For decades, soda has provided enthusiasts with a caffeine boost, but now the struggling industry is in dire need of a revival as consumers increasingly choose healthier alternatives like water and tea. Beverage Digest reported that total soda consumption fell by 1.2% in 2015, with individuals consuming approximately 650 eight-ounce servings of carbonated soft drinks—the lowest figure since 1985. Even diet soda, once a favorite, experienced its 11th consecutive year of decline in 2015, according to the latest statistics available.
A growing segment of consumers is shifting away from soda as they aim to cut down on sugar intake. In response to this trend, soda manufacturers have attempted to replicate the taste of sugar or high fructose corn syrup using sweeteners like stevia. Companies like PepsiCo and Coca-Cola have also introduced smaller bottles and cans that appeal to shoppers, allowing them to charge more per ounce.
Local governments have further contributed to the decline in soda consumption by imposing taxes on sugary drinks. For instance, a 1.5-cent-per-ounce tax on sugary beverages in Philadelphia has led to a staggering 50% drop in sales at some local grocery stores, prompting soda manufacturers to announce layoffs. “When you tune into any media outlet discussing soft drinks and beverage companies, the consensus is that obesity, diabetes, and other health issues are directly linked to soda and other sugar-laden drinks,” remarked Chris Konyk, a business consultant and soft drink expert at Salient Management Company. “Soda companies present an easy target for criticism. This relentless scrutiny has led consumers to change their purchasing habits regarding soft drinks.”
Consumers who once felt at ease drinking soda with every meal or snack are now on the lookout for products they perceive as healthier. Last year, bottled water surpassed carbonated soft drinks to become the largest beverage category in terms of volume in the U.S. The total wholesale value of the tea industry in the U.S. has also increased more than fourfold, from $1.8 billion in 1990 to over $10.8 billion in 2016.
With consumers seeking healthier beverage options, the beverage industry faces mounting pressure to reformulate existing products, innovate new ones, or enhance their portfolios by acquiring other brands. According to Nielsen’s 2016 Global Ingredients Study, 68% of North American consumers indicated they would pay a premium for products free from undesirable ingredients, while 61% believed that a shorter ingredient list signified a healthier product.
“The beverage companies are repositioning themselves to lead in healthy drink alternatives,” Konyk noted. “If a product has real or perceived health benefits, soft drink companies are considering adding it to their portfolio.” However, he pointed out that a significant challenge remains in overcoming the perception that beverages from soda companies are inherently unhealthy. Analysts anticipate that soda manufacturers will attempt to change consumer perceptions through innovative advertising and marketing strategies. Coca-Cola, Dr Pepper Snapple, and PepsiCo have all committed to reducing the caloric content of sugary drinks consumed by Americans by 20% before 2025. Coca-Cola’s range includes Honest Tea, Zico, Odwalla, PowerAde, Peace Tea, Vitamin Water, Simply, and Dasani as healthier options, while Pepsi has bolstered its offerings with Duke’s, Miranda, Naked Juices, and Aquafina.
“The soft drink companies constantly research emerging trends and have aggressively acquired or formed partnerships with health-oriented brands,” Konyk stated. “I don’t foresee this surge of healthy alternatives coming to an end anytime soon.” PepsiCo has been evolving its beverage portfolio for over 20 years. A company representative shared with Food Dive that low- and no-calorie beverages now account for nearly half of its sales volume, a significant increase from just 24% two decades ago. She expressed optimism that by 2025, at least two-thirds of its global beverage portfolio will consist of drinks containing 100 calories or fewer from added sugars per 12-ounce serving. “We’re adapting to the changing preferences of consumers and societal trends,” the spokesperson explained.
The company’s recent offerings, like IZZE Fusions and Lemon Lemon, are modernized soft drinks featuring bubbles, unique flavors, and lower calorie counts. IZZE Fusions, available in orange, mango, and strawberry melon, contain 60 calories per 12-ounce can and are sweetened with a blend of cane sugar and stevia, without any artificial sweeteners or flavors. Mountain Dew Kickstart is another innovation from PepsiCo, which has generated estimated annual retail sales exceeding $400 million in the past decade. Targeted at millennials, this mid-calorie cola boasts 60-80 calories per 16-ounce can and comes in 12 flavors. The company also offers Stubborn Soda, made with natural flavors and free from high fructose corn syrup, artificial sweeteners, or Azo dyes.
James Quincey, Coca-Cola’s incoming CEO, mentioned to analysts in February that “the company has outgrown Coke.” He emphasized the need to reduce the sugar footprint by expanding its presence in the broader beverage market. “The company must become larger than just its core brand,” he asserted.
Dr Pepper Snapple has shown resilience against declining sales, reporting a 2% growth in carbonated soft drinks during the fourth quarter of 2016 compared to the same period the previous year, largely driven by its citrus soda brand, Squirt. In November, the company acquired Bai Brands, an enhanced water manufacturer, for $1.7 billion, hoping to lead in the healthy beverage segment. Larry Young, CEO of Dr Pepper Snapple, stated in the company’s latest earnings call that the success of soft drinks can be attributed to improved pricing, communication, and “product and package innovation to meet evolving consumer needs.”
While healthier options are trending, carbonated or sparkling soft drinks remain crucial to beverage companies as they contribute significantly to profits. New campaigns aimed at millennials, such as Coca-Cola’s personalized cans and Pepsi’s focus on sustainability, are strategies designed to capture consumer interest. “Many companies are counting on the idea that everything should be consumed in moderation as they get creative with their packaging,” Konyk observed. “I believe marketing strategies will focus on themes of reward or indulgence.”
David Portalatin, a food and beverage analyst at the NPD Group, warned that despite declining consumption of carbonated soft drinks, soda is unlikely to vanish entirely. He noted that when consumers purchase beverages away from home, soda remains the most common choice. “Health is a popular topic, but the pronounced trend of soda consumption away from home suggests that cost also plays a role in consumer decisions,” he said.
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