Are Diet Foods the Real Thing?


Diet Coke turns 25. The world hasn't been the same since. But despite the hype, most consumers still want the calories

The debut of Diet Coke 25 years ago was a splash heard around the world. A troupe of Rockettes pranced before a giant soda can on stage at New York's Radio City Music Hall in front of 6,000 people. Little did the company realize, however, the important part it would play in changing the way Americans eat and drink.

It was the first time Coca-Cola (KO) attached its powerful brand name to something other than the original Coke, introduced in 1886. Propelled by heavy marketing and celebrity endorsements, sales of Diet Coke quickly overtook those of Diet Pepsi, which had been introduced almost two decades earlier. Today there's a diet version of almost every major soft drink.

But Coke didn't stop there. Since Diet Coke hit the shelves it has spawned more than 20 derivatives of Coke Classic, including Diet Coke sweetened with the sugar substitute Splenda and Diet Coke Plus, which is enhanced with vitamins and minerals. The lesson for other food and beverage companies? The way to stay desirable in today's market is to take an existing product, tweak its ingredients, and slap the word "diet" or "light" on the package.

Innovation Is Vital

Growing concerns over heart disease, cancer, and obesity have consumers scouring grocery store aisles for healthier products. To keep their brands relevant and competitive, companies are investing heavily in reformulating their products with more nutritious ingredients or launching new marketing efforts targeting health-conscious consumers. Products as varied as Kellogg's (K) Frosted Flakes (one-third less sugar!) and Tropicana orange juice (now with added fiber!) have been modified to appeal to shoppers with an eye for nutrition even if they don't want to give up their indulgences entirely.

Although reworking older products can be expensive, Bain & Co. consumer products expert Ivan Hindshaw says product innovation is necessary to promote brand growth. "It's hard to continuously find ways to innovate," he says. "Whether [companies] innovate through packaging, or innovate through formula or flavor, or innovate through pack size, they need to do something to gain share."

Despite all the hype, diet products don't always sell as well as the original. (Diet Coke only holds 9.8% of the $70.1 billion U.S. carbonated soft drink market as compared to 17.3% for Coke Classic.) But they are more important than ever. At PepsiCo (PEP), Diet Pepsi was named the company's "flagship" soft drink in 2005, reversing the traditional soft drink pecking order. Coca-Cola has relied more and more on Diet Coke and the calorie-free Coke Zero to buoy sales as the full-calorie Coca-Cola Classic falls out of favor.

Boosting Consumer Interest

Other diet products are also increasingly sought after. Kraft Foods (KFT) Senior Vice-President Lance Friedman says products that bear its "Sensible Solution" seal—meaning they conform to higher nutritional guidelines—are selling two to three times faster than the company's other foods.

In addition, even if sales of "light" products don't overtake the originals, their introduction can boost the value of the brand in the eyes of consumers. "There is a broader environmental issue out there," Kellogg Chief Marketing Officer Mark Baynes says. "We want to make sure our brands remain relevant."

The growth of the health-foods market has opened up new audiences to food companies. One case study is Kellogg's Smart Start cereal. First introduced in 1998, Baynes says the brand was "forgotten" by 2004. But once it was backed by a new marketing effort focused on women's health, Baynes says the brand's revenue doubled in the last three years.

Brand Reputation on the Line

A major challenge is improving nutrition without sacrificing taste. "The best way to make people eat well is to make sure it tastes good," Baynes says. But it's hard to successfully modify a well-loved product, as Kellogg did when it introduced low-sugar versions of Frosted Flakes and Froot Loops in 2004. "Sugar doesn't just add taste," Baynes says. "Sugar actually affects bowl life, in terms of how long a cereal lasts before it gets soggy in milk."

And there's plenty of money on the line when a company tinkers with a major brand, such as Frito-Lay—a subsidiary of PepsiCo—did last year with its $2 billion Lay's chips line. "When you decide to touch a brand like that, it's a significant decision," says Frito-Lay's director of nutrition, Robert Brown. After research continued to reveal the dangers of trans fats, Frito-Lay began phasing them out of its products in 2002. Last year, the company managed to remove 60 to 70 million pounds of saturated fat from the total U.S. diet per year by moving to a new type of sunflower seed oil for Lays and Ruffles chips.

Many advancements are tied to scientific developments such as artificial sweeteners. Kraft launched a sugar-free version of its Kool-Aid drink mix in 1983 after the approval of aspartame as an artificial sweetener. Advertising regulations—some created by law, others self-imposed—have also prompted product changes. Kellogg pledged in June to either reformulate popular brands like Pop-Tarts and Apple Jacks to comply with higher nutritional standards or stop marketing to children under 12 if the same taste can't be matched.

Paying for Packaging

Of course, Hindshaw says, tweaking an existing product doesn't always cut it. That's when companies have to acquire or introduce completely new brands to keep up with customer demand. One expensive example is Vitamin Water. With sales of carbonated beverages stagnating, Coca-Cola paid more than $4 billion for the maker of the flavored water drink, Energy Brands.

Another recent Kraft product is Nabisco's 100 Calorie Packs, which debuted in 2004. Essentially no more than smaller portions of classic Nabisco products such as Oreos, the product line pulled in more than $100 million in its first 12 months.

Since then, other companies have taken a stab at portion control, including Frito-Lay. In February the company introduced its own new brand—Flat Earth, a line of fruit and vegetable crisps. Consumers seem to be buying it: Flat Earth has racked up more than $12 million in sales according to data provided by Information Resources.

Will the new focus on health foods curb American obesity? So far it hasn't. According to a study by the Centers for Disease Control, between 1985 and 2006, childhood obesity has more than doubled in the U.S., and two-thirds of U.S. adults qualify as overweight or obese.

For more, visit BusinessWeek's slide show.


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