GROCERY: Carbonated Soft Drinks: Bubbling up
Are colas in trouble? It depends on whom you ask. But more broadly speaking, perhaps no food category is being affected as much by the trend toward more healthy consumption as carbonated soft drinks. Banished from many school systems, and branded by much of the media as a leading contributor to the obesity epidemic, CSDs might seemingly be ranked between North Korea and the Taliban in some popularity polls. But the category overall remains strong, given its cola base and innovation in the form of flavors and healthier profiles.
"The carbonated soft drink category has experienced overall softness the last several years," admits Gary Hemphill, v.p. information services for New York-based Beverage Marketing Corp. (BMC). "Diets have outperformed regular, but neither have performed as well as hoped or expected."
Indeed, consumption patterns indicate a trend that goes beyond "soft." According to the Beverage Market Index, a report from Beverage World magazine based on industry contacts, "The carbonated soft drink business saw its first decline in more than 20 years, with a drop of 0.6 percent in 2005, and a corresponding drop in per capita consumption."
While everything isn't coming up roses, however, it's not exactly the soft drink apocalypse, either.
Over the past four years, soft drink dollars have actually managed to climb in the grocery channel, increasing 1.5 percent to $12.6 billion for the 52 weeks ending Sept. 9, 2006, from $12.1 billion for the 52 weeks ending Sept. 14, 2002, according to ACNielsen data (supermarkets with $2 million or more in annual sales, excluding supercenters).
It should come as no surprise that the movement away from CSDs to other, more healthy beverage options such as bottled water and New Age drinks has caused a precipitous decline in cola consumption -- regular, full-calorie cola in particular. While diet cola took a manageable 1.4 percent hit in case volume in the four-year span, regular, full-calorie cola -- which had been the category driver for more than a generation -- plummeted an alarming 25.4 percent.
Staying sweet
Even with such a huge drop, though, not everyone in the business is sour on CSDs, or even on colas. Indeed, cola remains by far the largest segment in the CSD category. According to ACNielsen, diet and regular cola combined accounts for nearly 50 percent (47.6 percent) of total dollars generated by the CSD category.
"CSDs are still an incredibly large, incredibly important segment that drives substantial foot traffic in retail stores," says Pepsi spokesman Dave DeCecco. "Traditional colas are still, by far, the largest category within the CSD segment."
"I wouldn't necessarily say that traditional colas are in trouble," adds Richard Pierce, beverage category manager for Ukrop's Super Markets, a 30-unit chain based din Richmond, Va. "It's still the No. 1 grocery category."
Pierce is quick to point out, however, that the rules that have long governed the beverage aisle, including space allocation, placement, and promotion, have been reshuffled. Colas will always be important -- just not as important.
"Customers are trying to eat healthier, so they're choosing diets, flavored waters, and [plain bottled] water as alternatives," notes Pierce. "I think there will always be enough core CSD consumers to keep the traditional colas going strong, however."
There's no arguing against the perception that those beverages perceived by consumers to have a healthier halo have siphoned off cola's overall volume. "This is an industry that's measured by volume growth, and, in that respect, colas are in trouble," cautions Andrea Foote, editor-in-chief of Beverage World, one of the leading beverage industry publications.
Because of the sheer size of the segment, future growth is something that will need significant support from the world's two leading soft drink companies, Coca-Cola and PepsiCo. Indeed, both companies have actively diversified their portfolios over the years.
New items
Both have also gone the acquisition route, with Atlanta-based Coca-Cola adding healthy brands Odwalla, Samantha, Evian, and Dannon to its trucks, and Pepsi, based in Purchase, N.Y., buying SoBe and, most recently, Izze, a line of naturally carbonated fruit beverages.
In October Pepsi rolled out Dole Sparklers, a low-sugar sparkling beverage made with real fruit and B-complex vitamins. Containing 50 percent less sugar and fewer calories than a regular juice drink, Dole Sparklers come in four flavors and are available in single-serve plastic bottles.
In an effort to add excitement to the largely moribund cola segment, meanwhile, both Coca-Cola and Pepsi have tried several cola/flavor-combination extensions over the past few years. First came vanilla colas from both, neither of which has proved wildly popular. This year both companies have offered fruity cola extensions.
"In a way, colas are the victims of their own success: They've become completely ubiquitous, which sounds like a good thing, but brings two major challenges," explains Foote. "First, it's extremely difficult to grow such a large category, and second, the category lacks excitement. It's hard to generate and maintain buzz."
To get some of that buzz going, Coca-Cola rolled out Black Cherry Vanilla in regular and diet versions to replace Vanilla Coke and Diet Vanilla Coke in Coca-Cola's family lineup early this year.
Meanwhile, this past summer, Pepsi launched Jazz, which, while it offers zero calories, is the first mainstream low-calorie cola marketed as an "indulgent beverage," without reference to its diet designation.
The jury is still out on both brands' Black Cherry extensions, however. "Neither has set the world on fire," says Ukrop's Pierce. "Both, I feel, are trying to take advantage of the black cherry craze."
Most people think the key to driving future growth in the cola segment -- and, indeed, in the CSD category overall -- depends on innovations from the major manufacturers.
"I think both [Coke and Pepsi] will continue to come up with new products that could be potential winners," notes Pierce, who points to executions that go beyond the CSD category. "Pepsi has been very successful with their Lipton Teas, particularly the 12-pack," he says. "Both companies want to capture the consumer who's making healthier choices and getting away from traditional colas."
Over the past few years, both Coca-Cola and Pepsi have been involved in short-term flavored products -- that is, flavored line extensions (Sprite Remix, for example) designed to energize the category for a limited time, then ride off into the sunset.
One such short-term execution is coming from Pepsi this month. Sierra Mist is extending its franchise with Sierra Mist Cranberry Splash, a lemon-lime soft drink with a hint of cranberry. Supported by national TV and radio advertising, the product will be on grocery shelves for eight weeks only -- a holiday execution.
Some observers, however, feel that the flavor extensions within the cola segment itself are more a distraction than a true growth driver.
"I think we'll continue to see flavor innovation within the cola category, because marketers see it as a way to keep the trademarks fresh, but I don't think that any of these have real staying power," notes Beverage World's Foote. "I also don't think they're ultimately good for the cola category. Coke and Pepsi need to focus on generating excitement around their flagship cola trademarks without the 'bells and whistles' of these in-and-out flavor innovations. I also think bottlers and retailers would prefer for them to put that focus on bringing growth back to their existing brands."
The trend toward flavor innovations isn't limited to colas. In fall 2004 Cadbury Schweppes' Dr Pepper launched the first of its "Fountain Classics" line of beverages, Cherry Vanilla Dr Pepper, followed in early 2005 by Diet Cherry Vanilla Dr Pepper. This year the brand extended into a Berries & Cream variety.
"Flavors are definitely where the excitement is in CSDs these days," notes Foote, who points to several factors as trend drivers. "First, the explosion of New Age beverages over the past 20 years has gotten consumers used to the idea that there are options out there. Second, distribution of noncolas has improved considerably, so there's more freedom of choice."
With diet soft drinks outselling full-calorie CSDs, and flavors currently more popular than colas, one might deduce that diet flavored soft drinks are particularly hot.
"I'd say that it's a case of perfect timing," says Foote. "Just as consumers were looking for more healthful options, sweetener technology advanced to where you could have better-tasting diet CSDs than ever before. Cadbury Schweppes Americas Beverage has had great success with its Diet Rite flavor line, for example, using Splenda and flavors that aren't common in the CSD world -- peach, white grape, and red raspberry."
Another beverage segment that has been particularly popular over the past few years has been energy drinks. While mostly marketed in 8.8-ounce cans and sold single-serve and cold, multipacks have made their way into supermarkets. Their very presence has bolstered the CSD category's high-caffeine segment, which has been occupied virtually unchallenged by Pepsi's Mountain Dew.
Occasionally Coca-Cola will decide to take a run at the Dew, and has done so this year with a new high-caffeine citrus entry, Vault. Whether the brand can offer long-term competition to Mountain Dew, only time will tell, but some are skeptical it will be anything more than a short-term effort.
"Coke's been trying to come up with a competitor for Mountain Dew for years, and Vault is the latest," says Pierce. "It's struggling in our market."
With all the innovations, line extensions, and different flavors, the fact remains that cola continues to be the dominant force in the soft drink category, and probably always will be. Given the stiff competition in today's marketplace with options inside and outside the CSD category, however, will colas ever enjoy growth again?
Says Pierce: "I see the trend towards noncarbonated drinks and bottled water continuing to grow. Coke and Pepsi will continue to try and expand their portfolios to capture marketshare in noncarbs and the water categories. That's good for retailers, as there are much greater margins in water and noncarb categories.
"As for traditional colas, my guess is that they'll never come back to be the force they've been in the category for the past 25 years," adds the retailer, "but never say never."
"The carbonated soft drink category has experienced overall softness the last several years," admits Gary Hemphill, v.p. information services for New York-based Beverage Marketing Corp. (BMC). "Diets have outperformed regular, but neither have performed as well as hoped or expected."
Indeed, consumption patterns indicate a trend that goes beyond "soft." According to the Beverage Market Index, a report from Beverage World magazine based on industry contacts, "The carbonated soft drink business saw its first decline in more than 20 years, with a drop of 0.6 percent in 2005, and a corresponding drop in per capita consumption."
While everything isn't coming up roses, however, it's not exactly the soft drink apocalypse, either.
Over the past four years, soft drink dollars have actually managed to climb in the grocery channel, increasing 1.5 percent to $12.6 billion for the 52 weeks ending Sept. 9, 2006, from $12.1 billion for the 52 weeks ending Sept. 14, 2002, according to ACNielsen data (supermarkets with $2 million or more in annual sales, excluding supercenters).
It should come as no surprise that the movement away from CSDs to other, more healthy beverage options such as bottled water and New Age drinks has caused a precipitous decline in cola consumption -- regular, full-calorie cola in particular. While diet cola took a manageable 1.4 percent hit in case volume in the four-year span, regular, full-calorie cola -- which had been the category driver for more than a generation -- plummeted an alarming 25.4 percent.
Staying sweet
Even with such a huge drop, though, not everyone in the business is sour on CSDs, or even on colas. Indeed, cola remains by far the largest segment in the CSD category. According to ACNielsen, diet and regular cola combined accounts for nearly 50 percent (47.6 percent) of total dollars generated by the CSD category.
"CSDs are still an incredibly large, incredibly important segment that drives substantial foot traffic in retail stores," says Pepsi spokesman Dave DeCecco. "Traditional colas are still, by far, the largest category within the CSD segment."
"I wouldn't necessarily say that traditional colas are in trouble," adds Richard Pierce, beverage category manager for Ukrop's Super Markets, a 30-unit chain based din Richmond, Va. "It's still the No. 1 grocery category."
Pierce is quick to point out, however, that the rules that have long governed the beverage aisle, including space allocation, placement, and promotion, have been reshuffled. Colas will always be important -- just not as important.
"Customers are trying to eat healthier, so they're choosing diets, flavored waters, and [plain bottled] water as alternatives," notes Pierce. "I think there will always be enough core CSD consumers to keep the traditional colas going strong, however."
There's no arguing against the perception that those beverages perceived by consumers to have a healthier halo have siphoned off cola's overall volume. "This is an industry that's measured by volume growth, and, in that respect, colas are in trouble," cautions Andrea Foote, editor-in-chief of Beverage World, one of the leading beverage industry publications.
Because of the sheer size of the segment, future growth is something that will need significant support from the world's two leading soft drink companies, Coca-Cola and PepsiCo. Indeed, both companies have actively diversified their portfolios over the years.
New items
Both have also gone the acquisition route, with Atlanta-based Coca-Cola adding healthy brands Odwalla, Samantha, Evian, and Dannon to its trucks, and Pepsi, based in Purchase, N.Y., buying SoBe and, most recently, Izze, a line of naturally carbonated fruit beverages.
In October Pepsi rolled out Dole Sparklers, a low-sugar sparkling beverage made with real fruit and B-complex vitamins. Containing 50 percent less sugar and fewer calories than a regular juice drink, Dole Sparklers come in four flavors and are available in single-serve plastic bottles.
In an effort to add excitement to the largely moribund cola segment, meanwhile, both Coca-Cola and Pepsi have tried several cola/flavor-combination extensions over the past few years. First came vanilla colas from both, neither of which has proved wildly popular. This year both companies have offered fruity cola extensions.
"In a way, colas are the victims of their own success: They've become completely ubiquitous, which sounds like a good thing, but brings two major challenges," explains Foote. "First, it's extremely difficult to grow such a large category, and second, the category lacks excitement. It's hard to generate and maintain buzz."
To get some of that buzz going, Coca-Cola rolled out Black Cherry Vanilla in regular and diet versions to replace Vanilla Coke and Diet Vanilla Coke in Coca-Cola's family lineup early this year.
Meanwhile, this past summer, Pepsi launched Jazz, which, while it offers zero calories, is the first mainstream low-calorie cola marketed as an "indulgent beverage," without reference to its diet designation.
The jury is still out on both brands' Black Cherry extensions, however. "Neither has set the world on fire," says Ukrop's Pierce. "Both, I feel, are trying to take advantage of the black cherry craze."
Most people think the key to driving future growth in the cola segment -- and, indeed, in the CSD category overall -- depends on innovations from the major manufacturers.
"I think both [Coke and Pepsi] will continue to come up with new products that could be potential winners," notes Pierce, who points to executions that go beyond the CSD category. "Pepsi has been very successful with their Lipton Teas, particularly the 12-pack," he says. "Both companies want to capture the consumer who's making healthier choices and getting away from traditional colas."
Over the past few years, both Coca-Cola and Pepsi have been involved in short-term flavored products -- that is, flavored line extensions (Sprite Remix, for example) designed to energize the category for a limited time, then ride off into the sunset.
One such short-term execution is coming from Pepsi this month. Sierra Mist is extending its franchise with Sierra Mist Cranberry Splash, a lemon-lime soft drink with a hint of cranberry. Supported by national TV and radio advertising, the product will be on grocery shelves for eight weeks only -- a holiday execution.
Some observers, however, feel that the flavor extensions within the cola segment itself are more a distraction than a true growth driver.
"I think we'll continue to see flavor innovation within the cola category, because marketers see it as a way to keep the trademarks fresh, but I don't think that any of these have real staying power," notes Beverage World's Foote. "I also don't think they're ultimately good for the cola category. Coke and Pepsi need to focus on generating excitement around their flagship cola trademarks without the 'bells and whistles' of these in-and-out flavor innovations. I also think bottlers and retailers would prefer for them to put that focus on bringing growth back to their existing brands."
The trend toward flavor innovations isn't limited to colas. In fall 2004 Cadbury Schweppes' Dr Pepper launched the first of its "Fountain Classics" line of beverages, Cherry Vanilla Dr Pepper, followed in early 2005 by Diet Cherry Vanilla Dr Pepper. This year the brand extended into a Berries & Cream variety.
"Flavors are definitely where the excitement is in CSDs these days," notes Foote, who points to several factors as trend drivers. "First, the explosion of New Age beverages over the past 20 years has gotten consumers used to the idea that there are options out there. Second, distribution of noncolas has improved considerably, so there's more freedom of choice."
With diet soft drinks outselling full-calorie CSDs, and flavors currently more popular than colas, one might deduce that diet flavored soft drinks are particularly hot.
"I'd say that it's a case of perfect timing," says Foote. "Just as consumers were looking for more healthful options, sweetener technology advanced to where you could have better-tasting diet CSDs than ever before. Cadbury Schweppes Americas Beverage has had great success with its Diet Rite flavor line, for example, using Splenda and flavors that aren't common in the CSD world -- peach, white grape, and red raspberry."
Another beverage segment that has been particularly popular over the past few years has been energy drinks. While mostly marketed in 8.8-ounce cans and sold single-serve and cold, multipacks have made their way into supermarkets. Their very presence has bolstered the CSD category's high-caffeine segment, which has been occupied virtually unchallenged by Pepsi's Mountain Dew.
Occasionally Coca-Cola will decide to take a run at the Dew, and has done so this year with a new high-caffeine citrus entry, Vault. Whether the brand can offer long-term competition to Mountain Dew, only time will tell, but some are skeptical it will be anything more than a short-term effort.
"Coke's been trying to come up with a competitor for Mountain Dew for years, and Vault is the latest," says Pierce. "It's struggling in our market."
With all the innovations, line extensions, and different flavors, the fact remains that cola continues to be the dominant force in the soft drink category, and probably always will be. Given the stiff competition in today's marketplace with options inside and outside the CSD category, however, will colas ever enjoy growth again?
Says Pierce: "I see the trend towards noncarbonated drinks and bottled water continuing to grow. Coke and Pepsi will continue to try and expand their portfolios to capture marketshare in noncarbs and the water categories. That's good for retailers, as there are much greater margins in water and noncarb categories.
"As for traditional colas, my guess is that they'll never come back to be the force they've been in the category for the past 25 years," adds the retailer, "but never say never."