Americans Don’t Buy Enough Soda — Here’s the New Targets

February 19, 2016, 4:57 PM UTC
Inside a Dollar General Store Ahead Of Earnings
Soft drinks are displayed on the shelf at a Dollar General Corp. store in Saddle Brook, New Jersey, U.S., on Saturday, Dec. 3, 2011. Photographer: Emile Wamsteker/Bloomberg via Getty Images
Photograph by Emile Wamsteker — Bloomberg/Getty Images

American soda giants, faced with declining sales at home, are increasingly looking overseas for growth.

A report this month from the Center for Science in the Public Interest notes the speed at which soft drinks are taking over in emerging markets: in 2008, those markets represented just over half of global consumption, according to the report. By 2018, nearly 70% of soft drinks sold will be sold in emerging markets like China, India, and Mexico. Coca-Cola now sells more than half its soft drinks in countries other than the United States, where consumption of soft drinks has been declining for more than a decade.

CSPI is a longtime critic of the soft-drink industry. Its report, “Carbonating the World,” accuses the companies of behaving much like the tobacco industry, hawking its products to consumers in less-developed nations who might be less aware of the health implications.

Focusing mainly on Coca-Cola (KO) and Pepsico (PEP), the CSPI report says the companies are “spending billions of dollars a year in countries such as Brazil, China, India, and Mexico to build bottling plants, create distribution networks, and advertise their products.” And they are “promoting some seriously deadly diseases to countries already struggling to provide health care to their growing populations.”

In particular, the report accuses the industry of marketing to children around the globe, “making up for declining profits [at home] by investing heavily in low- and middle-income countries.” And, the report states, “the expansion is coming at the expense of people’s lives, from Central America to South America, Southeast Asia to South Africa.”

Fortune reached out to Pepsi and Coca Cola. Both referred Fortune to a statement issued by the International Council of Beverage Associations, of which the American Beverage Association — the main lobbyist for the U.S. soda industry — is a member.

Stating that the soda makers are “good global citizens,” the organization says:

Our beverage companies are good global citizens who follow responsible marketing practices and have innovated a wide variety of product offerings, including greatly increased lower-and no-calorie options in the marketplace. The global beverage industry is proud of the important role it plays in the global economy and the steady jobs it provides to hundreds of thousands of people who depend on beverage sales for all or part of their livelihoods.

American soda makers aren’t giving up on their home market. In the United States, they’re increasingly trying to market soda as a “premium” product, and even as a hip one.

Profits are up

Coke’s most recent results show increased profits stateside, in part thanks to selling soda at higher per-ounce prices in smaller containers and in glass bottles. Pepsico has had similar success. Profits have also been helped by much lower input costs for commodities such as sugar and corn (from which corn syrup is made.)

The CSPI puts as negative spin as possible on Big Soda’s global strategies. Another way to look at it is simply that the soft-drink companies are doing what all big companies do in a globalizing world: expanding their business to markets where there is the potential for growing demand.

While sugar-laden soft drinks surely pose health and social problems, so do many other products, from cars to coal.

Somewhat ironically, the soda makers are having a harder time overseas at the moment than they are in the United States, though that doesn’t mean the growth potential isn’t still there. Coke’s fourth-quarter earnings, released earlier this month, showed that volume sales actually rose in the United States, while sales fell in many overseas markets. Russia and Brazil are each in recession, China’s growth is slowing, and weak international currencies are crimping sales.

In the long term, though, overseas markets will continue to represent the soda makers’ best hope for growth, and it’s unclear what impact the complaints of advocates like the CSPI might have.

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