Cranberry Sprite: Too Little, Too Late?

Recently, beverage giant Coca-Cola (NYSE: KO) announced the launch of Sprite Cranberry, representing the first new Sprite flavor since 2005. The distribution will only last through the holiday season. With the soda industry facing headwinds from the healthy lifestyle  movement, you may ask, "Is this too little and too late?"

Minute Maid, not Coke
Health concerns and market saturation in developed markets put a dent in Coke's soda case volume in recent years. In the table below, you can see that Coca-Cola's North American case volume for soda declined in four of the six past full years. By contrast, Coke's still beverage case volume, which includes its juice, tea, and bottled water products, showed increases during the same time.

Source: Coca Cola SEC filings.

Innovation?
In the words of fellow Fool Demitrios Kalogeropoulos:

Sprite Cranberry doesn't offer much to get excited about. Considering the short-term availability of the drink, it isn't likely to move the needle this year. Still, it is good to see the company take some risks around innovating with its biggest brands.

In order to bring customers back, the company will need to step up with new sodas that can make the ranks of its billion-dollar product portfolio. In fact, sodas (Coca-Cola, Diet Coke, Coca-Cola Zero, Sprite, and Fanta) only comprised five of Coca-Cola's 16 "most significant brands" as of the end of 2012. The remaining 11 fall into the more competitive non-sparkling category, comprised of juice, energy drinks, water, and tea.

Coca-Cola does innovate on the packaging front. It recently introduced a "New Limited-Edition Taylor Swift Can Design" for Diet Coke. In overseas markets, the recent "Share a Coke" program enabled consumers to purchase a can of Coca-Cola with their name on it. These initiatives can boost domestic demand temporarily, but the company needs a smashing new product to overcome the headwinds faced by the soda business.

You can argue that innovation may not overcome such strong shifts in market demand. Dr Pepper Snapple Group (DPS +0.00%) fell flat on its face with its new TEN brands. Wall Street observed six consecutive months of sales decline in that line, according to an article in Beverage Daily. Retailers want to make room for higher-performing beverages on their shelves. This doesn't bode well for a company that struggles in its sparkling and non-sparkling line of products. Skepticism surrounding the true health benefits of the TEN calorie line and diet cola in general probably explains the drop-off in demand.

Is Coca-Cola still a long-term buy?
Top- and bottom-line growth will probably continue at Coca-Cola. Future growth will most likely come from overseas expansion in its soda business as more developing economies get introduced to Coke's bubbly sodas. Last year global sparkling case volume increased 3% despite the drag from North America. Global non-sparkling case volume increased 10%. The global need for healthy non-sparkling beverages such as water and orange juice will continue to propel Coke's case volume in that area. However, those products are more commoditized, which means Coke will need to fight harder to maintain market share.

Investors may also want to look toward rival PepsiCo (PEP 0.86%) in addition to Coca-Cola. Not only does PepsiCo sell well-known beverages such as Pepsi, Mountain Dew, and Tropicana, it also sells snacks such as Lay's Potato Chips and the Quaker brand. PepsiCo recently demonstrated recent strengths in its snack food divisions. PepsiCo's product diversity may serve its shareholders well over the long term.

Foolish takeaway
Coca-Cola's product team needs to start dreaming of new soda flavors to offer under its valuable trademark. Maybe it could look toward its Freestyle fountain machine for mass distribution of new flavoring blends. If it doesn't do something soon, its soda business may fade as consumers begin to steer away from traditional sodas.