It may not be the best thing for us, but put plainly, we have a hard time putting down soda and drinking something else.
Our cup runneth over
A Gallup poll conducted in 2012 demonstrated that, based on the responses given, nearly half (48%) of all Americans consume soda on a daily basis. Furthermore, those who are drinking soda aren't just drinking one can or bottle and calling it a day. The average consumer will put down 2.6 glasses per day!
According to data aggregator Statista, North American soft drink consumption amounted to 87,918 million liters in 2012. This was slightly above the consumption rate of Western Europe, but lower than Latin America, and well below the Asia Pacific. However, by 2017, every region is expected to see soft drink consumption rise. In North America, the rise will be modest, to 90,533 million liters. In Latin America and Asia Pacific, where emerging market economies are boosting wealth for previously poor citizens, consumption could rise 20% and almost 40%, respectively, between 2012 and the current 2017 estimates.
The carbonated soft drink industry, or soda industry, is a highly lucrative business for the big three companies that currently dominate it: Coca-Cola (NYSE:KO), PepsiCo. (NASDAQ:PEP), and Dr. Pepper Snapple Group (NYSE:KDP). But, with more soda choices than ever from these three beverage giants, as well as from grocery store private brands and smaller beverage makers, the choices when buying can border on overwhelming for some consumers.
This is where brand loyalty comes into play.
Why brand loyalty is so important
For some consumers, it's all about the price. But for other consumers, different factors can influence their decision to buy a particular brand of soda -- and whether or not to stick with that brand in the future. These factors aren't always easy to identify, which is why we'll again turn to Brand Keys and its 19th annual Customer Loyalty Engagement Index.
As you may have surmised, brand loyalty is a critical component to profitability and margin growth in the soft drink business. Loyal customers can be a crucial source of word-of-mouth advertising, which is free to the beverage maker, and packs a more powerful message than any ad it could ever put in front of users. If your friends are all drinking a Pepsi, chances are you're going to be encouraged to drink one as well.
The other factor at work here is that loyal customers are willing to stay loyal to a brand even if it costs a bit more than the store-owned brand. A Coca-Cola loyalist will pay the extra $1 or $2 for a six-pack of Coke instead of buying the off-brand product. Ultimately, this translates into better pricing power and substantial margins for the aforementioned three beverage giants.
Now that you have some idea of why brand loyalty is so important to soft drink makers, let's take a closer look at what brand Americans simply can't do without, and which brands just missed the mark.
Two brands that went flat
In total, Brand Keys analyzed five major soda brands -- Pepsi, Coca-Cola, Dr. Pepper, Mountain Dew, and 7-Up, across both the regular and diet soft drink categories. (Note: I'm excluding Sprite, which doesn't appear in the diet category.)
Unfortunately for Dr. Pepper Snapple Group, 7-Up finished dead last in both categories, with Dr. Pepper almost coming in second-to-last. Why the lack of love for Dr. Pepper Snapple Group's products? I suspect it has to do with having a smaller marketing budget than PepsiCo or Coca-Cola, resulting in fewer impressions with consumers. Additionally, Dr. Pepper Snapple Group isn't able to court the type of well-known ambassadors that its peers have been able to lure in. Without a truly identifying ambassador, it's been difficult for the Dr. Pepper and 7-Up brands to connect with millennials and retain baby boomer loyalty.
Between PepsiCo. and Coca-Cola, the brand loyalty leader is...
With PepsiCo.'s Mountain Dew bringing up the middle of the pack in the diet category and tying for the No. 2 spot in the regular soft drink category, goliaths Pepsi and Coca-Cola are competing once again for the brand loyalty title among soft drink makers.
Ultimately, when it comes to soda, Americans are more willing to put Coca-Cola in their shopping cart for both the diet and regular soft drink categories than any other brand. It also marks the fourth consecutive year that Coca-Cola has topped Brand Keys' loyalty rankings for soft drink makers.
PepsiCo. is going to have a tough time dethroning Coca-Cola from the No. 1 spot, firstly because of ad impressions and innovations. Coca-Cola's freshened marketing campaign, dubbed "Share a Coke," has been expanded to more than 70 countries and is part of the backbone of its current marketing budget. For reference, Coca-Cola spent $3.3 billion on marketing in 2013.
In fact, Coca-Cola has seen such positive results from its advertising campaign that it announced last year that it'd be boosting its total ad spending by a cumulative $1 billion over the next three years. PepsiCo. simply can't compete with Coca-Cola's spending, and the additional impressions compounded with a winning ad campaign are one reason consumers continue to flock to Coca-Cola.
Secondly, Coca-Cola is a strongly patriotic brand in the U.S., allowing it to transcend generations and be a common link between grandparents and grandchildren. In Brand Keys' 2014 rankings that listed the most patriotic brands, Coca-Cola ranked third, behind only Levi-Strauss and Jeep. Brands that emotionally engage consumers are considerably more likely to make those consumers customers for life. For context, Pepsi didn't even rank, while Dr. Pepper fell off the list in 2014 after tying for 23rd in 2013.
Lastly, Coca-Cola has done a better job of reaching out to millennials in an environment where they're most comfortable: social media. On Twitter, Pepsi (the brand) has a respectable 2.82 million followers, is following 43,000 people, and has composed 27,400 tweets. By comparison, Coca-Cola (the brand) has 70,000 more followers, is following 24,700 more people, and has composed close to five times as many tweets as its key rival Pepsi. The difference is even more dramatic on Facebook, where Pepsi currently has 34.5 million likes compared to Coca-Cola's 94.2 million likes. A combination of emotional engagement, targeted advertising, and the right ambassadors have allowed Coca-Cola to retain its leading brand loyalty in both soft drink categories.
While there are certainly more factors that play into the investable nature of Coca-Cola stock than just brand loyalty within the United States -- Coca-Cola is sold in all but two countries around the world -- its global product presence and consumers' desire to be engaged with the brand could make it a fairly safe and profitable long-term investment.