Energy drinks on fire, but diet soda still in a funk, says Wells Fargo as Coke and Pepsi battle to 'reinvent' cola
According to Nielsen Scantrack data (enhanced AOC*) dollar sales of diet/low-calorie carbonated soft drinks (CSDs) dipped 5.8% at Coca-Cola, 6.9% at PepsiCo and 9.6% at Dr Pepper Snapple Group over the four-week period, while their regular CSD sales were up 2.3%, 1.7% and 0.3% respectively.
But the energy category is still on fire, with Monster’s dollar sales up 14.1%, Red Bull up 6.3% and Rockstar up 5.7%.
Dr Pepper ‘lagging its underperforming peers’
So what can we learn from the latest figures?
Wells Fargo Securities senior analyst Bonnie Herzog said the data showed continued downward pressure on diet soda, with Dr Pepper suffering the most.
"Bottom line: DPS’s performance this period lagged its underperforming peers, with volume and value share declines across the majority of its portfolio. We expect Q1 earnings may come under pressure as a result.”
Coke, meanwhile, has gained share, quite likely by “using aggressive pricing to meet optimistic quarterly volume forecasts”, she said.
PepsiCo: We haven’t given up on carbonated soft drinks
So what are the sector's big guns doing to address the cola category funk?
Speaking on PepsiCo’s Q4 earnings call last month, CEO Indra Nooyi said the cola market was undergoing a “secular change” and that PepsiCo’s response was to “reinvent it with technology” rather than accepting it was in terminal decline.
She added: “We have several great tasting cola product variations using zero calorie natural sweeteners blended with sugar that we’re testing in various markets in the world. And so far, these test results are promising."
PepsiCo has also been working with flavor expert Senomyx to develop beverages containing a sweet taste modifier (a flavor with the working title of Sweetmyx S617 - which has just been deemed GRAS by FEMA's expert panel) that can enable significant reductions of high fructose corn syrup and sucrose in carbonated soft drinks.
Stevia-sweetened Coca-Cola Life ‘has shown great promise in bringing people back into the category’
Asked about "softer Diet Coke volumes" on Coca-Cola’s latest earnings call, meanwhile, CEO Muhtar Kent said bosses had “implemented a multi-faceted approach to address category headwinds and the various misperceptions that fuel them”.
This is "targeting both obesity and ingredient concerns and increase aggressive sweetener innovation, transparent consumer communications, continued packaging evolution and new partnerships with credible third parties around the world who will use meaningful facts to defend and protect the sparkling category", he said.
Meanwhile, stevia-sweetened Coca-Cola Life - which is available in Chile and Argentina and has 50% less sugar than regular Coke - “has shown great promise in bringing people back into the category”, he claimed, but would not reveal whether it will be introduced to the US market any time soon.