The fizz factor

June 21, 2005

Statistics say carbonated soft drink sales are falling, but most people probably don't know it.

According to the Beverage Marketing Corp., sodas commanded a 28 percent share of the overall beverage market in 2004, which includes other thirst quenchers such as water, beer, wine and milk. Still, according to research done by Morgan Stanley, 2005 could be the first time in many decades that U.S. sales volume of carbonated soft drinks declines.

The cause? Bottled water, according to Morgan Stanley analyst Bill Pecoriello.

"Consumers are becoming ever more health conscious, and the image of regular carbonated soft drinks is deteriorating rapidly," Pecoriello told Cox News Service.

Some credit is due the Atkins Diet, which made Americans keenly aware of high-fructose corn syrup in sugared sodas by attaching it to the nation's obesity problem. And bottled water producers have successfully positioned their offerings as not only more healthful than soda, but better than ordinary tap water.

Year-over-year, bottled water sales have increased an average 8 percent since 2001, but that still adds up to just 12 percent of the overall beverage market — 14 points behind soda. In short, soda remains sovereign, especially in pizza delivery. The coolers in most delco operations

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house 2-liters and 20-ouncers of soda, not the stuff that trickles down from Mount Shasta. Soda sells, and that's what operators and beverage makers supply. Plus, most delivery operations have little room for other inventory.

"We definitely sell bottled water to employees from the vending machines at the backs of pizza shops, but not much" to customers, said Andy Alabiso, senior customer marketing manager for Atlanta-based Coca-Cola. "It's just not a priority for customers."

So what does sell best?

"Coke, Sprite and Diet Coke, which is a distant third," said Alabiso, who manages Papa John's national account. Such numbers are typical for pizza, he added, but "in a typical QSR it's Coke, Diet Coke and then Sprite."

Alabiso said part of the difference can be traced back to the client base; adults buy less pizza than youth, who typically choose full-sugar sodas. But research he's seen also shows that carbonated soft drinks and beer — both of which have a scrubbing and cleansing effect on the palate — simply go well with pizza.

"Evidently, the chemistry is such that when we're eating pizza, we want a carbonated soft drink, but not milk or POWERade or water."

What's in fourth place?

While Coke, Sprite and Diet Coke (and their direct competitors, Pepsi 7-Up and Diet Pepsi) dominate the top three soda sales spots, what comes next? As you might expect, more soda. However, this is where regional preferences tend to kick in, operators said.

"When I originally opened up, people were telling me I'd better have Dr. Pepper," said Eric Lippman, co-owner of EJ's Neighborhood Pizzeria and Italian Eatery in Cyprus, Texas. "Since I sell Coke, I thought I had to get Mr. Pibb, but customers said they didn't want that, they wanted Dr. Pepper."

Since Lippman sells Coke products from a self-serve soft drink fountain, he started stocking Dr. Pepper in bottles. The compromise was a smart one. "I probably go through as much Dr. Pepper as Coke."

But the drink that dwarfs even his soda sales is a fresh-brewed, mango-flavored tea. Customers — even kids — gulp down about 4.5 gallons of it daily. A 16-ounce serving costs him 4 cents and sells for $1.75. "You can imagine I don't mind if they get a few refills. ... For carryout, I use a 32-ounce cup."

Regional preferences present great upselling opportunities, said Alabiso. In a soda-drinking, variety-driven society, customers may already have standards like Coke and Pepsi at home, and with the right coaxing, they may try something different.

"If it's a brand that you might not find in the pantry, like Barq's Root Beer, you've got a better chance at selling it," Alabiso said. "Sometimes, a customer will say, 'Barq's? Why not? I'll give it a try."

Coke uses Papa John's pizza delivery operation to do mass product trials, such as one for Sprite Remix last year. For one day, a free 20-ounce bottle of the

start quoteYou can't get a free refill on IBC Root Beer or bottled water ... . If you want another of those, it's $2 bucks and customers know it.end quote

Eric Lippman,
EJ's Neighborhood Pizzeria and Italian Eatery

new drink accompanied every delivery order. The company will do the same on July 14, when it launches Coke Zero, a non-sugared version of Coke Classic.

"That free drink is a surprise and a delight for the consumer," said Alabiso, pointing out that the pizzeria benefits from the perceived goodwill of the freebie. "When we do that, we'll carry that brand in the store for a limited time only to see how it performs."

For the Coke Zero launch, the company will give out some 20 million free samples, 312,000 of which will be delivered by Papa John's.

Lippman likes selling unique bottled offerings, too. But he said there's no doubt that, in a dine-in situation, customers perceive a greater value with fountain drinks.

"You can't get a free refill on IBC Root Beer or bottled water, but you can get as many refills on a Coke as you want to," said Lippman, who sells only one case of bottled waters per month. "If you want another of those, it's $2 bucks and customers know it."

When Matthew Horelick opens the Low-Calzone in August, he'll have a host of healthful, low-to-no-sugar drinks, as well as a smoothie and juice bar to whet customers' whistles. The restaurant will be in a large shopping center next to Las Vegas's largest health club, which also is within a few minutes' drive of three other clubs.

He knows people love sugared sodas with their pies and sandwiches, but in Vegas-like fashion, he and business partner Brad Rosenberg are betting the demographic they're targeting wants alternatives.

"The only non-diet drink we have is Coca-Cola," Horelick said. "But our major demographic is people concerned about their health and working out regularly.

"What we're serving is healthy food, but it won't taste like health food. So our (beverage offerings) have to fit that."

Topics: Papa John's

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