Comment - PepsiCo Gets Real as Diet Declines Force Natural Focus
PepsiCo will release its full-year results on Thursday
When The Coca-Cola Co releases its first-quarter results tomorrow (15 April), we can be all but certain they will contain more bad news for US diet sodas.
According to SymphonyIRI data for the 12 weeks to 23 February, the company's sales in the category dropped by 8% compared to an overall CSD increase of 1%. For the four weeks to March 23, the drop in US sales was 6.4%.
It is symptomatic of a decline in the diet soda category that has hit all the major soft drinks makers in the US. In the same IRI data, PepsiCo (which will release its own Q1 numbers on Thursday) suffered similar drops to those of its rival, while last year Dr Pepper Snapple Group's CEO admitted he was “shocked” by the decline in diet sodas.
It's no mystery why the non-sugar category is in decline - just as there are fears over sugar soda's contribution to growing obesity levels, there are concerns over the effects of artificial sweeteners used in diet drinks. Last year, Coca-Cola was moved to launch a marketing campaign to assure consumers sweeteners such as the widely-used aspartame are safe.
What is not yet clear is what are soda companies going to do about it. Diet soda was supposed to be the answer to declines in regular CSDs - Coca-Cola CEO Muhtar Kent last year spoke on a number of occasions of how no-and-low sugar options now comprised more than two-fifths his company's US portfolio.
Though stevia innovations are progressing, there are still fears that the plant extract leaves too much of a bitter after-taste to be an effective sugar substitute, despite its highly-desirable billing as a naturally occurring product.
But then last week, PepsiCo leaked a few details on a new launch. This summer in the US, the company will unveil three new Pepsi-branded products, including a cola, all of which will be sweetened using what it calls “real sugar”.
No firm details have been announced, but we know the range will be out in June and consist of Pepsi, Pepsi Vanilla and Pepsi Wild Cherry. Considering how sensitive the soft drinks industry has become to health concerns over the past few years, this is a surprising launch, especially in light of last month's World Health Organisation edict that lowered its recommended levels of sugar in diets.
But it also marks a step-change in the soft drinks industry's attitude to what sugar is. A couple of years ago I was at a soft drinks lunch at which a political lobbyist for one of the big manufactures insisted that, no matter the source it came from, sugar is sugar. That means, he said, sugar from cane and beet had the same effect on the body than sugar from high-fructose corn syrup because they all shared the same chemical compound.
PepsiCo's upcoming rollout suggests that can no longer be a perceived wisdom, and health pressure groups, such as Citizens for Health - which last week crowned high-fructose corn syrup the number one food additive to avoid in 2014 - have won the day. It also suggests PepsiCo is betting that the trend towards natural foods is stronger than health-lobby-led attitudes against sugar, no matter where it comes from.
Coca-Cola, meanwhile, appears to have put its faith in another natural product - stevia - as it works with partner PureCircle to perfect a blend palatable for consumers. It launched Coca-Cola Life, its first Coke-branded product to use stevia, in South America last year, and will widen its footprint over the coming months, the company said at a recent conference in London.
That could well mean a US launch for Coke Life, where it will go head to head with the new sugared-up Pepsi.
In an industry where artificial is an increasingly dirty word, it looks like the soda wars are about to get "real".
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