Pepsi's Mid-Calorie Next to Launch in July

6/15/2011 8:32:51 AM

'Next-Generation' Cola Could Be 'Incremental' to the Soda Category

Pepsi today confirmed it would be launching Pepsi Next, a reduced-sugar and reduced-calorie cola.

Massimo d'Amore, CEO, PepsiCo Beverages America, confirmed the launch during a presentation at the Beverage Digest Wall Street Smarts conference in New York. News of the new product leaked in April, but Pepsi declined to comment at the time.

Mr. d'Amore said a test will begin in July in two markets, one city each in Iowa and Wisconsin. It will have 60% less sugar and 60% fewer calories. He said the product was created for consumers who want full-calorie colas but are decreasing consumption as they look to cut back on sugar. Those consumers aren't interested in a zero-calorie cola, however, because of the taste profile.

"Pepsi Next is a next-generation cola," Mr. d'Amore said, explaining that the taste improves on previous mid-calorie colas such as Pepsi Edge. "The way we were formulating products 10, 20 years ago is different from how we formulate them today, so I think it's time we give it a try. ... The sweetener system is different; some of the ingredients are different. It's a great-tasting product."

Mr. d'Amore did not address marketing efforts behind the launch, and a spokeswoman for the brand declined to comment on any plans. Past mid-cal colas, including Pepsi Edge and Coca-Cola's C2, have received major marketing support. In 2004, the C2 campaign ranked as the most lavish launch since Diet Coke in 1982. Estimates pegged the cost of the C2 launch campaign at $30 million to $50 million.

Pepsi appears to be focusing on a reduced-sugar message for Pepsi Next, rather than a reduced-calories message. That messaging could help the brand find a place in Pepsi's portfolio, which already includes Pepsi, Diet Pepsi and Pepsi Max. When news surrounding Pepsi Next first leaked, industry insiders questioned how the brand would position a mid-calorie cola. After all, it will be the brand's third try at such a product.

While the propositions of "regular" and "diet" are well understood, things get murkier with mid-calorie products. Consumers who have become used to the idea of Pepsi Max ("Zero Calories, Maximum Taste") and Coke Zero ("Real Coca-Cola Taste and Zero Calories") could easily be confused by the proposition of a mid-calorie cola. Mid-calorie products have a rocky history. In the mid-1990s, PepsiCo launched the short-lived, 70-calorie Pepsi XL, "X" for excellent taste, "L" for 50% less sugar. In 2004, PepsiCo unveiled 70-calorie Pepsi Edge, while Coca-Cola pushed C2; the brands subsequently disappeared from shelves in 2005 and 2007, respectively.

The business proposition for a mid-calorie cola is clear. "Pepsi and Coke need to keep consumers drinking their colas," John Sicher, Beverage Digest's editor and publisher, told Ad Age this spring. By Beverage Digest's count, in 1995, colas accounted for about 65% of the carbonated soft-drink business in the U.S. Today, it's about 55%.

"When some consumers switch from regular colas, they try diets, don't like the taste and move on to water or other categories," Mr. Sicher added. "This is an attempt by Pepsi to come up with another tool to keep consumers in their cola franchise. The theory is that a mid-cal can taste better than a diet to some consumers and appeal to consumers who are moving away from the regular brands."

Bill Pecoriello, CEO of Consumer Edge Research, also emphasized the importance of taste, during a Beverage Digest presentation proceeding Mr. d'Amore's announcement.

"The consumer wants calorie reduction. If you can give half calorie with no taste sacrifice, there's a product there for the consumer," Mr. Pecoriello said. "C2 and Pepsi Edge failed and taste was a major issue. [Consumers] are not willing to sacrifice taste for half the calories when you have Diet Coke and Diet Pepsi out there. Something like a Pepsi Next, if it could achieve the taste profile, could be incremental for the category."

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