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The Coca-Cola Company (KO), which primarily competes with PepsiCo (PEP) and Dr Pepper Snapple Group (DPS), is the largest manufacturer and distributor of soft drinks worldwide. Coca-Cola’s soft drink sales have declined over the years because of the overall decline in the carbonated soft drink (CSD) market resulting from health issues associated with soft drinks as well as niche brands eating into Coke’s sales.

However, Coca-Cola continues to market its CSD brands like Coke, Sprite and Fanta heavily and is innovating around the brands. The company’s recent introduction of a soda fountain machine with the addition of a variety of flavors allows consumers make their own unique drink. Below we discuss why Coke’s sales volumes have declined, and how marketing innovation can help the company combat this decline.

Coke’s Sales Have Declined in Recent Years

The CSD market in the US, as well as Coke’s share in this market, have declined in recent years leading to a continuous fall in Coke’s sales volume. The US carbonated soft drinks market declined from about 10 billion cases in 2005 to about 9.4 billion cases in 2009. During the same period, Coke’s market share declined from about 18% to 17%.

You can modify the forecast below to see how Coca-Cola’s stock is impacted by changes in Coke’s US market share.

Below are the factors responsible for Coke’s declining sales.

1) Deteriorating CSD image leading consumers to healthier alternatives

Consumption of carbonated soft drinks is said to increase obesity levels in consumers. Sustained efforts by health officials and NGOs highlighting the negative impact of Coke and other soft drinks have led consumers to opt for healthier alternatives such as energy drinks, fruit juices and other ready-to-drink beverages.

2) Niche brands are cannibalizing Coke’s sales

Customer needs have been segregated and broken down to such an extent that targeting a specific customer benefit becomes crucial for success. Niche brands that cater to specific consumer needs are gaining popularity and also cannibalizing Coke’s sales to an extent. With the presence of so many alternatives, catering to specific customer needs has now become important for beverage manufacturers.

Innovation in Carbonated Soft Drinks Necessary to Revive Growth

Coca-Cola’s introduction of a new type of soda fountain machine is an example of the company’s marketing innovation to drive sales. Consumers can use the new soda fountain to mix up to 104 different flavors to creating their own new drinks such as Caffeine-Free Diet Raspberry Coke.

Innovation in the form of adding different flavors and addressing health-related issues is important for the carbonated soft drink industry to regain customer attention. Innovation in the sweetener industry is likely to help in producing healthier alternatives of Coke. Healthier sodas combined with a range of flavors and nutrients will help the company create niche products with strong value propositions targeted at specific customer segments.

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Source: Coca-Cola Innovates With Personalized Drinks to Recoup Declining Sales