PepsiCo sees NEXT move as means to strike back at Coca-Cola, analyst

By Ben Bouckley

- Last updated on GMT

Related tags: Coca-cola, Pepsico

PepsiCo sees NEXT move as means to strike back at Coca-Cola, analyst
PepsiCo is aiming strike back at Coca-Cola with it mid-calorie ‘NEXT’ cola launch at the end of March, after the latter’s Diet Coke brand pulled ahead of Pepsi-Cola in 2010, but the move carries risks, according to a Datamonitor analyst.

Following trials in Iowa and Wisconsin last year, Pepsi is planning a US-wide launch of NEXT (60 calories per 12oz can, a 60% reduction on regular Pepsi) from the end of March, onto a mid-calorie soda battlefield where it has foundered before.

Pepsi Edge was launched in 2004 but withdrawn in 2005, while Coca-Cola C2 was introduced in the same year but discontinued in 2007, due to similar US consumer disinterest in a mid-calorie soda.

PepsiCo has been curiously quiet about NEXT thus far, but during a recent earnings call, following the firm's full-year 2011 and fourth quarter (Q4) results, Albert Carey, chief executive officer of PepsiCo Americas Beverages, described Pepsi Next as a “mid-type of innovation”.

Where Edge failed, PepsiCo believes that NEXT – with its new flavouring system, using Acesulfame K, aspartame, sucralose and high fructose corn syrup (HFCS) – can succeed.

Carey said: “Pepsi Next will have 60% less calories than a normal Pepsi…and I think you’ll find it tastes exactly like a regular Pepsi. I’m a regular Pepsi drinker, and it really is the same. We’ve made substantial progress on that product.”

Winning back soda drinkers

PepsiCo told the Associated Press (AP) that it aimed to win back soda drinkers who had turned away from the category, because they disliked the calorie count in regular soda and the taste of zero-calorie diet drinks.

We asked Joseph Robinson, analyst at Datamonitor’s consumer business unit, why PepsiCo thought NEXT could succeed where Edge failed?

He said: “This product will seek to replicate the full-calorie product taste, and we can assume that they are taking the success of Trop50 and Gatorade G2 as a sign that the market is perhaps ready for such a mid-calorie launch.”

Consumers are increasingly exiting the soda category altogether, in favour of low-calorie beverages and waters, and PepsiCo’s new attempt mid-calorie proposition (between diet and regular soda) follows Dr Pepper Snapple's initial success with Dr Pepper Ten, which was launched late last year.

So did Robinson also believe that PepsiCo saw this launch as a chance to steal a march on Coca-Cola in terms of creating a new segment? “Definitely. The success of Dr Pepper 10 is quite recent, and of course Pepsi will have planned it long before that, but I’m sure it was a factor that encouraged them to extend this beyond the initial trial.”

Cannabalisation risk?

Yet if the launch was a success – precisely due to NEXT matching Pepsi-Cola for taste – could it cannabalise regular Pepsi sales? “Inevitably there is that possibility, but Pepsi sees potential here to bring consumers back into the category, away from healthier soft drinks and those who have left the category altogether,” ​Robinson said.

But he warned that mid-calorie sodas could be a tougher sell for PepsiCo than Trop 50 or Gatorade G2, since it didn’t have marketing benefits of these products in nutritional terms.

The latest 2010 statistics from Beverage Digest report that carbonated soft drinks (CSD) US volume sales last grew in 2006.

Coca-Cola held a 42% US market share in 2010, against PepsiCo’s 29.3%, but while Coke posted a small gain over 2009, PepsiCo lost ground by 0.6%.

2010 was the year when Diet Coke overtook Pepsi-Cola as the second-largest brand (9.9%) after Coke (17%), with Pepsi-Cola down from 9.9% (2009) to 9.5%

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