It was more of the same – but different. Consumer concerns about health and obesity continued to reduce consumption of carbonated soft drinks (CSDs). But industry leaders responded with strategies to expand portfolios with healthier options, drive margin rather than volume, and strengthen their iconic brands.
Consumption of CSDs dropped 1.2 percent in the U.S., the eleventh consecutive annual decline, and per capita consumption reached its lowest point in 30 years, according to the industry publication Beverage Digest. Legislation aimed at controlling sugar content and artificial ingredients, in order to curtail obesity and disease, continued to percolate in Europe, North America and other markets, including India, as various jurisdictions imposed consumer protection and revenue-raising measures.
Energy drinks thrived regardless of consumer concerns about ingredients. Red Bull ranked number three in the BrandZ™ soft drink category ranking. Coca-Cola purchased a stake in Monster, which entered the ranking for the first time. More start-up soda brands appeared, usually with craft-style beverages that advertised natural ingredients and artisan credentials, suggesting purity and healthfulness even though the products may contain as much sugar as the mass-market brand leaders.
Amid these challenges, Coca-Cola doubled down on the power of the iconic red disk, changing its tagline to “Taste the Feeling” from “Open Happiness” and launching a one-brand strategy that markets original Coke and three variations under the Coca-Cola brand. PepsiCo removed the sweetener aspartame from Diet Pepsi sold in the USA. It also partnered with a smoothie maker and introduced a “Hello Goodness” program of vending machines that dispense healthier products.
Pressures on the soft drinks category resulted in a proliferation of choice, with multiple brands of energy drinks, enhanced waters and other products spilling beyond the beverage aisle at retail. The BrandZ™ Soft Drink Top 15 rose 1 percent in value, following an 8 percent rise a year ago.
Focusing on the product
The new Coca-Cola tagline, “Taste the Feeling” emphasized the product. It focused on the taste and the pleasure in the moment of drinking that make consumers choose Coke. The more abstract “Open Happiness” had conveyed a higher brand purpose, implying that with its universal appeal, Coke could help heal the world.
By unifying all the variants under Coca-Cola, the pleasure associated with “Taste the Feeling” becomes an attribute of Coke, Diet Coke, Coke Zero and Coca-Life. They become versions of the same product, customized to meet the customer’s desires and concerns about sugar and artificial sweeteners. The four-into-one strategy is intended to eliminate the suggestion that Coke drinkers who want to limit sugar intake need to change brands.
Coca-Cola achieves marketing efficiency by promoting one brand instead of Coke and several sub-brands. Linking together the red Coke and versions with less sugar or calories, also helps sustain the Coke brand even as consumer health concerns send CSD consumption downward.
Coke modified its packaging options in North America, with larger sizes for value customers and smaller, premium sizes with higher margins for customers who wanted to limit their intake. In India, Coke achieved affordability by selling individual small cups at low prices through street vendors.
Diversifying brand portfolios
Both Coca-Cola and PepsiCo continued to diversify their brand portfolios. PepsiCo derives over 53 percent of its profit from its snacks businesses; CSD accounted for less than 25 percent of PepsiCo revenue. Coca-Cola gains almost a third of its revenue from products other than sparkling beverages, and that proportion is expected to increase.
Of the BrandZ™ Top 15 soft drink brands, Coca-Cola or PepsiCo own all but these four: Red Bull, Dr Pepper, Nescafé and Nespresso. Coca-Cola owns Coke, Diet Coke, Fanta, Sprite, Minute Maid and a stake in Monster. PepsiCo markets Pepsi, Lipton, Tropicana, Gatorade and Mountain Dew.
The soft drink leaders are expanding into niche parts of the category, often through acquisitions. These include smart waters fortified with vitamins, for example, and other drinks that are viewed as healthier than CSDs. Coconut water increased in popularity because it has the requisite elements: being healthy and functional.
Lipton, with a BrandZ™ valuation that includes Unilever’s ownership of the hot tea business and a joint venture of PepsiCo and Unilever for its ready-to-drink iced tea business, appeared in the BrandZ™ Soft Drinks Top 15, reflecting the perception of tea as a healthier beverage.
A more diverse portfolio of brands adds to the complexity of managing the business. In the case of Coca-Cola and PepsiCo, it requires managing specific, highly valued brands as well as a corporate brand that stands for a variety of products. Along with driving the top line, the leaders took costs out of their businesses. Coca-Cola accelerated plans to shift bottling to franchise networks in North America and China.
PepsiCo prepared to open a restaurant called Kola House in Manhattan’s trendy Meatpacking District. It will serve Kaleb’s Kola, PepsiCo’s version of a craft CSD. The menu will feature food with variations on the Kola nut.
Gatorade planned sponsorship of the European Cup and expanded its marketing relationship with the NBA, adding more brands, most notably Mountain Dew, to lead the partnership in the USA. Gatorade and Mountain Dew, associated with sports and action, introduced virtual reality options. The Mountain Dew Super Bowl ad featured its Kickstart variant, which combines Mountain Dew with juice and caffeine. As part of its global “Do the Dew” campaign, Mountain Dew planned to introduce a campaign around drone racing.
Red Bull, which promotes its energy drink by associating it with extreme sports such as mountain biking and cliff diving, signed a deal to provide programming to Reuters through Red Bull Media, which creates the brand’s sponsored content. Red Bull also provides content for a branded Netflix channel.
In a transaction with Coca-Cola, Monster Beverage Corporation took over ownership of Coca-Cola’s energy drink portfolio and transferred to Coke its non-energy brands, which include Peace Tea and several natural sodas and juices. Nestlé’s Nespresso brand continued its global expansion, adding Thailand, Romania, Senegal and other African nations, to bring its Nespresso boutiques to 63 countries, including its first flagship in Milan, Italy.
Responding to health concerns
Health remained an important concern with a rising focus on sweeteners, as consumers prefer natural rather than artificial ingredients. The health concerns are a global phenomenon and part of the millennial mindset.
Following a government report blaming sugar, and especially sweetened soft drinks, for childhood obesity, the UK government announced a tax on sweetened drinks to take effect in April 2017. The measure was intended to encourage soft drink brands to reformulate their products. The British Soft Drinks Association argued that the industry already had in place a plan to cut calories by 20 percent by 2020.
The Belgium government announced that it would impose a tax on soft drinks in October 2016, as part of a larger initiative to cut consumption of products deemed to have deleterious health effects. In Mexico, where per-capital soft drink consumption is high, a tax imposed on soft drinks in 2014 has resulted in at least a moderate decline in soft drink purchasing, according to recent report produced with the country’s National Institute of Public Health.
But as more country markets, such as India, considered taxation of soft drinks, debates continued over whether there are more effective ways to combat obesity and diabetes, and if taxation is sometimes also about revenue generation or protectionism.
Brand Building Action Points1. Be Salient.
It is critical to keep getting the brand name out. The need and occasion is not complex: “I’m thirsty. I need a drink.” Build Salience, create a lot of good content and place it in the right environments.
2. Be transparent.
To be transparent is the right approach, and there is no other option in this era of rapid global communications. Although health concerns are primarily voiced in developed parts of the world, they are heard everywhere.
3. Understand the new generations.
In the past, the differences in attitude and values from generation to generation were incremental. Now the world is changing so quickly, millennials are different from “gen x-ers”, and centennials are even more different. It requires serious study to understand why young people are consuming soft drinks – or not – and to create marketing that speaks in a relevant way and in the right tone of voice.
Many young energetic brands have emerged that are on trend with consumer needs. Established brands need to stay ahead, or at least keep up.