Dive Brief:
- A report Friday revealed the continuation of sales declines for carbonated beverages, and company share prices were negatively impacted the same day.
- In the 12-week period ended June 5, soda volumes dropped 2.8%, according to IRI data cited in a note by Susquehanna Financial Group analyst Pablo Zuanic.
- On Friday, Coca-Cola's stock declined as high as 2.1%, its largest intraday decline in nearly two months, Bloomberg reported. Dr Pepper Snapple shares fell as much as 2%, and PepsiCo shares dipped as much as 1.4%.
Dive Insight:
From mini cans and throwback varieties to cane sugar and one brand marketing campaigns, soda companies' strategies may have provided isolated lifts in sales. But overall, industry strategies aren't seeing the turnaround soda needs.
This is the new reality for soda companies, as many consumers' perceptions of soda and its sugar and artificial sweeteners may be permanently altered. Per capita soda consumption in the U.S. fell to a 30-year low last year, according to data from Beverage Digest. And this most recent IRI data shows there hasn't been much improvement since.
As of last week, soda companies may have a new trend to battle besides health concerns and other fast-growing beverage segments: soda taxes. Berkeley, CA, already passed the first U.S. soda tax in 2014. But Philadelphia is a much larger city, so when it passed its own 1.5-cent soda tax last week, it struck a potential blow to soda manufacturers. The American Beverage Association said it plans to sue to block the tax. But if it's not successful, lawmakers and public health advocates may have found a new angle to push soda tax legislation — city funding for public programs, rather than health-related concerns.
Also, increasing competition from companies like Starbucks, which continues to push its coffee and tea brands into grocery stores, may be displacing soda-drinking occasions, RBC analyst Nik Modi told Business Insider. Soda's "function and purpose" are less widely accepted today as more consumers turn elsewhere for caffeine, bubbles, and sugar, Modi said. Growth of bottled water, sparkling water, RTD tea and coffee, and sports drinks have contributed to soda's decline.
Still, as much as soda sales may continue to fall, "I don’t think that means in 10 years we’re not going to have any carbonates in the U.S. — that’s completely unrealistic," Eric Penicka, U.S. research analyst specializing drinks and tobacco industry at Euromonitor, told Food Dive earlier this year. "But I think there’s going to be a shift toward limiting how much soda you consume and by extension how much sugar you consume."
The answer? Diversification. If lower soda sales are the new norm, despite the industry's varied tactics, soda manufacturers can look to other growth categories for additional revenue streams. PepsiCo has its snacks business, Aquafina bottled water, and the Gatorade brand; Coca-Cola has Suja juice, Fairlife milk, and Zico coconut water under its Venturing and Emerging Brands unit, plus a stake in Monster's energy drinks business; and Dr Pepper Snapple has the Snapple brand and stakes or distribution deals with companies like Bai Brands coffeefruit antioxidant drinks and RTD cold brew coffee maker High Brew Coffee.