The Coca-Cola Company (NYSE:KO) announced its intention of rolling out a new drink named Coca-Cola Life, which will use a combination of sugar and Stevia to lower calorie count and make soda healthier.
Coke’s move follows concerns that the traditional drinks business may be fizzing out. PepsiCo, Inc. (NYSE:PEP) has released Pepsi Next and Pepsi Max in an attempt to bring back customers who want health alongside their bubbly soda.
What’s wrong in the soda business
U.S. soda consumption is in what some are calling a secular decline. In 2012, Americans drank less soda than the year before, cutting back by 1.2% from the previous year. Soda consumption has dropped for eight straight years, and rests now at the lowest level since 1987, according to CNBC.
The few growth markets are difficult to tap. Bottled water and energy drinks, like those produced by publicly-traded Monster Beverage Corp (NASDAQ:MNST), are the fastest growing drinks in the developed world. The Coca-Cola Company (NYSE:KO) was rumored to have an interest in acquiring Monster to grab its impressive, double-digit growth, though no acquisition ever came through. As Monster grows, the synergies and cost savings from a large acquisition are slowly eroded. It now appears that Monster will remain its own brand throughout its growth phase.
That leads Coca-Cola to turn to a new market. The company believes that a The Coca-Cola Company (NYSE:KO) Life product, which will have fewer calories but offer the sweetness of Coca-Cola, will bring back customers who are running to soda alternatives. The cola will replicate a popular choice at self-service machines: a mix of diet and regular to get the taste consumers want without the calories they don’t.
It’s much better to keep your existing customers than find new markets. Industry analysts believe that once consumers make the switch from sodas to alternatives, they rarely, if ever, come back. That explains why The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) have expanded into new bottled waters, fruit drinks, and non-carbonated supplement waters like Vitamin Water.
If the soda duopoly loses soda consumers, then the two major players should have an alternative to keep them customers of their brand.
Should Coca-Cola and PepsiCo fear losing customers for life?
Not exactly.
What The Coca-Cola Company (NYSE:KO) and Pepsi have is a duopoly on distribution. The two rivals have their own stable of soft drinks and bottled beverages which you can find on every supermarket shelf, in every restaurant, and in vending stores in millions of buildings around the world. They have the market in their firm grasp.
The only challenger to the duopoly in distribution is fast-growing Sodastream International Ltd (NASDAQ:SODA), which sells soda-making devices and flavor cartridges to make fresh soda at your home or in the office. SodaStream still lacks the widespread distribution of Coca-Cola and Pepsi products, but it does have an added health advantage: you can make your soda as flavorful and as healthy as you want with one of its countertop devices.
