Coca-Cola(NYSE:KO) just gave us one more reason to think that soda is the new tobacco.
The world's largest beverage company is teaming up with scientists to produce research that shifts the blame for the nation's obesity epidemic from sugary drinks and other unhealthy foods to a lack of exercise, says The New York Times. The Global Energy Balance Network, as the non-profit organization is called, has received both financial and logistical aid from Coke.
The group's message, expressed by Vice President Steven Blair in a recent promotional video, seems to be: "Most of the focus in the popular media and in the scientific press is, 'Oh they're eating too much, eating too much, eating too much' -- blaming fast food, blaming sugary drinks and so on. ... And there's really virtually no compelling evidence that that, in fact, is the cause."
That statement couldn't be further from the truth, however, as nearly all health experts agree that sugary beverages and other empty calories are a major factor in the obesity epidemic and the rise of Type 2 diabetes. But the real question is: Why is Coke doing this in the first place?
In its attempt to fight the backlash against sugary beverages, Coca-Cola is treading into an ethical gray area and sullying its reputation. Tobacco companies have a long history of deflecting negative attention from their product in spite of the facts.
Coca-Cola believes it is being unfairly targeted in the anti-obesity campaign. Sodas have been singled out for bans and restrictions by crusading politicians like Michael Bloomberg, and public health advocates tend to view them as low-hanging fruit in the battle against obesity. The company has a point: it may seem unfair that domestic soda sales have declined each year for the last decade, while rival PepsiCo's snack division Frito-Lay has seen consistent growth.
But Coca-Cola is the elephant in the room when it comes to empty calories. Its sales dwarf Frito-Lay's, at $46 billion compared to just $11.7 billion for the chip-maker.
What's surprising about Coke's propaganda tactic is that the company seems to be finding clever ways to fight declining domestic soda consumption, implicitly acknowledging the trend against soda.
For example, Coke has found success by selling smaller bottles and cans of its trademark product. The company recently began selling 7.5-ounce cans, 8-ounce glass bottles, and 1.25 liter bottles of Coca-Cola, and has seen sales of these smaller-packaged items jump 9% in 2014. The drinks seem to appeal to consumers by delivering fewer calories, but are actually more expensive, giving Coke a fatter profit margin.
Similarly, U.S. sales of Mexican Coke -- which is made with cane sugar instead of corn syrup -- have been growing by double digits in recent years. Both categories seem to have healthier images than traditional Coke products, helping to juice sales.
The success of chains like Chipotle and Shake Shack -- which are growing wildly despite serving up calorie-laden meals -- as well as the fact that zero-calorie diet sodas are the fastest-declining in the industry -- seems to indicate that artificial ingredients are a bigger concern to Americans than calories. Thus, the preference for sugar over corn syrup in Mexican Coke.
Coke is also working on the holy grail of soda -- a zero-calorie product that tastes like the real thing. Its latest iteration, the stevia-sweetened Coca-Cola Life, which has 35% fewer calories than the classic formula, hit shelves nationwide last year.
If there's one lesson that Coke should borrow from the tobacco companies, it's that declining consumption doesn't necessarily mean declining profit. Smoking rates have been declining for decades, but at Marlboro-parent Altria, profit has grown 37% over the last five years. Revenue has only increased slightly, but higher cigarette prices have pumped up the company's profit margin. Meanwhile, the stock has more than doubled.
Instead of trying to persuade its customers to go for a run, Coke would be better off tweaking its product and diversifying, as it is already doing, to keep up with current trends. Rather than publishing phony science, delivering products that appeal to consumers is the best way to ensure benefits for both customers and investors in the long run.