Will Replacing High Fructose Corn Syrup with Real Sugar Help Pepsi?

Pepsi will become the latest company to add real sugar, instead of high fructose corn syrup, to some of its products as it rolls out a new line of its signature cola this summer.

Apr 10, 2014 at 7:45AM

Soda sales have steadily declined in the United States and PepsiCo (NYSE:PEP) is turning to an old friend to attempt to reverse the decline (or at least increase its market share). 

No, the company won't be resurrecting Michael Jackson for a new series of commercials or bringing back its 1950s slogan "More bounce for the ounce." Instead Pepsi will be bringing out a line of colas made with real sugar instead of high fructose corn syrup.

The beverages will be marketed in packaging using a classic version of the Pepsi logo and sold under the not-very-clever names "Pepsi Made With Real Sugar," "Pepsi Vanilla Made With Real Sugar," and "Pepsi Wild Cherry Made With Real Sugar," Beverage Digest reported. 

How far have U.S. soda sales fallen?

Blame it on a rise in coffee consumption, an increase in beverage choices overall, or the idea that Americans may have started to accept the idea that there is a clear link between caloric intake and obesity. But whatever the reason, sales of carbonated beverages in the United States have fallen for nearly a decade. In 2013 total sales volume fell 3% to 8.9 billion cases, the ninth straight year of falling sales and the lowest total volume since 1995, according to Beverage Digest. Soda sales fell 1.2% in 2012 and 1% in 2011.

While overall sales have fallen there is still an intense battle between Pepsi and rival Coca-Cola (NYSE:KO) for market share. In 2013 Coke gained .4% share in the overall soft drink market in the United States while Pepsi's share slipped by the same amount. The soda ship may be sinking but there's still a lot of bottles to be sold on the way to the bottom. Marketing real sugar sodas may not bring new customers to the figurative soda fountain, but it may lure a few from Coke to Pepsi.  

Sugar versus high fructose corn syrup

High fructose corn syrup pretty much replaced traditional sugar in sodas in the 1980s because it's cheaper. In the '80s and for some of the '90s sugar was also poorly perceived by the public as it became clear that consuming too much of it led to obesity and diabetes.

In recent years, however, the pendulum has swung back and the public perception of sugar -- which sounds more natural than high fructose corn syrup -- has improved. Numerous beverage companies have gotten rid of corn syrup, including the Snapple brand, part of Dr Pepper Snapple (NYSE:DPS), which ditched high fructose corn syrup in 2009 in an attempt to live up to its "best stuff on Earth" slogan in the face of increased iced tea competition.

The medical community largely sees sugar as sugar.  

"Human studies, though short-term and small, consistently show no different impact on measures of health [for high fructose corn syrup] compared with other sugars. Though it'd be nice to have more research, we can confidently say people's health will benefit most from limiting all sources of calorie-containing sweeteners," says Cindy Fitch, a nutrition professor at West Virginia University and co-author of an Academy of Nutrition and Dietetics position paper on the topic.

The public -- misguided as it may be -- disagrees.

According to a survey done by NPD Food Safety Monitor in 2008, high fructose corn syrup was a top food safety concern for 58% of Americans. Only Salmonella, E. Coli, trans fatty acids, mercury in fish, and Mad Cow disease scared more people.

Reality hardly matters on the subject, as anyone looking to make an actual healthy choice has learned by now that avoiding sugar in general -- no matter how it's labeled -- is a good idea. Swapping out high fructose corn syrup for sugar is a marketing ploy based on the perceived villainy of corn syrup, not its actual effect on your health.

Replacing high fructose corn syrup with another type of sugar will have little effect on obesity and diabetes, consumer activist and creator of the FoodBabe.com blog Vani Hari told USA Today. "It's like replacing a cigarette with a cigar."

Still marketing is all about perception and if people believe sugar is better than high fructose corn syrup then Pepsi could grab market share when a customer has to choose between a sugar-based Pepsi and a high fructose corn syrup-based Coke.

Hasn't this been tried before?

Coke makes a version of its trademark cola sweetened with sugar in its Arca Continental bottling plants in Mexico. The product, while not officially marketed in the U.S., has made it north of the border. The real-sugar Coke also has enough fans that a bit of a brouhaha was raised in 2013 when the plants's CEO Francisco Garza Egloff suggested it might switch to high fructose corn syrup. The outcry at that time was loud enough that Arca reversed the decision and announced that all Coke made for export to the U.S. would continue to be made with cane sugar, Bloomberg BusinessWeek reported.  

Pepsi has been more directly in the real sugar business with its "Throwback" line of retro sodas marketed with old-looking labels and the tag line "Real sugar...Real good!" that were introduced in 2009 and still appear on various Pepsi websites. The Throwback line includes real sugar Pepsi and real sugar Mountain Dew. Both can still be found for sale on Amazon and at Walmart.com (though only for in-store purchase).

The "Real Sugar" new line seems like a change in marketing of products it essentially already has.

Can Pepsi reverse its sale slide?

The soda business is declining and it's not likely to bounce back. Consumers simply know too much about health and no amount of rejiggering recipes will convince the public that grabbing a can of soda is a better choice than the countless others that are readily available. Still 8.9 billion cases sold in the United States in 2013 is a huge business and Pepsi could grab a bigger piece of that pie even as it shrinks.

Pepsi would be foolish to think that marketing real sugar sodas will persuade water drinkers to jump back to soda, but as long as certain audiences consider sugar a better choice than high fructose corn syrup an audience exists that may be swayed. There is no reason for Pepsi to leave the real sugar market to people finding ways to buy Mexican Coke and niche players like Jones Soda, which has made the fact that it only uses pure cane sugar a key part of its marketing.

Real sugar soda may be the current version of low tar cigarettes, but there is an audience that's not looking for actually healthy products just ones that sort of appear so. For those deluded folks Pepsi Made With Real Sugar should hit the spot.

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Daniel Kline has no position in any stocks mentioned. He rarely drinks soda but when he does he prefers ginger ale. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of Coca-Cola and PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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