By the numbers, soft drinks pack a hard punch
by James Russell

James Russell is IASB director of publications.

It's just a can of soda; so what's the big deal?

From the beverage industry's own perspective - in terms of income, jobs, taxes, market share, political and charitable contributions, federal and state laws, and the almighty consumer - plenty.

Just consider these figures, reported by the National Soft Drink Association, for the year 2002:

• $62.9 billion - Retail sales (up from $61.7 billion in 2001)
• $17 billion - Federal and state taxes (corporate, individual, sales and excise)
• 12 billion - Gallons of water used in carbonated soft drinks
• $8 billion - Salaries and wages
• $230 million - Charitable contributions (community, preservation, scholarships, and school districts)
• 1.5 million - Support jobs (farmers, retailers, recyclers, containers, vendors, advertisers)
• $930,163 - Political contributions to federal campaigns (from NSDA, Coke and Pepsi PACs)
• 175,000 - Jobs directly related to industry

When you also consider that Americans last year consumed 53 gallons of carbonated soft drinks (CSDs) per person, and that they had 450 soft drink brands to choose from, it's easier to understand just how high the stakes are.

Market share and production volume are critical factors to the success of any product. In 2002, total volume was 10.1 billion cases. Coca Cola controlled the lion's share - or 44.3 percent - of the market. The beverage giant reported slight increases in both market share and volume, or 0.6 percent and 2.1 percent, respectively, compared to its 2001 results.

A nearly equal share of the market was split between the second and third largest soft drink makers - Pepsi and Cadbury-Schweppes - finishing at 31.4 and 15.0 percent, respectively. Both lost ground in 2002 (Pepsi, down 0.2 percent, and Cadbury, down 0.6 percent). The remaining 10 percent is divided among the rest of the field.

A closer look at the market shares among the top 10 brands reveals the dominance of the Big Three:

Coke Classic controls 19.3 percent of the CSD market. That's followed by Pepsi Cola, 12.6 percent; Diet Coke, 9.0 percent; Mountain Dew (Pepsi), 6.4 percent; Sprite (Coke), 6.2 percent; Dr. Pepper (Cadbury), 5.9 percent; Diet Pepsi, 5.5 percent; 7Up (Cadbury), 1.7 percent; Caffeine-free Diet Coke, 1.7 percent; and Diet Dr. Pepper (Cadbury), 1.7 percent.

Those 10 brands comprise 70 percent of the market. However, all but two of the top 10 brands either lost market share or remained flat from their 2001 figures. Fortunately for these companies, their investments in new products - driven primarily at young adults and teenagers - are paying major dividends.

The biggest market gains were reported among newer brands: Pepsi's Mountain Dew Code Red, Vanilla Coke, Pepsi Twist, Diet Coke with Lemon, and Red Fusion, a Cadbury brand.

Following those sales are the increasingly popular alternatives to CSDs: bottled waters, fruit drinks, and "energy" beverages. The latter includes such youth-oriented brands as AMP, Impulse, Pink, Pimp Juice, Red Bull, Monster, KMX Red, Rush!, Omega, and Adrenaline Rush, to name a few.

So how does the financial health of the soft drink business impact schools, and vice versa?

Plenty.

Beverage companies and schools have had successful partnerships for more than 50 years, in the form of supplemental funding, scholarships, grants and volunteer programs. These alliances are generally welcomed by school officials, who seize the opportunity to fund athletics and sports equipment, after-school activities, field trips, computer technology, arts and theater with the proceeds.

In return for the revenue, via outright beverage sales or exclusive "pouring rights" contracts, schools allow soft drink companies advertising and sponsorship messages on vending machines, scoreboards, and programs.

The National Association of Secondary School Principals (NASSP) recently reported that 92 percent of its principals agree that these arrangements not only enhance educational programs, but also recognize that they are "an important part of the education funding formula."

In Illinois alone, these partnerships are worth millions annually to public school coffers. The soft drink industry, while privately fighting any additional limitations on such alliances, openly accepts existing state and federal regulations over placement and operation of vending machines in schools.

Federal law prohibits the operation of soda vending units in cafeterias during breakfast and lunch hours. And Illinois law defines soda as a "competitive" food, i.e., confections, candy, chips, fruit drinks, tea, coffee and soda, which must be controlled to avoid direct competition with non-profit food services.

There is no outright ban on school soft drink sales in Illinois or the U.S. - yet. However, Illinois is among a number of states with legislation introduced in recent months that would ban or severely limit soft drink sales in schools.

Naturally, the soft drink companies believe that it is essential for local control to remain in the hands of local school officials.

According to the National Soft Drink Association, that means: local educators, "in consultation with students, parents and community groups, (should) determine the placement of vending machines, the hours of operation, the variety of beverages available, and how the revenue is spent."

But that's where the rub begins for nutrition specialists and advocates fighting for childhood obesity protection.

Anticipating what may well be an inevitable losing battle over school sales of traditional soda, soft drink companies are also preparing new products to allay the fears of health-conscious consumers.

While the soft drink industry rallies its lobbyists in a united effort to "work preemptively to prevent punitive legislation," the Big Three are making moves privately to reshape their product portfolios.

According to industry reports in Beverage World magazine, Coke announced plans in 2003 to stop marketing carbonated soft drinks to elementary schools. At the same time, however, the No. 1 soft drink maker introduced Swerve, a lightly carbonated milk-based beverage tabbed specifically for school sales.

Pepsi, meanwhile, reshaped its product portfolio to divide its brands into three new categories - Good for You, Better for You, and Fun for You. According to Beverage World, Pepsi's goal is to have 50 percent of revenue coming from Fun for You drinks, i.e., full-calorie soft drinks, and 50 percent from the Good and Better product lines, i.e., fruit juices and water v. health and energy drinks.

Currently, Pepsi revenues are split 3:2 between traditional sodas and the other two categories, company president and chief operating officer, Indra Nooyi, told the trade publication.

This concession is also opening the door for newcomers to introduce beverages aimed exclusively at health and wellness concerns. Fortified, sugar-free and lo-carb beverages along with reduced and mid-calorie fruit drinks with blended sweeteners are among the new products heading to the marketplace.

But whether these efforts will be sufficient to buffet the rising storm of nutritionists and politicians insisting that schools can solve childhood obesity by banning soda sales remains to be seen.

Weighing Healthier Options

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