The Cola Kings Are Feeling A Bit Jumpy

Ah, the joys of summertime. There's the crack of ball meeting bat, the glow of sun on skin--and the din of cola wars. This summer, the celebrity-filled ads and splashy promotions from Coca-Cola Co. and PepsiCo Inc. are more urgent than ever. The reason: Americans' once-insatiable thirst for colas seems to be waning.

For Coke and Pepsi, the numbers are alarming: Cola's share of grocery-store soft-drink sales dropped last year, to 60.4% from 61.8% in 1990, according to Nielsen Marketing Research (chart). Cola's share peaked in 1984 at 63.6%. Andthe downward trend continued through February and March, the latest months for which data are available. That's bad news for the soda-pop giants, both of which get more than two-thirds of domestic soft-drink sales from colas. A point of soda-pop market share is worth about $460 million in retail sales.

`ALL IS NOT WELL.' True, grocery stores account for only about 40% of soft-drink sales. Throw in vending machines, convenience stores, and restaurants, and cola's market share holds steady. But fast-food chains offer few choices of soft drinks. Supermarket shelves bulge with noncola alternatives, so they may be a better bellwether of changing habits. "The grocery-store numbers show that all is not well," says Richard D. Harvey, president of Seattle-based Sound Marketing Services and a former Coke executive. "The two companies have concentrated on each other for so long, they've opened the way for others to grab a piece of the business."

Some cola diehards are turning to cheaper store brands such as Wal-Mart Stores Inc.'s Sam's American Choice. And plenty of noncolas are jumping into the breach. Last year, brands such as Dr Pepper and Barq's root beer showed volume gains of 15% and 17%, respectively, according to Wheat First Securities analyst John C. Maxwell Jr. And the so-called "New Age" category of flavored seltzers, juice drinks, and "natural" soda pops grew 13%, to $515 million, fueled largely by Clearly Canadian Beverage Corp.'s namesake brand, according to industry newsletter Beverage Digest. That's a wee drop in the $46 billion soft-drink market but an enviable growth rate in an industry that edged up a scant 1.8% last year. "Consumers are willing to pay a higher price for variety," says John E. Koerner, president of Barq's Inc.

The shift in habits is hardly life-threatening for Coke and Pepsi. According to Maxwell, total market shares for all their colas and noncolas remain high at around 41% and 31% respectively. Still, the titans don't like others to gain a foothold. And after years of targeting each other as enemy No. 1, they now face a legion of pesky independents. So, they're shoring up their colas and launching noncola blitzes of their own.

Pepsi fired the first salvo in May, with its largest promotion ever, the Gotta Have It card. Aimed at drinkers of Pepsi, Diet Pepsi, and Mountain Dew, the card offers discounts on products of such partners as Reebok, Continental Airlines, and MCI.

Coke has a deal with Warner Music Group and NBC Inc. to exploit Coke's $20 million Olympic Games sponsorship. Each night during the games, NBC will air a five-minute video of Warner performers such as Eric Clapton mixed in with Olympic highlights to help promote Coke's offer of certificates good for free cassette tapes and compact disks.

COLOR-FREE. To reach noncola types, both biggies are pushing everything from iced tea to colorless cola. Pepsi has been testing Crystal Pepsi, a drink aimed at clear-soda-pop fans, which now has an astounding 5.8% share in Denver. It's too early to tell how repeat sales will do.

As part of an agreement with Nestle, Coke has introduced a reformulated Nestea iced tea in the U.S. Pepsi has a tea deal with Thomas J. Lipton Inc. Coke has expanded distribution of its PowerAde sports drink, and Pepsi has launched its All Sport. Pepsi will also distribute Ocean Spray juice drinks. "The cola category is still vibrant," says Brian Swette, Pepsi-Cola's general manager for new business. "But Pepsi is exploring these new categories to cast our net even further."

Both companies have also enlisted some old standbys in the noncola wars. Thanks to increased marketing and distribution last year, Coke upped sales volume for Sprite by 5%, and Pepsi boosted Mountain Dew by 9%. Coke's Fresca will soon appear in shapely green-glass bottles to appeal to the fancy-water crowd.

Wall Street analysts welcome all the noncola activity. "It's the only way to generate growth in the U.S. soft-drink industry," says Joseph J. Doyle, an analyst with Smith Barney, Harris Upham & Co. But it remains to be seen if the giants can fight off the swarm of rivals clamoring for their own spot in the sun.

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