New products may be the key to growing sales against energy drinks, enhanced waters
As more communities, schools and even First Lady Michelle Obama take aim at America's collective weight problem, carbonated soft drink (CSD) manufacturers appear to have their hands full. Add to that, competition from other beverages â namely energy drinks and enhanced waters â and the diet CSD segment needs to step up to the plate.
New products may just be the key to winning that fight. Some big names have introduced new diet carbonated soft drinks over the past year: Dr Pepper Snapple Group launched Dr Pepper Ten, while PepsiCo stocked coolers with Pepsi Max. In addition, Coca-Cola Zero has been making a splash for the last few years.
But is it enough to make diet CSDs a viable contender in the packaged beverages category?
Looking to add a low-calorie soft drink with a full taste to its product lineup, Dr Pepper Snapple Group (DPSG) introduced Dr Pepper Ten in several markets earlier this year. So far, the results have been positive. "It is a great story for us because we wanted to create a low-calorie product that had a great full-mouth, full-flavor taste, and we are very happy with it," said Andrew Springate, senior vice president of marketing for DPSG.
After hitting shelves in Denver, Colorado Springs, Des Moines, Kansas City, San Antonio and Austin, the beverage maker is eyeing a more expansive rollout. "The results are so encouraging from the test markets that we're now looking at how we can accelerate our national launch," he said, adding that no hard date has been set yet.
In addition to receiving favorable feedback on Dr Pepper Ten, the new product has had an added bonus in the test markets: it helped lift sales of Dr Pepper and Diet Dr Pepper. "We have really been able to grow the portfolio across the board with Dr Pepper Ten," Springate said.
â¢ PS Food Marts have seen the diet segment drop a point a year for three years running.
â¢ Dr Pepper Ten has helped turn up sales on Dr Pepper and Dr Pepper Diet in several test markets.
â¢ Manufacturers need to get behind their new products to push demand and sales.
Innovation is a key word at DPSG, as the company is always exploring ways to create lower-calorie versions of its products. "With Dr Pepper Ten, we saw two opportunities: [One,] some people have complained that diet products tasted thin and left an aftertaste, so we worked to create a product that mimics the taste and experience of a regular soft drink. And I think we hit the nail on the head," he explained."Two, women were traditionally thought of as diet drinkers, but we always thought we could reach the male audience as well. We created imagery that appeals to both men and women."
Why concentrate on new lower-calorie carbonated soft drinks? "One thing we see is that soft drink users have been pretty stable, but we thought by adding Dr Pepper Ten, we could add back CSD occasions â make them more frequent users because of the lower calorie count," he said.
According to some convenience store insiders, Dr Pepper Ten may not be facing stiff competition as far as new diet carbonated soft drinks go.
Mike Schenk, director of marketing at Folk Oil, the operator of PS Food Mart stores, said he has not seen many new CSD products coming down the pike lately. "Innovation has slowed down over the past couple of years," he said. "You do not see the flood of drinks like you did a few years ago. It is pretty tough to introduce a new diet drink and have it perform well."
Chevron ExtraMile executives do see new products hitting the market but the challenge, according to Theresa Webb, beverage category manager, is choosing the right new products to stock in the cooler. "As a buyer, I see a lot of new products," she said. "We have seen a lot of products come and go, but we have to focus on the right products."
The right products obviously depend on consumer demand. However, Webb added that manufacturers need to do their part as well. "We want to be sure we are helping support the brand, not build it for them." A case in point, she said, is Pepsi Max and Coca-Cola Zero. "Their manufacturers have put a lot of focus on them."
Choosing right products is more important than ever in these economically challenging times, said Paul Casadont, Americas merchandising manager at Chevron ExtraMile. "At ExtraMile, we take a good look at market data and our own data. We place products that there is already demand for," he said. "In today's environment, every consumer purchase counts."
He noted that the chain's convenience stores have flex space so franchisees can stock products when there may be a regional or local demand for them.
"We want our customers to come into the store looking for a product and getting excited when they find it," Webb added.
It's not surprising then that ExtraMile puts a high emphasis on its beverage category. "Immediate consumption beverages, which diet carbonated soft drinks are part of, are a destination item for ExtraMile so they are an important part of our business," she explained, and that includes all carbonated soft drinks and immediate consumption beverages.
Webb said sales are relatively flat compared to last year, with diet CSDs doing slightly better than their full-sugar counterparts. In contrast, she said, diet energy drinks are doing very well. In terms of size, diet accounts for 25 percent of the CSD inventory. "CSD typically takes up one or one-and-a-half doors and diet typically accounts for 25 percent of that," she said.
But as she pointed out, energy drinks as well as water â which make up part of ExtraMile's HydraZone â are doing relatively better than carbonated soft drinks in general. "Energy drinks overall are a little more than twice the size of CSD in our stores," Webb said. "They have been growing in importance and size for years. It didn't happen overnight, but has been building over time."
PS Food Mart stores have had similar experiences, Schenk said. The diet carbonated soft drink segment has seen a one-point decline a year in share for three years running, he explained, adding that it accounts for 26.7 percent of sales in the CSD category today compared to 29.7 percent in 2007. In terms of inventory, the products make up 29 percent of the facing inventory.
"I think there has been some trade-off with zero-calorie enhanced waters," Schenk said. "That segment may be taking some diet drinkers away."
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