Sales of Diet Soda Are Decreasing Faster Than Your Waistline

Diet soft drinks, once immensely popular back in the 90's, have turned into a major headache for the soft drink industry. Nielsen reports that in the past three years sales of diet soda have contracted by more than those of regular soda. In the past year, dollar sales of zero-and low-calorie sodas dropped 6.8%, while sales of regular soda dropped only 2.2%.

While many who avoid diet soda claim to be on diets, consumers have also become wary of the health effects of artificial sweeteners in diet soda. Some of these sweeteners are aspartame, sucralose, and acesulfame potassium. Several industry and health organizations, as well as the Food and Drug Administration, claim that these sweeteners have been studied extensively and consider them effective weight loss tools. Others argue that there's still a lot we don't know about artificially sweetened soft drinks, and their benefit as a weight loss tool is minimal at best .

Changing consumer habits are influenced by other beverage options
Dwindling diet soda sales are bad news for PepsiCo (NYSE: PEP  ) and its competitors Coca-Cola  (NYSE: KO  ) and Dr. Pepper Snapple Group (NYSE: DPS  ) , which derive a quarter or more of their U.S. sales from soft drinks. In the third-quarter earnings call, PepsiCo chairman Indra Nooyi noted that "a fundamental shift in consumer habits and behaviors" is taking place within the beverage segment. In addition to the artificial sweetener issue, more beverage options have become available and this has played a major part in the loss of consumer interest in diet sodas.

PepsiCo is busy working on alternative sweeteners derived from natural sources, like stevia, and other flavor enhancers. While the drop-off in diet soda sales has been bigger than expected, the company has seen success with its Diet Mountain Dew product. Nooyi expects that the company's balanced portfolio of "beverages, snacks, and Good-For-You products" will protect the business from any future headwinds within the diet soda category . In fact, PepsiCo reported that the sales volume for its snack business was three times that of its beverage business in the third quarter .

Coke's not abandoning its diet brand
Coke still believes in the future of Diet Coke. It is busy promoting the safety of its sweetener aspartame, and it signed country/pop singer Taylor Swift as a new face for the brand. The diet segment is important for Coke -- it has more than 800 low and no-calorie beverages, which make up nearly 25% of the company's global portfolio . Recently, Coke launched a new cola in South America called Coca-Cola Life, a mid-calorie soda that features stevia. The company is considering selling the new cola in the U.S. There's also a new sweetener in the works called PureCircle that is pending FDA approval .

In the third quarter, Coke reported worldwide volume growth of 2%, with its international business providing a major contribution to the growth. China and India delivered volume growth of 9% and 6%, respectively. Net revenue declined 3% in the third quarter and 2% year-to-date. Like PepsiCo, Coke has a diversified beverage portfolio that includes ready-to-drink teas, juices and juice drinks, and sports drinks that support the overall business .

Dr Pepper Snapple is counting on new versions of popular sodas
To deal with the impact of decreasing demand for its diet carbonated soft drinks, Dr. Pepper Snapple is counting on new 10-calorie versions of five of its most popular brands (referred to as the TEN platform) to spark sales. So far, the company has noted that the new sodas have attracted some customers back to the brand .

Dr. Pepper Snapple reported a net sales increase of 1% for the third quarter and year-to-date. The company continues to deal with a very challenging environment, according to its President and CEO Larry Young . Sweeteners had a major impact on third-quarter costs and they contributed to a 2% rise in cost of goods sold. During the third-quarter earnings call, Dr. Pepper Snapple showed greater interest in educating the customer on the safety of artificial sweeteners than in developing a natural sweetener like its rivals.

My Foolish conclusion
Consumer research firm The Hartman Group finds that consumers are moving more and more away from overly processed food products and into more natural foods . This makes the use of artificial sweeteners challenging for these soft drink makers, regardless of whether these ingredients are safe.

Whether regular-calorie soft drink sales will stabilize the decline in diet soda consumption or if natural sweeteners will bring customers back to sodas is unknown. For these soft drink makers, the more diversified their product portfolios, the better they'll be able to manage continuing headwinds in diet soft drink sales.

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Read/Post Comments (8) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 22, 2013, at 10:46 AM, tcraigpsu wrote:

    It is about time someone told the truth that equal and splenda are safe . Sugar substitutes are safe and decrease caloric intake and lets face it the obesity, which predisposes to sleep apnea, hypertension, cardiac diseases, diabetes and even neoplasms, that threatens the health of so many people in the USA. Caloric intake is the problem and sugar substitutes are one way of reducing the amount of calories. Thumbs up to diet sodas and thumbs down to sugar sodas. Do not listen to the ill advised people that say sugar substitutes are not safe.

  • Report this Comment On December 22, 2013, at 10:48 AM, Riggerwo wrote:

    ASPARTAME is dangerous...end of story...coke is wasting millions of dollars trying to make the "toad" Aspartame" into a "prince"..this is not going to work..and the longer they keep up this big lie the worse it will be for them....we the consumer are not stupid....we will vote with our pocket books...you will lose in the end...so dump the Aspartame now and go back to cane sugar..or risk the entire collapse of the Diet Coke Brand...which would no bother me one bit as I will not touch this poison with a 10 foot pole!

  • Report this Comment On December 22, 2013, at 10:52 AM, Riggerwo wrote:

    Artificial sweetners like Aspartame and Splenda are just not safe..the research is in....If you care about your health you need to dump ALL soda..it is all rubbish.

  • Report this Comment On December 22, 2013, at 3:34 PM, jenn01569 wrote:

    How about just drinking WATER. It's free, has no artificial chemicals in it and has zero calories...just saying.

  • Report this Comment On December 23, 2013, at 12:18 AM, Afterberth wrote:

    Donald Rumsfeld was a lobbyist when they were trying to get it approved by the FDA. That in

    itself is enough to know the stuff is not good for you.

  • Report this Comment On December 23, 2013, at 4:37 PM, maureenaba wrote:

    tcraigpsu, you’re exactly right that low-calorie sweeteners are, in fact, safe. Time and again scientists have proven this to be true, as well as the fact that low-calorie sweeteners help reduce caloric intake. For example: a randomized clinical trial published in the American Journal of Clinical Nutrition concluded that those who consumed diet beverages in place of caloric ones consumed fewer calories than other control groups, including those who consumed only water: http://bit.ly/Ik4zjC.

    -Maureen Beach, American Beverage Association

  • Report this Comment On December 23, 2013, at 4:38 PM, maureenaba wrote:

    Second, while both regular and diet soft drinks are certainly a safe choice and can be a part of a healthy, active life, our industry continues to expand its offerings to give consumers ample options. Water, ready-to-drink teas and coffees, sports drinks, juice, and more are available in a wide array of calories and sizes so consumers can pick how they prefer to hydrate. In sum, the beverage industry is committed to catering to its consumers, and a big part of delivering on this promise is offering a plethora of options.

    -Maureen Beach, American Beverage Association

  • Report this Comment On December 23, 2013, at 8:07 PM, Deadpooln wrote:

    Please don't listen to tcraigpsu. Diet soda is so much worse for you than regular soda. They are both really bad for you, but diet soda is sooo much worse for your body and brain. Unless you want cancer, dementia, or some other part of your body to break down of course :P

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