The End of the Cola Age

Pepsi recently announced its intention to switch from using aspartame to sucralose in its Diet Pepsi offerings. This switch is partly in response to surveys showing the sweetener as the primary reason Americans are shunning diet sodas. It is also another effort by the company to try to address the rapid decrease in sales and Coca-Cola’s increasing market share. However, these efforts and the switch from aspartame to sucralose is a manifestation of a much larger problem for the Cola industry as a whole – it is shrinking.

Due largely in part to the anti-obesity campaigns sweeping the nation and consumer shifts towards healthier options, carbonated soft drink (CSD) volumes have continued to decline. Soft drink volumes fell an estimated 3% in 2013 and particularly consumption of Diet CSDs have declined because of the negative connotation associated with aspartame and other artificial sweeteners. While sales volume of regular Coke slipped 0.5% last year, Diet Coke plunged 6.8%. Pepsi and Diet Pepsi dropped 3.6% and 6.9%, respectively. While Pepsi’s switch to sucralose (popularly known as ‘Splenda’) is of good intention, because of the negative image associated with sweeteners, gain from the switch will hardly be realized. In addition, we must take into consideration that Pepsi is not switching to sucralose in all its product offerings, which will only add to consumer confusion. If the company was planning on switching from aspartame to sucralose, the switch should have been across all its product offerings, not just a few select ones.

I think that Pepsi’s decision not to make the switch for all its products in part represents a lack of clear direction and confusion. The lack of committal to sucralose means either that the company does not believe the switch is significant and that it is only a marketing ploy or that Pepsi does not believe in the success of its own product. These issues in part arise because Pepsi is still struggling to define its image and focus. Should the company continue to focus and devote attention to its struggling carbonated soft drink portfolio or should it shift its attention to its natural product portfolio? It cannot maintain its current strategy of trying to develop both – it is time that Pepsi, as an organization, devote all its resources to one target area and pursue it full force. It certainly has the technical and managerial expertise and financial capability to do so, the question is whether it can leverage them properly.

--Aditya Garg