2013 Beverage Report, Part 3: CSDs

Carbonated soft drinks in search of a boost

OAK BROOK, Ill. -- Stagnation.

That's the 2012 story for the carbonated-soft-drink (CSD) category.

"Premium niche categories outperformed traditional categories," Gary Hemphill, senior vice president of information servicesat Beverage Marketing Group in New York, told CSP Daily News. "Broad-based beverages, such as CSDs, milk and fruit beverages, which are consumed by more middle-class and blue-collar consumers with higher levels of unemployment, continue to stagnate."

Beverage Marketing Group data for all retail channels shows CSDs "are on pace to decline for the eighth consecutive year" as aggressive competition comes from other categories, especially bottled water, and consumers are attracted to healthier alternatives.

In c-stores, however, CSDs saw small dollar-sale growth--1.7%--in 2012, while volume was flat, according to SymphonyIRI Group scan data. But in general, it's another lackluster year for one of c-stores' largest categories.

While bottled water threatens to overtake CSDs in terms of overall volume sales, Mel Landis, chief customer officer at Coca-Cola Refreshments, Atlanta, said it is much too soon to play taps for the soda category.

"I think people forget how big of a category it is," he said. "When you have a category this big, this mature, it's not going to grow at double digits. You've got smaller categories like energy and others that are half or a third of the size of [CSDs]; they can do that. This is a big category. If it ekes out 1%, 2% or 3% growth, you're talking about a massive amount of growth.

"We're still really bullish on the category, but it's going to drive into that low single-digit growth rate [going forward]."

Coca-Cola has tackled the problem through new package sizes, downsizing the classic single-serve 20-ounce bottle to 16 ounces and then 12.5 ounces, creating more options for consumers. And there may be more repackaging to come.

"If you look around the globe in the Coke system, the way they've been able to keep the category growing and relevant is through packages," said Landis, noting that in Mexico there are 14 or 15 different package sizes of Coke based on demographics, occasions, consumer choice, etc. "You're seeing a little of that here now as we now do 12.5 ounce at the entry level under a dollar" on up to "1 liter playing the big-size value role.

"We think there's still room to grow within that construct. I don't know if it's a 24 ounce or what [that other option might be], but I think you'll continue to see us diversify packaging."

Meet Me Half Way

Meanwhile, mid-calorie colas have become the newest battleground for the three major CSD manufacturers.

Dr Pepper was the first to hit shelves with Dr Pepper 10 in fall 2011. Success with the 10-calorie drink, created with a combination of sweeteners, has since led to several 10-calorie line extensions, including 7-Up, Sunkist, Canada Dry, RC Cola and A&W Root Beer, rolled out in January.

Pepsico followed suit, introducing Pepsi Next, a 60-calorie version of its namesake cola made with a mixture of sweeteners in early 2012. Pepsico CEO Indra Nooyi has since said she expects to experiment further with the multiple sweeteners now on the market, beginning with Diet Pepsi, which "quietly" changed its sweetener mix ahead of a major rebranding of the soft drink set for the first quarter of 2013, according to various reports. This comes after Pepsi said it would devote more funding to advertising its key brands Pepsi and Diet Pepsi.

Finally, Coca-Cola is testing Fanta Select and Sprite Select in a couple markets. The sugar- and stevia-sweetened sodas promise 70 calories per serving.

"We're going to look at those as ways we may want to go," said Landis. "That's consistent with our health and wellness message. We've got full-calorie, we've got no-calorie, and we've got mid-calorie options. And we want to have all those things."

CSP's complete 2013 Beverage Report.