[Trend Alert] The War on Sugar Goes Mainstream
Major market trends almost always start small.
When new products and ideas first catch on with early adopters, the herd is usually skeptical. “There’s no way that will catch on,” they say.
Slowly but surely, these new ideas start to look a little less crazy. More people hop on the bandwagon. The media catches on and spreads the new idea to the masses. The cat is out of the bag. A product that was once panned as a fad is now a necessity. This is the tipping point, setting the stage for an industry explosion that permanently changes the market.
As luck would have it, we’re experiencing one of these unique tipping points right now in a very unlikely place: the beverage industry.
We’ve discussed America’s new obsession with cutting sugar on several occasions over the past few years. In fact, a nationwide sugar aversion has crushed soft drink consumption for the better part of the past decade.
Soda consumption has plunged to levels last seen nearly 30 years ago. Since 1998, per capita consumption has declined from 53 gallons to 41 gallons, according to RBC Capital Markets.
Of course, the sugar peddlers have wised up to our attempts to get fit. They’re diversifying beyond their standard offerings to combat this societal shift. You might remember that Coca-Cola bought Vitaminwater back in 2007. The company has even come out with a stable of new Diet Coke flavors this year ranging from Ginger Lime to Zesty Blood Orange to lure younger customers.
But that doesn’t change the fact that sugary brands like Coca-Cola are falling out of favor with consumers. In our health-conscious world, zero calorie seltzers have taken cola’s place.
That brings us to our watershed moment. On Monday morning, soda giant PepsiCo coughed up $3.2 billion to purchase SodaStream International, maker of home-carbonation machines that allow customers to make their own carbonated beverages at home in reusable containers.
Buying SodaStream’s business for a hefty premium could be considered as a desperate move. PepsiCo has been under pressure to restructure as sales of its sugary offerings remain weak in North America, according to the Wall Street Journal
“The sales slump came after the company last year shifted too much shelf space and advertising money to new, healthier brands,” the Journal reports.
With PepsiCo unable to effectively market its own healthier brands, it had little choice but to buy out a company that once called its own bottled water business “the biggest marketing scam of all time.”
While the SodaStream deal might work out in the long run, I don’t know if this acquisition will help PepsiCo catch up with unlikely trendsetters in the sugar-free drink space like LaCroix sparkling water.
LaCroix’s parent company, National Beverage Corp. (NASDAQ:FIZZ), has become a dominant bubble water player. Thanks to the newfound trendy status of its flagship brand, FIZZ shares haven enjoyed an incredible three-year romp, returning more than 300% since the beginning of 2015.
As I noted in early June, LaCroix is holding its own against sparkling water brands launched by Coke and Pepsi. Its stock was even beginning to wake up earlier this summer after slowly drifting lower for nearly nine months.
Pepsi and the other sugary soda brands have a lot of catching up to do…