Why Soda Isn't Dead Despite Declining Sales

Tickers in this article: KO PEP SODA

NEW YORK (TheStreet) -- Americans cut back on soda last year as they continue to try to get healthier and slimmer, but that doesn't mean soda is a dying product.

According to a study by trade publication Beverage Digest, Americans reduced their consumption of carbonated soft drinks by 3% to 8.9 billion cases last year as soda sales reached their lowest levels since 1995.

Soda sales have steadily declined since 2005, mainly because of fears that soda contributes to obesity. Sales of diet sodas have also fallen as studies have shown that artificial sweeteners may be harmful, too. A study released last weekend found that women who drank two or more diet drinks a day were 30% more likely to have a heart attack and 50% more likely to die than women who don't drink soda at all.

The Beverage Digest study found that consumption of energy drinks rose by 7.7% in 2013. Fast-growing sales of energy drinks such as Red Bull and drinks from Monster Beverage are viewed by younger generations as a substitute for coffee and aren't generally grouped into the same category with unhealthy soft drinks.

The caffeine and sugar contained in energy drinks pose a health risk of their own, but because many consume the product before they exercise or start a busy day, the drinks are considered to boost productivity.

Although sales of carbonated sodas are declining, the breakthrough technology of at-home carbonation drinks is increasing in popularity. The do-it yourself drink avoids some of the stigma of other soft drinks because people know the ingredients.

SodaStream International created a product that allows users to carbonate water at-home through its soda-making machine, and add healthier ingredients with less sugar and carbohydrates and fewer calories. The product is also marketed as eco-friendly, allowing the consumer to reuse bottles multiple times.

The SodaStream technology has been hit in stores as sales of the company's soda maker grew by 30% last year and sales of its at-home syrups and carbonators doubled in the U.S..

The declining volume of carbonated beverage sales last year doesn't necessarily mean that Americans are losing interest in soda but that consumers are becoming more health-conscious.

If Coca-Cola and PepsiCo want to adapt and continue to profit from their core soft-drink businesses, they should take notes from SodaStream and add more transparency to their production process, and at the same time use healthier ingredients.

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At the time of publication, the author had no position in any of the stocks mentioned.

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