government 6p to 8p (depending on size) for every bottle that exceeds the 5g of sugar per 100 ml threshold set by the government.
And so, LRS has committed to reformulating its existing and new added-sugar drinks to contain less than 4.5g of sugar per 100ml by July 2017.
“There was already much work in process within the company,” Harding says. But, “there was a real need to accelerate this work when the Chancellor announced the soft drinks tax.”
It was in August of this year that Harding says he and his team finally landed on a formulation of reduced sugar Ribena where they couldn’t taste the difference. This stoked their fire to do more.
“What we’re trying to do is demonstrate that things can be done differently. So, we’re reaching out to organization that may have been critical of us in the past, but that see we’re willing to change, and are investing in the right things [because] we want to change the conversation for the better going forward,” he says.
Why is sugar changing the shape of the soft drinks industry?
This is about the future of the industry – not just capitulating to policy. It’s about shoring up the company’s market for the future, Harding says.
“I’ve been very vocal at an industry level that the biggest problem soft drinks have is that we’re losing trust. The reputational damage the industry has suffered doesn’t leave us fit for the future. The inevitable result is that we’ll lose market share unless we adapt and change. I think there is a very real need for the soft drinks industry to adapt and change in order to be successful in the future,” Harding says.
Many industry insiders will be the first to protest that the industry has already done much.
They’re not wrong.
A lot has been done. Arguably more in soft drinks than in many other categories of food and drink – from reducing portion size, putting parameters around marketing and advertising to kids.
But, they also had a long way to go – popular pink lemonade Lucozade has a whopping 70 grams of sugar in 500ml bottle, equivalent to 23 sugar cubes. While other competitors pack up to 78 grams in a 500ml bottle, according to Action on Sugar’s 2015 survey.
The industry knows more remains to be done.
“We were still on the wrong side of the argument,” Harding says, “which is why I think the government felt that a soft drinks tax would be welcomed. And the media and consumer response backed that up.”
It made clear that the industry needed to do more, he says. His hope? That LRS’s actions will encourage other producers and retailers to follow.
What’s Harding’s advice to industry?
The industry needs to ask itself, “Is this optional? Or something we must do? All the trends are going this way. One of the great ironies in the soft drink tax is that the UK is already a leading market in low and zero calorie drinks,” Harding says. This is an inevitable right of passage towards healthier drinks being the successful ones, he adds.
“It requires the industry to look at where the consumer is headed and what we’re being asked to do. And requires the industry to set bold ambitions and say ‘we can reformulate; we can make drinks with lower sugar.’ It’s just having the courage to go to market,” and, internally, deciding to commit resources and invest in the change, Harding explains.
What’s the response been like – internally and publicly?
“Once you do the right thing, it’s amazing how people respond. What we’ve done is release the energy of the organization. We can be really excited, confident and unapologetic about the drinks we’re taking to market,” Harding says.
How will LRS make health a global priority?
As bright as the glow of this achievement for the company, the industry remains in an uphill battle.
From a business standpoint, zero- and low-calorie drinks are not popular in all parts of the world, not least those developing countries suffering from both obesity and under-nutrition. No matter which way you cut the facts, these markets struggle with a prevalence of the wrong kind of calories, and lack of the right ones.
To this end, reformulation is only a partially answer.
Lucozade and Ribena are sold across the company’s global footprint, including in Ghana, Kenya, Nigeria and South Africa – where obesity rates are rising, as hunger remains a live concern for too many.
Harding says the ambition is to improve the health of the company’s product range globally – not just in western markets already hungry for zero- and low-calorie beverage.
“The need for change is there. We’re starting to find that this is the same in some of our African markets. In South Africa a sugar tax will be introduced. We recognize this as a global issue and one we need to respond to in all our markets,” Harding says.
But, it will take time and manifest differently in each market, he says.
An unsweetened future ahead…?
Zero- and low-calorie drinks are already part of most major brands’ strategies for the future – whether through acquisition to diversify their portfolios, or reformulation.
Last week, both PepsiCo and Dr Pepper struck deals to acquire drink startups in the ‘healthier and more natural’ category. The deals will see Dr Pepper pay $1.7 billion for Bai Brands, which makes low-calorie coffee-fruit drinks. While PepsiCo will put up more than $200 million for kombucha maker KeVita, according to the WSJ.
Or perhaps an artificially sweetened future?
The jury remains out on artificial sweeteners. Some consumers are very happy to guzzle aspartame; while others are wary of its health implications and are avoiding it.
According to the American Beverage Association’s progress report on calorie reduction across the industry, the challenge of public perception remains clear. The report found that “consumption of low- and no-calorie carbonated soft drinks declined sharply by 5.9 percent” in 2015 – making clear the industry’s not yet found its sugar saviour.
Diet Pepsi suffered this challenge first hand. After falling sales of its aspartame sweetened formulation, the brand ditched the increasingly contentious sweetener in 2015 and switched to, as of yet, less fraught Sucralose.
There is no silver bullet able to change our sugary drinks consumption habits over night. But, as Harding says, “there are two challenges: the biggest is one of mind set, can we set a bold ambition. And the second, technically, is this achievable can we do this.”
For his part, Harding is committed to doing so. And LRS’s first steps ought to be recognized as just that: a start to a new conversation, and one that helps the industry move forward.
In the lead up to the 2020 Summer Olympics in LRS’s home-base – Tokyo – the world will surely be watching what one of the leading sponsors of sport and top-level athletes does next. We certainly will!