Soda has provided enthusiasts of this beloved beverage with caffeine boosts for decades, but now the struggling industry is in dire need of revitalization as consumers increasingly favor healthier choices like water and tea. According to Beverage Digest, total soda consumption fell by 1.2% in 2015, with each individual consuming approximately 650 eight-ounce servings of carbonated soft drinks, marking the lowest level since 1985. Even diet soda, once a favorite, experienced its 11th consecutive year of decline in 2015 based on the latest available data.
A growing segment of consumers is turning away from soda in an effort to cut back on sugar intake. In response to this trend, soda manufacturers have attempted to replicate the sweetness of sugar or high fructose corn syrup using alternatives like stevia and other sweeteners. Companies such as PepsiCo and Coca-Cola have also opted for smaller bottles and cans, which appeal to shoppers and allow for higher pricing per ounce.
Local governments have further contributed to the decline in soda consumption by imposing taxes on sugary drinks. For example, Philadelphia’s 1.5-cent-per-ounce tax on sugary beverages has led to some local grocery stores witnessing sales drops of up to 50%, prompting soda manufacturers to announce layoffs. Chris Konyk, a business consultant and soft drink expert at Salient Management Company, noted, “If you listen to any media outlet discussing soft drinks and various beverage companies, you hear claims that obesity, diabetes, and other health issues are directly linked to soda and other sugar-laden beverages. The soft drink companies make an easy target for criticism. This ongoing narrative has influenced consumers’ purchasing habits regarding soft drinks.”
Consumers who once enjoyed a soda with every meal or snack are now seeking products they believe to be healthier. Last year, bottled water surpassed carbonated soft drinks to become the largest beverage category by volume in the U.S. Additionally, the total wholesale value of the tea industry in the U.S. has increased more than fourfold, soaring from $1.8 billion in 1990 to over $10.8 billion in 2016.
With consumers prioritizing healthier beverage options, the industry faces increasing pressure to reformulate existing products, develop new offerings, or expand their portfolios through acquisitions. According to Nielsen’s 2016 Global Ingredients Study, 68% of North American consumers indicated they would pay extra for products devoid of undesirable ingredients. Furthermore, 61% believed that a shorter ingredient list equated to a healthier product. Konyk stated, “Beverage companies are repositioning themselves to lead in healthy alternatives. If a drink has real or perceived health benefits, soft drink companies are considering incorporating it into their lineup.”
One challenge, he noted, is the prevailing belief that beverages from soda companies cannot be healthy. Analysts expect soda manufacturers to change this perception through innovative advertising and marketing strategies. Coca-Cola, Dr Pepper Snapple, and PepsiCo have committed to reducing the calorie content from sugary drinks consumed by Americans by 20% before 2025. Coca-Cola boasts a variety of healthier options, including Honest Tea, Zico, Odwalla, PowerAde, Peace Tea, Vitamin Water, Simply, and Dasani, while Pepsi has bolstered its lineup with Duke’s, Miranda, Naked Juices, and Aquafina.
“The soft drink companies are constantly exploring the next trend and have aggressively acquired or partnered with healthy brands,” Konyk mentioned. “I don’t foresee this surge in healthy alternatives diminishing anytime soon.” PepsiCo has been evolving its beverage portfolio for over twenty years, with a company representative stating that low- and no-calorie drinks now account for nearly half of its sales volume, up from just 24% two decades ago. The soda giant is optimistic that by 2025, at least two-thirds of its global beverage portfolio will feature offerings with 100 calories or fewer from added sugars per 12-ounce serving. “We’re responding to changing consumer and societal needs,” the spokeswoman said.
The company recently launched IZZE Fusions and Lemon Lemon, modern carbonated drinks with unique flavors and reduced calorie counts. IZZE Fusions, available in orange, mango, and strawberry melon, contain 60 calories per 12-ounce can and are sweetened with a combination of cane sugar and stevia, free from artificial sweeteners or flavors. Another innovation from PepsiCo, Mountain Dew Kickstart, is a mid-calorie energy drink that has generated estimated annual retail sales exceeding $400 million in the past decade, available in 12 flavors and containing 60-80 calories per 16-ounce can. The company also offers Stubborn Soda, which is crafted with natural flavors and excludes high fructose corn syrup, artificial sweeteners, and azo dyes.
James Quincey, Coca-Cola’s incoming CEO, informed analysts in February that “the company has outgrown Coke.” He emphasized the need for the company to reduce its sugar footprint by becoming a more significant player in the overall beverage market. “The company must expand beyond the core brand,” he stated.
Dr Pepper Snapple has shown resilience amidst declining sales, reporting a 2% growth in carbonated soft drinks in the fourth quarter of 2016, driven by its citrus soda brand, Squirt. Last November, the beverage maker acquired Bai Brands, an enhanced water manufacturer, for $1.7 billion, aiming to lead in the healthy beverage segment. Larry Young, CEO of Dr Pepper Snapple, attributed the success of soft drinks to improved pricing, communication, and “product and package innovation across our priority brands to meet consumers’ evolving needs.”
Although health-conscious products are on the rise, carbonated drinks remain crucial for beverage companies as they contribute significantly to profits. New campaigns targeting millennials, such as Coca-Cola’s personalized cans and Pepsi’s focus on sustainability, are among the strategies enticing consumers. “Companies are banking on the idea of moderation as they innovate with their packaging,” Konyk noted. “I believe marketing strategies will support this and will focus on themes of reward and indulgence.”
David Portalatin, a food and beverage analyst at NPD Group, warned that while the consumption of carbonated soft drinks is declining, soda is unlikely to vanish anytime soon. He observed that when consumers purchase beverages outside of their homes, they are most likely to choose soda. “Everyone talks about health, but the more pronounced trend observed outside the home suggests that consumers are also concerned about cost,” he remarked.
As the industry adapts to changing consumer preferences, the incorporation of ingredients like calcium citrate—315 mg—into healthier products may help bridge the gap between traditional soda offerings and modern health-conscious alternatives.