It's a new solution to an old problem. Pepsico (NASDAQ:PEP) released its latest beverage this week, a cola named "1893" after the company's founding year. It contains all natural ingredients including premium kola nut extract, sugar, and sparkling water. It's no wonder why the food and beverage giant is going back to the basics.
Soda consumption is on the decline in the U.S., having fallen every year for the last decade. Consumers are increasingly turning to healthier foods and drinks, and have become wary of artificial ingredients, in search of the so-called "clean label." While the decline in overall soda consumption has been modest, diet soda sales are falling even faster, by as much as 6% a year.
Big beverage companies like Pepsi and Coca-Cola (NYSE:KO) are trying to tap into the larger trend in food as consumers voice their preference for natural and organic ingredients, increasingly looking for sodas sweetened with sugar instead of high-fructose corn syrup. Sales of organic and natural sugar in the supermarket aisles were up double-digits last year, indicating a broad trend.
Going back in time
The new craft soda comes in two flavors, Original and Ginger Cola. Pepsi Trademark VP of Marketing, Chad Stubbs, explained the launch, saying, "We were energized by the food revolution, and inspired by consumer interest in bold and interesting taste combinations."
Pepsi will air a national TV ad promoting the new beverage in April, and it's clear from the ad who the company's targeting.
The spot features a "soda sommelier" preparing the drink as if it were a cocktail. Jazz music plays in the background, and old black-and-white footage opens the commercial. In its press release, Pepsi notes the drink is "delicious as a stand-alone beverage," or is also the "perfect compliment" for cocktails. The company seems hopeful to win back the youthful hipsters who may have chugged Pepsi as kids, but now drink coffee, craft beer, or alternative beverages like Kombucha or coconut water.
This isn't Pepsi's first attempt to go retro with soda. The beverage brand launched Caleb's Kola, named for Founder Caleb Bradham, in 2014, which features a similar ingredient profile to 1893. Last year, it introduced a line of fountain drinks called Stubborn Soda, featuring flavors such as black cherry with tarragon and lemon cherry acai. In a similar attempt to stir up buzz over its flavor source, Pepsi is also opening a kola nut-themed restaurant in New York called the Kola House.
The importance of cola
Both Coke and Pepsi have made efforts to diversify their portfolios with new beverages, and foods in Pepsi's case, as both tout over a dozen billion-dollar brands. But cola still reigns supreme in the beverage world. The trademark Coca-Cola family of drinks claims nearly half of Coke's revenue, and Pepsi-branded sodas contributes a substantial portion of PepsiCo's revenue.
Coke has already demonstrated the popularity of natural, sugar-based cola, as Mexican Coke has long had a cult following. The beverage is sweetened with cane sugar instead of high-fructose corn syrup and comes in a traditional glass bottle, adding to its appeal.
Pepsi, of course, would like to find a similar hit, but carving out a viable market for craft soda could be the greater goal of sodas like 1893. With a premium price point at $1.79 for a 12-oz. can, Pepsi seems to be angling for a similar hard-core niche following. There's no guarantee that 1893 will be a success, but with the secular decline in soda sales big soda needs to try something. Per-capita soda consumption has fallen nearly 20% in the last decade, and that trend shows little sign of reversing. Americans are turning away form high fructose corn syrup and diet sodas. As natural and organic products gain in popularity, an all-natural craft soda, in one form or another, could be the solution for Coke and Pepsi.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends PepsiCo. The Motley Fool recommends 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.