The Cola Wars Go Low-Carb

Coca-Cola, Pepsi to Promote Mid-Calorie Sodas

Major soda companies have been spinning out new flavors for years without a lot of success at jump-starting sales, which have been growing annually at a paltry half-percent since 1998. So the soft drink giants are trying again -- with colas aimed at the newly health-conscious, weight-watching, carb-counting consumer.

Coca-Cola and Pepsi hope for big results from the release of C2 and Pepsi Edge, both of which fall halfway between the zero calories and sugar of a diet soda and the calorie-packing sweetness of regular cola. The new beverages are being touted as the first wave in a new category of mid-calorie soft drinks.

"It's the first new product in a long time that has a functional benefit versus just a new flavor benefit," said Dave DeCecco, a Pepsi spokesman. "There definitely is interest in the marketplace for that."

Industry experts are unsure whether the concept will be flat or fizzy in the minds of consumers. They say the soda market has been hurt by competition from other types of beverages, even water, so it is hard to know how hot -- or lasting -- the new mid-calorie market will be.

Part of the problem assessing the impact of the new drinks is identifying who will buy them and how many of the guzzlers will just be defectors from other Coke or Pepsi brands.

"It could potentially cannibalize existing products," said Todd Stender, a beverage analyst with investment banking firm Crowell, Weedon & Co., which does not have an investment banking relationship with either Coke or Pepsi.

Some analysts say the mid-calorie rollouts are best seen as a good excuse, like Diet Coke with Lemon or Pepsi Vanilla before them, to get in the public's face with lots of advertising touting the core brand. As sodas lose ground to water, iced tea, juice and other drinks, the only way to fight back is to keep rattling the cage and encouraging shoppers to walk down the soda aisle again.

"It's a reason for retailers to stock more product, to be on display, and it shows that at least you're awake," said Bryan Spillane, a beverage analyst with Banc of America Securities, who does not own stock in either company. Banc of America does have investment banking relationships with both Coke and Pepsi.

"It's a very low-cost way to create some news," he said. "If it works, then great. If it doesn't, it doesn't cost them a whole lot."

Pepsi Edge will be released in two stages, in mid-June and a month later, but its advertising won't begin until the product unveiling is complete.