Death of Diet Sodas Makes Coke, Pepsi, and SodaStream Lose Weight

Source: SodaStream.

The days of traditional diet sodas appear to be numbered. Moody's Investors Services is reporting that while carbonated soft drink sales declined 2.6% in the U.S. last year, the industry experienced a more problematic 5% drop in diet and low-calorie sodas. 

This is obviously bad news for Coca-Cola (NYSE: KO  ) and PepsiCo (NYSE: PEP  ) , the world's two largest pop stars. However, this is also bad news for SodaStream (NASDAQ: SODA  ) , the company behind the namesake beverage platform that turns still water into carbonated soft drinks. 

We certainly live in weight-conscious times, so why are diet sodas fading in popularity? The clearest stumbling block is the growing concern about the potential health detriments of consuming the artificial sweeteners being used to eliminate the calories and carbs. There's no shortage of debate on the matter, but mere awareness of the possible risks makes diet soda less of the guilt-free indulgence that we once thought we were cracking open.

The Moody's report points out that the industry's efforts to bridge the difference by offering low- and mid-calorie drinks along the lines of Dr. Pepper TEN and Pepsi Next are failing. The problem with these bubbly tweeners is that they wind up offering the worst of both worlds. They still pack some calories, failing to sway the drinkers of diet beverages, but they also replace at least some sugar content with aspartame, acesulfame potassium, sucralose, and some of the other artificial sweeteners that have come under fire. 

Another trend that's probably eating away at the popularity of diet sodas is the growing number of options. Between functional water and energy drinks, two categories that continue to grow, there are ever more calorie-free ways to find liquid refreshment.

PepsiCo and Coca-Cola are positioned well to cash in on this trend. Coca-Cola owns vitaminwater, and PepsiCo has Gatorade. Both have a healthy portfolio of juices, teas, and waters. PepsiCo's product lines also include Quaker oatmeal, Frito-Lay salty snacks, and Tropicana, helping it overcome the likely continuing slide in diet carbonated drinks.

SodaStream isn't as fortunate. Its fate is tethered to the rise and fall of carbonated beverages. Even the notion of consuming fewer fizzy drinks could be catastrophic, since that disrupts the value proposition of buying a SodaStream system in the first place. The one saving grace for SodaStream is that if the battleground has moved to non-diet sodas, it's well positioned for folks pulling up nutritional tables. SodaStream's non-diet sodas contain just a third of the calories, carbs, sugars, and sodiums found in Coke and Pepsi.  

One thing Moody's points out is that the phenomenon for now is limited to stateside consumption. That seems to be playing out with SodaStream's recent financial performance, as growth overseas has offset stateside declines. Coca-Cola and PepsiCo have seen similar trends on a less pronounced scale.

Investors will still want to keep a close eye on this development. If the industry doesn't shift to less controversial natural sweeteners, or if consumers move away from fizzed-up refreshment altogether, that could mean more pain for Coca-Cola, PepsiCo, and SodaStream.

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

Comments from our Foolish Readers

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  • Report this Comment On August 10, 2014, at 9:07 PM, aliattitude wrote:

    Gee, Rick. I stopped drinking diet soda because of the aspartame the manufacturers insist on putting in the diet sodas. Aspartame was manufactured against all advice given and all indications that it is not a safe, consumable food. I get MASSIVE headaches when I consume aspartame. I don’t like that. I have discovered throughout my life that I am not alone in these sorts of things. Gee, Rick, do you suppose other people get sick from aspartame, too? Maybe that’s the reason people aren’t drinking diet soda. Not only do we dislike being sick, but we also dislike being ignored. Maybe now they will listen to the consumer instead of the chink of change in the almighty dollar. I’ll take my chances with sugar. Sincerely, aliattitude

  • Report this Comment On August 11, 2014, at 10:17 AM, ARozenburg wrote:

    True. There has been a huge decline in diet soda sales, but I don’t think Coca-Cola and Pepsi are dying brands any time soon. As the author states, these companies have diversified and have water, fruit juices, and energy drink companies under their belts. Soda Stream isn’t so lucky. I’ll be curious to see if they try to come out with a new product that can appeal to more people.

  • Report this Comment On August 11, 2014, at 8:38 PM, hbofbyu wrote:


    I get massive migraine headaches when I consume nuts or peanut butter. Does that mean they are poisonous? For me.

    Everyone has a different genetic make-up.

    The topic of sugar substitutes have been the subject of intense scrutiny for decades. According to the National Cancer Institute, European and other health agencies, there is no sound scientific evidence that any of the artificial sweeteners approved for use in the U.S. cause cancer or other serious health problems. Aspartame is the most clinically tested food additive in world history - tested in over 90 countries.

    Don't translate your reality to that of the entire population.

    As for diet soda? It's popularity - or lack thereof has nothing to do with nutrition or health. I blame poor marketing and fragmentation. All drinks (pedialyte excepted) are fads of marketing. Marketing is often about pseudo health claims. A 20 oz Gatorade is 200 calories of sugar water. But athletes drink it on TV and we want to be like them. Taste, perception and image. That's all that matters. Diet Sodas just need to be re-invented.

  • Report this Comment On August 12, 2014, at 10:00 AM, AmeriBev wrote:

    Our member companies continue to broaden their portfolios to include a wide variety of product choices, portion sizes and calorie counts to meet the individual needs of consumers. These choices include soft drinks, which scientists have repeated deemed safe, and can certainly be integrated into a balanced diet and active life. In addition to soft drinks, our companies also offer ready-to-drink teas and coffees, water, sports drinks, juices and more, so that consumers can pick and choose their preferred beverages to stay hydrated and healthy.

    -American Beverage Association

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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Related Tickers

8/28/2015 4:00 PM
KO $39.45 Up +0.18 +0.46%
Coca-Cola CAPS Rating: ****
PEP $93.53 Down -0.07 -0.07%
PepsiCo CAPS Rating: *****
SODA $14.91 Up +0.49 +3.40%
SodaStream CAPS Rating: **