Giant Cola Firms Play Catch-Up

By , Staff writer of The Christian Science Monitor

THE nation's two soft-drink giants figure that what consumers perceive to be healthy drinks could be good for the firms' pocketbooks.

After seeing rapid growth in health-oriented drinks made by smaller bottlers such as Clearly Canadian and Snapple, Coca-Cola USA and Pepsi-Cola Company "are really jumping onto the bandwagon to get a piece of that market," says Robert Levandoski, managing editor of Beverage Industry, a trade magazine.

The $28-billion soft drink wholesale market grew only 1.5 percent last year, compared to 3 to 4 percent growth that had been a norm for years. But the $757-million health-oriented drinks market grew a strong 12 percent last year, says Hellen Berry, of Beverage Marketing Corporation, a New York research firm.

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"Right now, the cola business needs a spark because the sales of cola have been relatively flat," says Tom Pirko, president of Bevmark, a Los Angeles consulting firm.

Last month, Coca-Cola introduced Nordic Mist, a flavored sparkling water, to Boston, New York, Philadelphia, and Pittsburgh. By the end of 1993, the product will be available in 70 percent of the United States, says Randy Donaldson, a Coca-Cola spokesman.

Pepsi is currently test-marketing Crystal Pepsi, a clear, caffeine-free, low-cal cola in seven states.

Sales of Clearly Canadian, the market leader in the flavored-water category, have been growing 25 percent per year. This year's sales so far amount to $139 million, up from $86 million in all of 1991. Coca-Cola is trying to enter the flavored-water market, new territory for the firm. Pepsi is simply adding a product to its line.

"From a marketing standpoint, Pepsi perceived it a lower risk to stick with what they know best," says Paul Messinger, marketing professor at John M. Olin School of Business at Washington University in St. Louis.

About 250 million people already drink colas in the US. On average, Americans drank 48 gallons of soft drinks last year, Ms. Berry says. This compares to a 0.84 gallon per person consumption of alternative health-oriented beverages, she says.

A spokesman for Dr. Pepper/Seven-Up Company says that Pepsi has to fight the perception that something that tastes like a cola has to be dark. He notes that companies such as Coca-Cola and Pepsi have the financial resources to play around with new products even if they are shortlived.

Last year Coca-Cola spent about $170 million promoting its soft drinks. Pepsi spent about $140 million. Next year, Clearly Canadian is planning a $35-million advertising campaign. Pepsi has 600,000 marketing outlets compared to Clearly Canadian's 15,000.

"We welcome the competition," says Greg Agar, spokesman for Clearly Canadian. The entry of other firms would enlarge the market in the long run, he says.

The success or failure of brands depends on the retailer, analysts say. "Retailers have a limited amount of shelf space they are willing to devote to beverages," Professor Messinger says. They demand a slotting allowance, a lump-sump payment paid as a rental space for the shelf, he says. "This is very tough for small companies," Levandoski says.

But as long as consumer demand is strong, supermarkets will carry those brands, Mr. Pirko notes. Smaller companies also sell at good profit margins through restaurants and convenience stores, often introducing new customers to their brands.

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