Has Coke Lost Its Fizz?

When you call the world headquarters of Coca-Cola Co. in Atlanta and get put on hold, one of the jingles that play in your ear is the familiar "It's the real thing," circa 1969. Coke loves paying homage to its history. But using this ancient tag line underscores a problem: Coke hasn't had a catchy verse to crow about in years, and although it spent nearly $2 billion last year advertising its various brands around the globe, Coke saw its share of the critical U.S. cola market decline. Meanwhile, PepsiCo is riding a sizzling Britney Spearsled ad campaign to a bigger share, and has launched an audacious assault on Coke's long-held sponsorships. The cola fight is heating up, and Pepsi is landing most of the punches.

Start with Pepsi's share of the U.S. carbonated soft-drink market, including brands like Mountain Dew and Slice: up two-tenths of a percentage point to 31.6% last year, Beverage Digest reports. Coke brands, including Diet Coke and Sprite, still lead easily with a 43.7% share — but that's down four-tenths of a point. Both companies' flagship colas, which together account for 1 of every 3 sodas sold in the U.S., lost share last year. But Coke's lost more, and Pepsi scored big with new flavors Code Red and Lemon Twist. PepsiCo recently embarrassed its bigger rival by snatching away the National Football League sponsorship, which had been Coke's for 22 years. Coke, meanwhile, dismisses the NFL setback as less important than the individual sponsorships it retains with two-thirds of the league's teams. "We're still an NFL sponsor," asserts Jeff Dunn, head of Coke in the Americas. Dunn, a candidate to succeed CEO Douglas Daft in a few years, insists that the "passion point" for consumers is local teams. He says the cost of the league sponsorship had escalated beyond its value.

"That's what I'd say if I were them," counters Dawn Hudson, Pepsi's senior vice president of strategy and marketing. Beneath Coke's outward calm, executives are seething over the NFL loss. The last thing the company wanted was a high-profile setback while Pepsi was gaining share. Even Dunn concedes that he fought until the end to keep the sponsorship. What carried the day for Pepsi, some say, wasn't just money but an aggressive promotional plan, the kind that takes months to design. Caught off guard by Pepsi's gambit, Coke simply didn1t have time to develop a competitive package. Now, some on Coke's board are said to be upset that Pepsi outmaneuvered Coke's management. This sets up a marketing brawl later this year as Coke tries to tie itself to the NFL from the bottom up, team by team, and Pepsi tries to do the same thing from the top down, leveraging its deal with the league. Coke has hardly been sitting on its thumbs. Last year it brought out Diet Coke with lemon, which has done reasonably well, and the company is now gearing up to launch Vanilla Coke. It has also entered the fast-growing market for bottled water with Dasani. Coke has new TV ads set to air during the Masters golf tournament this week. These will include "cause-related" ads aimed at helping underprivileged youths, though there's still no sign of a catchy slogan. Still, sources tell TIME that Coke just grabbed Regal Cinemas' 300 movie theaters from Pepsi, a win seen in Atlanta as payback for Pepsi's having taken away the much smaller United Airlines concession two weeks ago.

Despite its troubles, Coke has seen its stock jump 19% since Jan. 31, after languishing near a six-year low for most of 2001. Behind the move is an improving overall outlook at Coke, including healthier bottlers that presumably will be more aggressive with holiday and supermarket promotions — key tasks that fall to them. In late March, analysts at Credit Suisse First Boston and Lehman Bros. upgraded their opinions of Coke stock to buy and strong buy, respectively. Coke estimates that unit sales in the first quarter rose as much as 5% worldwide as well as in the key North American market, which had grown just 1% a year earlier.

Yet if Wall Street is the judge of who's winning, there's no contest. Pepsi shares are trading near an all-time high and have almost doubled during Coke's long malaise, and Pepsi rates a strong buy from twice as many analysts. The news is no better for Coke among advertising experts. "There's nothing great going on over there," says marketing consultant Al Ries in Atlanta. He gives Pepsi far better marks for "effectively using visuals like Britney Spears to reinforce Pepsi's image that it is for the young generation." And for companies that sell very similar sugar water, image is everything.