Pepsi

Falling soda sales: Not a trend, but a fundamental shift

April 1, 2014: 2:38 PM ET

Coca-Cola and Pepsico must be judged not on whether they can resurrect their flagship brands, but on how well they can manage those brands' decline.

<> on March 25, 2013 in San Francisco, California.FORTUNE -- Soft-drink sales have been declining for nine straight years. This is much more than a trend -- it's a fundamental shift in consumer tastes that poses a major problem for soda makers, no matter how diversified their product portfolios might be.

The latest numbers are astonishing, but not surprising. Sales of soda fell 3% by volume in 2013, to the lowest levels since 1995, according to a report from Beverage Digest issued on Monday. That would be a big drop no matter what, but it's also more than double 2012's decline. People are moving away from soda at an accelerating rate.

At this point, companies like Coca-Cola (KO) and Pepsico (PEP) must be judged not on what they're doing to save their flagship brands, but on how well they're managing those brands' decline. Of course that's not easy for companies that are named for those very brands, so they're still going nuts trying to figure out how to at least staunch the losses, even as they wisely continue to invest in alternatives like energy drinks, sports drinks, and flavored water.

MORE: M&M's newest flavor: Birthday cake?

Among many other initiatives, Pepsico tried a new bottle design for Pepsi, and it signed Beyoncé to a $50 million endorsement deal. Coke hired clothier Marc Jacobs as its "creative director." Sales have continued to plummet.

And the hoped-for savior of the business -- diet drinks with artificial sweeteners -- are no help. Up until a few years ago, sales of diet sodas were falling at about the same rate as the sugar-filled ones. Now they're actually falling faster as consumers continue to hear about health concerns. Just yesterday, a study was released indicating that consumption of diet soda can increase the risk of cardiovascular disease in older women.

But health concerns are not the only problem. If they were, it would seem unlikely that energy drinks, sports beverages, coffee-based beverages, and flavored waters would be taking up the slack. But they are. That's a further indication that what's doing soda in is the proliferation of choices in the beverage aisle, especially those aimed at young people, an increasing number of whom think of Coke, Dr. Pepper, Sprite, and Pepsi -- Beyoncé notwithstanding -- as the stuff their grandparents drank in the olden days.

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