Beverage Industry

The 2005 Soft Drink

March 1, 2005

The 2005 Soft Drink

New flavor introductions and health-conscious formulations offset a flat year
Last year proved to be one of the most challenging years the carbonated beverage segment has had to endure in the past decade. Negative press linked soft drink consumption to obesity and carbohydrate-conscious dieters shunned carbonated beverages in favor of sugar-free alternatives. As a result, all retail channels (with the exception of convenience stores) saw soda sales dip into the red. In an attempt to reinvigorate the sagging segment, carbonated beverage manufacturers charged back to their collective drawing boards to brainstorm new ways to regain disappearing consumers and revive sales. That effort ushered in the debut of a slew of original new flavor offerings and new formulation varieties crafted to oblige the demands of health-conscious consumers, no matter which diet they followed.
One of the biggest trends in 2004 was the effort to deal with carb-shunning dieters. Sugar is a forbidden fruit for followers of the Atkins diet and similar carb-counting plans. When the popular fad diet reached a fevered pitch in 2004, it was painfully clear to manufacturers that carbonated beverages were being shelved by a significant segment of the consumer population, much to the dismay of Coca-Cola and Pepsi-Cola. It didn’t take long before the two titans created beverages specially formulated to court the carb-counting set.
In March, Pepsi announced the pending debut of Pepsi Edge, the first full-flavored cola with 50 percent less sugar, carbohydrates and calories than regular colas. According to the company, Pepsi Edge’s full-flavored cola taste was maintained through the use of a blend of nutritive and non-nutritive sweeteners.
Less than a month later, Coke announced the launch of its own carb-conscious soda, C2. A mid-ranged carbohydrate beverage that was more than a year in the making, C2 boasted half the sugar, carbohydrates and calories of regular colas. “Consumers are the true architects of this idea,” said Doug Daft, chairman and chief executive officer at The Coca-Cola Co. at the time of the launch. “Coca-Cola C2 was created to specifically address their desire for a lower-calorie cola with that great Coca-Cola taste.”
The packaging graphics feature the familiar Coca-Cola trademark in black on a “Coca-Cola red” background, to provide a distinctive visual difference between Coca-Cola C2 and the flagship brand.
With published reports having signaled the end of the Atkins boom, the future low-carb niche Pepsi Edge and C2 have carved remains to be seen.
Daringly different ‘diet’
Pepsi Edge and C2 weren’t the only soft drinks created for consumers with an eye on health. Coca-Cola, Pepsi-Cola and Cadbury Schweppes Americas Beverages each launched new offerings to broaden the choice for dieters wary of sugar but yearning for flavor.
In August, Cadbury Schweppes launched a fortified 7 UP Plus, a berry flavored, Splenda and ace-k sweetened line extension to traditional 7 UP that was fortified with calcium, vitamin C and real fruit juice. The blush-colored caffeine-free soft drink is low in calories, with approximately 10 calories and 2 grams of carbohydrates per 8-ounce serving.
“Many people aren’t meeting the recommended levels of calcium and vitamin C,” says Lori Lathrop Stern, senior nutrition scientist at Cadbury Schweppes. “With 7 UP Plus you have ‘bubbles with benefits,’ including a delicious taste, a good source of calcium and vitamin C, as well as real fruit juice. It truly is a breakthrough option for women who seek out small ways to enjoy the fun of carbonated beverages but want to make better choices for themselves and their families.”
SOFT DRINK VOLUME BY COMPANY

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Coca-Cola took a cue from the success of its Diet Coke with Lemon and added another dash of citrus flavor to its Diet Coke beverage range with the debut of Diet Coke with Lime. “Consumer research indicated a preference for lime as the next Diet Coke flavor, as it’s a flavor combination many people already are enjoying,” says Ed Klein, vice president, Diet Coke at Coca-Cola North America. “The natural citrus taste of Diet Coke with Lime received extremely positive feedback in consumer testing.”
Packaging for the new soft drink — while maintaining the familiar equities of Diet Coke — is noticeably “lime.” Diet Coke with Lime is offered in 20-ounce and 2-liter bottles, multi-pack cans, as well as 8-ounce bottles. The packaging graphics for Diet Coke with Lemon were designed to harmonize with Diet Coke with Lime.
Because of the positive response to the light citrus flavor of Diet Coke with Lime, the same flavor approach was applied during the reformulation of Diet Coke with Lemon, which was tinkered with to deliver a lemon taste that is lighter than the original version. And in a reversal of the traditional product development process, Coca-Cola announced it will extend the lime flavor to regular Coca-Cola, with this month’s rollout of Coca-Cola with Lime.
Not to be outdone, PepsiCo also announced plans to launch its own lime varieties — Pepsi Lime and Diet Pepsi Lime — with a rollout planned for mid-April 2005. Details are sketchy, as the company declined to divulge further details.
Last month, Coca-Cola announced a seventh addition to its Diet Coke stable: Diet Coke Sweetened with Splenda. “Many consumers told us they liked the taste of Splenda and wanted a Splenda-sweetened option under the Diet Coke brand, so we’re obliging them,” commented Dan Dillon Jr., vice president, Diet Portfolio at Coca-Cola North America, in a press release. “The millions of current Diet Coke devotees across America shouldn't be concerned — the Diet Coke they love will stay just as it is.”
Diet Coke Sweetened with Splenda actually features a blend of Splenda and acesulfame potassium (ace-k). It will be available in a range of package sizes and will be supported by a variety of marketing programs. The company has not commented on the goals for the new beverage, leaving industry pundits to theorize whether Coca-Cola hopes for crossover consumption from die-hard Diet Coke drinkers, or if this new beverage will be used to attract new Diet Coke drinkers into the fold. Plans to differentiate Diet Coke with Splenda from traditional Diet Coke also are uncertain. According to the company, further details will be made available closer to the product’s formal introduction.

On the Pepsi side, Diet Sierra Mist underwent a name change last year. The “shockingly refreshing” lemon-lime taste and formula are the same, however in an effort to help consumers identify it as a soft drink free of sugar, calories, carbs and caffeine, the beverage formerly known as Diet Sierra Mist became Sierra Mist Free. “The new name highlights what has always been true — Sierra Mist Free is free of the things you don’t need,” says Steve Sears, vice president of marketing for flavors, Pepsi-Cola North America. “We’re giving people a better understanding of the benefits of Sierra Mist Free while also reengaging current diet consumers and attracting new people to the brand.”
On a broader scale, PepsiCo unveiled The Smart Spot Program, a commitment to helping its consumers “make smarter choices when it comes to balancing food with exercise.” This system of choices “made easy” entails the branding of selected PepsiCo foods and beverages with a Smart Spot logo that identifies the product as an item that meets the nutrition standards set forth by the Food and Drug Administration (FDA) and the National Academy of Sciences.
Beverages with the Smart Spot symbol meet nutrition criteria that include limits on the amount of fat, including saturated and trans fats, cholesterol, sodium and added sugar. The symbol also calls out products that contribute fiber, vitamins and other important nutrients. The criteria also include products reduced in ingredients such as fat or sugar, or products formulated to have specific health or wellness benefits.
A Smart Spot beverage (per serving) contains no more than 3 grams of fat, no more than 1 gram of saturated fat and zero trans fats. It also contains no more than 60 mg. of cholesterol and 480 mg. of sodium; contains 10 percent or more of Daily Value (DV) of one or more of the following: Vitamin A, C, iron, calcium, protein or fiber, and contains no more than 25 percent of calories from added sugar unless the product contains 10 percent DV of fiber. The beverage may also deliver a functional benefit via natural or fortified ingredients proven to be efficacious, or can be reduced 25 percent in calories, fat, sugar or sodium compared to base product or other appropriate reference product.
The final new cola debut from 2004 seemed to embody the consumer desire for healthy and natural in one unique formulation. V-Net Beverage, Inc., Blue Island, Ill., released its Rush Herbal Cola, which is produced with pure cane sugar and a unique blend of nutraceuticals formulated for endurance. Rush Herbal Cola is also produced in a mid-calorie cola blended with cane sugar and Stevia as a dietary supplement with botanical extract for a natural look, taste with one-third fewer calories.
New flavors
In other new product news, 2004 seemed to be a year characterized by limited-edition and seasonal soft drinks. Due to overwhelming demand, Pepsi brought back its seasonal Mountain Dew LiveWire from March through August last year. The flavor-amped Mountain Dew variety proved popular in 2003, adding a 10 percent volume swing to the Mountain Dew trademark. It also lit up Pepsi’s phone lines with requests to bring it back to the marketplace after its exit from stores in September.
Thanks to the success of Mountain Dew LiveWire, Pepsi unveiled two more limited-time offerings last year: Mountain Dew Pitch Black and Pepsi Holiday Spice. Mountain Dew Pitch Black appeared in August and disappeared around Halloween and combined the taste of Mountain Dew with a blast of black grape flavor. Its predecessor, Mountain Dew LiveWire, grew the Mountain Dew trademark more than 10 percent during its inaugural six-month run in 2003. Building on that successful strategy, Mountain Dew Pitch Black was formulated to capitalize on the lead-up to Halloween with spooky package graphics and in-store displays. A theater commercial, which parodied “B” horror movies, also supported the brand in 4,000 movie theaters. The beverage was available in 20-ounce bottles, 2-liter bottles and 12-packs of 12-ounce cans.
VOLUME SALES BY BRAND — PEPSI-COLA

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Pepsi Holiday Spice, on shelves for the eight-week holiday season in November and December, was formulated to “mix fun new twists with the best of old traditions.” The package featured nostalgic holiday graphics and the beverage delivered a spicy finish of ginger and cinnamon.
In March of last year, Coca-Cola bowed Sprite ReMix Berryclear, a mixed berry version of the popular Sprite brand that built on the success of 2003’s Sprite ReMix Tropical. “To be true to the spirit of Sprite ReMix, we wanted to mix it up again with a new interpretation, and by adding a mixed berry flavor, the ‘remix’ is a crisp, refreshing new way for people to enjoy the great taste of Sprite,” said Brad Gruen, Sprite ReMix brand manager, Coca-Cola North America of the release.
Sprite ReMix Berryclear hit shelves in stores across the country in April last year in clear 20-ounce bottles, 12-ounce cans, multi-packs and 1- and 2-liter bottles. Packaging graphics for Sprite ReMix Berryclear feature a new purple and silver-accented treatment of the Tropical ReMix logo.
VOLUM SALES BY BRAND — COCA-COLA

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In October, Dr Pepper announced its plans to rollout Cherry Vanilla Dr Pepper and Diet Cherry Vanilla Dr Pepper. Reminiscent of fountain drinks from the 1950s, Cherry Vanilla Dr Pepper is the first offering in the company’s new Fountain Classics line, the company said.
VOLUME SALES BY BRAND — Cadbury Schweppes Americas Beverages

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Cherry Vanilla Dr Pepper is packaged in 12-packs of 12-ounce cans and 20-ounce single-serve bottles. Additional packaging, including a special 21-ounce “football” bottle, with a surface resembling the texture of a football, will be available in certain areas.
The business wire
As far as financial results go, PepsiCo enjoyed a profitable 2004, finishing the year with a strong fourth-quarter performance across all its business segments. PBNA, PepsiCo’s North American beverage division, saw total volumes grow 2 percent and 3 percent for the quarter and full year, respectively. Carbonated soft drink volume grew almost 1 percent, behind strong innovation and despite lapping the launch of Pepsi Vanilla in 2003.
In a statement issued by the company, the beverage segment’s growth was widely attributed to new product innovations. “The quarter benefited from the introduction of two ‘limited-time-only’ offerings: grape-infused Mountain Dew Pitch Black for Halloween and Pepsi Spice for the year-end holiday season; and sales of Pepsi Edge, a mid-calorie cola with full-cola taste that was launched in the third quarter,” the statement said.
Cadbury Schweppes benefited from cost-cutting measures and improved sales of U.S. beverages last year. The company reported a 44 percent increase in second-half profits, and has said future sales increases can be expected in its diet offerings. Diet soft drinks represent 24 percent of sales for the company.
But the news was not as bright for Coca-Cola. The company’s chairman and chief executive officer, Douglas Daft, decided to step down last February. Then in June, the company’s president and chief operating officer Steven Heyer also left the company, reportedly after he was overlooked to fill Daft’s position. Heyer was assumed to be the most likely replacement for Daft, however Heyer announced his decision to leave the company after Neville Isdell was announced as Daft’s replacement last May.
Despite Coke’s upper echelon management shuffle and the lackluster consumer response to some of its 2004 beverages launches, analysts believe Coke is resilient and poised for recovery. The consensus is that if manufacturers, led by Coke and Pepsi, continue to offer new drinks their consumers are demanding, the carbonated beverage segment should bubble back into the black in no time.
A ‘natural’ debate
Splenda is marketed by Fort Washington, Pa.-based McNeil Nutritionals as a no-calorie sweetener that is “made from sugar so it tastes like sugar” and whether it is sold for table use or incorporated into prepared foods and beverages, America can’t seem to get enough of the stuff.
But last November, Merisant, a U.S. maker of Equal and NutraSweet tabletop sweeteners and a competitor to Splenda, voiced opposition to Splenda’s “natural” origin claim. Then early this year, a group of consumer, agriculture and health organizations, in concert with a nationwide network of sugar cane and sugar beet growers, participated in a news conference to refute advertising claims and marketing practices of Splenda. The group argues the marketing of Splenda is confusing consumers into believing that Splenda contains real, all-natural sugar. Merisant soon followed with a lawsuit.
It wasn’t long before McNeil shot back, filing its own lawsuit. McNeil contends that The Sugar Association and other defendants have knowingly and intentionally made false and “baseless” claims about Splenda that are designed to injure the product’s reputation and goodwill.
An interesting backdrop to the litigation is the fact that Splenda manufacturers are facing a sucralose shortage in 2005. It seems the sweetener caught on so quickly, demand outpaced supply. London-based sucralose manufacturer, Tate & Lyle plc, said it wouldn’t be able to accommodate new customers until 2006.
The shortage and subsequent price increase hasn’t fazed Coca-Cola or Pepsi-Cola. Coca-Cola believes so strongly in the brand appeal of Splenda that new Diet Coke with Splenda is poised to launch this spring, and PepsiCo recently announced plans to reformulate its Pepsi One single-calorie beverage with the sweetener.
Foreign affairs: new flavors are driving carbonated beverage growth abroad
Consumers in the United Kingdom are demanding new styles of carbonated drinks, according to Leatherhead Food International’s Product Sight database, which tracks new product launches. During 2003 and the first six months of 2004, almost 65 percent of all new product launches in the carbonated sector were in the fruit carbonates sub-sector, with activity lower in areas such as colas and mixers. Some of the more significant developments have been flavor innovations, especially within the cola market.
During 2003 and 2004, both Coca-Cola and Princes Soft Drinks launched vanilla colas abroad. Another hit among consumers has been sour-flavored soft drinks. Examples include an Apple Splash variety of the Fanta brand, launched at the start of 2004, as well as the Virgin Sours soft drinks from Princes. The U.K. market has also witnessed the arrival of Qibla Cola, which was set up by a team of Muslim entrepreneurs, and Mecca Cola, from a French company with a similar background.
Other interesting launches in the included AG Barr’s Tizer ItzRed range, comprising ItzRed But Tastes Green, ItzRed But Tastes Orange and ItzRed But Tastes Purple variants. These drinks, which appeared during April 2004, toyed with consumers’ perception that linked color and flavor. In the premium adult carbonates market, Merrydown launched a few limited-edition variants of its Shloer drink: White Grape, Rhubarb & Ginger and Apple & Cinnamon. And in the health arena, Belvoir Fruit Farms capitalized on the growing penchant for organic with the introduction of Organic Fizz, organic carbonated fruit drinks.
Other unusual carbonated beverage flavors launched outside the United States in 2004:
• Thailand: Sprite Ice, the traditional lemon-lime beverage with a wintermint kick.
• Canada: 7 UP Citrus Splash, a grapefruit flavored version of classic 7 UP.
• France: Pepsi-X, an energy cola formulated with extra caffeine and extracts of guarana.
• Japan: Fanta Japanese Melon, a hot pink soda targeted to fashion-forward teens.
• Thailand: Fanta Mango Magenta, a boldly colored and boldly flavored Fanta.

VOLUME SALES BY VARIETY — PRIVATE LABEL