Coca-Cola Co. created and has dominated the cola market for nearly 125 years -- since shortly after John Pemberton hauled a jug of his secret syrup down Peachtree Street to the soda fountain at Jacobs' Pharmacy in 1886.
But we Americans crave variety in our bubbly drinks. Hence the rise over the decades of lemon-line drinks, orange sodas, "heavy citrus" soft drinks and "pepper" beverages. Known in the business as "flavored" beverages, they are outperforming the overall soft drink industry in the U.S. by gaining market share.
In the family of flavored drinks, Coca-Cola boasts some notable successes: Sprite leads the lemon-lime segment in the U.S.; Fanta leads the fruit segment; Barq's is America's best-selling root beer. Sprite Zero also leads the diet lemon-lime niche.
Against some flavored brands, however, the world's largest beverage company is an also-ran: Dr Pepper and PepsiCo's Mountain Dew remain two of the most formidable soft drink brands in the U.S.
"No one has significantly challenged Dr Pepper, and no one has significantly challenged Mountain Dew," said Michael Bellas, chief executive of New York-based Beverage Marketing Corp. "Once they got some wind behind them, it was hard to catch up. When you invent a category, it's so hard to dislodge you."
Caren Pasquale Seckler, vice president of sparkling flavors portfolio at Coca-Cola North America, acknowledges that some competitors are large, strong brands with loyal followings and long histories.
"It's sometimes hard to make a dent on that," she said. But the company gets to defend a position of strength in other segments, she said. "We enjoy the No. 1 position in multiple categories."
Marketing a wide range of flavored soft drinks helps Coca-Cola appeal to various age and ethnic groups, the company says. It wants those flavored drinks to complement Coca-Cola and Diet Coke, the biggest soft drink brand and the biggest diet soda brand in the world.
The tides of flavors matter to Coca-Cola because American consumers are steadily moving away from colas. Ten years ago, colas such as Coca-Cola and Pepsi represented 61 percent of the total U.S. soft drink business in the U.S. By 2009, that percentage had shrunk to 55 percent, according to trade journal Beverage Digest.
Sprite and Fanta both have evolved into billion-dollar brands worldwide. Fanta, in fact, is Coca-Cola's second-largest brand outside the U.S. Stateside, the brands seem to be strengthening. Sprite has posted two straight quarters of growth in the U.S. and is now growing on a year-to-date basis, while Fanta grew 4 percent in the third quarter.
Coca-Cola is poised to spend sizable resources on both Sprite and Fanta in 2011 and later years to support their recent growth. Fanta will have new advertising in 2011 and plans to introduce Americans to some of the 80 or so Fanta flavors that are found exclusively or mainly outside the U.S., such as grapefruit.
Meanwhile, Coca-Cola would like Sprite to reclaim its glory years in the lemon-lime category.
Sprite remains No. 1 ahead of PepsiCo's Sierra Mist. But after being on fire for much of the 1990s -- thanks to shrewd marketing and tie-ins with basketball and hip-hop -- Sprite slowed in the U.S. over the past decade. It lost about a point of market share in the 2000s.
One reason may be that Coke's resources were needed elsewhere. The company spent lots of money to boost the Coca-Cola brand and also to build Powerade, buy Glaceau [parent of Vitaminwater] and launch Coke Zero, which is now a major brand.
"Coke has a terrific brand in Sprite, but in recent years Sprite has not gotten the focus or support that it probably deserved," said John Sicher, editor of Beverage Digest. "Even a big, wealthy company like Coke has limited resources."
Meanwhile, PepsiCo's Mountain Dew brand is now a top-five soft drink and has built a high degree of buzz in its target demographic: 18- to 24-year-old guys who love video gaming, new music and online connectivity. Dew has cross-promoted with Doritos around the launch of the video game Halo and has solicited its fans' votes on new flavors, such as the recently launched White Out.
"It was all about fan interaction, speaking specifically to our loyal fan base and saying what's next with this brand," said Brett O'Brien, Mountain Dew's marketing director. "These guys are passionate, loyal fans."
Coca-Cola has experimented with several approaches to compete with Mountain Dew, so far with limited results. There was the now-discontinued Surge in the 1990s. Then came Vault. The company is now emphasizing Mello Yello, an older brand, with radio ads and some digital marketing.
Mello Yello's marketing was on a bit of a hiatus for some time, said Pasquale Seckler. But the company believes Mello Yello has latent equity that will re-emerge.
Meanwhile, Dr Pepper maintains its status as leader of the "pepper" category. Dr Pepper has defined the segment since it emerged in Texas in 1885. (The Dr Pepper Museum has collected more than a dozenstories about how the soft drink got its name.) Its parent company, Dr Pepper Snapple, has done especially well with flavored beverages. It has four of the top 10 non-cola soft drinks in the U.S., according to Beverage Digest: Dr Pepper, Diet Dr Pepper, Sunkist and 7Up.
"Part of it is focus, there's no question about it," said Jim Trebilcock, executive vice president of marketing at Dr Pepper Snapple. "There's a focus that we have on flavors that Coke and Pepsi don't have. But at the end of the day, you've got to earn your stripes."
Dr Pepper has kept Coca-Cola's Pibb Xtra, previously sold as Mr. Pibb, at bay. Pibb had 0.7 percent of the U.S. soft drink market in 2009, up one-tenth of a percentage point from the year 2000, according to Beverage Digest. One reason for the success of Dr Pepper and the comparative flatness of Pibb is that many Coca-Cola bottlers carry Dr Pepper rather than Coca-Cola's own brand. And since Coca-Cola owns much of its bottling network in the U.S., it makes money from selling Dr Pepper. That leaves Pibb without much marketing support.
"It plays an important ‘fighter' role in our portfolio," Pasquale Seckler said, referring to a brand that competes against a significantly larger one.
In the orange-soda category, Coca-Cola is setting its sights higher. The Fanta brand is getting attention at the highest levels of the company for posting its best quarter in memory in the third quarter.
Fanta is "a huge franchise around the world, and it's starting to show some better numbers in the States," said Gerry Khermouch, editor of Beverage Business Insights. The growth of the Hispanic demographic in the U.S. might help Fanta, which is popular in Latin America. A similar dynamic has boosted beer brands Tecate and Negra Modelo.
"It's a strong brand," Pasquale Seckler said of Fanta. "We're purposely positioned for that growth" in the Hispanic demographic, she said.
Soft drink market share
How the U.S. soft drink business measures out, in market share, with notable brands and brand owners (in parentheses.)
Colas: 55.4 percent. Coca-Cola (Coca-Cola Co.), Pepsi (PepsiCo)
Citrus: 10.2 percent. Mountain Dew (PepsiCo), Mello Yello and Vault (Coca-Cola)
Lemon Lime 9.6 percent. Sprite (Coca-Cola), 7UP (Dr Pepper Snapple Group), Sierra Mist (PepsiCo)
Pepper: 9.2 percent. Dr Pepper (Dr Pepper Snapple Group), Pibb Xtra (Coca-Cola)
Orange: 4.6 percent. Fanta (Coca-Cola), Sunkist and Crush (Dr Pepper Snapple)
Root beer: 3.3 percent. Barq's (Coca-Cola), A&W (Dr Pepper Snapple Group, Mug (PepsiCo)
Source: Beverage Digest
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Meet the reporter
Reporter Jeremiah McWilliams was discouraged from drinking full-calorie colas as a child, but was (somewhat inexplicably) allowed to drink orange sodas and root beer. For this story, he interviewed executives at Coca-Cola Co., PepsiCo and Dr Pepper Snapple as well as trade journalists, consultants and entrepreneurs to examine the state of the soft drink industry. For good measure, he sampled Coca-Cola's Barq's root beer and sipped several flavors of PepsiCo's Mountain Dew.
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