The world's largest beverage makers just committed to cut the number of calories people consume from beverages by 20% by 2025. It's a lofty goal and though it sounds like they're cutting the legs out from under their business model, it just might be an easier sell than you would think.
In partnership with the Alliance for a Healthier Generation -- a do-good group put together by the American Heart Association and the Clinton Foundation -- Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), and DrPepper Snapple (NYSE:KDP) agreed to decrease beverage calories in the American diet.
Having previously joined together to cut the amount of soda that's shipped to schools by 90%, they've gone back to the well to expand the initiative nationwide and have everyone drink less soda.
Choice of a new generation
That's not as bad as it sounds since they're agreeing to do it at a time when people are already rejecting, in large numbers, the amount of soda they consume, particularly diet soda, because of the artificial ingredients used to sweeten them. Though natural alternatives like stevia-sweetened beverages remain unproven, the beverage companies have an arsenal of non-carbonated drinks they're pushing to offset the decline.
Although there are many causes of obesity, beverage makers are once again being singled out as a primary culprit. Some would argue, though, the government may be just as much of the problem because it pushes grains as the biggest component of a person's daily diet and more doctors are seeing grains like wheat as a leading cause of making us fat. Yet the USDA recommends eating two to three times more bread than healthier items like fruits and vegetables.
Reducing our consumption of processed foods and sugar will undoubtedly be a step in the right direction toward a healthier diet, but singling out soda as the main bugaboo is disingenuous, even if the beverage makers find their calorie-reduction goals within reach.
No longer the pause that refreshes
Both Coke and Pepsi have seen sales of diet soda plunge over the years as consumers reject the use of aspartame, high fructose corn syrup, and acesulfame potassium. It's no wonder why DrPepper's Core 4 TEN line of lo-cal beverages never caught on: They lowered the drinks' calorie count by using all of those ingredients.
The soda makers are testing out alternatives, but it's not certain any will gain traction. Coke had to pull its Vitaminwater made with stevia after consumers reacted harshly to the change in the drink's taste profile as many people complained of a chemical aftertaste, meaning its recently introduced Coca-Cola Life may not have any mass appeal.
Pepsi also sells a stevia-sweetened Pepsi Next in Australia and Dr Pepper is trialing sodas flavored with both stevia and sugar.
A new sweetener from Japanese food additives giant Ajinomoto (NASDAQOTH:AJINY) called advantame is said to be 20,000 times sweeter than sucrose and 100 times sweeter than aspartame and holds the promise of lowering both costs and calories, but its artificial nature may still prove to be a hurdle too high.
So what the drink makers plan to do is go with the flow and go where its customers were heading anyway by pushing water and other lo- and no-calorie beverages. They'll also advocate smaller portion sizes, though that didn't go over well with the public when New York City's Mayor Bloomberg tried to impose it on them.
So-called still beverages have been a growing portion of the soda makers' portfolio, and last quarter Coke saw still beverage volumes grow 1% on the strength of packaged water, sports drinks, and teas, though juice and juice drinks suffered falling volumes. Pepsi also saw a 1% rise in non-carbonated beverage volumes, but DrPepper suffered a 4% drop in NCBs. On the bright side, it did see a 4% gain in water and it earned new distribution markets for its coconut water, Vita Coco.
Sipping from a fire hose
It may seem counterintuitive that soda makers would push initiatives that undercut what looks like their bread-and-butter business, but the fact is consumers have been making the choice for them. Hopping aboard is actually an easy thing for them to do while winning them brownie points for making the public effort.
A 20% reduction may be ambitious, but trends were already heading in that direction so Coke, Pepsi, and DrPepper may as well go along for the ride.
Rich Duprey has no position in any stocks mentioned. Stay on top of all the most important developments in retail and consumer brands by following Rich on Facebook. 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.