Diet soda in a funk says Wells Fargo: ‘PepsiCo will be forced to do something soon to stop the share and volume losses’

By Elaine WATSON

- Last updated on GMT

Dollar sales of PepsiCo's low/zero calorie carbonated soft drinks plummeted 11% in the four weeks to Sept 28 according to Nielsen xAOC data
Dollar sales of PepsiCo's low/zero calorie carbonated soft drinks plummeted 11% in the four weeks to Sept 28 according to Nielsen xAOC data

Related tags: Dr pepper snapple, Soft drink, Dr pepper snapple group

Dollar sales of low/zero calorie carbonated soft drinks (CSDs) plunged 8.6% in the four weeks to Sept 28, according to the latest Nielsen xAOC* data, which shows the diet soda market remains stuck in a rut.

The worst performer was PepsiCo, with dollar sales of its low/zero calorie CSDs plummeting 11%, compared with a 6.8% slump at Coca-Cola and an 8% decline from Dr Pepper Snapple (DPS) Group, said Wells Fargo senior analyst Bonnie Herzog.

The diet carbonated soft drink category's downward spiral accelerates.”

By comparison, dollar sales of regular soda were down a more modest 1.7%, with stronger sales from Coca-Cola (dollar sales +2%, unit sales +7.3% suggesting heavy discounting), offsetting weaker sales from PepsiCo (dollar sales -3.2%, unit sales -2.4%).

Carbonated soft drinks an increasing drag on PepsiCo’s performance; Coke buying volume with discounts

Carbonated soft drinks in general are continuing to drag down PepsiCo’s performance, added Herzog: “PepsiCo will be forced to do something soon to stop the share and volume losses before it's too late.”

Meanwhile, Coca-Cola has “become increasingly aggressive with its pricing in an effort to recover volumes and take share, both of which have occurred”, ​she said. “But at what cost​?”  

“While we think Coca-Cola’s pricing-driven volume/share gains could be quite shrewd in the near term, we continue to hope it's short-lived, as over the long term it could upset the overall health of the industry profit pool.”

Retailers are beginning to drop Dr Pepper Snapple Group’s TEN brands due to weak performance

Finally, the numbers from DPS’s TEN calorie platform, which has recently been extended from Dr Pepper to 7UP, Sunkist, A&W, Canada Dry and RC Cola, did not auger well for the future of the TEN concept, said Herzog.

“Dr Pepper TEN continues to worsen, while the overall TEN platform posted its sixth consecutive month of sales declines, as we believe… retailers are beginning to drop the brands due to weak performance.

Dr-Pepper-TEN
Bonnie Herzog: 'Retailers are beginning to drop the Dr Pepper TEN brands due to weak performance'

“As trends have worsened for the overall carbonated soft drinks category, we have become increasingly cautious about DPS in general, and increasingly concerned about the inability of TEN to become a meaningful offset to otherwise declining carbonated soft drinks trends.”

A spokesman for Dr Pepper Snapple Group told FoodNavigator-USA that it was unable to comment as it is in a quiet period ahead of the release of its Q3 earnings on October 23.

However, he referred us to comments made by CEO Larry Young in the firm's latest earnings call (July 24), in which he said "all of the numbers we're seeing are ahead of where we thought we would be".

He added: "Our trial and our repeat are at the numbers of the high end we wanted to see hit. So we still feel pretty confident. We've already spent $23m on TEN and we're starting to see the benefits come from it.

"We're seeing 51% of the people buying it had left CSDs or not been a user before, so we'll stay very focused on being a part of improving the CSD category."

*​Nielsen’s xAOC (extended All Outlet Coverage) data includes food, drug, mass merchandise, Walmart, dollar, military and club stores, but excludes c-stores.  

sofia_vergara_diet_pepsi
Speaking on PepsiCo’s latest quarterly earnings call, CEO Indra Nooyi said: "The fact remains the beverage category in the US has its challenges, especially carbonated soft drinks… We will continue to invest in breakthrough innovation and new technologies that have the potential to reframe the beverage category by removing some of the compromises that consumers face with regard to calories and ingredients. In addition, we're also exploring every possible alternative, including structural alternatives, to further improve our margins and returns in this business.”

Related topics: Markets, Beverage

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