Coca-Cola to Replace Coke Zero in the U.S. -- 2nd Update

By Jennifer Maloney Features Dow Jones Newswires

Coca-Cola Co. is replacing Coke Zero in the U.S. with another diet-soda brand, an effort to hold on to consumers cutting back on sugary drinks.

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Coca-Cola Zero Sugar, a strong seller in Europe and Latin America since it was first introduced in the U.K. last summer, will become available in the U.S. in August.

Although both diet sodas are sugar-free and contain the same artificial sweeteners, Coca-Cola said Zero Sugar tastes more like original Coke and looks more like it, too, with a red circle on cans and bottles in contrast with Coke Zero's black design.

The retooled name is intended to better communicate to consumers that it contains no sugar, as municipalities across the country implement taxes on sugar-sweetened beverages. Both Coke Zero and Coke Zero Sugar are sweetened with aspartame.

In a conference call Wednesday, Coca-Cola Chief Executive James Quincey said the new recipe "will actually help people stay in the Coca-Cola franchise." Coke Zero Sugar, which like Coke Zero is sweetened with aspartame, was first introduced last year in the U.K.

The company launched Coke Zero in 2006, but gains by that product haven't compensated for a broad decline in consumption of Diet Coke, said Mr. Quincey, who took over the beverage giant in May. Rather than switching to Coke Zero or Diet Coke, fans of original Coca-Cola can now "stay with the brand they love. It just comes with a couple of variants -- one with sugar and one without sugar," Mr. Quincey said on the call to discuss the company's second-quarter results.

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Coke has been aiming to cut sugar from its products and diversify beyond soda as more countries consider special taxes on sugar-sweetened beverages to combat rising rates of obesity and diabetes, and as consumers switch to healthier beverages. The Zero Sugar name is intended to better communicate to consumers that it contains no sugar .

While shifting away from sugary drinks, many consumers are also rejecting artificially sweetened diet sodas, posing a challenge for soda giants trying to introduce lower-calorie options. Low- and no-calorie cola sales fell 5% by volume in North America last year, according to Euromonitor.

Coke Zero was the No. 10 soda brand in the U.S. last year, with sales growth of 3.5%, according to Beverage Digest, an industry tracker. Diet Coke, meanwhile, was the third-biggest brand but is losing fizz, with a 2% drop in sales.

Susan Cantor, CEO of branding firm Red Peak, which wasn't involved in the launch, said the new packaging conveys that the new product is part of the red Coke family, but the addition of "sugar" to its name may confuse some consumers.

"Sugar is a bad word these days, so I question their thought process in putting it so prominently on the package," she said. "This could possibly call attention to the very ingredient that they have eliminated."

Mr. Quincey, who earlier this year laid out a plan to transform Coke into "a total beverage company," said new product launches in the second quarter included premium juices in China and "higher-value" smoothies in Europe. He said the company is experimenting with reformulating low-calorie versions of many of its sodas to make them taste better. The company said low- and no-calorie soda volume notched percentage gains in the mid-single digits during the quarter.

Coke also lifted its full-year earnings outlook, forecasting adjusted earnings per share to be flat to down 2%, compared with guidance of a 1% to 3% decline from the year prior. Analysts polled by Thomson Reuters had forecast full-year earnings of $1.89 per share, a 1% decline.

Coke's beverage volumes during the latest quarter were flat world-wide as growth in developed markets like Mexico and Spain offset weakness in Latin American markets. However, adjusted revenue grew 3% as the company shifted its focus to revenue growth over volume growth.

In all, Coke reported second-quarter profit of $1.37 billion, or 32 cents a share, down from $3.45 billion, or 79 cents a share, a year earlier. Last year's quarter included the company's now-divested bottling business. On an adjusted basis earnings fell to 59 cents a share. Revenue fell 16% to $9.7 billion, but organic revenue grew 3%.

Shares were little changed, up 16 cents to $45.40, after gaining 9% so far this year.

Imani Moise contributed to this article.

Write to Jennifer Maloney at jennifer.maloney@wsj.com

(END) Dow Jones Newswires

July 26, 2017 12:50 ET (16:50 GMT)