Will Coca-Cola Life Breathe Life Into The Ailing CSD Category?

by Trefis Team
+2.90%
Upside
40.68
Market
41.86
Trefis
KO
Coca Cola
Rate   |   votes   |   Share

The Coca-Cola Company (NYSE:KO) announced this Wednesday that it plans to introduce a mid-calorie carbonated soft drink (CSD) that will use a combination of sugar and the naturally occurring, no-calorie sweetener, stevia to sweeten the drink. The new product called Coca-Cola Life will have about half the calories of a regular Coke. First sales of the product will start this week in Argentina where the company has a strong hold (~50% market share) over the CSD market. [1]

This is the first time that Coca-Cola is launching a stevia-based variant of its flagship brand, Coca-Cola in any market. The Coca-Cola trademark contributes 48% to the company’s unit case volumes and is also the biggest driver of company-wide volume growth. Therefore, a successful Coca-Cola Life launch in terms of meaningful volume share gains can provide a much-needed impetus to the company’s CSD volume growth in the developed markets.

See Our Complete Analysis For Coca-Cola

What is Stevia?

Stevia, a sweet-tasting herb largely grown in Paraguay, South America, could potentially 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’ or ‘zero-calorie’.

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 (an artificial, non-saccharide sweetener widely used in diet sodas) is certainly providing a big push for companies such as Coca-Cola and PepsiCo (NYSE:PEP) into adopting stevia as the sweetener of choice. Euromonitor, a market intelligence firm, forecasts stevia volume from “better for you” soft drinks to grow at 5.4% CAGR by 2016. [2]

Problems With Stevia

The most significant hurdle that the beverage companies are trying to overcome before using stevia as a sweetening agent for CSDs is its strong aftertaste. 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 trying hard to find a solution to this problem. 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.

Game Changer?

Despite the obstacles mentioned above, 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. It implied 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 45 product lines. PepsiCo on the other hand, has been 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.

Coca-Cola, which introduced stevia-flavored Sprite in the U.K and France was able to drive down the caloric value by as much as 30%. The company was also able to mask the bitter aftertaste effect by Sprite’s inherent flavor and the use of regular sugar. However due to limited adoption of these products so far, there has not been a meaningful boost to Coca-Cola’s CSD market share and these products have also not shown any signs of reversing the consumption decline in CSD category. Therefore, there is some skepticism regarding the potential of Coca-Cola Life to breath life into the ailing CSD category.

However, it should be noted that Coca-Cola holds majority of the CSD market globally and almost half its volumes are sold under the Coca-Cola trademark, so this one product holds a huge potential to turn things around for both the company as well as the CSD category. Coca-Cola claims that it has managed to bring down calorie count in Life by 50% as compared to the regular Coke and if the company also gets a thumbs-up from the consumers over the aftertaste issue, we can expect to see at least a slowdown in the decline of soda consumption, if not a trend reversal, over the coming years.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. Coke to sell ‘natural’ mid-calorie cola in Argentina, reuters.com []
  2. Stevia: Successful in 2012, blog.euromonitor.com []
Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!