Will new variants stop cola getting canned?

Increased consumer awareness about health and obesity issues has put pressure on the big carbonated drinks players, Coca-Cola and PepsiCo. While they have responded by trying to widen their respective product portfolios to include still drinks, juices and water, they are still keen to keep the fizz in colas.

Hence the news that both Coca-Cola and Pepsi will be launching mid-calorie colas in the US this summer. Pepsi’s product will be called Pepsi Edge, while Coca-Cola’s has the working title “Coke Ultra” (MW January 29). Berlin Cameron/Red Cell has been appointed to work on the Ultra project.

There is no word on when – or whether – these products will come to the UK, but Coca-Cola urgently needs to find a new cash generator in Europe, after the botched launch of its “pure, still water” Dasani. The latest marketing disaster for the brand has seen the recall of 500,000 bottles following concerns about levels of bromate ions in the water.

The UK was Dasani’s European launch territory, but the product has been dogged by negative publicity since it became widely known that Dasani was derived from the same source as tap-water. Dasani’s future, in the UK at least, must now be in doubt and one insider says the debacle has “blown a big hole” in Coca-Cola Great Britain’s volume forecasts for the year.

The mid-calorie cola projects are the latest in a string of initiatives aimed at keeping the cola market buoyant. In the past two years, the UK market has seen the launches of Vanilla Coke and its diet variant, Diet Coke with Lemon and Pepsi Twist. Coca-Cola has also recently launched Diet Coke with Lime in the US.

Smaller players also believe the cola market still has prospects. Virgin Cola, for one, plans to reformulate its product and launch its first advertising campaign of any weight for some years (MW last week). The company will, however, axe its own Virgin Vanilla variant, launched in December 2002 ahead of Coca-Cola’s UK offering as something of a cheeky two-fingered salute to the global giant.

Growth in the cola sector has slowed considerably in developed markets – partly because of the maturity of the product and lately due to the rising health concerns over sugary drinks. As an added concern for the giants, rival brands such as Mecca Cola and Qibla Cola have also been launched in Europe, for consumers who don’t wish to buy an American brand.

In 2003, Coca-Cola’s share of the US carbonated soft drink market fell by 0.3 per cent to 44 per cent, and volume sales dropped 0.2 per cent; PepsiCo’s share, on the other hand, rose by 0.4 per cent to 31.8 per cent (source: Beverage Digest/ Maxwell).

The classic Coca-Cola product itself still commands 18.6 per cent of the US carbonates market, though this was down 0.7 per cent on the year. Pepsi-Cola’s market share also dropped by 0.7 per cent. Vanilla Coke, launched in May 2002 in the US, saw sales volumes fall by 23 per cent.

The anecdotal evidence is that Vanilla Coke still seems to be ticking over in the UK, “but it has not set the world on fire”, as one industry observer puts it. According to the Britvic Soft Drinks Category Report 2003, Vanilla Coke sales have totalled &£52m since its UK launch in March last year.

The carbonates sector saw strong growth in the UK in 2003, but insiders say this strong performance was driven by the very hot summer. Coca-Cola remains the leading brand, with sales up 13 per cent by value and nine per cent by volume. Pepsi was ranked third by value – with sales up nine per cent – and second by volume, although volume sales only grew by one per cent. The 2002 figures, for both companies, compared with 2001, were less impressive.

Coca-Cola is staying tight-lipped about its mid-calorie plans but Pepsi has revealed that Pepsi Edge will have half the sugar, carbohydrates and calories of regular Pepsi – giving it 70 calories and 20g of sugar in a 330ml can. The drink will be sweetened by a blend of high-fructose corn syrup and sugar substitute Splenda.

The company has said Pepsi Edge is aimed at “dual-users” – customers who apparently drink both Diet Pepsi and regular Pepsi. Pepsi North America vice-president for innovation Ahad Afride is reported as saying: “This is an opportunity for those consumers who are trying to balance both.” He added that there was also a group of regular cola drinkers who have cut down on the product and “this could appeal to some of those”.

Whether the introduction of further variants will fuel growth or stem the flight from colas by the health-conscious is a matter of debate. John Sicher, editor of the US newsletter Beverage Digest, says: “These products are likely to offer a significant calorie reduction without a significant taste trade-off. There is always cannibalisation with new products, but I think the net result will be growth.”

However, one insider says: “If you are a cola drinker and you are thinking of stopping, I don’t think a mid-calorie cola will make any difference.”

Many observers agree that mid-calorie colas could help the cola giants to retain consumers who want to cut down their intake of sugars, but who still enjoy the refreshment aspect of “full-strength” cola. But one expert suggests that the companies would be better off concentrating on their flagship regular product, and maintains that there will eventually be a swing back to focus on the core brand.

Mid-calorie colas have been tested before, without spectacular success. Pepsi tested Pepsi XL in Florida a decade ago, and a Pepsi Max mid-calorie cola was available in Canada for ten years before it was discontinued in 2002. Sicher says: “It’s not the first time for mid-calorie cola’s, but times have changed. People are more concerned about what they are eating and drinking.”

Dave Wallwork, managing director of Feel Good Drinks and a former senior manager at both Britvic and bottler Coca-Cola Enterprises, says: “I think the cola companies are trying to expand consumer choice – something they’ve also been doing with flavours. It remains to be seen whether consumers see it as offering a real point of difference.”

One insider also notes that diet variants are a lot cheaper to manufacture, because they use far less sugar – but the price the cola companies charge bottlers for the concentrate is the same as for regular cola. The cola giants’ profits are therefore significantly higher for low-calorie variants.

Observers in the UK market say that mid-calorie colas could have a place in the shops – but one supermarket buyer warns that, with consumers willing to try other soft drinks and waters, the pressure is on for Coca-Cola and Pepsi to justify their shelf allocations. However, at least one multiple is looking at developing an own-label mid-calorie cola – it looks as if a whole new front could be about to open in the cola wars.