Analyst tips Coke to ride out shocking US diet soda slump


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Herzog says EFSA's new aspartame opinion could revive diet soda sales (Picture: John Larsson)
Herzog says EFSA's new aspartame opinion could revive diet soda sales (Picture: John Larsson)

Related tags Soft drink

US analyst Bonnie Herzog predicts that diet soda sales declines could fuel a 15-20% drop in overall US carbonated soft drink sales by 2020 but believes Coke is best-positioned to ride out the storm.

Nodding to a 7% fall in diet soda sales over the past year, Herzog, senior analyst at Wells Fargo Securities, said in a note yesterday that she believes the slump is “one of the most important issues for beverage manufacturers to address in the near term”.

“Despite our ongoing concerns, our analysis suggests that although Coke has the largest exposure to diets, it is actually the best positioned in the recent ‘Diet Downturn’ given the relative outperformance of its diet portfolio,”​ she added.

In large part, Herzog blames Twitter talk for negative press around aspartame that has hit US diet soda sales, but says recent tweets regarding the European Food Safety Authority’s (EFSA’s) new decision on the sweetener could help revive the category.

Twitter trashing of aspartame to blame?

EFSA’s panel on Food Additives and Nutrient Sources Added to Foods (ANS Panel) concluded Tuesday that, after the “one of the most comprehensive risk assessments” ​of aspartame ever, the current ADI of 40mg/kg of body weight per day was safe.

The EFSA news could benefit Coke and Coca-Cola Enterprises (CCE), Herzog added, given Coke’s brand dominance in Europe and the relative share of Diet Coke in key markets such as Great Britain.

Herzog said she that thought social media had been “one of the biggest drivers of the negative sentiment around aspartame in the US and globally”.

“We attribute the health and safety concerns surrounding diet CSDs to be the leading cause for consumers to switch to alternatives,”​ she added.

Wells Fargo analysed tweets using #Aspartame over the week leading up to the announcement (December 3-10), removing commercial tweets to “better track actual consumer buzz”.

The company estimated that there were almost 200 tweets on the day of the EFSA announcement, compared with less than 25 on each preceding day.

Where are diet soda drinkers going?

The “pace and interest”​ of Twitter sentiment regarding the EFSA announcement could ultimately reverse negative sentiment on artificial sweeteners, Herzog wrote.

“If consumers return to diet CSDs as a result, we believe 2014 could see strong volume recoveries in the category and benefit all major manufacturers,”​ she added.

As to where diet soda drinkers have been migrating to, Herzog believes health and wellness drinks (all-natural bottled waters, teas without artificial sweeteners) are making inroads.

“Because of the health concerns with artificial sweeteners, some of our retailers believe consumers are switching to regular [CSD] offerings, which are not perceived to be any less healthy, but consuming at a lower rate as they rationalize calorie intake,”​ she added.

Wells Fargo’s retail contacts also believe that many consumers – Millennials in particular – are switching to CSD like energy offerings such as Monster Zero Ultra (with sucralose and Ace-K) which CEO Rodney Sacks said was designed to have “much more of a soft drink, easy-to-drink flavor”.

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