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Why the future looks better for low-calorie soft drinks, despite US troubles - Comment

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In recent years, the health & wellness trend has set the scene for low-calorie soft drinks to boom. The US, however, has provided little but headaches for soft drinks companies. Until now. Richard Corbett investigates.

The stevia plant, was used to sweeten Coke Life and Pepsi True

The stevia plant, was used to sweeten Coke Life and Pepsi True

The wind has died, the rain has eased to drizzle and the decline in low-calorie CSDs in the US has slowed to a trickle. This year, for the first time since 2010, the 'diet' segment looks like it may even outperform the regular segment.

It's been a turbulent and unpredicted journey but maybe, just maybe, low-calorie CSDs look to have ridden out the storm in the US.

As the vociferous debate about obesity in the country intensified, the drinks industry's response was understandably to step up investment in its lower-calorie offerings. Logic determined that if consumers were going off regularly sweetened drinks, then the choice of low-calorie options needed to be broadened.

I doubt anybody would have predicted a decade ago, when the low-cal segment made up 31% of US CSD volumes, that ten years later this share would have shrunk to just 26%. And, while the total CSD market in the US fell by 15% in that time, the low-cal segment slumped even further, by well over a quarter.

What may have been perplexing to the CSD superpowers was that in Western Europe the wind was blowing the other way - the market behaved as widely predicted. In the last ten years, CSD sales have fallen by between 7% and 8% in Western Europe, but the low-calorie segment has expanded by a fifth. The take-up of low cal CSDS has been quite dramatic in some countries in Europe - drinkers in Norway, for example, now drink more low-cal soft drinks than regular ones.

In the US, we can in part blame some of the losses to taste. Some Americans simply viewed low-cal drinks as an inferior taste experience or even a distress purchase. Consequently, many consumers migrated to other categories. This is borne out by the numbers; In the same period that the CSD category was falling year-on-year, the rest of the soft drinks market has grown by a third.

In the eye of the storm, in 2013, when low-cal losses in the US were at their most extreme, it was noticeable that flavoured water sales jumped by a fifth. The flavoured water segment had the most to gain from the troubles of the diet CSD segment, and sales have quadrupled in the last ten years.

Taste issues may have contributed to this category migration, but it's generally recognised that the main factor behind the decline in low-cal in the US in the last decade has been consumer concerns over the safety of the sweetener aspartame. Anxieties persisted, despite a study by the US National Cancer Institute, involving nearly half a million consumers, that found no evidence for the claim that aspartame increases the risk of cancer. Elsewhere, the European Food Safety Authority also looked into all of the evidence in 2013 and concluded that aspartame is indeed safe for human consumption, further debunking the worries as a modern-day 'old wives' tale.

The regular reassurances that aspartame is safe to consume probably antagonised the situation: Aspartame has been the victim of 'Fake News' and, in this social media age, there wasn't much that could be done.

The big fear was that the false claims against aspartame would reach the shores of West Europe, rendering one of the antidotes to CSD's obesity-linked criticism impotent. There was evidence of a slowdown five or six years ago, but at no point did the low-cal segment fall into the red in this market.

In 2014, The Coca-Cola Co moved to pre-empt the forebodings that the low-cal depression would spread to Europe by launching Coke Life. Sweetened using leaves from the stevia plant, the brand extension enjoyed a high-profile launch in more than a dozen West European markets.

Whatever you might say about the execution or the product itself, it was undoubtedly the right thing for Coca-Cola to do at the time. Indeed, PepsiCo would have undoubtedly done something similar with Pepsi True, had the brand been more of a success in the US.

With the benefit of hindsight, however, it's questionable whether the launch of Coke Life was ever necessary in Europe - the drink was withdrawn from the UK last year.

Low-calorie products continue to prosper in West Europe, underpinned by the fabulously successful Coke Life and Pepsi Max. Although there is some variance by market, the overall market for low calorie looks set for solid gains again this year.

What GlobalData's research for this year is showing is that the low-calorie segment, although still falling, could be about to trough in the US.

With ongoing positive results in Europe, this will be welcome news for soft drinks players.


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