Despite a commitment to eliminate aspartame from its diet soda, Pepsico has instead chosen to hedge its bets.
PepsiCo (NYSE: PEP) seemed to see the light on aspartame when it announced in April that come August it would remove the artificial sweetener from its Diet Pepsi brand.
Consumer rejection of artificial additives in both beverages and food has caused manufacturers to undergo a major shift in how they produce their food and drink, and though general soda consumption has been falling for a decade, diet soda sales, in particular, have collapsed.
Due to their heavy reliance on aspartame, high fructose corn syrup, and acesulfame potassium,Pepsi, Coca-Cola (NYSE: KO), and DrPepper Snapple (NYSE: DPS) have witnessed volumes shrivel up.
Soda volumes are slimming downDiet Coke was once one of Coke's best-selling soft drinks, helping to prop up market share when it started to slip. But attitudes shifted and the brand went into free fall, with volume growth turning negative and continuing on a sharp downward spiral ever since. Diet Pepsi's slide is even steeper.
Source: Beverage Digest.
To stem the losses, the beverage makers have struck out in several directions.
Coca-Cola first tested the more natural stevia-flavoredCoca-Cola Life in Argentina before expanding it here in the U.S. while Pepsi sold a stevia-based Pepsi Next in Australia. Both beverage giants reintroduced real sugar into their sodas, with Coke relying upon the mystique (and popularity) of its so-called "Mexican Coke" and Pepsi running with its "throwback" version.
DrPepper is also trying sodas flavored with both stevia and sugar as its CoreTEN line with aspartame has had mixed results
On second thought, noBut Pepsi now appears to be hedging its bets. Even though it promised to eliminate aspartame from Diet Pepsi, it now indicates it may still offer it to consumers but only online.
During its second-quarter earnings conference call with analysts, Chairman and CEO Indra Nooyi said that it's decided not to completely abandon the artificially sweetened drink since some customers undoubtedly still like it. So, for them, Pepsi "will figure out how to make it available online."
She could be having flashbacks to the ridicule and ultimate failure Coca-Cola suffered in 1985, when it changed the recipe for Coke with the introduction of the so-called "New Coke." While the drink maker found in blind taste tests consumers actually preferred Pepsi's sweeter taste, what it didn't count on was their reluctance to part with tradition.
Three months after New Coke was introduced, it brought back the original formulation as Coca-Cola Classic. It eventually discontinued production of the new version in 2002.
Sweet dreamsBy not completely letting go of the aspartame-flavored Diet Pepsi, Pepsi could quickly bring it back to market if it suffers a similar backlash. Even though fickle consumers say they want healthier, more natural ingredients, that doesn't always jibe with their actions.
It's a potential problem they face with their stevia-sweetened drinks because when the sweetener is highly processed (as it needs to be when making flavorings in commercial quantities), it's reported there's a chemical or licorice-like aftertaste.
Of course, the stevia found in your soda and the plant you can grow in your garden are two completely different things, and Coke found that when it introduced stevia to its vitaminwater brand, consumers rejected it because of the taste. Coke quickly dropped the flavoring.
The new Diet Pepsi could be setting Pepsi up for failure, though, because it will be flavored with sucralose, better known as Splenda, which is still an artificial additive.
Damned if you do, damned if you don'tThe irony is the obesity problem in the U.S. -- which health officials like to call an epidemic -- originally fueled the beverage industry's decision to switch from real sugar to artificial flavorings like aspartame, sucralose, and HFCS. Now they're being clobbered by the latest turn of events.
Whatever popularity artificial sweeteners once held, it's clear they've fallen far out of favor and Pepsi switching from one faux taste profile to another may do nothing to alleviate the bitter aftertaste of sliding soda sales.
The article Why Is PepsiCo Keeping This Hated Ingredient in Its Soda? originally appeared on Fool.com.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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