Dr Pepper Snapple Group (NYSE: DPS ) is the latest beverage biggie to question the role aspartame is playing in its results.The artificial sweetener has taken the fizz out of diet beverage sales as concerns about risks associated with it grow.
In its third-quarter conference call yesterday, the drinks maker said that "misperceptions" about the sweetener are driving consumers away from diet sodas, and because its new Core 4 TEN brands contain healthy dollops of aspartame -- as well as high-fructose corn syrup and acesulfame potassium, or Ace-K, as it's called -- sales have been falling dramatically.
Although net sales rose 1% for the quarter, this was below expectations, and carbonated soft drinks, both regular and diet, saw lower volumes, with diet CSDs experiencing the greater decline. Analysts are skeptical that it's all aspartame's fault when it comes to Dr Pepper's performance, as they also question the value of its Core TEN program, a low, 10-calorie drink portfolio, since the drinks have failed to live up to expectations since their launch despite the beverage maker pouring a lot of money into the effort.
Coke sees the risks, even going so far as to launch ads telling consumers not to fear the sweetener. As I noted at the time, if you have to run an ad to convince your customers it's OK to drink your beverages because they contain a suspect ingredient, it's time to rethink your recipe.
Of the three drink makers, though, analysts see Pepsi as being the most at risk. Beverage Daily recently reported Nielsen data shows all three have suffered a 7% drop in unit sales of diet carbonated drinks so far in 2013, but Pepsi fell victim to the biggest drop of all with sales down more than 8% year over year.
Dr Pepper defends its use of aspartame, saying it "is one of the most tested sweeteners on the market." But whether it's fear-mongering, as advocates contend, or just a growing distrust of lab-created additives in the food chain, regardless of the FDA signing off on its safety, it becomes a matter of fighting a losing battle if you're constantly having to explain why you're using something your customers are against.
Dr Pepper may have been "shocked" at the traction the aspartame issue has gotten, but it does seem to have been a wakeup call, as the company said it's worried enough the uprising may have greater legs still. But it's not so bad yet that it's doing anything right away, only that over the course of the next year the company will be watching.
That might not turn out to be such a sweet option for investors if consumers continue to drive sales down.
One sweet deal
What macro trend was Warren Buffett referring to when he said "this is the tapeworm that's eating at American competitiveness"? Find out in our free report: "What's Really Eating at America's Competitiveness." You'll also discover an idea to profit as companies work to eradicate this efficiency-sucking tapeworm. Just click here for free, immediate access.