Pepsi Challenge Is to Add Fizz to Flat Diet Soda Sales

For Pepsi-Cola Co., which will spend $100 million to introduce its Pepsi One diet cola on Oct. 17, getting consumers to notice the latest entry in the cola wars is just part of the battle.

“Soda companies usually do a terrific job of building awareness that they’ve got a new product,” said Gary Hemphill, vice president of Beverage Marketing, a New York-based magazine. “The big question is whether people will go back for that critical second sip.”

The key to Pepsi One’s success will be its taste--whether it tastes more like a real cola than the low-calorie alternatives now on the market.

Pepsi executives have high hopes for Pepsi One, the first soda in the U.S. with acesulfame potassium, a powerful new sweetener known as Ace-K. Industry sources say Pepsi believes that the soft drink, to be introduced during the World Series telecast, can grow into a $1-billion business. That’s a heady goal for Pepsi, which now generates $3.5 billion in annual sales from its Diet Pepsi mainstay.

Pepsi’s challenge is a tough one. It must build sales in the diet cola category, which has been flat for nearly a decade. And it must do so by stealing share from leader Diet Coke rather than cannibalizing sales of Diet Pepsi.

Pepsi isn’t marketing the new cola directly to women. Though they drink more than half of the diet cola sold in the U.S., many already have a brand they like.

Pepsi instead is going after younger consumers, in particular, younger guys who have generally been bypassing diet colas.

Pepsi is betting that brand spokesman Cuba Gooding Jr., the likable Oscar-winning star of movies such as “Jerry Maguire,” will help to broaden Pepsi One’s appeal beyond calorie-conscious females to incorporate younger males who tend to prefer other low-calorie options such as teas and juices.

But Pepsi will have to move quickly to consolidate its position if the first diet drink with Ace-K to be sold in the U.S. hits a sweet spot with consumers.

“Coke and the other soda companies won’t be far behind,” Hemphill cautioned, though Coke has said it has no plans to use the new sweetener.

Pepsi Hopes to Tap Young Male Market

Pepsi’s expensive roll of the dice is notable in an industry that’s inherently conservative. Industry observers say Coke and Pepsi executives still live in the dark shadow cast by high-profile flops like Crystal Pepsi and the “new” Coke.

Industry observers say Pepsi won’t have to wait long to learn if it has a hit.

“The first 60 days of every launch are immensely important,” said Tom Pirko, a New York-based beverage industry analyst. “It’s just like the movie industry. You need to come out of the gate quickly, with lots of noise to create consumer awareness.”

Pepsi isn’t treating Pepsi One as a typical diet cola.

For starters, the word “diet” doesn’t appear on Pepsi One’s silver cans. The familiar Pepsi globe is there, along with the word “ONE,” which is printed in thick, black letters. And, there are references to Pepsi One’s namesake--the fact that it has just one calorie.

Pepsi hopes that Pepsi One will sate the calorie-conscious thirst of a wide range of consumers. But the company clearly believes that the demographic engine that will drive sales is anchored with males in their 20s and 30s who now tend to buy teas, juices and bottled water.

“We know there are 30 million satisfied Diet Pepsi drinkers,” said Steven Fund, marketing director for Pepsi’s diet cola lines. “But millions more are looking for a diet cola with a taste that’s closer to the regular cola . . . there are lots of consumers out there who aren’t satisfied by the taste of Diet Pepsi or Diet Coke.”

Older consumers who have grown up with Diet Coke or Diet Pepsi are likely to continue drinking their favorites. Fund said there’s an untapped reservoir of potential customers among consumers in their 20s and 30s--including many males.

Banking on Strength of Marketing, Sweetener

That explains Pepsi’s decision to roll out Pepsi One during the World Series, which is aimed squarely at guys who count balls and strikes rather than calories. As many as eight Pepsi One commercials will run during guy-oriented television shows such as “The Simpsons,” “The X-Files” and the Super Bowl.

As the advertisements build awareness, Pepsi will also spend freely to get samples into consumers hands.

Customers at 7-Eleven convenience stores will get free cans of Pepsi One to wash down their hot dogs. College campuses will be flooded with free samples, as will shoppers at Wal-Mart stores. Pepsi One Lounges are being set up in shopping malls, so guys can sip diet colas and watch sports videos while their wives or girlfriends shop. The free drinks will be available at participating stores and malls around the country.

Coke says it doesn’t feel threatened by Pepsi One. “We have the country’s favorite diet soft drink, a band of incredibly loyal consumers,” said spokeswoman Polly Howes. “We don’t see any reason to change Diet Coke.”

Pepsi’s marketing might is what will get Pepsi One noticed. But it is Ace-K, the sweetener that’s 200 times more powerful than sugar, that makes the new brand possible.

One measure of the stock that Pepsi places in the new diet line is the speed in which the company has brought Pepsi One to market. Pepsi announced plans for Pepsi One in June, just hours after federal regulators cleared Ace-K for use in sodas. The quick response raised eyebrows in the cola industry, where change often takes place at a glacial pace.

Some observers say Pepsi moved so quickly with Pepsi One because the company failed to beat Coke to market in the early 1980s with a diet cola containing aspartame--the sweetener that fueled Diet Coke’s rise to dominance in the diet cola market.

Pepsi One contains a proprietary mix of Ace-K and aspartame that, according to Pepsi, produces a rich, cola-like flavor that’s distinctly different from traditional diet colas. And, according to industry observers, many consumers do ignore diet colas because they simply don’t taste as good as regular cola.

Ace-K has been used in the U.S. for more than a decade to sweeten chewing gum, cough drops and gelatin. Cola companies, including Pepsi, have sold drinks with Ace-K in Europe for nearly a decade.

Cola industry observers say Pepsi One’s blend of Ace-K and aspartame could be the right combination to jump-start the diet cola market. Diet drinks that accounted for about 30% of total soft drink sales in the early 1990s now account for about 23% of sales.

“It’s a flat and declining category,” Pirko said. “What it needs is something that stands up and declares itself by great taste to be unique. It has to be exciting.”

No matter Pepsi One’s taste, observers say, the real challenge will be “getting repeat business,” said John Sicher, editor of Bedford Hills, N.Y.-based Beverage Digest. “Pepsi, with its bottling system and promotional muscle, is going to get initial trial by customers. The key, as with any consumer product, is whether people come back again and again and again.”

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Sweet Competition

Major artificial sweeteners and their characteristics:

* Saccharin: The oldest and most affordable sweetener, it leaves a bitter aftertaste. It’s used in Coca-Cola’s Tab.

* Aspartame: The dominant sugar substitute, best known by the NutraSweet name, is 200 times sweeter than sugar. It is used in products such as Diet Coke and Diet Pepsi.

* Acesulfame potassium: Known as Ace-K, it has been used in soft drinks overseas for years and was cleared for U.S. use in June. It is blended with aspartame in Pepsi One.

* Sucralose: A new sweetener that’s made from sugar and 600 times sweeter, it isn’t yet used in cola formulations. It also goes by the trade name Splenda.

Source: Freedonia Group

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Top Pops

Overall growth in the diet cola market has been slow, with both Diet Coke and Diet Pepsi losing market share during 1997. Pepsi-Cola hopes its new Pepsi One entry will draw consumers away from leader Diet Coke without cannibalizing

sales of Diet Pepsi.

1997 MARKET SHARE FOR THE TOP

Coke Classic: 20.6%

Pepsi-Cola: 14.5%

Diet Coke: 8.55

Mountain Dew: 6.3%

Sprite: 6.2%

Dr Pepper: 5.9%

Diet Pepsi: 5.5%

7-Up: 2.3%

Caffeine-Free Diet Coke: 1.8%

Caffeine-Free Diet Pepsi: 1.0%