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Coke's New "New Coke"

When Coca-Cola (NYSE: KO  ) introduced its New Coke in 1985, it badly misread consumer loyalty to the original. Archrival PepsiCo (NYSE: PEP  ) was able to capitalize on the marketing blunder and steal market share, even supplanting Big Red for awhile as the No. 1 soft drink maker.

Could the Real Thing be about to do it all over again?

Coke launched its new low-carb drink, C2, last month amid a bit of fanfare and some bizarre marketing: "1/2 the political, all the party," says one billboard. "1/2 the tax, all the refund," says another. Um, what the heck is it selling?

And more importantly, the company already offers a low-carb drink -- it's called Diet Coke. Diet sodas have zero calories and zero carbs. Unfortunately, many say they pack a powerful aftertaste because of the sweetener, aspartame, used to get the flavor right. Still, Diet Coke is the only one of the top-six-selling soft drinks to gain market share over the past four years.

Coke is in a funk. It's looking to boost its flat stock price, which has been stuck at about $50 a share since the beginning of the year. What better way than to jump on the Atkins bandwagon? Even Pepsi is in on the fun with its low-carb Edge. Both have been losing market share to other drinks, though: Coke about 9%, Pepsi about 12%.

Too bad the carb-eschewing crowd seems to be dwindling. Researcher InsightExpress found that fewer than 10% of Americans are on a low-carb diet, down from 11% just last December. Less than one in five would buy low-carb products because such diets are considered by some medical experts to be unhealthy.

Coke is set to announce second quarter earnings next week, and analysts are forecasting earnings growth north of 10%, or $.63 a share. C2 was introduced too late to have any impact on this quarter's numbers, but it looks like the soda maker is trying to boost profits going forward by pricing the low-carb fizz some 15% higher than Diet Coke. To hide the higher price, Coke will be offering it in odd-sized 8- and 18-packs, instead of the more customary 6- and 12-packs. Outgoing president Steve Heyer has also said C2 will "never" be offered in a 2-liter bottle, a heavily discounted package for bottlers. Hmmm. Didn't he learn never to say never?

Coca-Cola is still among world's best-known brands. It still dominates 44% of its market. Yet chasing the latest fad with a more expensive product that gets mixed reviews on taste is perhaps not the best way to fire up your bottom line. Perhaps the only thing saving Coke from losing market share again is that Pepsi is joining in on the folly.

Coke's new Coke could indeed be its new New Coke.

Fool contributor Rich Duprey watches his carbs by drinking Coors Light. He does not own any of the stocks mentioned in this article.

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10/24/2016 4:00 PM
KO $42.56 Up +0.43 +1.02%
Coca-Cola CAPS Rating: ****
PEP $107.31 Up +1.69 +1.60%
PepsiCo CAPS Rating: ****