MID-CALORIES OFF TO MIDDLING START THIS SUMMER

NEW YORK -- Retailers are expressing a variety of initial reactions to the rollouts of mid-calorie soft drinks like Coca-Cola's C2 and Pepsi Edge.While most operators interviewed by SN agreed the products weren't generating the short-term buzz of recent flavor line extensions, some noted the products represented a new category that may help expand the overall appeal of carbonated soft drinks -- a

NEW YORK -- Retailers are expressing a variety of initial reactions to the rollouts of mid-calorie soft drinks like Coca-Cola's C2 and Pepsi Edge.

While most operators interviewed by SN agreed the products weren't generating the short-term buzz of recent flavor line extensions, some noted the products represented a new category that may help expand the overall appeal of carbonated soft drinks -- a better prognosis for long-term sales.

"Reaction from people around the office and from other people I've asked is that they like the products," said Andy Steele, national category manager for Shell Oil, Houston. "But the jury is still out. It will probably be September before we can get a good read on it."

The convenience channel, as the nation's largest purveyor of single-serve beverages, is an early barometer for retail trial, and some operators said that reception of the new mid-calories has been lukewarm.

"I'm not seeing too much excitement from my store managers," said Wayne Wills, merchandising director at Certified Oil, a Columbus, Ohio, chain that operates 110 convenience stores and gas stations. "To me, it seems that the thought process for most customers would be that they're either going to get a diet drink or they're not."

A supermarket retailer revealed he was waiting for feedback from store management before even stocking the new drinks. "We haven't merchandised [them] yet," said Butch Hutchinson, beverage buyer for McKay's Markets, Coos Bay, Ore. "There's just so many drinks out there that it's hard to fit anything new in without taking something out. So we wait for our managers to speak up."

When the launches of Pepsi Edge and C2 were announced this spring, many analysts and retailers expressed concern that the new drinks would simply cannibalize sales of regular or diet soft drinks, drawing existing customers from both sides of the spectrum.

Steele, however, stated the new drinks may also have the potential to return some consumers to the CSD fold.

"I don't think there's going to be a big shift in sales [from diet and regular soft drinks]. It may shuffle the deck a little, but I think the play that they're trying to make is to attract those consumers who had left the soft-drink category entirely."

Coke has said it plans to draw 50% of C2's sales from soft drinks outside its portfolio, including 15% from such non-carbonated drinks as waters and teas.

So unlike recent successes like Vanilla Coke and Mountain Dew Code Red, which generated category excitement and incremental sales from existing fans of their parent brands, mid-calorie drinks are entering relatively uncharted territory that may require some time to navigate.

PepsiCo recently estimated that 60 million U.S. consumers are "dual users" who are unsatisfied with the flavor of diet soft drinks, but still occasionally switch to them out of concern for their weight. In the wake of the low-carb diet craze, that number, the company said, has grown 75% over the past two years.

"Diet brands have been growing during the last couple of years, while regular soft drinks have been flat to down," said Gary Hemphill, senior vice president for New York-based Beverage Marketing Corp. "[Mid-calories] are certainly an effort to build on that growth in diet."

Hemphill added that, while flavored line extensions have stirred up temporary excitement for the carbonated soft-drink category in recent years, they've had little lasting impact on overall consumption.

Beverage buyers in the supermarket channel have expressed other concerns. While observing the new drinks had generated some customer interest at his chain's stores, Mike Woodbury, beverage buyer for L & L Food Centers, Lansing, Mich., said C2's packaging and pricing schemes might pose an additional challenge for the brand when Pepsi Edge launches its multi-packs later this year.

"The eight-pack and 18-pack sizes are very unusual, particularly since their competition is coming out with packages that line up with the rest of their portfolio," Woodbury said. "Also, I'm getting the feeling that customers are noticing the price discrepancy, and questioning whether it's worth the low-carb, low-cal benefits."

Coca-Cola Enterprises, the company's largest bottler, has priced C2 at a 15% premium over Coca-Cola Classic and Diet Coke.

Still, Pepsi and Coke are putting considerable resources behind both brands with extensive sampling programs nationwide, and advertising campaigns that analysts have estimated will total $80 million between the two companies. Retailers of all stripes agreed consumers won't have trouble hearing about the products or finding them at stores.

"Obviously, we're all paying a great deal of attention to consumer response to C2," said Chuck Fruit, Coke's new chief marketing officer. "Recognizing we're only in the third week of launch, the response has been very encouraging; both initial trial and repeat rates are at, or above, expectations."

"From my point of view, if they're going to invest all of the dollars they've invested and really try to expand these brands, it's a multi-year proposition," added Steele. "It's not something they're just going to dabble in. The innovation makes sense. It's just a matter of whether customers will respond."