Americans just aren’t as interested in soda as they used to be — and that’s a big problem for the largest cola manufacturer on the planet.
Sales of fizzy carbonated cola beverages have been declining for much of the past 10 years as consumers ditch caramel-colored, calorie-packing, high fructose corn syrup-laden drinks in favor of water, milk and tea.
The trend has hit every carbonated beverage manufacturer in the United States, including the two big ones: Coca-Cola and PepsiCo. While the latter has snack foods to fall back on amid declining cola sales (PepsiCo owns potato chip giant Frito-Lay), beverages are all Coca-Cola’s got, and recent health trends are proving to be a problem for the company’s bottom line.
A new article in last week’s Bloomberg Businessweek explains the two biggest reasons why Americans are ditching Coke. To start, Coke is just one out of thousands of choices Americans have among beverages — the company competes with Pepsi, Dr. Pepper, Snapple, Monster Energy and Red Bull for consumers, and that competition is only expected to grow. Short of buying up the competition, there’s not much Coke can do to thwart off competing products (its tried).
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But the second reason is, perhaps, the most obvious: Waistlines are getting bigger, and many are pointing the finger at soda.
“The soda production industry has been negatively impacted by growing health concerns and the pervasiveness of diet-related diseases like diabetes,” IBISWorld published in a report last November. “Consequently, many consumers have begun to substitute soda for healthier beverages, such as flavored bottled water and sports drinks, while some have eliminated soda from their diets altogether.”
This trend was not unanticipated by Coke: It began buying up alternative beverages companies around the turn of the millennium when soda consumption began to level out. In 2001, the company acquired Odwalla, then a startup that manufactured a line of fruit smoothies. The company has since added Glacéau (maker of Smartwater and VitaminWater, acquired in 2007), Fuze (acquired in 2007) Honest Tea (2011) and Zico (2013) — almost all of which retain their original branding so as not to dissuade consumers from purchasing them who might otherwise be discouraged by a Coke label.
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But the acquisitions have done very little to improve Coke’s revenue: While the company anticipated its high-calorie, sugar-laced drinks would be a target by health nuts (former New York Mayor Michael Bloomberg’s war on big sodas, for example), it could not anticipate that some of its other seemingly healthier offering would also fall victim to an increase in nutritional awareness.
Five years ago, a consumer advocacy group slapped the company with a lawsuit over Coke’s marketing of VitaminWater as healthy alternative to cola, even though some flavors of the beverage contained just as much sugar as a can of soda. Diet sodas have also come under fire for containing aspartame, a zero-calorie sweetener that some have linked to averse health effects (although other studies have shown that, in moderation, aspartame is fine). Even Odwalla has been criticized for containing pasteurized ingredients, high levels of sugar and non-organic produce (which is only partially true — Odwalla has at least one USDA-certified organic drink).
Amid the threats of large soda bans and taxes — many of which have fallen flat — classic Coca-Cola remains popular with consumers. They’re just drinking less of it. And Coke thinks this could be key to increasing revenues.
As explained by Businessweek, Coca-Cola executive Sandy Douglas wants a new generation of Americans to enjoy the beverage the way older generations did: As an occasional treat, in a smaller form. He’s pushing for supermarkets (which accounts for roughly 40 percent of soda sales, according to IBISWorld) to swap out the 12-packs and 2-liter bottles in favor of miniature cans that retail for about $0.75. By comparison, a 12-ounce can sold in a 12-pack retails for $0.35.
In theory, if Coke can get enough mini cans moving, it’ll make more money per ounce. According to Businessweek, the experiment seems to be paying off: Mini cans are selling well at large retailers such as Wal-Mart and other companies — notably Pepsi — have started selling mini cans as well. But sales aren’t where they need to be yet for Coke and others to see a reverse in downward consumption, and while the mini cans are selling well, consumers are still overwhelmingly buying the regular cans and 2-liter bottles (according to Businessweek, big cans and bottles account for 75 percent of Coke’s purchases).
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The reason? Old habits are hard to break, Douglas concedes. Though he, himself, only drinks one 8-ounce Coke a day, consumers are not so apt to change.
“You’ve got lots of history, lots of habits, and lots of retailers who think that all that matters is a 12-pack or a 2-liter price,” Douglas told the magazine.
That’s true for another Coca-Cola sales experiment: Asking restaurants to serve less of the fizzy stuff. A former Coca-Cola employee told Businessweek that restaurants are pushing back from the idea because they make a ton of money off cola sales. McDonald’s, for example, began offering large soft drinks for $1 during a limited promotion several years ago as a way to entice consumers to drop more money on food items. The gimmick worked, and now many of McDonald’s locations offer any-sized sodas for $1 year-round.
Coca-Cola’s key to generating new sales may have less to do with how consumers buy at restaurants and stores and more with what they do in the kitchen.
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Two years ago, a former Coca-Cola executive discovered that coffee company Keurig had been quietly working on a system that would allow consumers to make single-servings of cold soda at home. Once word of the machine reached Coca-Cola, the company invested 16 percent in Keurig and formed a partnership to develop the device along with Coke-branded products.
Keurig’s cold beverage machine is expected to debut within the next year. It’s anyone’s guess if the machine will help Coca-Cola increase its sales, but it’s a gamble the company feels it has to make.
