Round-Up - NPD: Will Summer Diet Soft Drink Swoon Jump Start CSD Innovation?

By Tom Vierhile, innovation insights director at Datamonitor | 27 August 2013

Struggling sales for diet soft drinks should see a new wave of innovation break over the category. Tom Vierhile reports.

Sometimes things do not go as planned. Carbonated soft drink makers have been aware of growing interest in health and wellness for years, and have positioned diet soft drinks as a way to capture sales from health aware consumers looking beyond 'regular' soft drinks for healthier options. But, surprisingly, large declines in diet soft drink sales of late suggest that the “regular to diet” strategy is unravelling to the point where the entire diet soft drink industry may need a reboot in order to save the future of the category.

Consumption declines are nothing new to the CSD market. Sales of CSDs in markets like the US have been slipping for over a decade; so much so that the NPD Group recently tabbed the category as the fastest declining item in the American diet. Beverage Marketing Corp says that each American now drinks 43.8 gallons of CSD per year, down from an average of 54 gallons back in 1998. What is different today is that diet soft drinks – once a bright spot for the industry – are losing steam. Sales of diet soft drinks in the US have declined in each of the last six years, says Beverage Marketing Corp, most recently dipping by 3.4% in 2012, on the heels of a 2.5% drop in 2011.

Signs are that the diet soft drink sales swoon is gathering steam in 2013. A recent sales report from Wells Fargo - using data from Nielsen - painted a dismal picture for diet soft drink sales in the US during the height of the traditional peak selling season. The report noted that unit sales of diet and low calorie soft drinks in the country plunged by 6.9% for the four-week period to 3 August, versus the same period last year. Cooler than usual weather in much of the US didn’t help, but causes of the sales swoon go deeper than the weather.  

Negative consumer perceptions of artificial sweeteners seem to be rising, enough so that The Coca-Cola Co is going to bat for the safety of artificial sweeteners. Earlier this month, the company unveiled a print advertising campaign designed to defend the safety of aspartame, noting that the artificial sweetener had been backed by more than 200 studies over the last 40 years. At the same time, however, Coca-Cola is also increasing its natural sweetener innovation. In July, Argentina-based Coca-Cola FEMSA launched Coca-Cola Life, a new version of Coca-Cola sweetened with a blend of sugar and stevia, and said to contain 60% fewer calories than regular cola. A 20cl bottle of the soft drink contains 36 calories, making it something of a mid-calorie cola more along the lines of a Dr Pepper Snapple Group TEN offering than a traditional, no-calorie diet soft drink.

Is stevia the answer to turning around the diet soft drink sector? The sweetener is naturally derived and offers a low-calorie profile, but it has a reputation of being tricky to work with. Even so, Coca-Cola uses the sweetener in more than 40 of its diet soft drink products worldwide including Fanta and Vitaminwater Zero. Most recently, Coca-Cola added a four-flavour line of erythritol- and stevia-sweetened soft drinks in the US including Lemon Limey and Root Beer under the Honest Fizz brand through the firm’s Honest Tea unit. But, the company doesn’t seem to be entirely sold on stevia, given the recent launch of Glaceau Fruitwater Sparkling Zero Calorie Beverage in the US, which is sweetened with sucralose.

Consumer attitudes toward low calorie sweeteners are in flux, and this is complicating the situation. According to Datamonitor’s 2013 global consumer survey, 44% of the world's consumers say they either try to limit their intake of low calorie sweeteners, or avoid them entirely. Americans may be slightly ahead of the curve, with 51% saying that they either limit intake or avoid low calorie sweeteners. More ominous, however is the gender split for managing low calorie sweetener consumption: Globally, 23% of women say they avoid low calorie sweeteners entirely, compared to 19% of men. This may help explain recent dips in diet soft drink sales since diet soft drinks tend to skew female. According to a July 2013 Gallup survey of US consumers, 46% of women say they mostly drink diet soft drinks, versus just 39% for men.

Consumer preferences for low calorie sweeteners also vary by age. Older consumers tend to be more likely than younger consumers to avoid low calorie sweeteners. Datamonitor’s 2013 global consumer survey found that 48% of consumers over the age of 65, and 50% of consumers between the ages of 55 and 64, say they either try to limit intake or entirely avoid consumption of low calorie sweeteners. This compares with 39% of consumers in the two youngest age groups surveyed – 15 to 17 and 18 to 24 – that said they actively try to limit or avoid consumption of low calorie sweeteners.

Worries about low calorie sweeteners may be persuading consumers to skip diet soft drinks altogether when seeking more healthful products, instead switching to other beverages perceived to “better for you”. Drinks like bottled water and sports drinks seem best positioned to pick up sales from this switching behaviour.

Unfortunately, once consumers leave CSDs, they can be tough to bring back. One brand that has had moderate success reaching out to lapsed soft drink consumers is Dr Pepper Snapple with its TEN line of low calorie soft drinks. The company says that 51% of consumers that bought TEN had either not been a consumer of CSDs or had left the CSD category entirely. Of course, hanging on to these consumers long-term is not a done deal, as the latest sales numbers from TEN indicate that the brand has seen a summer sales decline.

Future diet soft drink innovation may revolve around blends of natural sweeteners, low calorie and otherwise. One recent introduction pointing in this direction is Loca by Oogave All Natural Soda from Denver, CO-based Oogave Soda. The diet cola flavour of Loca contains just ten calories, and is made with a blend of agave and stevia. Monk fruit and agave nectar make a dynamic duo for Chill Low Glycemic Organic Soda, a drink with 50 calories per can. In Greece, meanwhile, new Epsa Lemon Cola Light Sugar Free Soda is sweetened with a blend of stevia, sucralose and acesulfame K. And, Coca-Cola itself is showing increasing confidence in the natural sweetener blend concept, recently reformulating its regular Sprite drink for the UK market with stevia and knocking the calorie count down by 30% for the sugar and stevia-sweetened drink that replaced the current version of Sprite earlier this year.

Expert analysis

The Future of Innovation in Sweeteners

Consumers remain concerned about calorie intake, but are also motivated by natural trends, creating a backlash against synthetic sweeteners. This report considers the current position and future potential of innovative products in the market.

Sectors: Product launches, Soft drinks, Wine

Companies: Coca-Cola FEMSA, Fanta, Sprite, Coca-Cola Co, Dr Pepper Snapple Group

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Round-Up - New Product Development in the Global Drinks Industry

Every month, Tom Vierhile from Datamonitor considers the latest NPD in drinks.

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