The recent challenges in the carbonates arena have resulted in a significant change in direction for the two leading players, says the new report by beverage industry analysts Canadean. According to the group, both Coca-Cola and PepsiCo have accepted that the greatest potential for future growth lies "firmly outside the category". "With further innovation in carbonates and bottled water unlikely to generate the required growth in volume and margins, Coca-Cola and PepsiCo have both adopted new strategies," said the report. Some of the alternative avenues that have been explored include investing in the most dynamic independent producers; overhauling iced/ready-to-drink (rtd) tea portfolios; introducing a range of new health focused drinks; and testing new routes to market. However, Canadean says that this new approach has not come without its difficulties. For example, Coca-Cola upset some bottlers by independently testing a new Powerade warehouse delivery scheme for Wal-Mart, it said. In addition, Red Bull left distributors "more than a little disgruntled" when margins were reduced on the new 35.5cl/12oz can. The new 2007 USA Soft Drinks Report examines 12 categories in the 'cold beverage' spectrum, and claims to focus on how key beverage categories interact with each other as they compete for sales. According to the report, which provides profiles of the 35 leading players in the beverage market, bottled water is one category which continues to experience strong growth, driven by the increasing popularity of multi-packs through discount stores. However, the report also notes that as consumer prices fall, profitability is declining. This is making the bottled water category a "far less attractive proposition" than it has been previously. Another possible threat to the category are the rapidly emerging premium 'near water' still drinks, it said. Of the other major categories, iced and ready-to-drink teas have advanced strongly, rejuvenated by new product development. This was led by Arizona, where sales of the company's 1 gallon HDPE bottle have increased "particularly sharply", according to Canadean. The performance of the new premium green, low-calorie and unflavored/unsweetened tea segments has also been impressive, it said. Consumption of iced/rtd tea is expected to increase by a further 13 percent this year, boosted by White and Red/Rooibos teas. Sports drinks have also indicated strong growth, driven largely by PepsiCo's Gatorade brand. The report states that "line, flavor and pack extensions have enabled niches to be successfully targeted without affecting core demand. In response, Powerade has been promoted aggressively and the resulting price competition has added further momentum to the market". Canadean said it will monitor "with interest" the fortunes of two new introductions in the category - a ready-to-drink version of Accelerade by Cadbury Schweppes and the" much hyped" new offering for the PepsiCo bottlers who do not handle Gatorade. On a smaller scale, notable growth was generated within nectars and energy drinks, the report stated. "Although nectars remains highly fragmented and lacks real identity, the performance of imported and chilled nectars has been solid. Furthermore, growth of at least 20 percent should be achievable this year as chilled low-calorie nectars provide affordable alternatives to juice," it said. According to Canadean, in this category Ocean Spray is still the market leader but Coca-Cola and PepsiCo are both making inroads with their Minute Maid and Tropicana brands.