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Coke, Pepsi look out of step with U.S. consumers

Coca-Cola bottles.Coca-Cola bottles.
Coca-Cola bottles.Photograph by Lionel Bonaventure—Getty Images

Americans spent 2.6% more in food and beverage stores in the first half of 2014, but many of the iconic brands appear to be missing out on the growth.

Coke (KO) on Tuesday reported net revenue in North America slid 1% to $10.51 billion for the first six months of the year. A day later, Pepsi (PEP) reported choppy sales for its Frito-Lay and Quaker Foods divisions in North America for the first half of 2014, while carbonated soft drinks volume declined in both the first and second quarters.

“People are consuming differently,” Pepsi Chief Executive Indra Nooyi told analysts during a conference call.

“There has been a trend toward fresh produce, fresh grocery products, more making your food at home as opposed to buying packaged foods and beverages,” she added.

The Commerce Department earlier this month reported food and beverage retail sales totaled $325.5 billion in the first six months of 2014, up nearly 3% from last year’s level. So Americans are spending more on food and beverage items, even as many consumer-product executives complain about a challenging macroeconomic environment.

The problem Coke and Pepsi face in their home market is the pockets of growth are in categories they don’t compete in, or have little exposure to. For example, organic food sales are expected to leap 8.5% this year, according to data complied by Statista. Fast-growing items — such as yogurt, fruit and meat — are mostly out of the beverage giants’ comfort zones, though Pepsi has made a move recently to compete in the yogurt business.

A major shift vexing both companies is that demand for carbonated soft drinks, the biggest category in the beverages business, has suffered a nearly decade-long slide. Diet sodas, in particular, have struggled lately as some consumers worry about the sweeteners used in those products.

The Coca-Cola brand grew 1% in North America in the second quarter, and the company is hopeful a recently launched “Share a Coke” campaign will generate more interest in the brand. But that growth doesn’t suggest Americans are racing to buy more fizzy drinks.