More Bad News for CSDs

Carbonated soft drinks are going out of style, especially with teens, according to one industry analyst who warns that beverage companies such as Coca-Cola and Pepsi-Cola shouldn't bank on a revival anytime soon, Beverage World reported.

Morgan Stanley's Bill Pecoriello predicts carbonated soft drink sales volume in the United States will decline 1.5 percent annually during the next five years -- twice the rate of decline in 2005. The projections are based on a new consumer survey the firm conducted with 1,550 consumers.

Consumers increasingly are giving up regular soft drinks because of the calories and they are not necessarily switching to diet soda, according to Pecoriello's report. Fifty-three percent of people trying to cut back on regular soda say they are switching to bottled water. That's up from 46 percent just a year ago.

"The image of regular colas and diet colas continues to deteriorate at a rapid pace, which we've been tracking for several years," Pecoriello writes.

For beverage companies whose core products are carbonated soft drinks, this is a serious issue. Pecoriello argues that Atlanta-based Coca-Cola is in a particularly tough position, since it doesn't have as successful a noncarbonated portfolio as Pepsi does.

"People are more variety-conscious than ever before and we believe we are well positioned to succeed in a world of changing tastes," said Dave DeCecco, a spokesman for Pepsi, which claims such fast-growing drinks as Gatorade. "We offer a wide range of different beverages for different people for different times of the day."

Coke, which launched a major new advertising campaign for Coke Classic at the start of the year and recently revamped Sprite's look and marketing, isn't throwing in the towel.

"We feel good about our opportunities for generating continued growth in both carbonated soft drinks and non-carbs in the U.S.," said Coke spokesman Ben Deutsch. He noted that sales volume of the company's carbonated drinks in North America was up in the fourth quarter of last year and the first quarter of this year.

"We believe we can continue to grow the category by generating excitement with new innovation, such as Coke Zero, Coke Blak, the relaunch of Sprite and our energy drink portfolio, and high-impact marketing efforts," Deutsch said.

Beverage companies must try to strike a balance. Some resources must go to efforts to re-energize core soft drink brands, while there must also be a focus on creating new products to appeal to today's consumer, the Beverage World report said. Major beverage companies have introduced canned coffees, sparkling flavored waters and energy drinks in recent years.

Another major prediction of Pecoriello's report is that today's teens may become "the lost generation" for the carbonated soft drink industry. With childhood obesity at epidemic proportions, parents monitor what their children drink more closely than they used to, and teenagers themselves are increasingly concerned about health.

Teens drink fewer soft drinks than adults, but more noncarbonated drinks, such as sports drinks, bottled tea and energy drinks, according to the report. Energy drinks, such as Red Bull and Monster, which have ample calories and caffeine, are hardly health drinks, but still have caught on with teens and young adults.

As today's teens become adults, they are likely to become more health-conscious, meaning they probably won't increase their relatively low soda consumption, the report said.