Soft-Drink War Escalates Amid Advertising

In one corner, with 36.4% of the soda market in 1984 and companywide revenue of $7.4 billion, is Coca-Cola Co., maker of Coca-Cola and 16 other brands. With its red-and-white trademark on millions of signs from Miami to Hong Kong, it is arguably the best-known brand name in the world.

In the other corner, with 25.6% of the soda market and companywide sales of $7.7 billion, is PepsiCo Inc., whose “Pepsi Challenge” has taken on new urgency. The company has backed its perennial taste-test dare with a multimillion-dollar television ad campaign featuring pop singer Lionel Richie, Democratic vice presidential candidate Geraldine Ferraro and NFL quarterbacks Dan Marino and Joe Montana.

The ads have once again focused consumers’ attention ringside, as the reigning heavyweight, Coca-Cola, battles a resurgent Pepsi and a host of other brands seeking a bigger share of the $21-billion domestic soft-drink market.

Although in the past observers have been moved to predict--inaccurately, as it turned out--that Pepsi was gaining on Coke, this time there is evidence that those forecasts may be realistic.

Boosted Market Share

“Last year Pepsi was the only major brand of cola to increase its market share,” said Larry Jabbonsky, editor of Beverage World, a Great Neck, N.Y., trade publication. It also made inroads last November when it offered the only diet cola sweetened totally with NutraSweet, G. D. Searle & Co.’s enormously successful artificial sweetener.

Other manufacturers, such as Phillip Morris Co.’s Seven-Up Co., which last year posted its first profit since 1980, on revenue of $734 million, are also hoping to land punches on Coca-Cola. Seven-Up, which spent more than $30 million on product advertising in 1984, said it will launch the most expensive marketing campaign in its history this year.

More than just corporate pride is at stake.

Soft drinks are the most widely consumed beverages in America, with per-capita consumption last year exceeding even that of free tap water, reports Beverage Industry, a Cleveland-based trade publication.

Other companies besides beverage makers stand to gain handsomely as consumers quaff more soft drinks. Because 36% of these products are packaged in aluminum cans, the increased demand could invigorate the aluminum industry, which has suffered from the nation’s housing slump, experts say. Television also stands to benefit as beverage makers fight it out over the airwaves.

Use of Sugar Down

However, sugar makers won’t be so fortunate. Sugar use has plunged 58% since 1980--when the industry sold 2.16 million tons of its crop to beverage makers--as nearly all bottlers have switched to cheaper corn syrup, the Agriculture Department says. And sales of diet sodas sweetened with saccharin or NutraSweet are growing at three times the rate as that of regular brands. Those diet sodas now account for about 20% of total soft-drink sales, according to the National Soft Drink Assn. in Washington.

“This is a huge industry,” said Rob Martin, a Coca-Cola USA spokesman. And Coca-Cola is “deadly serious about our business,” he added.

For all its implications, the current soda war began by happenstance.

An errant firework ignited singer Michael Jackson’s hair during filming of a Pepsi commercial in the Shrine Auditorium in Los Angeles in January, 1984.

Although Jackson recovered quickly from second-degree burns, the incident propelled Pepsi’s name into headlines, bringing the company publicity worth $3 million by its own estimate. In the wake of the commercials, Pepsi’s flagship label boosted its market share by 1.5 points last year.

“Almost immediately, within a month or two, . . . sales of Pepsi started to take off,” said Alan Pottasch, senior vice president of advertising at Pepsi, which markets six Pepsi brands as well as Mountain Dew and Teem.

Pepsi Cashes In

Former vice presidential candidate Ferraro’s Pepsi ad this year fueled debate about the ethics of politicians doing commercials. As the controversy swirls, Pepsi continues to cash in on its higher profile. Emanuel Goldman, a beverage analyst at Montgomery Securities in San Francisco, forecasts that the growth rate for all Pepsi’s soft drinks in 1985 may match that of Coca-Cola USA’s products.

But Coca-Cola has not exactly knuckled under to Pepsi’s onslaught.

At a time when consumers appear to be tiring of the glut of celebrity product endorsements, Coca-Cola’s commercial featuring comedian Bill Cosby berating Pepsi for being too sweet is a hit, according to Video Storyboard Tests Inc. The New York-based research group says the Cosby commercial has consistently ranked among viewers’ 10 favorite commercials, even though a separate study by the group found that only 19% of 1,000 consumers felt that celebrities increased their interest in products.

What’s more, Coca-Cola, which derives between 60% and 75% of its soft-drink sales volume from 155 foreign countries, seems almost impervious to attack overseas.

“Pepsi gave it their best shot in Europe” several times, observed Goldman, “but Coke is a powerhouse overseas.” Although Goldman estimates that the strength of the dollar against most foreign currencies may hurt Coke’s earnings slightly this year, Coke’s strong foreign sales give it a unique cushion.

Market Growing Rapidly

That Coca-Cola and its competitors have been able to thrive amid the intense competition is testimony to the soft drink market’s rapid growth in recent years. While alcohol and coffee consumption has declined over the last 20 years, annual consumption of soft drinks has more than doubled to 43.2 gallons per person. Industry sales grew 6.1% last year alone, paced by a 67.5% spurt in diet Coke and a 26.9% jump in Diet Pepsi, according to estimates by Beverage Industry.

Dr Pepper, which ranks fourth behind Coke, Pepsi and Seven-Up, boosted its volume by 8% last year, says Beverage Industry, though the company’s 6.8% market share paled beside Coca-Cola’s 36.4%. Even tiny A. J. Canfield & Co. of Chicago, whose diet chocolate soda became the rage in the Midwest after Chicago Tribune columnist Bob Greene raved about its taste, sold more cans in January, 1.5 million, than it sold all of last year.

Still, the surge in soft-drink consumption seems odd given the health and fitness kick sweeping the nation.

Soft drinks may begin life as “natural” water. But the average 12-ounce can of soda also contains 9.5 teaspoons of sugar and nearly as much caffeine--40 milligrams--as a cup of instant coffee, as well as artificial coloring and flavoring, said Bruce Silverglade, legal director of the Center for Science in the Public Interest, a Washington-based consumer group.

Yet soft drinks, which have traditionally been a staple among teen-agers, have also managed to entice legions of presumably more nutrition-conscious adults.

Consumers’ tastes may be changing, however.

Concern About Preservatives

“Our research has shown that consumers are concerned about preservatives in regular soft drinks, just as they are concerned about caffeine and other artificial ingredients,” said Edward W. Frantel, president of Seven-Up Co., which stresses in its ads that “it never had it, never will.” The reference is to caffeine.

Adds Coca-Cola’s Martin: “People want more than one thing. They don’t just want the traditional sugar cola anymore.”

In fact, manufacturers have been hedging their bets on regular cola drinks, which account for about 60% of soft-drink sales, by introducing an array of products recently.

Last year, for example, Pepsi introduced Slice, a carbonated soda containing 10% fruit juice. In March, Coca-Cola unveiled Cherry Coke in four U.S. test markets. Coke says it plans a domestic test of Minute Maid Orange Soda, which is now available in Canada.

The plethora of new products may have distracted Coca-Cola from its flagship brand.

“Over the last two years, of our big eight brands, six are either new, repositioned or changed,” Coca-Cola USA President Brian G. Dyson was recently quoted as saying. “Anybody who tells you that doesn’t have some systemwide effects on the other brands is not being truthful. Now it’s time to go back and refocus on the flagship brand.”

Adds Coke’s Martin: “Diet cola is where the growth is; that’s why we’ve spent a lot of time with diet Coke and Tab.”

Plans Own Assault

Meanwhile, Seven-Up is revving up for its own assault on the soft drink market.

It has developed nine ads for network, sports cable and cable’s Music Television (MTV). Seven-Up, which had $5.3 million in net income last year, contrasted with a $10.3-million loss in 1983, says the ads will reach more than 95% of all Americans in 1985.

“What’s happened over the last five to seven years is that our industry has become much more sophisticated and competitive,” said Charles W. Schmid, executive vice president of Seven-Up’s soft-drink group.

“I have a very healthy respect for Coca-Cola and Pepsi,” Schmid continued, “. . . but I think the changes in consumer taste preferences, and movement to brands that don’t have preservatives and artificial colors, is right down our alley. I think our competition . . .” recognizes the trend, too.

Utilizing longtime Seven-Up spokesman Geoffrey Holder, Seven-Up’s commercials directly challenge Coke’s and Pepsi’s lemon-lime drinks--Sprite and Slice--by claiming that both brands contain preservatives.

But advertising can carry a soft-drink maker only so far. Distribution and innovation are the nuts and bolts of the industry, experts say. And the rewards often go to those that are quickest on their feet.

Got Jump on Coke

Last November Pepsi got the jump on Coke when it introduced a reformulated version of Diet Pepsi, sweetened with 100% NutraSweet rather than a blend of saccharin and the Searle product. In so doing, Pepsi was briefly able to offer the only all-NutraSweet diet cola. Coke later hired Federal Express to deliver all-NutraSweet Diet Coke across the country.

It’s not likely that Coca-Cola will again be ambushed anytime soon.

Coca-Cola is reportedly planning a big 100th-anniversary celebration next year, and company officials are said to be in no mood for poor sales performance.

“What Coke doesn’t want to have is a 100th-anniversary birthday celebration with Coke slipping,” said one soft drink official who did not want to be identified.

“We obviously wouldn’t want that,” agreed Coca-Cola spokesman Martin. “We will be minding the store very carefully.”

TOP 10 U.S. SOFT DRINKS

1984 MARKET RANK BRAND SHARE 1. Coke 21.7% 2. Pepsi 18.8% 3. Diet Coke 5.4% 4. 7 Up 5.1% 5. Dr Pepper 4.5% 6. Sprite 3.6% 7. Diet Pepsi 3.0% 8. Mountain Dew 2.9% 9. Pepsi Free 2.0% 10. Diet 7 Up 1.8% 11. Tab 1.8%

1983 MARKET RANK BRAND SHARE 1. Coke 24.5% 2. Pepsi 18.2% 3. 7 Up 5.5% 4. Dr Pepper 4.6% 5. Diet Coke 4.6% 6. Tab 2.9% 7. Mountain Dew 2.8% 8. Sprite 2.8% 9. Diet Pepsi 2.5% 10. RC Cola 2.4%

1982 MARKET RANK BRAND SHARE 1. Coke 26.6% 2. Pepsi 19.5% 3. 7 Up 5.5% 4. Dr Pepper 4.7% 5. Tab 3.8% 6. Diet Pepsi 3.3% 7. Mountain Dew 3.2% 8. Sprite 3.1% 9. RC Cola 2.6% 10. Sunkist 1.9%

1981 MARKET RANK BRAND SHARE 1. Coke 26.5% 2. Pepsi 19.5% 3. Dr Pepper 4.9% 4. 7 Up 4.9% 5. Tab 3.5% 6. Mountain Dew 3.2% 7. Sprite 3.0% 8. Diet Pepsi 3.0% 9. RC Cola 2.7% 10. Sunkist 1.7%

1980 MARKET RANK BRAND SHARE 1. Coke 26.5% 2. Pepsi 17.9% 3. Dr Pepper 5.5% 4. 7 Up 5.4% 5. Tab 3.2% 6. RC Cola 3.0% 7. Sprite 2.8% 8. Mountain Dew 2.7% 9. Diet Pepsi 2.5% 10. Sunkist 1.5%

Sources: Beverage World, Beverage Digest

Monday: A small Southland beverage firm suffers from the fierce soft-drink competition.