A Hot Fight over Cold Drinks

By John Greenwald

The guzzler's cup runneth over in a profusion and confusion of new brands

Soft-drink lovers, who poured $25 billion into bubbly beverages last year, are used to being ardently wooed. Madison Avenue has long pursued hem with slogans like "Coke is it!" or "Pepsi now!" set to foot-stomping tunes. Now soft-drink makers are wooing the guzzlers with a flood of new brands. Nine colas have been introduced by major producers in the past 15 months, which is more than in all the years since John Styth Pemberton whipped up the first batch of Coca-Cola in 1886. Says Richard Armstrong, president of Dr Pepper, which has brought out two new brands since last fall: "It would be unusual for even the computer industry to compress so much activity into so short a time."

Many of the newcomers are decaffeinated versions of a company's standard brands. Coca-Cola (1982 sales: $6.2 billion), the largest soft-drink producer, joined the trend last week by rolling out caffeine-free varieties of Coke, diet Coke and TAB in Denver (see above) and Salt Lake City. The Atlanta-based firm, which had only two colas (Coke and TAB) before last July, will now have a total of brand entries in the cola field.

Archrival PepsiCo (1982 sales: $7.5 billion), a food, beverage and sporting-goods conglomerate, offers five different types of cola (Pepsi, Diet Pepsi, Pepsi Free, Pepsi Light and Sugar Free Pepsi Free).

Companies have taken to uncapping new brands because the popularity of old ones has been going flat. The American public drank only about 3% more soft drinks last year than in 1981. During the 1960s and 1970s, annual increases in consumption ran as high as 15%.

Nevertheless, there have been some stunning recent soda successes. Coca-Cola's new diet Coke, which was introduced last July, is already a brisk seller. For years, the company had feared that putting its famed name on any other product would diminish the sales and standing of the flagship brand. But to the company's surprise, nearly two-thirds of diet Coke sales are coming from new soda drinkers or from other companies' brands.

The explosion of unfamiliar labels, though, can cause problems. Some experts fear that the new arrivals will create confusion and swamp an already crowded market.

Americans can now choose from an astonishing 235 brands, compared with 152 only seven years ago. "I worry about the consumer being overwhelmed by the selection," says Joseph Doyle, an analyst with the Wall Street firm of Smith Barney, Harris Upham & Co. Notes John Bergin, president of the McCann-Erickson/USA advertising agency, with tongue firmly planted in cheek: "We certainly are quenching the thirst needs of Americans."

The new drinks are already fighting for space in groceries and supermarkets, where some 52% of all sodas are sold. That battle favors giants like Coke and Pepsi, which have vast sums to spend on the discounts, giveaways and promotions that can help persuade retailers to make room on shelves. Says Brian Dyson, president of Coca-Cola USA: "Some brands are going to suffer reduced space. Others will be dropped completely."

Dallas-based Dr Pepper (1982 sales: $516 million) is among the firms that could be squeezed. Dr Pepper has a near cult following in places like Waco, Texas, where it was invented in 1885. Waco's 100,000 residents each knock back an average of more than 300 bottles a year. But the company has enjoyed little success making Dr Pepper a national brand. The firm lost $4 million in the fourth quarter and finished 1982 with a $12.4 million profit, down nearly 60% from 1981. It hopes that two new decaffeinated Pepper Free brands will help push 1983 profits above last year's.

Royal Crown (1982 sales: $469.8 million) shares the frustrations of other small soft-drink firms. The Atlanta-based company introduced the first diet and decaffeinated brands, but it has lacked the muscle to win a substantial market share for itself. Still, Royal Crown's $16 million 1982 profit was 3% above the 1981 result. The firm attributed the gain to the growth of caffeine-free RC100, which it brought out in 1980. Says Cola Division President Fred Adamany: "We're attracting new customers and brand switchers to this market. If there's a problem, it will be in not having enough decaffeinated cola to meet demand."

Although Royal Crown discovered the marketing potential of decaffeinated soft drinks, Philip Morris (1982 sales: $11.7 billion) turned caffeine-free soda into a national craze. After acquiring Seven-Up Co. in 1978, the tobacco and beer firm initially had little luck. Ad campaigns proclaiming that "America is turning 7Up!" could not keep the lemon-lime drink from falling behind Dr Pepper in market share. But last year Philip Morris seized on rising public fears about caffeine and proclaimed that 7Up "Never had it. Never will." The company also launched Like, the second decaffeinated cola after Royal Crown. Recalls Seven-Up Vice President Guy Smith: "Since 60% of the soft drinks are colas, Philip Morris wanted to be where the action is."

The Seven-Up campaign pushed the lemon-lime drink ahead of Dr Pepper and stunned Coke and Pepsi, which insist there is nothing wrong with normal levels of caffeine. Last July, however, Pepsi introduced decaffeinated versions of regular Pepsi and Diet Pepsi, and both have done well. "They have gone far beyond our wildest expectations," says Rick Sharp, marketing manager of Pepsi-Cola Bottling in Los Angeles. Pepsi now has 50% of the decaffeinated cola market, which reached about $200 million last year.

Coca-Cola knows it has some catching up to do in that market, and so it is trying to introduce its three brands into 80% of the U.S. by December. If successful, that would be the fastest soft-drink launch ever.

Coca-Cola's ad campaigns for the new products will downplay any possible health benefits of caffeine-free drinks to keep them from luring too many soda quaffers from its regular brands. Says Malcolm MacDougall, president of SSC&B, the New York ad agency that is handling the campaign: "We are not really making a big thing of it. We are telling people that decaffeinated cola is here if they want it."

The caffeine battles, of course, are merely the latest skirmishes in the ancient war between Coke and Pepsi. Coca-Cola, which makes Sprite, Fresca, Mello Yello and other brands in addition to Coke and TAB, leads all soft-drink producers, with some 36% of the total market. Pepsi brands, including Mountain Dew, have about 25%. But although regular Coke is still the bestselling soft drink, it has lost some ground to Pepsi since the early 1970s (see chart).

The battle between the two soft-drink giants is expensive. They will spend at least $500 million on all advertising and promotion this year. Each will account for approximately half that sum.

The newest twist in the war for the taste buds of America is the shift in diet-cola advertising campaigns to appeal to male audiences. "We have found that 40% of our Pepsi Light drinkers were men, even though we never made a point of reaching them," says Joseph Block, PepsiCo vice president. Pepsi has accordingly embarked on a $10 million drive to "reposition" Pepsi Light closer to the men's locker room. One new commercial in fact is shot in a football locker room and features singing and dancing behemoths of the New York Giants defensive unit declaring that they hate opposing halfbacks and quarterbacks and then adding, in unison, "but we love Pepsi Light!"

Coca-Cola has also put together new male-oriented ads. Says a construction worker in one: "At last there is a soft drink that isn't just out for my body." Explains SSC&B's MacDougall: "For about 17 years all of the products in the diet segment were female oriented--the music, everything about them. Men were just allowed to look at those beautiful bodies. But we are changing that."

The next battleground in the soft-drink industry is likely to be over the sweeteners used in diet drinks. Low-calorie sodas, which make up some 20% of the carbonated-beverage market, have been growing at a 10% to 15% annual clip. That delights firms because diet drinks are the most profitable ones they make. Reason: saccharin, used in most diet soft drinks, costs one-tenth as much as sugar. But there is some concern that saccharin in extremely large doses may cause cancer; besides, the sweetener leaves an aftertaste. Firms have been experimenting with other artificial sweeteners. One of them, G.D. Searle & Co.'s aspartame, is more expensive but better tasting and is believed to have no link to cancer. The Food and Drug Administration is expected to rule soon on whether aspartame may be used in soft drinks, and soda firms could quickly start using the sweetener if it is approved. Says Smith Barney's Doyle: "It is absolutely certain in my mind that aspartame will be used. It's just a question of when."

While some analysts and soft-drink executives fear the explosion of new products will mean market confusion and heavier competition, others believe it will mean larger overall sales. One such enthusiast is Coca-Cola Chairman Roberto Goizueta. Says he: "Even with the multitude of products already on the market, if we expect to keep growing and satisfying the consumer we'll have to create still more. We must create more new flavors, more diet drinks, more caffeine-free ones and even new products that contain caffeine, if consumers continue to want them."

The question, though, is whether American consumers are ready to drink that many more sodas. By one estimate, for the industry to match the growth rate of the past 35 years over the next 35 years, every American would have to down 1,900 bottles of soda annually by the year 2017. That works out to more than five soft drinks a day. --By John Greenwald. Reported by Marc Levinson/Atlanta and Sue Raffety/New York

With reporting by Marc Levinson/Atlanta, Sue Raffety/New York This file is automatically generated by a robot program, so viewer discretion is required.