Could This 1 Drink Save Coca-Cola and the Entire Soft-Drink Industry?

Soft-drink industry trade publication Beverage Digest recently tweeted news that Coca-Cola Life will be introduced in the U.S.

Coke Life is a mid-calorie, stevia-and-sugar-sweetened soda that hopes to outperform similar drinks introduced by PepsiCo and Dr Pepper Snapple Group . According to management, Coke Life "has shown great promise in bringing people back into the [diet soda] category " and "is playing a meaningful role as it is not just delivering incremental volume...but also enhancing the positive feelings that consumers have for Coca-Cola."

After successful tests in Argentina and Chile, Coca-Cola is rolling out the new product in the U.S. and the U.K. this year. If developed markets receive the drink as warmly as the test markets have, Coke Life could be the answer to the soft- drink industry's woes.

Photo courtesy of The Coca-Cola Company

Nothing else has worked so far
The soft-drink industry is being dragged down by plummeting diet soda sales. Diet soda was once viewed as an attractive substitute for regular soda because it contained fewer (or no) calories. However, the artificial sweeteners necessary to achieve zero calories have since been rumored to contribute to cancer and obesity -- completely destroying diet soda's image as a healthy alternative.

The negative perceptions have caused a sharp fall-off in diet soda sales. In 2013, Diet Coke volume declined 6.8% in the U.S. compared to a 0.5% decline for regular Coke. Diet Pepsi volume declined 6.9% versus a 3.6% decline in regular Pepsi. Diet Mountain Dew also declined more than its full-calorie counterpart, falling 3.1%.

So far, nothing that the beverage industry has tried has quelled the backlash against diet soda. Last year, Coca-Cola used a national advertising campaign to reassure consumers that aspartame was safe to consume. The advertisement cited more than 200 studies that found the company's artificial sweeteners to be safe alternatives to sugar. Even the American Cancer Society says that most studies in humans have not found a link between aspartame and cancer. However, the continued declines in diet soda sales show that attempts to change consumers' perceptions about artificial sweeteners have been ineffective.

Photo courtesy of The Coca-Cola Company

A fresh brand to the rescue
Consumers -- particularly American consumers -- are slaves to brands. Top brands receive high consumer loyalty, while tarnished brands find it especially difficult to compete. Diet soda's tarnished reputation puts the category in a position that reassuring marketing cannot overcome. Instead, a major rebranding effort may be needed to restore consumer interest in diet soda.

If rebranding is the solution to the diet soda crisis, Coke Life will let investors know. Expectations are high after successful tests in Argentina and Chile demonstrated the drink's ability to attract ex-soda drinkers and drive incremental volume. Now, Coca-Cola will launch the mid-calorie drink in the U.S. and the U.K. later this year.

Coke Life contains just 89 calories, about one-third fewer than full-calorie Coke. Coke Life is sweetened by a combination of stevia and sugar. Stevia has been criticized for having a poor aftertaste, but it does not have the negative health perceptions that plague other artificial sweeteners. The sugar in Coke Life may cover up stevia's poor aftertaste, while the combination of the two sweeteners lowers the overall calorie count. This sounds like the perfect compromise between health and taste.

Reasons to be skeptical
Coke Life could be the answer to Coca-Cola's diet soda problem, but the drink is not a sure thing by any stretch. PepsiCo and Dr Pepper Snapple have introduced similar drinks with limited success.

PepsiCo introduced Pepsi Next in 2012. Pepsi Next is marketed as having 60% less sugar than regular Pepsi. It originally contained aspartame but changed to a different concoction of artificial sweeteners in 2013 after complaints about taste surfaced. Consumers' initial perception of Pepsi Next may be to blame for the drink's inability to make a material contribution to PepsiCo's beverage portfolio thus far.

Dr Pepper released its own reduced-calorie soda -- Dr Pepper TEN -- to great disappointment. Beverage-industry analysts blamed Dr Pepper's third-party distributors -- primarily Coca-Cola and PepsiCo -- for Dr Pepper TEN's inability to execute at the store level. Since Coca-Cola and PepsiCo are not incentivized to maximize sales of a competitor's products, Dr Pepper TEN has struggled to grow.

Foolish takeaway
Nothing has been able to reverse plummeting diet soda sales, but Coca-Cola is hoping Coke Life will turn things around. Coke Life is a fresh brand that delivers a better-tasting reduced-calorie soda and uses an artificial sweeter that does not have significant baggage. Although PepsiCo and Dr Pepper have introduced similar reduced-calorie options, their failures in the category may have been due to factors that do not pertain to Coke Life. As a result, investors are not crazy to hope that Coke Life could give new life to the soft-drink industry.

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Ted Cooper owns shares of Coca-Cola. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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