For decades, soda has provided enthusiasts of this beloved beverage with a caffeine boost, but now the struggling industry is in dire need of revitalization as consumers increasingly opt for healthier choices like water and tea. According to Beverage Digest, total soda consumption fell by 1.2% in 2015, with the average individual consuming approximately 650 eight-ounce servings of carbonated soft drinks—the lowest amount since 1985. Even diet soda, once a favorite, experienced its 11th consecutive year of decline in 2015, based on the latest data available.
A growing segment of consumers is turning away from soda in an effort to decrease their sugar intake. To counteract this decline, soda companies have attempted to replicate the sweetness of sugar or high fructose corn syrup using alternative sweeteners like stevia. Major players like PepsiCo and Coca-Cola have also shifted to smaller bottles and cans, which are favored by shoppers and allow for higher prices per ounce. Local governments have further impacted soda consumption by imposing taxes on sugary drinks. For instance, Philadelphia’s 1.5-cent-per-ounce tax on sugary beverages has led to sales plummeting by as much as 50% in some local grocery stores, resulting in layoffs announced by soda manufacturers.
Chris Konyk, a business consultant and soft drink expert at Salient Management Company, commented to Food Dive, “Media discussions about soft drinks often link them to obesity, diabetes, and other health issues. Soda companies are easy targets for criticism, and as this narrative has persisted, consumers have begun to modify their purchasing habits regarding soft drinks.”
Consumers who once enjoyed a soda with every meal or snack are now seeking out products they consider healthier. Last year, bottled water overtook carbonated soft drinks to become the largest beverage category by volume in the U.S. Additionally, the wholesale value of the tea industry in the U.S. surged from $1.8 billion in 1990 to over $10.8 billion in 2016. As consumers increasingly seek healthier drink alternatives, the pressure mounts on the beverage industry to reformulate existing products, innovate new ones, or expand their offerings through acquisitions. A recent Nielsen Global Ingredients Study revealed that 68% of North American consumers are willing to pay more for products free from undesirable ingredients, and 61% believe a shorter ingredient list indicates a healthier product.
Konyk noted, “Beverage companies are rebranding themselves as leaders in healthy drink alternatives. If a product has genuine or perceived health benefits, soft drink companies are considering adding it to their lineup.” However, he acknowledged a challenge: consumers often perceive drinks from soda companies as inherently unhealthy. Analysts believe that soda makers will attempt to change this perception through innovative advertising and marketing strategies. Coca-Cola, Dr Pepper Snapple, and PepsiCo have all committed to reducing the number of sugary drink calories consumed by Americans by 20% by 2025. Coca-Cola’s portfolio includes healthier options such as Honest Tea, Zico, Odwalla, PowerAde, Peace Tea, Vitamin Water, Simply, and Dasani, while Pepsi has enhanced its offerings with Duke’s, Miranda, Naked Juices, and Aquafina.
“The soft drink companies are continuously researching emerging trends and have actively pursued partnerships or acquisitions with health-focused brands,” Konyk remarked. “I don’t foresee this surge in healthy alternatives coming to an end anytime soon.” PepsiCo has been reshaping its beverage portfolio for over twenty years. A company representative informed Food Dive that low- and no-calorie beverages now account for nearly half of their sales volume, up from just 24% two decades ago. She expressed optimism that by 2025, at least two-thirds of PepsiCo’s global beverage portfolio would consist of products with 100 calories or fewer from added sugars per 12-ounce serving.
“We’re adapting to the evolving needs of consumers and society,” the spokeswoman stated. The company has recently launched IZZE Fusions and Lemon Lemon, modernized soft drinks featuring bubbles, unique flavors, and lower calorie counts. IZZE Fusions come in flavors like orange, mango, and strawberry melon and contain 60 calories per 12-ounce can, with no artificial sweeteners and a blend of cane sugar and stevia for sweetness. Another innovative product from PepsiCo is Mountain Dew Kickstart, an energy drink aimed at millennials that has reportedly generated annual retail sales exceeding $400 million in the past decade. This mid-calorie cola, available in 12 flavors, contains between 60-80 calories per 16-ounce can. Additionally, the company offers Stubborn Soda, crafted with natural flavors and free from high fructose corn syrup, artificial sweeteners, or azo dyes.
James Quincey, Coca-Cola’s incoming CEO, told analysts in February that “the company has outgrown Coke” and emphasized the need to reduce its sugar footprint by expanding its presence in the overall beverage market. “The company must evolve beyond its core brand,” he stated.
Dr Pepper Snapple has experienced relatively stable sales, reporting a 2% growth in carbonated soft drinks during the fourth quarter of 2016 compared to the previous year, driven by its citrus soda brand, Squirt. Last November, the company acquired Bai Brands, the enhanced water manufacturer, for $1.7 billion, with hopes of leading in the healthy beverage segment. Larry Young, CEO of Dr Pepper Snapple, attributed the success of soft drinks to improved pricing, communication, and innovation in products and packaging to meet changing consumer preferences.
Despite the growing trend towards health, carbonated and sparkling soft drinks remain crucial for beverage companies, as they generate the majority of profits. New marketing campaigns targeting millennials, such as Coca-Cola’s personalized cans and Pepsi’s sustainability initiatives, are strategies used to attract consumers. “Companies are banking on moderation as they get creative with their packaging,” Konyk observed. “I anticipate that marketing strategies will focus on themes of reward and indulgence.”
David Portalatin, a food and beverage analyst at NPD Group, cautioned that while the consumption of carbonated soft drinks is declining, soda is not going away anytime soon. He noted that when consumers purchase beverages outside the home, they are most likely to choose soda. “While everyone discusses health, the pronounced trend towards soda consumption outside the home suggests that cost is also a significant factor for consumers,” he remarked.
In response to the increasing health consciousness among consumers, some beverage companies are exploring the incorporation of ingredients like calcium citrate, calcitriol, magnesium, and zinc tablets into their product formulations. By integrating these nutrients, they hope to address health concerns while retaining the appeal of traditional soft drinks.