3 reasons why Diet Coke sales will keep plunging
Sales of diet soda have been on the decline for the last decade, and it doesn’t look like they’re going to pick up anytime soon.
Coca-Cola (KO) this week reported that Diet Coke sales slipped 8% globally for the third quarter, compared with the 1% growth for its namesake brand. And while PepsiCo (PEP) wouldn’t disclose how sales of Diet Pepsi did in its last quarter, things were bad enough that the company decided earlier this year to tinker with its formula and began selling an aspartame-free version of the diet soda over the summer.
PepsiCo CEO Indra Nooyi told analysts during a presentation earlier this month that it was “too early to tell” how consumers were reacting to the new Diet Pepsi, saying the food and beverage giant may have more insights as it heads into 2016. “It’s way too early to talk about how aspartame-free is performing in the marketplace,” Nooyi said.
Pepsi, more urgently than Coke, had to do something to boost the performance of its flailing diet soda brand. Diet Pepsi sales have underperformed Diet Coke in nine of the past 10 years, according to industry tracker Beverage Digest. Both are performing poorly with sales slipping for both brands in every year since 2006. Over that time, they’ve consistently lost market share in a shrinking carbonated soft drinks category. Even more worrisome is that declines have accelerated the past few years. Here’s why:
The growth of the “clean eating” movement is changing the food and beverage industries with an impact not seen since the advent of mass-produced food. Soft drink makers, fast-food chains, and cereal and soup companies are all dealing with a big shift in tastes and priorities. Sodas are facing a particularly tough time because consumers who want to eat clean aim to avoid preservatives and additives found in most processed foods, including mass-carbonated beverages.
“There does appear to be a little bit of a stigma with artificial sweeteners,” says Darren Seifer, food and beverage industry analyst at marketing consultant The NPD Group. “It seems impure to consumers.”
Nielsen data also backs it up: Sales of carbonated soft drinks slipped 8% over the last two years in North America, with sales of artificially sweetened “diet/light” products dropping 12% over that period. But sales of products with “natural” and “organic” claims have grown 24% and 28%, respectively, in the same time, Nielsen said.
Walking hand in hand with a desire to consume less processed food and drink are health concerns. A survey conducted by investment bank Jefferies last year found that 83% of people who were drinking fewer diet sodas were “absolutely certain” or “fairly certain” that artificial sweeteners were bad for one’s health.
Those decisions may rest more on perception than reality. Nielsen data shows sales of chips and chocolate grew 3% and 5%, respectively, over the past two-years.
“While consumers may genuinely want to make healthier choices, intentions and actual behaviors aren’t always in alignment,” says James Russo, SVP of global consumer insights at Nielsen.
Water is becoming king
Bottled water is the beverage industry’s real growth opportunity. Among the top 10 brands listed by Beverage Digest, 2014 sales were up sharply for Nestle Pure Life (8.9%), Dasani (8.2%), and Poland Spring (7.9%).
“Bottled water is one of the fastest growing categories over the past five years,” says Seifer. “It’s not because people have discovered they are thirsty. They are reducing the consumption of fruit drinks and other sugary drinks.”
At Coke, its volume of sparkling beverages grew just 2% in the third quarter, while the packaged water segment grew 11%. Water also outperformed the company’s growing ready-to-drink tea and sports drinks categories.