HARD FACTS ON SOFT DRINKS

Carol Angrisani

The flood of line extensions and packaging innovations in the carbonated soft drink category has kept retailers busy with new product cut-ins, additional point-of-purchase ad materials and private-label changes.

While some retailers say the new products have generated more consumer interest, others would like to see more growth.

Food Lion, Salisbury, N.C., is still evaluating how the new introductions are affecting consumer purchase behaviors. But preliminary results show only slight category growth, said Jeff Lowrance, company spokesman.

"It appears consumers are trying the new items and then either moving back to their core brand or onto the next, newer item," he said.

Indeed, while new products and line extensions have created a great deal of activity in the category, sales gains have been modest. Regular CSDs generated $9.1 billion in sales in supermarkets for the 52 weeks ended June 15, 2003, a 1.2% increase, according to Information Resources Inc., Chicago. Low-calorie soft drinks fared slightly better, garnering $4.1 billion, a 4.7% increase, IRI statistics show.

Industry volume in 2002 surpassed 10.2 billion cases, according to Beverage Marketing Corp., New York, a market research company.

Per capita consumption, however, fell to 54.2 gallons in 2002 from 54.3 gallons in 2001, 54.5 gallons in 2000 and 54.8 gallons in 1999.

Why? The main reason is stiff competition from non-carbonated beverages. As of last year, four of the Top 10 liquid refreshment beverage trademarks were non-carbonated, according to Beverage Marketing.

Manufacturers have fought back by introducing a host of new products and line extensions.

"Vendors are introducing a new item, letting it run its course, and then bringing in another new item to put an additional jump in their sales," Lowrance of Food Lion said.

New item launches have been productive for some of the top vendors. Atlanta-based Coca-Cola's volume outperformed the market and its share increased from 43.8% in 2001 to 44.3% in 2002, per Beverage Marketing data. The introduction of Vanilla Coke gave the company a boost.

Purchase, N.Y.-based Pepsi-Cola Co.'s CSD volume increased by 0.2%, according to Beverage Marketing. New product innovations -- such as regular and diet Mountain Dew Code Red, a cherry-flavored version of Mountain Dew; lemon-flavored Pepsi Twist; and lemon-lime-flavored Sierra Mist -- added volume. Diet Pepsi also outperformed the overall CSD market in 2002.

The more successful products have carved out a position for themselves in the marketplace, said Gary Hemphill, senior vice president, Beverage Marketing. He noted that consumers have been more receptive to flavored line extensions than new products. Along with new flavors, manufacturers have also introduced packaging innovations, like the Fridge Pack from Coca-Cola. The Fridge Pack is a longer, flatter 12-pack designed to fit in refrigerators more easily.

Among the more successful brands at Food Lion: Coca-Cola Co.'s Sprite ReMix, original Sprite remixed with a tropical flavor, Pepsi-Cola's Mountain Dew Live Wire, described as a "tongue-zapping" orange-flavored drink; and dnL, a new soft drink from Plano, Texas-based Dr Pepper/Seven Up, a division of London-based beverage and confectionery firm Cadbury Schweppes.

While consumers are open to trying new flavors, volume is limited because there's only so much they can drink, said Hemphill

"There's only so much room for growth," Hemphill noted.

The many new products have created a merchandising challenge for retailers. While some have opted to increase their CSD sections, others have not. Food Lion is among the latter, according to Lowrance.

"We use about the same amount of space we had when there were only the core items," he said, noting that Food Lion has allowed distributors to cut the new items into their own space.

With every new launch, vendors want off-shelf merchandising space and authorization to use their brand-specific, point-of-purchase ad materials, Lowrance added.

Of all the new brands, Sierra Mist is doing particularly well at Quillin's, La Crosse, Wis., according to Lynn Herrmann, buyer.

"Coke and Pepsi seem to be coming out with something new all the time," Herrmann said.

Although the new products have given Quillin's extra work in terms of category resets, and new displays and signage, they've added incremental sales to the category, Herrmann said.

"Some people buy these new products in addition to their favorite beverages," she said.

In other cases, though, it has led to brand switching.

"There are those people that may try a new flavor, and stick with it," she said.

Diet CSDs typically perform better than full-calorie varieties, but are showing particularly strong sales at Quillin's. Herrmann attributes this to increased demand for better-for-you products.

"The diets and lo-cals are really taking off, which I think is a result of the popularity of low-carbohydrate diets," she noted.

Low-calorie CSDs are doing so well that some retailers are paying more attention to the segment in their private-label lines. Take Price Chopper Supermarkets, Schenectady, N.Y. Following the lead of many of the national brands, which are now featuring Splenda in their lo-cal soft drinks, Price Chopper is switching to the sweetener as well, according to Regina Tator, the chain's private-label category manager. The retailer's diet and low-calorie CSDs currently contain NutraSweet.

Splenda is a no-calorie sweetener made from sugar. It is produced by McNeil Nutritionals, Ft. Washington, Pa., a division of McNeil-PPC. "Splenda is touted as the latest, greatest sweetener," she said. "Since the brands are using it, we decided to use it, too." The new products should be phased in over the next few months, according to Tator.

In another move, Price Chopper may introduce CSDs to its Central Market Classics upscale private label. If it does, it would roll out gourmet flavors, like black cherry cream, according to Tator.

Both moves illustrate how Price Chopper is keeping a watchful eye on the national brands so that its private-label CSDs stay contemporary.

"We have a pretty extensive selection under the Price Chopper brand, but we're always watching what national brands do," she said.

When it does introduce a new flavor based on the popularity of a national brand, Price Chopper only considers those that are likely to have lasting appeal.

"It depends on how strong consumer demand is," she said. "We look at what seems to stick."