Do retailers know best in cola wars?

Do retailers know best in the cola wars?

Asda, Somerfield and The Co-op’s decision to delist Pepsi’s coffee-flavoured cola, Pepsi Max Cino, following a poor performance since its January launch (MW last week), has uncovered a power struggle that is going on between soft drinks manufacturers and the retailers they rely on for sales.

Store owners regularly complain about the “pressure” exerted upon them to promote certain products and give them more space on shelves. Several of them claim they had warned Pepsi beforehand that Cino would not work, but stocked and backed the product anyway.

It comes as no surprise that retailers, who rely on detailed analysis of the performance of every product, in every store, have enough expertise to advise manufacturers on projected sales. But they also complain of the poor level of innovation.

One retail source says: “More work is required of Pepsi, Coca-Cola and the others in terms of innovation within the carbonate sector. Where are the high-juice carbonated products that address the demand for healthier drinks? Products like Orangina tick all the health boxes but there aren’t enough of them. Nobody seems to be taking the obvious opportunities. Instead, they rely on their big brands and produce poor products and redesigns.”

Coca-Cola is rumoured to be revisiting a new product development policy of recent years in the summer of 2007 with the introduction of limited-edition, flavoured carbonates, starting with Orange Coke. Several retailers say they resent such “cheap” attempts at innovation, but are prepared to stock them because they provide an initial boost in carbonate sales, and therefore add value to the category.

Speed things up One says: “Orange Coke sounds pretty bad, but then so did Coke with Lemon. These drinks add short-term value to the category because consumers try them at least once. However, rather than making them available for six months, manufacturers need to get them in and out quicker. Otherwise, we get stuck with piles of the unsold stuff.” The source says Coca-Cola acknowledges the problem.

Another source at a large UK soft drinks company admits the level of innovation is based on cost and simplicity: “The retailers are right in many ways. To produce a high-juice carb would require massive investment over a long period of time, whereas a new fruit-flavoured carbonate simply requires adding a different flavour at the start of the process.”

Nice little earners? But the insider says that while retailers openly object to limited-edition carbonated drinks with ever-stranger flavours, they secretly like them for boosting revenue from increased sales, and from manufacturers’ extra payments for in-store location and bespoke displays.

One retailer responds angrily to such claims, saying: “We agree a financial package for each product, based on its merit. We never have to look for additional activity to support a drink to boost our revenue, as there is always enough choice on offer. Yes, we secure investment from supporting crap products but we’d rather get behind products we think are sound and will add value for the consumer.

“We often find ourselves agreeing to stock poor products, partly to keep relationships strong with our strategic partners, but partly because we have to accept crap if that’s all there is on offer.”

In the declining carbonates category, such disagreements will benefit no one in the long term.