Diet Downturn

Coca-Cola, Pepsi and other carbonated soft drinks (CSDs) remain a staple of the cold vault, dominating the packaged beverages category in both dollar and unit sales despite struggling with declining annual sales for some time now. Diet CSDs in particular are in the midst of a downward spiral, showing more than a year of declining dollar sales. In fact, diet drinks have become the single biggest challenge to the CSD segment’s recovery.

At the same time, market research shows that consumers are increasingly interested in purchasing healthy options at their local convenience stores. So, the question then becomes: What’s stopping diet CSDs from cashing in on the better-for-you trend?

Convenience store industry insiders say one problem is that these beverages face much more competition than other CSDs. “There’s so much more variety,” said Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC. Teas, enhanced waters and other beverages also compete for healthy drink dollars.

“Consumers seeking a healthier product are reaching out to different options that have not been available before, but have now seen growth over the last year,” added Robert Perkins, vice president of marketing for York, Pa.-based convenience store chain Rutter’s Farm Stores.

With the number of healthy beverages on the market projected to keep growing, consumers will only have more opportunities to reach for something besides diet CSDs in the future.

Those who seek to make healthy beverage purchases are also turning more to products that offer functional benefits. “They’re looking for what that drink can also provide them other than hydration,” such as vitamins or protein, according to Herzog.

Soda makers aren’t taking the increased competition lying down. The Coca-Cola Co. promoted Diet Coke heavily this summer in a campaign featuring Taylor Swift as a celebrity endorser, while the Dr Pepper Snapple Group continues its major marketing push around Dr Pepper Ten.

Sales results, however, remain uneven. “Some flavor extensions have been successful, but overall the consumer has stuck with their favorites,” Perkins explained.

Although it’s unlikely c-stores will ever run out of demand to stock diet soda, retailers should view the current state of decline as the new normal and not expect a turnaround any time soon. Many retailers have begun allocating cold vault space to different beverages — particularly energy drinks, which offer higher profit margins and continued sales growth. 

Still, all is not lost for CSD suppliers. In response to health concerns regarding artificial sweeteners used in diet soda, such as aspartame, both Coca-Cola and PepsiCo are experimenting with new sweeteners based on the all-natural stevia plant. Additionally, Coca-Cola Life, a mid-calorie soda that uses a stevia sweetener, debuted in South America last year.

How consumers will respond if and when manufacturers make a sweetener breakthrough is anyone’s guess at this point. Will an all-natural sweetener that tastes good be enough to bring consumers back to diet CSDs? For now, the only answer is to wait and see.