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Coke's C2 carves out the carbs

Exec calls mid-calorie cola "the biggest thing since Diet Coke," but some analysts aren't so sure.

NEW YORK (CNN/Money) - Coca-Cola's ad for the new C2 cola may be set to the Rolling Stones' classic "You Can't Always Get What You Want." But Coke's North American president doesn't seem to be buying that message when it comes to expectations for the low-carb, mid-calorie cola.

"C2 will be the biggest thing to arrive since Diet Coke's debut over 20 years ago," Don Knauss said in an interview with CNN/Money.

Coca-Cola (KO: Research, Estimates) will unleash C2 in stores nationwide June 7, and Knauss says he's already certain of its success.

But whether C2 will actually give Coke a leg up in the infamous cola wars remains to be seen -- especially since archrival PepsiCo Inc. (PEP: Research, Estimates) is also gearing up to release its own low-carb soda called "PepsiEdge" in mid-June.

With C2, Coke appears to be capitalizing on the popularity of diets such as Atkins and South Beach, since the new cola is billed as having half the carbs, half the calories and half the sugar of regular Coke.

"We think C2 really has the power to become a global trend," said Knauss. "This is a new product for people who want an active and healthy lifestyle but who don't want to compromise on taste."

But some industry watchers are cautious.

Morningstar analyst Debbie Wang said she has doubts about the likelihood of success for the mid-calorie colas. She said that both Coke and Pepsi could end up cannibalizing other brands in their portfolio, especially if consumers start to defect from either the full-calorie or the diet category brands.

That could also hurt overall sales volumes, Wang said.

Coca-Cola last year saw its overall share of the $63 billion U.S. soft-drink market decline by 0.3 percentage point to 44 percent, according to Beverage Digest, while Pepsi's market share inched up 0.4 percentage point to 31.8 percent.

Vanilla Coke slips

Among the brands that lost ground last year were Vanilla Coke, which the company introduced in 2002, and Diet Coke with Lemon, introduced in 2001. The volume for Vanilla Coke decreased 21 percent in 2003 and fell 56 percent for Diet Coke with Lemon.

Said Wang, "Both these brands were introduced with a big splash and then began to struggle."

Knauss, however, dismissed those concerns.

"C2 will pose little risk to the other categories," he said. "Diet Coke consumers are very loyal to it. Diet Coke has a base of about 100 million consumers. And those who haven't migrated into the diet category already love the taste of regular Coke."

So who is the market for C2?

"We've found that as people age, their taste shifts," Knauss said. "That's our sweet spot. These are consumers who don't go for the diet colas because of the taste and they want to avoid the sugar in the regular cola."

John Sicher, editor of Beverage Digest, thinks mid-calorie sodas are "potentially a very good idea" that could help revitalize carbonated drink sales, which grew just 0.6 percent last year compared to a strong 25 percent growth for the bottled water category.

"Innovation is absolutely essential to this industry," said Sicher.

Wang isn't convinced.

"I'm a little suspicious about this 'new market' that Don is talking about," she said. "Is there really this big category of consumers out there who are so dissatisfied with any of the cola options that they're not drinking any sodas and that they'll actually crawl out of the woodwork when C2 hits the stores? I'm not sure about that."

Posted by thinkum at June 11, 2004 01:10 PM