Have Coca-Cola and Pepsi Gone Flat?

Coca Cola 6 pack

photo by Alan Clanton

Have Coca-Cola & Pepsi Gone Flat?
| published August 1, 2014 |

By Thursday Review staff


Coca-Cola, the ubiquitous soft drink with the most recognizable corporate logo in the world, has reached a plateau—meaning, the venerable Atlanta, Georgia company which has been selling its beverages since the end of the nineteenth century isn’t seeing its sales grow…at all. The good news is that its closest competitor, Pepsi, is stuck there on that same plateau. Both companies are in the black ink, and neither is expecting to lose money. But in the world of soft drinks, flat-lined sales numbers are very nearly reason enough for panic.

Last year, and in the early part of this year, some of that weakness could be blamed on Soda Stream and other upstarts—those companies which offer consumers the option to make their own carbonated beverages right at home. But now, business analysts say, even Soda Stream has seen a slowdown in its sales. Soda Stream reported a seven percent increase in sales for the last quarter—respectable, to be sure; even brisk as compared to Coke and Pepsi. But for a company that had previously been on a skyward trajectory, seven percent is not the solution.

More ticklish: Soda Stream sold 16 percent fewer of its basic beverage kits this quarter than it did in the same period in 2013, and substantially fewer that the first quarter of this year. Soda Stream revised its projections downward, to about five percent growth for the remainder of 2014.

But that still may beat the big boys. Coke sales grew by just one percent this year, and Pepsi lost ground by about two percent.

Why has the fizz gone out of fizzy drinks?

Part of the problem for Coke and Pepsi can be found in a younger generation engaged in a mass migration toward other products—and that includes millions of new coffee drinkers. Retailers like Starbucks continue to add more to their already diverse menus, and a general spike in coffee prices has meant that Starbucks—like many coffee retailers—has added dozens of new items, including chilled beverages and carbonated drinks.

And what can be easily interpreted as good news from a health standpoint is bad news for Pepsi and Coke: many Americans are altering their drinking habits to reduce the high-sugar, high-syrup drinks in favor of lighter and healthier beverages. Coke and Pepsi have sought to tap into this slow migration toward healthy drinks, but there may be too many smaller competitors for the big players to regain all that liquid action quickly. Many younger generation beverage consumers never latched onto Coke or Pepsi as permanent drink preferences in the first place. Many more have made early decisions to drink healthier beverages, or bottled and flavored water.

Health concerns were the key factor in New York’s infamous ban on super and mega-sized soft drinks, but those local regulations were predictably overturned in court. Still, Mayor Michael Bloomberg’s initiative may have triggered the start of a campaign by other states and cities to place limitations on drink-sizing—a variety of initiatives, some of which may face court challenges. All such political campaigns are sure to gain attention and highlight the health advantages of drinking less soda.

Still, neither Coca-Cola nor PepsiCo is in immediate danger. Both companies are highly diversified, and even if soft drink sales continue to flatten or even decline, sales of other products will surely increase. Pepsi owns Frito-Lay, Aquafina (bottled water), Quaker Oats Products, Lipton, Gatorade, and Tropicana. Coca-Cola owns literally hundreds of brand names, including Minute Maid, Powerade, Dasani (bottled water), Barq’s, Bacardi, Schweppes, and Hi-C, along with more than one hundred brands of sodas, from Mello Yellow to Sprite, from Fanta to Fresca.

Related Thursday Review articles:

Keurig Green Mountain: Peaks of Profits; Thursday Review staff; Thursday Review; July 3, 2014.

Coffee, Tea, Cold Drinks & Fizz; Thursday Review staff; Thursday Review; May 18, 2014.