Make no mistake: The vanilla cola wars have livened up the carbonated beverage industry. Coke (NYSE:KO) and Pepsi (NYSE:PEP) are slugging it out in a heavyweight battle reminiscent of those great Ali-Frazier matches and, at this moment, Coke is on the ropes.
History
Coca-Cola introduced Vanilla Coke to the world in May 2002, amid great fanfare. It was an event, and I'll bet many of you remember where you were when you first tasted one. USA Today, citing Beverage Digest, says the new offering accounted for 2.1% of carbonated beverage sales in convenience stores during its first month.
According to the Danish Beverage Forum, the Vanilla Coke launch lured in 8 million new customers who were not previously Coca-Cola drinkers. What's more, AC Nielsen figures show that 29% of U.S. households purchased the drink during its first year; that's one of the strongest one-year showings ever for a new product.
Apparently, Pepsi hadn't planned on countering with a vanilla drink of its own, but how could it ignore Coke's success? And so, in early August of this year, Pepsi Vanilla hit the shelves.
The results can only be described as outstanding: The new drink has captured 1.2% of convenience-store market share, according to Beverage Digest, while Vanilla Coke's share has fallen to 1%. Also, PepsiCo Chairman and CEO Steve Reinemund claims the excitement surrounding the launch has driven sales of all his company's products 8% higher.
Riding the storm out
To understand why the underdog has knocked the breath out of the champion and swooped into the lead, just look to the marketing departments. Ads for "the not-so-vanilla vanilla" show Pepsi's product as hip and exciting, and portray Vanilla Coke as flat and boring. While that's to be expected, the commercials are very entertaining and make the message stick.
One, for example, shows a Pepsi truck pulling up next to a Coke truck at a stoplight. The Coke driver -- nodding his head to the tune of REO Speedwagon's "Riding the Storm Out" -- glances over at his rival and cranks up his radio's volume. Smiling, the Pepsi driver flips a switch and converts his truck into a giant, bouncing jukebox. As pedestrians cheer and the truck pulls away, the Coke driver says, "That is soooo cool."
Taking the test
Pepsi may have the upper hand in the marketing battle, but what about taste? Which product is really best?
To help answer that question, and to fill out the rest of this column, I conducted a blind taste test here at Fool HQ in Alexandria, Va. Over the course of two days, I had 19 fellow Fools taste cola poured from two unmarked containers and made notes about what their taste buds were telling them. Here are the numbers:
| Product | % of vote |
|---|---|
| Vanilla Coke | 68% |
| Pepsi Vanilla | 32% |
Because of the tight controls I placed on this highly unscientific experiment, I can confidently assign a margin of error to these results of plus or minus 69%. (Hey, perhaps I forgot to wash Aunt Edna's 2002 Christmas eggnog out of the Pepsi container.)
For the mathematically challenged out there, that's 13 votes for Coke, and six for Pepsi. Here are some of the more telling comments:
Coke
- Had a "tinny" taste to it
- Much smoother
- Comparatively muted taste and aroma
- More vanilla taste, but medicinal aftertaste
- Much sweeter, less tart
- Better vanilla flavor
- A bit of an acidic tinge
- Stronger, more vanilla
Pepsi
- Reminded me of medicine
- More of an artificial flavor
- More vanilla taste
- More chemically
- Smoother
- Too sweet
- Way too sweet
- Much stronger taste and smell
- More syrupy
Reading through these, you can see a distinct pattern developing: total chaos. If you don't believe everyone's taste buds are different, how else do you explain "more vanilla taste" and "more vanilla taste" assigned to different colas? Or "much sweeter" and "way too sweet"? About the only certain conclusion here is that the two products don't taste alike.
It was also interesting to observe a sort of nervousness among some of the testers, who seemed almost afraid of making the wrong choice. "Oh good!," exclaimed one participant who voted for Coke and who shall remain anonymous (LouAnn Lofton). "One of my relatives works for Coke and would have killed me if I picked Pepsi."
No cure-all
With all the hype and all the good that the vanilla offerings have done for their respective companies, it's interesting to note that some industry analysts don't see long-term momentum coming from these products. Beverage Digest editor John Sicher told CNNMoney that the vanilla fanfare can't hide the fact that "soft-drinks sales have declined from annual rates of growth of 3% in the 1990s to less than 1%." Instead, people are paying up for what they can get for free: bottled water, which is growing at an amazing 26% annual rate.
The diet segment is another driver for the industry, currently growing at about a 4% pace. Reinemund said the water, diet, and juice segment is Pepsi's "biggest single opportunity" for sustained, long-term growth. This one sentence from his company's most recent 10-Q pretty much tells the story:
This carbonated beverage growth [of 2%] was partially offset by continued declines in trademark Pepsi, excluding diet and the impact of the national launch of Pepsi Vanilla in the quarter.
In other words, the vanilla warfare is great while it's here and providing plenty of excitement in the industry. But the participants are part of a stagnant segment whose go-go growth days are long behind it.
Do you have an opinion about vanilla colas? Please post it on our Fool News & Commentary discussion board!
Noting its "creamier, more vanilla taste," Rex Moore preferred Pepsi Vanilla. At time of publication, he owned no companies mentioned in this column. You can see his holdings on his profile page, and the Motley Fool's disclosure policy here.
