Could This Change Sweeten Diet Soda Sales for Coke and Pepsi?

A new artificial sweetener promises to do just that, but it doesn't get to the heart of what's wrong with soda sales today.

Aug 7, 2014 at 6:22PM
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With diet soda sales continuing their dramatic decline, Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) may be ready to try anything to stanch the bleeding, but an artificial sweetener from Japanese food additives giant Ajinomoto (NASDAQOTH:AJINY) that recently received FDA approval is likely not the answer. 

While advantame promises to reduce costs, lower calories, and dramatically cut down on use of high-potency sweeteners -- all the while maintaining or even improving the drink's taste profile -- Coke and Pepsi would be smart to avoid its use. Even if the promised savings prove true, certain drawbacks would outweigh any benefits.

The food police, like former New York City Mayor Bloomberg, point their fingers at beverage makers for contributing heavily to the national calamity of obesity. It was such concern about being weight-gain enablers that led soda companies to turn away from sugar in the first place. They added artificial sweeteners such as high-fructose corn syrup and aspartame to their beverages to drive down the costs and calorie counts, respectively; however, changing tastes and concern about the ill effects the artificial sweeteners have on human health helped drive down sales and left the industry scrambling to come up with alternatives.

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A spoonful of sugar helps the medicine go down, but artificial sweeteners are the wrong prescription. Image source: SXC.hu.

Reintroducing "real sugar" iterations was one attempted alternative, but obviously can't be a long-term solution despite the cult-like following so-called "Mexican Coke" developed or the popularity of Pepsi's "throwback" series. America's weight problem remains, and the soda giants are responding by testing stevia-sweetened alternatives such as Coca-Cola Life in Argentina and Pepsi Next with stevia in Australia. Even Dr Pepper Snapple Group (NYSE:DPS) introduced a stevia-sweetened soda earlier this year to likely replace its Core 4 TEN brands that relied on aspartame, HFCS, and acesulfame potassium but failed to woo consumers to the brand. And though the plant-based sweetener comes with a more natural, wholesome connotation, when manufactured on a commercial scale it loses most, if not all, of those benefits.

Moreover, Coke suffered a consumer backlash when it introduced a stevia-sweetened Vitaminwater, which has already been withdrawn from the market. The thought that Coca-Cola Life has any longer shelf life seems dim. 

So the new sweetener from Ajinomoto, which is arguably best known for making MSG, could be an alternative. Advantame is 20,000 times sweeter than sucrose and 100 times sweeter than aspartame, the company says, while supposedly not having any of the "off flavors" found in other artificial sweeteners.

Ajinomoto calls advantame, which is made from vanillin and aspartame,  "an exciting new ultrahigh potency sweetener" that can partially replace sugar, HFCS, and other similar sweeteners. Manufacturers can keep calories low at less cost than other sweeteners. Its use would also help protect against volatile commodity costs. Corn, for example, from which HFCS is derived, is seeing prices fall to new lows of around $3.50 a bushel -- below its cost of production -- only two years after hitting record highs that were double that rate. Sugar is also well below the highs it hit several years ago, but is off the lows at which it started the year. Advantame could level out those costs for manufacturers and provide better taste than aspartame. 

However, because the product is derived from aspartame, I think it's a nonstarter for the beverage industry. It's likely to carry the same stigma that food and beverages that include the artificial sweetener now face. Moreover, like the commercial production of stevia, vanillin, which can be derived naturally from the vanilla bean, is instead made synthetically and would largely lose whatever benefits it would provide if organically derived. .

Diet Coke was once one of Coke's best-selling soft drinks, helping to prop up the soda maker's market share when it started to slip. But attitudes shifted and the brand went into free fall, with volume growth turning negative and continuing on a sharp downward spiral ever since. Diet Pepsi's slide is even steeper.

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Source: Beverage Digest.

We may see the beverage makers move to mid-calorie diet drinks; think of a flabby Tab soda. Dr Pepper actually had the right idea with its Core 4 TEN line that featured drinks with 10 calories rather than none, but its execution failure was in using the artificial sweeteners just as everyone else was running away from them.

The midcalorie market, in the 60-100 calorie range, has actually found favor in snack foods, where 100-calorie packs have convinced consumers they can have their cake and eat it, too, just in smaller portions. Beverages could be the next natural extension, and the stevia-sweetened Life from Coke actually weighs in at 100 calories for a 20-ounce serving. The soda maker can use half the sugar while claiming to use a more natural sweetener, with the drawback being stevia's chemical aftertaste.

That presumably wouldn't happen if they began using advantame; even though less sugar would be needed, it would still carry the aspartame stigma. No beverage maker has yet said it would use the new sweetener, but considering the hit the soda companies have taken these past few years, it might not be a risk they'd want to take.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of 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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