Carbonated soft drinks, or CSDs as they are known in the retail food industry, have been riding a wave of popularity and growth that has lasted for decades. Diet sodas in particular have consistently seen year-over-year growth that seemed to have no ceiling. Soft drinks were the original "expandable consumable," meaning that the more people bought, the more they drank. Just try to find a six-pack of soda today.
Some recent data seems to indicate that the wave is losing momentum. According to new Nielsen numbers, regular soda sales have dropped by about two percent over the last year, but diet soda, which was once the king of the hill, has declined by nearly seven percent in the same period.
Carbonated soft drinks remain at the top in terms of overall consumption in the United States, but the combined proliferation of alternatives and growing health concerns are beginning to impact sales.
The trend is likely to continue as the boomers decline and millennials take over as the primary consumer.
Growing Health Concerns
From the health perspective, there are a couple of concerns slowing consumer thirst for soda. First is the growing unease around the consumption of artificial sweeteners. Diet drinks have long fought the battle to combine "real sugar" taste with a no-calorie sweetener, but over time most of the artificial sweeteners have not lived up to the hype for one reason or another.
The FDA outlawed cyclamates, one of the first successful artificial sweeteners, in 1969 over cancer and liver damage concerns. Soda with cyclamates is still widely available in the U.K., however.
Today the leading sweeteners are Aspartame, Saccharin and Sucralose. The FDA tried to ban Saccharin in the 1970s but failed; it continues to be used around the world as a sugar substitute. The plant-based sweetener Stevia has some appeal due to its "natural" origins, but tends to leave a bitter aftertaste.
The overall consumer trend seems to be leaning in the direction of less processed and more natural foods, and artificial sweeteners are caught up in that shift. A recent Mintel survey shows that consumers under 35 tend to view artificial sweeteners as "unhealthy."
In addition, some recent studies have shown that consuming diet drinks does nothing to help one lose weight, so the perceived benefit is less an enticement than it once was.
A recent opinion paper published in the medical journal Trends in Endocrinology and Metabolism makes a case that frequent consumption of diet soda can trigger "metabolic derangements," which inhibits the body's ability to effectively manage caloric intake. Other studies show connections between diet soda and heart disease, diabetes and obesity.
Full-sugar soft drinks haven't fallen as badly as their diet brethren, but they continue to suffer from consumer health concerns as well. In the United States, virtually all soft drinks are sweetened with high fructose corn syrup, which has its own detractors.
Many restaurants are now offering Coke from Mexico because the fact that it is sweetened with sugar instead of corn syrup appeals to the "less processed" consumer crowd.
Alternatives to Soda
The other chink in the CSD armor is the growth of alternatives to soda. Vitamin-fortified water, teas of every type and flavor, and of course, energy drinks or isotonics, have moved in and taken both shelf space and consumer dollars from CSDs. Coconut water is the latest fad, with supply barely keeping up with consumer demand.
Plain old bottled water seems to be holding its own, as well, although the sustainability crowd tends to frown on all that plastic.
There is now a new high-end juice segment catering to serious health mavens. Some of these offerings go for $12 a bottle, and the demand is still exceeding supply.
The major manufacturers aren't taking these changes lying down. Coke recently made a major investment in a coconut water company, and both Coke and Pepsi continue to experiment with so-called "mid-calorie" sodas that use a combination of sugar and artificial sweeteners to balance taste and calories. Change is required to maintain dominance.
Of course, marketing dollars continue to pour out, as well. Diet Coke has brought in Taylor Swift to appeal to younger consumers and is even putting her autograph on cans.
The millennial generation is most likely to experiment with alternative drinks and also tends to see soda as a "treat" rather than a staple the way boomers once did.
While soda is still the big dog when it comes to soft drinks, it's clear that the CSD growth boom is over and it's time to look for other avenues.
As the millennials grow up and have families, their habits will impact the market in even greater ways. Retailers and manufacturers need to stay close to the desires and beliefs of this group if they want to stay viable over the next 10 years. The soft drink category is only the beginning.
Jeff Weidauer is vice president of marketing at Vestcom, the leading provider of customized shelf-edge communication for the retail industry, driving sales and reducing costs for the nation's top retailers and their suppliers. Mr. Weidauer can be reached at jweidauer@vestcom.com or 501.663.0100.
