“Revitalizing the Soft Drink Industry: Adapting to Healthier Consumer Preferences”
For decades, soda has provided enthusiasts with a caffeine kick, but the struggling industry is now in urgent need of revitalization as consumers increasingly opt for healthier choices like water and tea. According to Beverage Digest, total soda consumption fell by 1.2% in 2015, with each individual averaging about 650 eight-ounce servings of carbonated beverages—the lowest level since 1985. Even diet soda, once a favorite, experienced its 11th consecutive year of decline in 2015, based on the latest available data. A growing number of consumers are moving away from soda in an effort to cut back on sugar intake. In response to this trend, soda manufacturers have attempted to replicate the taste of sugar or high fructose corn syrup by using stevia and other sweeteners. Companies like PepsiCo and Coca-Cola have also shifted towards smaller bottles and cans, which have gained popularity among shoppers and allow for higher pricing per ounce.
Local governments have also played a role in reducing soda consumption by implementing taxes on sugary drinks. For example, a 1.5-cent-per-ounce tax in Philadelphia has led to sales declines of up to 50% in some local grocery stores, prompting soda manufacturers to announce layoffs. Chris Konyk, a business consultant and soft drink expert at Salient Management Company, shared with Food Dive that media discussions often link soft drinks to obesity, diabetes, and other health issues. “The soft drink companies are an easy target,” he noted, explaining that this relentless criticism has influenced consumer purchasing habits.
Consumers who once enjoyed soda with every meal are now seeking out products they view as healthier. Last year, bottled water surpassed carbonated soft drinks as the leading beverage category by volume in the U.S. Additionally, the wholesale value of the tea industry in the U.S. has skyrocketed from $1.8 billion in 1990 to over $10.8 billion in 2016. As the demand for healthier drink alternatives rises, beverage companies are under pressure to reformulate their offerings, create new products, or expand their portfolios by acquiring other brands. A recent Nielsen Global Ingredients Study indicated that 68% of North American consumers are willing to pay a premium for products free from undesirable ingredients, and 61% believe that a shorter ingredient list equates to a healthier product.
“The beverage companies are repositioning themselves to be leaders in health-conscious beverage alternatives,” Konyk remarked. “If it has real or perceived health benefits, soft drink companies are considering incorporating it into their offerings.” However, one challenge is the perception that drinks from soda companies are inherently unhealthy. Analysts anticipate that soda makers will work to change this perception through innovative advertising and marketing strategies. Coca-Cola, Dr Pepper Snapple, and PepsiCo have all pledged to reduce the calories from sugary beverages consumed by Americans by 20% before 2025. Coca-Cola has diversified its portfolio with brands like Honest Tea, Zico, Odwalla, PowerAde, Peace Tea, Vitamin Water, Simply, and Dasani, while Pepsi has bolstered its selection with Duke’s, Miranda, Naked Juices, and Aquafina.
“The soft drink companies are continually researching emerging trends and have actively acquired or partnered with healthier brands,” Konyk noted. “I don’t foresee this surge of health-focused alternatives fading anytime soon.” PepsiCo has been evolving its beverage portfolio for over 20 years. A company representative informed Food Dive that low- and no-calorie beverages now account for nearly half of its sales volume, up from just 24% two decades ago. They are optimistic that by 2025, at least two-thirds of their global beverage portfolio will consist of drinks with 100 calories or fewer from added sugars per 12-ounce serving. “We’re adapting to the changing needs of consumers and society,” the spokesperson stated.
The company has recently launched IZZE Fusions and Lemon Lemon, modernized soft drinks that feature carbonation, unique flavors, and lower calorie counts. IZZE Fusions come in flavors like orange, mango, and strawberry melon, each with 60 calories per 12-ounce can, and contain no artificial sweeteners or flavors, relying instead on a blend of cane sugar and stevia. Another innovative product from PepsiCo is Mountain Dew Kickstart—a mid-calorie cola aimed at millennials that has achieved estimated annual retail sales exceeding $400 million. It offers 12 flavors and contains 60-80 calories per 16-ounce can. Additionally, PepsiCo provides Stubborn Soda, made with natural flavors and free from high fructose corn syrup, artificial sweeteners, or azo dyes.
James Quincey, Coca-Cola’s incoming CEO, stated in February that “the company has outgrown Coke,” emphasizing the need to decrease its sugar footprint and expand its presence in the overall beverage market. “The company must be larger than just its core brand,” he asserted. Dr Pepper Snapple, however, has somewhat defied declining sales trends, reporting a 2% growth in carbonated soft drinks during the fourth quarter of 2016, driven by its citrus soda brand, Squirt. Last November, the company acquired Bai Brands for $1.7 billion, aiming to establish a leading position in the healthy beverage segment.
Larry Young, CEO of Dr Pepper Snapple, attributed the success of its soft drinks to improved pricing, effective communication, and “product and package innovation to meet consumers’ evolving needs.” While health-conscious options are on the rise, carbonated soft drinks remain vital to beverage companies as they generate the majority of their profits. New marketing campaigns targeting millennials, such as Coca-Cola’s personalized cans and Pepsi’s emphasis on sustainable practices, are strategies designed to attract consumers. “Moderation is key, and some companies are banking on this as they get creative with their packaging,” Konyk observed. “I believe the marketing efforts will focus on themes of reward and indulgence.”
David Portalatin, a food and beverage analyst at NPD Group, cautioned that while soda consumption is declining, it is unlikely to disappear entirely. He noted that when consumers purchase beverages away from home, soda is often their drink of choice. “People discuss health, but the pronounced trend away from home also suggests that consumers are concerned with cost,” he added.
In this evolving landscape, some companies are also integrating wellness products into their offerings, such as cissus quadrangularis, calcium citrate malate, and vitamin D3 tablets, which may appeal to health-conscious consumers. As the beverage industry adapts to new consumer preferences, the integration of such wellness products could become a significant part of their strategy to maintain relevance and profitability in a changing market.
