After several years of lacklustre performance and inactivity, the lemon-lime sector of the US carbonated soft drinks market has been transformed in recent months by a flurry of activity, which has made it one of the sectors to watch in the coming 12 months. Ben Cooper reports.
This time last year the state of play in the carbonated soft drinks (CSD) market in the US could be summed up, albeit rather simplistically, as follows. The largest segment, Cola, might be rather mature and possibly zero-sum but it is too important to the two eponymous giants of the market to be neglected in favour of the growth areas of the market such as non-carbs, energy drinks and waters.
So Cola continues getting attention, along with the newer categories, but other mature sectors of the CSD market, also not showing much in the way of growth, remain a somewhat lower priority. And lemon-lime would seem to be the prime example. This sub-segment – where Coca-Cola has Sprite, Cadbury Schweppes has 7Up, and until recently PepsiCo had not much more than a passing interest with Sierra Mist – seemed justifiably to be getting less attention as the majors pursued growth opportunities in the newer reaches of the market. Events over the last six months will have shown this fairly reasonable analysis to be flawed.
The last half a year has seen all three major soft drinks groups, in one way or another, address the lemon-lime category. Whether this activity results in overall growth for a market which has been becalmed for several years remains to be seen, but the coming year will see a significant shake-up in terms of brand share which has remained fairly constant for a number of years.
The prime catalyst for the shake-up has been the effective arrival of a new nationwide brand in the form of PepsiCo’s Sierra Mist. Midway through last year, the two major players in the Pepsi bottling network, Pepsi Bottling Group and PepsiAmericas, dropped Cadbury Schweppes-owned 7Up in favour of PepsiCo’s own lemon-lime brand, Sierra Mist. Many other smaller Pepsi bottlers followed suit. This year began with an official nationwide launch for Sierra Mist. The blitz behind the brand at the SuperBowl, which was coupled with a huge sampling campaign, serves to illustrate Pepsi’s ambition for Sierra Mist and its view that lemon-lime as a category is worth investing in.
“Our view of the lemon-lime segment is that we are pretty bullish about it,” says Russell Findlay, senior marketing manager for the brand. “We as a company did not have a big presence in the lemon-lime category. The CSD market grew 0.2% last year and lemon-lime as a segment was down but where Sierra Mist was in distribution last year the lemon-lime segment actually grew. What that told us was that we have a very strong trademark with power and equity to move business in that segment.”
What that also seems to imply is that where the category, which is the second largest CSD sub-segment after Cola, has something relatively new to offer there is potential for growth. This has not been lost on the other two soft drinks majors, which have either launched or will soon be launching exciting new line extensions to their existing brands.
The combination of the distribution muscle of the Pepsi network and the millions of dollars the company is putting behind the brand should mean this is a year of significant growth for Sierra Mist. Having had limited distribution since its original launch in 2000, the brand is undeveloped nationally so there is, as Findlay put it, “a lot of upside”. According to Findlay, last year Sierra Mist, including its diet version, had around 14% of the lemon-lime market, against Sprite’s 41% and 7Up’s 38%. The fact that Pepsi estimates the market to be a one billion case, US$8 to US$10 billion business, shows that taking a few percentage points off either of the major competitors is well worth the effort. But Findlay concedes that with Sprite in poll position and 7Up looking to fight back, “we will have to earn every case we get”. However, he also maintains there is a chance to grow the category as a whole in the coming year. “If we do our job right we will help to grow the category.”
Key to Pepsi’s plans was the decision by Pepsi bottlers to drop 7Up and take on the Pepsi-owned brand. According to Pepsi, being taken on by Pepsi Bottling Group (PBG), PepsiAmericas and Pepsi Bottling Ventures gave Sierra Mist between 82% and 83% national distribution. Findlay says Sierra Mist has over 90% distribution now and is adding more all the time.
To say that Pepsi’s decision left 7Up with a whole to fill in its distribution would therefore be a severe understatement but the Cadbury Schweppes-owned US soft drinks group, Dr Pepper Seven Up (DPSU) remains surprisingly upbeat about the future, further suggesting that the lemon-lime sector is on the move.
The degree to which Sierra Mist will take sales from 7Up in the Pepsi network will become clearer in the coming months. At present, the two companies are making conflicting claims. Interestingly, Findlay made the point that even though Sierra Mist had taken over 7Up’s distribution, the national launch was really far more aimed at taking share from Sprite. As we have seen with mineral water, the bitter rivalry of the Cola wars extends to many other sectors of the market. But as Pepsi shaped up take on its bitter rival, 7Up was in the way.
However, in spite of the upheaval of changing bottlers, Holly Mensch, vice president marketing, said the business was holding up well. “We are going through some fairly significant franchise changes,” Mensch said. “It actually has been going well. Our plan it to hold share despite the franchise transitions.”
That would be some achievement but Mensch pointed out that the bottlers who have taken on 7Up or stayed with the brand, quite frequently adding new territories as DPSU looks to fill gaps in its distribution, are enthused about the brand and view it as a major priority. “It also represents a huge opportunity for us,” said Mensch. “Now we’re in with bottlers who are much more committed behind the business, and with bottlers where 7Up is the key brand. They are taking it on with enthusiasm.”
But DPSU’s strategy towards the lemon-lime category is not just restricted to re-energising the distribution for 7Up. Last November, the company introduced a range extension to 7Up, under the brand name dnL, which is 7Up backwards and upside down.
While still a lemon-lime carbonated drink, dnL is designed to be a contrast to the core 7Up brand which has mass and wide-ranging consumer appeal. The brand has a vibrant green colour and a full fruit flavour and is aimed at younger drinkers. “7Up is a mass-appeal brand so dnL was a way of really targeting and getting into the hearts and minds of the younger consumers,” says Mensch. “And it has done incredibly well.” The company is now adding a 2-litre bottle and 12-pack to the 20-ounce package already available.
Adding further to the heightened activity in the sector, DnL will soon be joined by a line extension to the Sprite brand called Sprite Remix. Due to be rolled out from the spring of 2003, supported by a fully integrated marketing campaign including TV, radio and print advertising, sampling and other promotional activity, Sprite Remix represents another way in which the major brands are looking to refresh the lemon-lime category.
As with dnL, the idea behind Sprite Remix is to complement the core brand. “We are always looking for ways to build the Sprite brand and enhance its position as America’s favorite lemon-lime soft drink,” said Coca-Cola’s Kelly Brooks. “We believe that Remix will be a complement to Sprite and that each one will help the other grow by bringing innovation and excitement to the category.”
So the combination of a new national launch and range extensions from the two leading brands looking to bring new consumers to the category promises to make 2003 an interesting year for the lemon-lime sector. Indeed, Holly Mensch, like Russ Findlay, believes that the sector as a whole could see some growth in the coming year. “For the past few years, there hasn’t been a whole lot of news from the major players,” Mensch told Just-drinks. “At least it was being outshouted. Now all three players are going after the category in a strong way; it is going to be an exciting year.”