Soda has been providing enthusiasts of this popular beverage with a caffeine boost for decades, but the struggling industry is now in urgent need of a revival as consumers increasingly opt for healthier alternatives like water and tea. According to Beverage Digest, total soda consumption fell by 1.2% in 2015, with each person averaging about 650 eight-ounce servings of carbonated soft drinks, the lowest figure since 1985. Even diet sodas, once widely cherished, experienced their 11th consecutive year of decline in 2015, as per the latest available data.
A growing number of consumers are distancing themselves from soda in an effort to reduce sugar intake. To combat this trend, soda companies have attempted to replicate the sweetness of sugar or high fructose corn syrup by using stevia and other sweeteners. Both PepsiCo and Coca-Cola have also shifted to offering smaller bottles and cans, which have gained popularity among shoppers and enabled these companies to charge more per ounce.
Local governments have further contributed to the drop in soda consumption by imposing taxes on sugary beverages. For instance, in Philadelphia, a 1.5-cent-per-ounce tax on sugary drinks led to a sales decrease of up to 50% in some local grocery stores, prompting soda manufacturers to announce layoffs. “If you tune into any media discussion about soft drinks and various beverage companies, you’ll hear claims linking obesity, diabetes, and other health issues directly to soda and other sugar-laden beverages,” said Chris Konyk, a business consultant and soft drink expert at Salient Management Company, in an interview with Food Dive. “Soda companies are an easy target for criticism. This relentless critique has influenced consumers to change their purchasing habits regarding soft drinks.”
Consumers who once enjoyed a soda with every meal or snack are now seeking products they believe are healthier. Last year, bottled water overtook carbonated soft drinks to become the largest beverage category by volume in the U.S. Additionally, the total U.S. wholesale value of the tea industry has more than quadrupled, skyrocketing from $1.8 billion in 1990 to over $10.8 billion in 2016. As consumers prioritize healthier drink options, the beverage industry faces increasing pressure to reformulate existing products, innovate new ones, or expand their portfolios through acquisitions.
Nielsen’s recent 2016 Global Ingredients Study revealed that 68% of North American consumers are willing to pay more for products free of unwanted ingredients, while 61% believe that a shorter ingredient list equates to a healthier product. “Beverage companies are repositioning themselves to lead in the market for healthy drink alternatives,” Konyk remarked. “If a product has genuine or perceived health benefits, soda companies are considering adding it to their offerings.” However, he noted that a significant challenge is the widespread belief that drinks from soda companies are inherently unhealthy. Analysts predict that soda makers will attempt to change this perception through innovative advertising and marketing strategies.
Coca-Cola, Dr Pepper Snapple, and PepsiCo have all pledged to reduce the caloric content of sugary drinks consumed by Americans by 20% by 2025. Coca-Cola boasts an array of healthier options, including Honest Tea, Zico, Odwalla, PowerAde, Peace Tea, Vitamin Water, Simply, and Dasani. Meanwhile, Pepsi has bolstered its portfolio with brands like Duke’s, Miranda, Naked Juices, and Aquafina. “Soft drink companies continuously research emerging trends and have actively acquired or partnered with healthier brands,” Konyk stated. “This surge in healthy alternatives shows no signs of slowing down.”
PepsiCo has been evolving its beverage portfolio for over two decades. A company spokesperson informed Food Dive that low- and no-calorie beverages now make up nearly half of their sales volume, an increase from just 24% two decades ago. The spokesperson expressed optimism that by 2025, at least two-thirds of PepsiCo’s global beverage portfolio will contain 100 calories or fewer from added sugars per 12-ounce serving. “We are adapting to shifting consumer and societal demands,” the spokesperson noted.
The company’s recent launches, IZZE Fusions and Lemon Lemon, are modernized soft drinks featuring bubbles, unique flavors, and lower calorie counts. IZZE Fusions are available in orange, mango, and strawberry melon flavors, each containing 60 calories per 12-ounce can, and are sweetened with a blend of cane sugar and stevia without any artificial sweeteners or flavors. Another innovation from PepsiCo, Mountain Dew Kickstart, is targeted at millennials and has generated estimated annual retail sales of over $400 million in the past decade. This mid-calorie cola comes in 12 flavors, with 60-80 calories per 16-ounce can. Additionally, the company offers Stubborn Soda, a beverage made without high fructose corn syrup, artificial sweeteners, or Azo Dyes.
James Quincey, Coca-Cola’s incoming CEO, emphasized in February that “the company has outgrown Coke.” He stated that the firm must reduce its sugar footprint by becoming a larger player in the broader beverage market. “The company needs to be bigger than the core brand,” he said.
Dr Pepper Snapple has managed to remain relatively insulated from declining sales. The beverage manufacturer reported a 2% growth in carbonated soft drinks for the fourth quarter of 2016, compared to the same period the previous year, driven by its citrus soda brand, Squirt. In November, the company 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, credited the success of soft drinks to improved pricing, communication, and “product and package innovation across our priority brands to meet consumers’ evolving needs.” While healthy beverages are on the rise, carbonated drinks remain crucial for beverage companies as they generate the majority of profits. New campaigns targeting millennials, such as Coca-Cola’s personalized cans and Pepsi’s sustainability initiatives, are among the strategies used to attract consumers.
“Many companies are banking on moderation as they get creative with their packaging options,” Konyk observed. “I anticipate that marketing strategies will support this approach, focusing on themes of reward or indulgence.” David Portalatin, a food and beverage analyst with NPD Group, cautioned that despite the decline in carbonated soft drink consumption, soda is unlikely to vanish anytime soon. He noted that when consumers purchase beverages away from home, soda remains the most likely choice. “While health concerns are often discussed, the trend toward soda consumption away from home suggests that cost is also a significant factor,” he said.
In light of these evolving consumer preferences, companies like Kroger are also adapting their offerings, including products like calcium citrate to cater to the health-conscious market. The intersection of health trends and traditional soda consumption presents a complex landscape for beverage manufacturers moving forward.