Finding the Diet Cola Culprit

KmanCulpritAs whodunits go, it’s not exactly Murder on the Orient Express, but the causes for the slow bleed-out of the diet cola business are still worth exploring, both because of the multiple suspects in the game and because of the ongoing industry ramifications.

There are those who hear the numbers – Diet Coke and Diet Pepsi were each off nearly 7 percent last year in the U.S. – and immediately look to finger consumer concerns about artificial sweeteners – however founded or unfounded those concerns may reasonably be.

Certainly the latest evidence, a study from Europe released in December, seemed to take Aspartame off the hook, but for many consumers, the existence of a study is as much of a sign of guilt as its results (or, as my dad would note, upon perusing the label of a 60-calorie Honest Tea, “Ugh! It has sugar!” before ordering a Gatorade).

So fear of artificial sweeteners could be one explanation, but it’s hard to imagine it’s the full story, particularly given the growth of a pair of carbonated challenger brands, Zevia and Sparkling Ice. Zevia, of course, uses the all-natural sweetener-of-the-moment, Stevia, and Sparkling Ice uses sucralose (i.e. Splenda), which has had its own problems in the public eye, but certainly isn’t affecting that brand’s runaway expansion.

Now, we’ve heard from numerous folks who would likely benefit from fear of artificial sweeteners – including Zevia owner Paddy Spence himself – that the fear isn’t what’s driving the move away from diet sodas so much as the desire to add natural elements to one’s lifestyle – particularly when a product like stevia has evolved into a pretty good sweetener over the past few years. There’s a delicate difference there, and it’s not quite enough to account for either the ongoing growth of Zevia – it’s arcing toward $60 million this year – or the much more drastic decline of diet colas overall.

More in line is the growth of Sparkling Ice, heading for about $500 million in revenue this year. CEO Kevin Klock attributes the decline in diet colas not so much to fear of Aspartame but fatigued taste buds. According to Klock, there’s a large movement away from the Cola flavor profile itself; certainly, the growth of his brand and of Zevia speaks to that theory – they have more than 30 non-cola varieties between them, and Sparkling Ice doesn’t have a single cola in its 17 varieties. Klock’s argument is that the American palate is moving more to lighter, fruitier, more natural-tasting (if not naturally composed) flavors.

“If you look at the soda aisle,” Klock said, “They’re tired of the taste of just cola and lemon-lime.”

And the overall beverage flavor trend has gone that way, both in carbonated and in non-carb. Even Red Bull has berries at its base, while cola-flavored energy drinks haven’t broken through. The ongoing growth of Mountain Dew also speaks to the shift from colas as the CSD flavor of choice.

Energy drinks and their growth also have to be interrogated as suspects in the assault on diet colas. Our Managing Editor, Ray Latif, discusses the category’s overall impact on CSDs in his story this issue, but the impact on diets is obvious – more kids drinking energy drinks mean that when they start to cut the sugar they aren’t going to switch to, say, Diet Pepsi, they’ll switch to Rockstar Zero – that is, if they’re sticking with carbonates at all.

The weight of the evidence points not so much to any fear, but in fact to a generational shift away from CSDs (Klock would argue away from colas, anyway) overall. Kids drink what their parents drink, and as the cohort of cola drinkers thins, fewer kids are picking up the Cokes that their parents do. They aren’t then “stepping down” to Diet Coke or Diet Pepsi. Getting CSDs out of the schools might have been a great PR move in that regard, but it took a point of entry into users’ lives out of the equation.

The numbers are bearing it out: full-calorie cola consumption among the crucial 12- to 17-year-old age group dropped 10 percent from 2005 to 2012, according to a report from Morgan Stanley, while energy drinks, teas, and sports drinks all increased (the investment bank didn’t even factor bottled water into the study). A lower decline in diet colas over that period – about 2 percent – is a falsely faint pulse; it’s the full calorie cola drinker who eventually switches to diet. The share is really shrinking, and it’ll keep going.

A recent look into the topic by our friends at Kantar WorldPanel told us that diet drinkers remain the same percentage of soda drinkers overall – but the number of soda drinkers have gone down.

“There’s definitely penetration losses,” Kantar’s Kerry Corke told us.

So who is killing diet cola? Looks like it might be all of us, including Father Time.