Coca-Cola Drops Controversial Drink Additive

A sea change for soda makers.

May 7, 2014 at 1:35PM

Consumers' desire for natural foods has soda giants reevaluating every aspect of their products' nutritional profile. Just this week, Coca-Cola (NYSE:KO) took another step to address consumer concerns.

Booting BVO
Coca-Cola recently announced it's dropping brominated vegetable oil, or BVO, from its Powerade products. BVO is an emulsifier used to improve the stability of drinks and prevent certain ingredients from separating. According to The New York Times, studies have suggested possible side effects from BVO include "neurological disorders and altered thyroid hormones."  It's estimated that 10% of drinks sold in the U.S. contain it. However, the ingredient has not been approved for use in many nations, including those in the European Union and Japan.  

Although Coca-Cola says BVO is still being used in some flavors of Fresca, Fanta, and several citrus-flavored fountain drinks, the company will soon drop the controversial ingredient from all of its drinks globally. Coca-Cola expects BVO to be eliminated from all drinks sold in the U.S. by the end of the year. Last year, PepsiCo (NYSE:PEP) booted BVO from its Gatorade sports drink after an online petition against the additive obtained 200,000 signatures.

Even though PepsiCo and Coca-Cola stand by the safety of BVO use, both companies are working to remove the ingredient from their respective beverage offerings. For instance, Coca-Cola recently said it would substitute BVO for sucrose acetate isobutyrate, which it said has been used in drinks for more than a decade, and glycerol ester of rosin, which is commonly found in chewing gum and beverages. 

A sea change for sodas
Cola companies have long used artificial ingredients to enhance product color and flavor. But in recent years, soft drink giants have switched to more natural additives as consumer demand for them has increased. For example, last year Coke introduced Coca-Cola Life, a mid-calorie carbonated soft drink sweetened using sugar and stevia, a plant-based, no-calorie sweetener. The product was initially rolled out in Argentina, where stevia has been widely used for centuries. Coke, which has used the all-natural sweetener in dozens of its products, signed a multiyear partnership agreement with one of the world's largest stevia producers.

Meanwhile, rival PepsiCo asserts it's waiting on Food and Drug Administration approval for a natural, low-calorie sweetener that won't compromise taste, claiming stevia is an ineffective sweetener in colas due to its bitter aftertaste.

What it means for investors
Both Coca-Cola and PepsiCo are struggling to reinvent themselves as consumers become more health- and nutrition-conscious. Pulling controversial ingredients like BVO is great. But, unfortunately, it often stems from consumer campaigns lobbying against these types of ingredients. If Coke and Pepsi want to win over consumers, they need to take a more proactive approach to making sure their products are not only safe, but also add nutritional value. After all, that's what consumers are demanding now more than ever. By not placing a priority on making value-add ingredients top-of-mind, Coke and Pepsi run the risk of losing consumers -- and shareholders -- over the long term.

Foolish takeaway
Consumers' concerns regarding what they put in their bodies have never challenged major soft drink makers like they do today. This recent move by Coke to drop the controversial additive BVO in all of its beverages signals the company is getting more serious about appealing to consumers' desire for natural foods.

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Nicole Seghetti owns shares of PepsiCo. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends and 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.

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