The carbonated beverage segment faced one of the most challenging years in 2004 than any other time in the past decade. Negative press linked soft drink consumption to obesity and carb-conscious dieters shunned the category in favor of sugar-free alternatives. As a result, all retail channels (with the exception of convenience stores) watched soda sales decline. In an attempt to revive the slumping segment, soft drink beverage manufacturers revitalized their lines with new flavor additions and additional diet products.

One of the biggest trends in 2004 was the effort to deal with carb-counting dieters. In March, Pepsi announced the 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, Coca-Cola 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.

But mid-calorie products did not prove successful with consumers, and Pepsi announced this May that it will discontinue Pepsi Edge by the end of the year. Pepsi Edge sold 8.6 million cases during the six months it was on the market in 2004. For its part, Coca-Cola is holding onto C2 even though it hasn’t had a strong start. U.S. sales totaled 25 million cases during its six months on the market in 2004, which is far lower than the comparable introduction of Vanilla Coke, which sold 90 million cases during its first partial year on the market in 2002.

More recently, Pepsi reformulated its one-calorie Pepsi One with Splenda, and Coca-Cola introduced Coca-Cola Zero, a new zero-calorie cola. Coca-Cola Zero is sweetened with a blend of aspartame and acesulfame potassium (ace-k).

Cadbury Schweppes Americas Beverages also launched new offerings to broaden the choice for dieters wary of sugar. In August, Cadbury Schweppes launched 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.

Coca-Cola took a cue from the success of its Diet Coke with Lemon and added another dash of citrus flavor with the debut of Diet Coke with Lime. Coke with Lime followed earlier this year. Not to be outdone, PepsiCo also launched its own lime varieties – Pepsi Lime and Diet Pepsi Lime.

In February, Coca-Cola announced a seventh addition to its Diet Coke stable: Diet Coke Sweetened with Splenda, which actually features a blend of Splenda and ace-k. On the Pepsi side, Diet Sierra Mist underwent a name change last year. The “shockingly refreshing” lemon-lime taste and formula are the same, but in an effort to help consumers identify it as a soft drink free of sugar, calories, carbs and caffeine, the beverage is now called Sierra Mist Free.

Success in the soft drink category can be attributed to new flavor introductions such as vanilla and cherry varieties and lemon and lime flavors. Euromonitor International reports that in the United States, vanilla was the second most popular cola flavor in 2004 with a 2.6 percent volume share.

Cadbury Schweppes added to this trend in January by rolling out Cherry Vanilla Dr Pepper in regular and diet versions nationwide. The launch in 26 markets featured hundreds of roller-skating carhops passing out samples of the new drinks. 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 says.

Sparking its own nostalgic buzz, Big Red Ltd., Waco, Texas, launched Big Red Vanilla Float this spring. With a higher vanilla content than regular Big Red, Vanilla Float debuted in the company’s strongest markets, offering the vanilla flavor to loyal Big Red drinkers.

Last year also seemed to be 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.

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. Mountain Dew Pitch Black was formulated to capitalize on the lead-up to Halloween with spooky package graphics and in-store displays.

Pepsi Holiday Spice, on shelves for the eight-week holiday season in November and December, was created 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.

 As far as financial results go, PepsiCo enjoyed a profitable first quarter 2005. PBNA, PepsiCo’s North American beverage division, saw total volumes grow 1.5 percent in the quarter, with the division’s non-carbonated beverage portfolio increasing 8 percent and carbonated soft drinks declining 1 percent. PBNA lapped one of its stronger volume growth quarters of 2004, when volumes were up 5 percent.

Within carbonated soft drinks, low single-digit volume growth in Sierra Mist was more than offset by a low single-digit decline in Pepsi. Mountain Dew volume was roughly flat to prior year. Diet CSDs continued to perform well, with volume growth in the mid-single digits.

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 in ‘04. Despite an upper echelon management shuffle and lackluster consumer response to some of its 2004 beverage launches, analysts believe Coca-Cola is resilient and poised for recovery. BI