PepsiCo is debuting a few more "healthier" carbonated drinks.
This week, PepsiCo is starting to stock IZZE Fusions and Lemon Lemon—two new beverage brands—in retail stores across the U.S. The new beverages are entering the market with formulas that contain fewer calories than traditional full-calorie sodas like the namesake Pepsi. These so-called "next-generation beverages" are an important component of PepsiCo's (pep) evolution to sell beverages and snacks that are healthier, especially critical in the world of soda as that industry has seen a years-long dip in sales of carbonated beverages as consumers aim to drink healthier beverages.
Beverage preferences are tilting toward healthier categories like teas and flavored waters. Full-calorie sodas have broadly seen volume declines because consumers are increasingly looking to cut down on their calorie and sugar intake. Meanwhile, diet sodas that were once a popular substitute have faced pressure because of worries about artificial sweeteners like aspartame. IZZE Fusions and Lemon Lemon aim to address those concerns by containing fewer calories, less sugar, and no artificial sweeteners or flavors.
"The consumer is getting more sophisticated," said Gary So, VP of marketing portfolio transformation for PepsiCo's North America beverage unit. "They are looking for new options but typically don't want to sacrifice on taste."
Other new healthier beverages have included craft sodas under the Stubborn brand, premium-priced bottled water called LIFEWTR, Tropicana Probiotic and KeVita, a sparkling probiotic drink maker brand PepsiCo acquired for around $200 million last year.
IZZE is a brand that PepsiCo has owned for about a decade while Lemon Lemon is completely new. IZZE Fusions are a hybrid of sorts, with PepsiCo saying it is "sort of a soda, sort of juice and sort of sparkling water." The company is marketing it to the younger Gen Z crowd. "They are consuming a lot of different beverages, like sparking water, sparking soda and juice—all different categories," said So. IZZE Fusions was developed to blend all three of those trends.
Lemon Lemon is more clearly defined as a sparkling lemonade, a beverage formula that is more popular abroad but PepsiCo hopes will see success in the U.S. market as well. It will be marketed globally under the 7UP trademark, which PepsiCo owns in all markets outside of the U.S., where it is controlled by Dr Pepper Snapple (dps). Lemon Lemon's flavors include blackberry and peach, while IZZE Fusions includes orange mango and strawberry melon.
Perhaps most importantly, Lemon Lemon contains 70 calories per 12-ounce can while IZZE Fusions has 60 calories for the same size serving, made with a mix of stevia and cane sugar. That's important because PepsiCo made a promise last year that at least two-thirds of the company's global beverage volume will come from drinks that have 100 calories or fewer from added sugar per 12-ounce serving. PepsiCo has been busy boosting spending on innovation to help hit that target. Investment in research and development has increased by 45% since 2011.
As Fortune has reported, stevia has become a popular sweetener because it is derived from the leaf of a plant, and therefore viewed as natural. But because stevia contains a bitter undertaste, beverage companies can't lean on stevia to completely sweeten a drink. So instead, companies like PepsiCo have blended a mix of stevia and sugar as a way to cut down on calories but still retain taste consumers will gravitate to.
Consumers, So explained, are "reducing their sugar consumption and looking for beverages that provide a range of choices. This is a better-for-you proposition." PepsiCo has argued the company's portfolio is strongest when it is diversified to include full-calorie drinks like the traditional Pepsi, some zero-calorie options, and beverages that fall in between the two. That's because consumers are being more flexible in their drinking habits and less loyal to a specific single carbonated soda brand.
Broadly, PepsiCo's moves to remake the company's portfolio to be healthier in consumers' eyes have paid off. The company ended 2016 with strong fourth-quarter results, due to particularly strong growth for the company's North America operations, especially for the Frito-Lay and beverages portfolio.