Will Stevia Help Coca-Cola Win Over The Health Conscious?

by Trefis Team
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Stevia, a sweet-tasting herb grown largely in South America, could prove to be the next big thing in the cola industry. Rebania-A, a sweetener obtained after processing the plant, is around 300 times sweeter than traditional sugar and is low enough on the calorific index to allow cola companies to brand their drinks ‘calorie-free’. [1]

Stevia could, theoretically, substitute most artificial sweetening agents that the cola players currently use in their zero-calorie variants. Growing consumer distrust surrounding the health effects of compounds such as aspartame is certainly providing a big push for companies such as Coca-Cola Co (NYSE:KO) and PepsiCo (NYSE:PEP) into adopting stevia as the sweetener of choice. Whichever company is able to successfully incorporate this new sweetener into its drinks stands to make market share gains in the low calorie soda market.

See our full analysis for Coca-Cola

The Trouble With Stevia

However, there are significant hurdles before stevia can be turned into a viable sweetening agent for carbonated soft drinks (CSDs). Like its chemical counterparts, stevia is known to leave a strong aftertaste, often compared to licorice. Considering that a bitter aftertaste is exactly why many people seem to be averse to the taste of diet sodas (which contain aspartame), cola companies are holding their cards before a suitable solution is found. Coca-Cola, which has introduced stevia in drinks such as Sprite to drive down their caloric values, is taking a cautious approach in this direction. The company is combining stevia with traditional sugars and corn syrup in order to improve its taste. More importantly, stevia is much more expensive than other natural and artificial sweeteners currently in vogue. The cost factor certainly makes its widespread use a risky proposition, market share gains notwithstanding.

Regulators Encourage Change, Coca-Cola Obliges

Despite such obstacles, the adoption of stevia in CSDs received a major boost in 2008, when the FDA in the US gave it ‘GRAS’ (Generally Regarded As Safe) status. This implies that companies using stevia in their products do not need to mention it explicitly – effectively giving the sweetener a vote of confidence. Coca-Cola seized this opportunity in a big way, introducing stevia-flavored variants in as many as 30 product lines. PepsiCo was more conservative in its attempt, choosing to limit its stevia experiment to its ‘SoBe’ line of enhanced water beverages and Trop50, a low-calorie variant of its ‘Tropicana’ line of fruit juices. ((“FDA okays Stevia as GRAS sweetener“, December 2008, Foodconsumer.org))

Europe, however, took longer to adopt stevia – it was only in the latter part of  2011 that the floodgates opened with the EU clearing Rebania-A for commercial use. Again, Coca-Cola has become one of the first companies to make use of this opportunity in Europe. This month it announced that it will be reintroducing its line of ‘Vitaminwater’  in the UK with enhanced packaging and stevia-based flavoring. [2]

There are some concerns in Europe about the nature of stevia. Regulators in the region are currently reluctant about allowing beverage companies to use the ‘natural’ tag when it comes to stevia-flavored drinks. This might actually undermine the basic intention of cola companies – to remove the consumer’s suspicions about the negative health effects of artificial sweeteners. Assuming the issue is sorted out in due time, players who have been quick to adopt stevia stand to gain a significant share of the low-calorie soda market. Coca-Cola looks to be on course here while PepsiCo will need to pick up its game in the coming years. Until then, we believe that Coca-Cola should be able to make a significant gain in market share across the US and Europe.

We estimate a $39 price for Coca-Cola, which is in-line with the current market price.

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Notes:
  1. Miracle sweetener stevia faces potential EU hurdles“, May 2012, EurActiv.com []
  2. Coca-Cola Whets Thirst for Vitaminwater with Stevia in UK“ , December 2012, Brandchannel.com []
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  • commented 2 years ago
  • tags: KO DPS PEP
  • can't they just put sugar in it?