Brighter outlook for CSDs but diet versions continue to lose fizz, says analyst

In an analyst’s note, Vivien Azer of equity research firm Cowen and Company said executives at  Pepsico, Dr Pepper and Coke were becoming more confident of prospects in CSDs at Beverage Digest’s recent conference.

“The more encouraged tone from these executives, relative to what we were hearing 9- 12 months ago, is supported by the improved trends that we have seen recently for total CSDs,” ​she wrote.

Azer said that that improving volumes in non-diets and strong category growth in sparkling water may be responsible. The analyst noted that Dr Pepper Snapple CEO Larry Young was slightly more upbeat than in previous presentations. She said Young was particularly optimistic about opportunities to premizse the CSD category with products such as Stewart’s and IBC.

Diet dichotomy ​

However, the analyst said that diet CSDs remained a problem child for the industry.

“While regular calorie CSD trends are showing some signs of improvement (driven in part by better at home food inflation, we believe), diet CSDs continue to show notable underperformance. The consumer preference shift away from diets is still an area that needs to be addressed…”​

Dr Pepper is aiming to do this by educating younger consumers on artificial sweeteners through digital and social media channels, said Azer.

A recent consumer poll from Gallup found that 63% of respondents were actively trying to avoid soda consumption compared to 51% a decade ago.

Azer said that the diet category was the last meaningful round of innovation for the CSD industry in the last 30 years, but had failed to contribute to overall category growth in the last 20 years.

Health & wellness goes mainstream​

But Pepsi CEO Indra Nooyi that while health and wellness considerations were just emerging five to seven years ago they were now much more mainstream and now focused on natural ingredients. Pepsi is addressing these concerns by introducing products such as Kaleb’s Cola and Pepsi with ‘real sugar’.

Pepsi’s competitors are also looking to naturally-sweetened, lower calorie products such as Coca Cola’s recent US launch of Coke Life and Dr Pepper’s natural launch planned for early 2015.

Dr Pepper’s Larry Young said that the diet category could be reinvigorated by educating consumers and innovating in sweeter technology. His company for example has been communicating on the safety of aspartame via social media.