As soda sales go flat, industry thirsts for a jolt
Soda has given devotees of the popular beverage a caffeine rush for decades, but now the beleaguered industry is desperate for a jolt of its own as people turn to healthier options like water and tea.
Beverage Digest reported total soda volume decreased 1.2% in 2015 with each person consuming about 650 eight-ounce servings of carbonated soft drinks, the lowest since 1985. Even the once-beloved diet soda posted its 11th consecutive year of declines in 2015, according to the most recent data available.
A growing number of consumers are abandoning soda as they look to reduce their sugar consumption. To help stem the decline, soda companies have tried to mimic the taste of sugar or high fructose corn syrup using stevia and other sweeteners. PepsiCo and Coca-Cola also have turned to smaller bottles and cans, which have been popular with shoppers and allow the soda companies to charge more per ounce.
Local governments also have contributed to the decline in soda consumption by levying taxes on the sugary beverage. In Philadelphia, a 1.5-cent-per-ounce tax on sugary beverages has caused sales in some local grocery stores to drop as much as 50%, prompting soda manufacturers to announce layoffs.
“If you listen to any media outlet as they discuss soft drinks and the various beverage companies, you hear the claim that obesity, diabetes and other health concerns are directly related to soda and other sugar enhanced-beverages,” Chris Konyk, a business consultant and soft drink expert at Salient Management Company, told Food Dive. “The soft drink companies are a big and easy target to attack. Because this diatribe has been unrelenting for years, the consumer has started to change their buying habits where soft drinks are concerned.”
Consumers who once felt comfortable drinking a soda with every meal or snack are now looking for products they perceive to be healthier. Last year, bottled water surpassed carbonated soft drinks to become the largest beverage category by volume in the U.S. And the total U.S. wholesale value of the tea industry has more than quadrupled — from $1.8 billion in 1990 to more than $10.8 billion in 2016.
A change is coming
With consumers looking for healthier drink alternatives, there is more pressure on the beverage industry to reformulate their products, develop new ones or boost their portfolio by purchasing other brands.
According to Nielsen’s recent 2016 Global Ingredients Study, 68% of North American consumers said they would pay more for products free of undesirable ingredients. Additionally, 61% believed a shorter ingredient list meant a healthier product.
“The beverage companies are repositioning themselves to be the leader in healthy beverage alternatives," Konyk said. "If it has real or perceived healthy attributes, the soft drink companies are entertaining the idea of incorporating it into their portfolio,” he said.
One challenge, he noted, is the perception that if the drink comes from a soda company it's not healthy. Analysts believe soda makers will try to sway consumers to think differently through creative advertising and marketing strategies.
Coca-Cola, Dr Pepper Snapple and PepsiCo have all made a commitment to reduce the number of sugary drink calories that Americans consume by 20% before 2025. Coke has Honest Tea, Zico, Odwalla, PowerAde, Peace Tea, Vitamin Water, Simply and Dasani in its arsenal of healthy options, while Pepsi has strengthened its portfolio with Duke’s, Miranda, Naked Juices and Aquafina.
“The soft drink companies are a big and easy target to attack. Because this diatribe has been unrelenting for years, the consumer has started to change their buying habits where soft drinks are concerned.”
Business consultant and soft drink expert at Salient Management Company
“The soft drink companies are always researching the next trend and have aggressively purchased or partnered with healthy brands,” Konyk said. “I don’t see this explosion of healthy alternatives ending anytime soon."
PepsiCo has been transforming its beverage portfolio for more than two decades. A company spokeswoman told Food Dive that low- and no-calorie beverages now comprise nearly half of its sales volume, up from just 24% two decades ago. She said the soda giant is optimistic that at least two-thirds of its global beverage portfolio volume will have 100 calories or fewer coming from added sugars per 12-oz serving by 2025.
“We’re responding to changing consumer and societal needs,” the spokeswoman said.
The company's recently introduced IZZE Fusions and Lemon Lemon are modernized soft drinks with bubbles, unique flavors and lower calorie counts. IZZE Fusions are available in orange, mango and strawberry melon and have 60 calories per 12-oz can. The beverages have no artificial sweeteners or flavors and are sweetened with a blend of cane sugar and stevia.
Mountain Dew Kickstart is another innovation from PepsiCo — a beverage product that in the past decade has generated estimated annual retail sales of more than $400 million. The energy drink, which is targeted at millennials, comes in 12 flavors and is a mid-calorie cola with 60-80 calories per 16-oz can. The company also offers Stubborn Soda, a drink with natural flavors that is made without high fructose corn syrup, artificial sweeteners or Azo Dyes.
"The company needs to be bigger than the core brand. (Coca-Cola) has outgrown Coke."
Coca-Cola’s incoming CEO
James Quincey, Coca-Cola’s incoming CEO, told analysts in February that “the company has outgrown Coke.” He said it must reduce its sugar footprint by becoming an even larger player in the overall beverage market. “The company needs to be bigger than the core brand,” he said.
One soda company that has been somewhat immune to faltering sales has been Dr Pepper Snapple. The beverage manufacturer reported in February that carbonated soft drinks grew 2% in the fourth quarter of 2016 from the same period a year earlier lead by its citrus soda brand Squirt. The drinks maker last November purchased Bai Brands, the enhanced water manufacturer for $1.7 billion in cash, with the hope that it will one day lead the healthy beverage segment.
Larry Young, CEO of Dr Pepper Snapple, said on the company’s most recent earnings call that the success of soft drinks could be attributed to better pricing, communication and "product and package innovation across our priority brands to address consumers' changing needs.”
Although healthy is in, carbonated or sparkling soft drinks are still very important to beverage companies because they contribute the majority of their profits. New campaigns aimed at millennials, such as Coke's personalized cans and Pepsi touting its sustainability efforts, are among the ways they are attracting consumers.
“Everything in moderation is what some companies are counting on as they get creative with their package offerings,” Konyk said. “I think the marketing strategies will support this and will center on a reward or indulgence theme.”
David Portalatin, a food and beverage analyst with marketing research firm NPD Group, cautioned that even though carbonated soft drink consumption has been falling, soda is not going to disappear anytime soon. He said when consumers purchase a beverage away from home, it's most likely to be soda.
“Everyone talks about health, but when you see the trend more pronounced away from home, it makes me think consumers are concerned with cost as well,” he said.
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