The Cola Wars Go Low-Carb
Coca-Cola, Pepsi to Promote Mid-Calorie Sodas

By Margaret Webb Pressler
Washington Post Staff Writer
Tuesday, May 25, 2004; Page E01

Major soda companies have been spinning out new flavors for years without a lot of success at jump-starting sales, which have been growing annually at a paltry half-percent since 1998. So the soft drink giants are trying again -- with colas aimed at the newly health-conscious, weight-watching, carb-counting consumer.

Coca-Cola and Pepsi hope for big results from the release of C2 and Pepsi Edge, both of which fall halfway between the zero calories and sugar of a diet soda and the calorie-packing sweetness of regular cola. The new beverages are being touted as the first wave in a new category of mid-calorie soft drinks.

"It's the first new product in a long time that has a functional benefit versus just a new flavor benefit," said Dave DeCecco, a Pepsi spokesman. "There definitely is interest in the marketplace for that."

Industry experts are unsure whether the concept will be flat or fizzy in the minds of consumers. They say the soda market has been hurt by competition from other types of beverages, even water, so it is hard to know how hot -- or lasting -- the new mid-calorie market will be.

Part of the problem assessing the impact of the new drinks is identifying who will buy them and how many of the guzzlers will just be defectors from other Coke or Pepsi brands.

"It could potentially cannibalize existing products," said Todd Stender, a beverage analyst with investment banking firm Crowell, Weedon & Co., which does not have an investment banking relationship with either Coke or Pepsi.

Some analysts say the mid-calorie rollouts are best seen as a good excuse, like Diet Coke with Lemon or Pepsi Vanilla before them, to get in the public's face with lots of advertising touting the core brand. As sodas lose ground to water, iced tea, juice and other drinks, the only way to fight back is to keep rattling the cage and encouraging shoppers to walk down the soda aisle again.

"It's a reason for retailers to stock more product, to be on display, and it shows that at least you're awake," said Bryan Spillane, a beverage analyst with Banc of America Securities, who does not own stock in either company. Banc of America does have investment banking relationships with both Coke and Pepsi.

"It's a very low-cost way to create some news," he said. "If it works, then great. If it doesn't, it doesn't cost them a whole lot."

Pepsi Edge will be released in two stages, in mid-June and a month later, but its advertising won't begin until the product unveiling is complete.

That means Coca-Cola, which also has a mid-June target for stores, gets the first chance to crack consumer consciousness. It is unveiling its first television commercial for C2 tonight during the final competition on "American Idol."

Coke also will be doing extensive giveaways and sampling of its new soda at all kinds of venues, from supermarkets to ballparks. "We view it as the biggest launch since Diet Coke in 1982," said Coke spokesman Kelly Brooks.

Coke still leads Pepsi in market share, 44 to 32, in the carbonated soda universe. Pepsi, which also owns Frito Lay and Quaker Oats, has been better able to withstand the softness in the soda market.

Both companies say they are after anyone who is being more careful now about taking in too many calories or carbohydrates. Since sugars are counted as carbs and both new sodas use a combination of high-fructose corn syrup and artificial sweeteners, the drinks are easily marketed to the millions of consumers who now try to limit their intake of carbs, as well as those who are more focused on calories.

"We think it's an answer to a global consumer trend," Brooks said, adding that the mid-calorie Coke should have particular appeal to adults in their twenties and thirties, who are young enough to be soda drinkers, but old enough to be watching their weight. He said the company's research indicates the products will bring new soda drinkers to the market. In the end, the goal is not just to add incremental sales volume, but to "further strengthen and build the Coca-Cola trademark."

Analyst Spillane is not holding his breath for a major boost to the soda market, despite the coming advertising blitz. He said the market of people who are more health conscious may be vast, but the mid-calorie sodas are likely to appeal most to those who are watching their calories and can't stand the taste of diet sodas.

"The target they're trying to reach is there, but I think it's like threading a needle," he said.

To some degree, the companies are quite open about that. Pepsi's reasoning for its new drink focuses on the "dual users" in the soda market, or consumers who drink both diet and regular soda, sometimes alternating and sometimes mixing the two at the fountain.

"That number of dual users has increased 75 percent in the last two years," said DeCecco of Pepsi. "So we see a sizeable and growing consumer base for a product like this."

If those consumers come from other Pepsi brands, so be it. "That's the low-hanging fruit -- people who are torn between the regular and the diet," DeCecco said. "The second target is those that have left the cola franchise altogether or maybe used to have three regular Pepsis a day but might now . . . have two Pepsis and peach iced tea."

Few analysts doubt that these enormously powerful marketing engines will be able to get that first target audience, and maybe a bit more. At least in the beginning.

"The companies do a terrific job of getting new products into stores, getting a marketing buzz," said Gary Hemphill of Beverage Marketing Corp., an industry research company. "The question is are people going to come back again and again."